International Aid and China's Environment: Taming the Yellow Dragon by Katherine Morton

Author:Katherine Morton [Morton, Katherine]
Language: eng
Format: epub
Tags: International Relations, Ethnic Studies, Public Policy, Social Science, Political Science, Environmental Policy, Regional Studies, General
ISBN: 9781134183159
Google: 40nbVa5_S_IC
Publisher: Routledge
Published: 2006-05-17T10:14:17+00:00

Map 5.1 World Bank Liaoning environment project 1995.

Source: Adapted from World Bank Staff Appraisal Report No. 12708-CHA, China Liaoning Environment Project, Washington, DC: Urban Development Sector Unit, East Asia and Pacific Regional Office, July 1994.

On a more negative note, the incremental approach to tariff reform was having serious implications for the six new utility companies created for wastewater and solid waste treatment. Clearly, without the necessary increase in user charges, these companies located in Anshan, Fushun and Dalian (each with a staff of around 200–500 people) were not commercially viable. Moreover, despite repeated attempts by the Bank to promote financial autonomy, the companies remained under the tutelage of the local government. A public water supply company was collecting fees and the portion for wastewater treatment was then handed over to the Municipal Finance Bureau. The latter repaid almost all of the funds to the drainage companies, together with a subsidy to cover the shortfall in operating costs. Local officials at the sub-project offices in Dalian and Jinzhou expressed serious concerns over the long-term viability of the companies, which they perceived to be inherently weak, or, to use a Chinese expression, mianbao (bread with nothing in between).92 But officials in Shenyang were more optimistic. In the words of the deputy-director of the operations division at LUCRPO:

Although we have experienced some problems in setting up the utilities and they are still relatively weak, it is important to recognize that progress has been made in corporate thinking. The utility companies now understand very well the importance of sound financial and institutional management. Moreover, they are now in a much stronger position to inform local government of their needs. Instead of the World Bank persuading government about what to do, the drainage companies can do it for themselves.93

In the immediate term, the Liaoning Environment Fund, established under the joint supervision of the Liaoning EPB and the Liaoning Finance Bureau, was seen to be the more successful of the Bank’s institutional initiatives. The US$10 million fund provided loans to industries to implement cleaner production measures. The Bank provided an initial endowment of US$4 million with local cost-sharing funds drawn from pollution fees collected from industry. The fund was ‘revolving’ in that it required loans to be repaid in three years with a two-year grace period. With interest rates approximately 0.5 per cent below the rates offered by Chinese Banks, the fund was proving to be relatively successful with some enterprises showing a 10–20 per cent return on investment.

According to project officials, a key determinant of success was the extent to which market considerations were taken into account when allocating loans for cleaner production purposes. The state-owned Jincheng General Paper Mill in Jinzhou provides a good example of how the loan should work in practice but it remains an exceptional case. The paper mill discharges red liquor that is highly toxic. It cannot afford a wastewater treatment plant. But with the Bank’s assistance, the red liquor is now being recycled to produce binders that can be sold to a number of factories in Guangzhou, Jilin and Tianjin.

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