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WATER AND DEVELOPMENT IN CHINA The Political Economy of Shanghai Water Policy

Series on Contemporary China (ISSN: 1793-0847) Series Editors Joseph Fewsmith (Boston University) Yongnian Zheng (East Asian Institute, National University of Singapore) Advisory Board Members Tun-jen Cheng (College of William and Mary) Jane Duckett (University of Glasgow) James Tang (University of Hong Kong) Gungwu Wang (East Asian Institute, National University of Singapore) Lynn White (Princeton University) Dali Yang (University of Chicago) Ji You (University of New South Wales)

Published Vol.1 Legitimacy Ambiguities of Political Success or Failure in East and Southeast Asia edited by Lynn White Vol.2 China Under Hu Jintao Opportunities, Dangers, and Dilemmas edited by Tun-jen Cheng, Jacques deLisle & Deborah Brown Vol.3 China's Compliance in Global Affairs Trade, Arms Control, Environmental Protection, Human Rights by Gerald Chan Vol.4 Political Civilization and Modernization in China: The Political Context of China's Transformation edited by Yang Zhong and Shiping Hua Vol.5 China into the Hu-Wen Era: Policy Initiatives and Challenges edited by John Wong and Lai Hongyi Vol.6 Water and Development in China: The Political Economy of Shanghai Water Policy by Seungho Lee

Series on Contemporary China -Vol. 6

WATER AND DEVELOPMENT IN CHINA The Political Economy of Shanghai Water Policy

Seungho Lee University of Nottingham, UK

\jjp World Scientific NEW JERSEY • LONDON

• SINGAPORE • BEIJING • SHANGHAI • HONG KONG • TAIPEI • CHENNAI

Published by World Scientific Publishing Co. Pte. Ltd. 5 Toh Tuck Link, Singapore 596224 USA office: 27 Warren Street, Suite 401-402, Hackensack, NJ 07601 UK office: 57 Shelton Street, Covent Garden, London WC2H 9HE

Library of Congress Cataloging-in-Publication Data Lee, Seungho. Water & development in China : the political economy of Shanghai water policy / Seungho Lee. p. cm. — (Series on contemporary China ; vol. 6) Includes bibliographical references. ISBN 981-256-819-0 1. Water resources development—Government policy—China. 2. Water resources development—Government policy-China-Shanghai. I. Title. II. Title: Water and development in China. III. Title: Political economy of Shanghai water policy. IV. Series. HD1698.C5L44 2006 363.6'10951132-dc22 2006046469

British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library.

Copyright © 2006 by World Scientific Publishing Co. Pte. Ltd. All rights reserved. This book, or parts thereof, may not be reproduced in any form or by any means, electronic or mechanical, including photocopying, recording or any information storage and retrieval system now known or to be invented, without written permission from the Publisher.

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Contents

Preface

xiu

Acknowledgements

xvii

List of Figures

xxi

List of Tables

xxiii

Notes on Abbreviations

xxvii

Notes on Units

xxix

Notes on Currency

xxxi

Notes on Translation

xxxiii

v

vi

Contents

Chapter 1

Introduction

1

Chapter 2

Political Economy and Water in Shanghai

9

Introduction Political Economy and Water in Shanghai Development of Political Economy in Shanghai Shanghai from 1949 to 1978 Reform Period since 1978 Pudong New Development in 1990 Socio-Economic Conditions Population and Administrative Structure Economic Structure The Environment Location and Topography Climate and Rainfall Water Resources Surface Water Ground Water Water Supply and Water Quality Water Supply and Water Use Water Quality and Pollution Overview of Current Water Pollution in Shanghai Polluting Factors Sewage Control — Sewage Treatment Plants Sewage Control— Sewage Drainage Systems Conclusion

9 12 12 13 14 15 17 17 18 20 20 22 23 25 27 29 29 29 29 32 35 38 40

Chapter 3

43

Theoretical Framework

Introduction Grid/Group Theory Definition Conceptualization Application The Hierarchists The Egalitarians

43 46 46 47 50 51 54

Contents vii

The Entrepreneurs The Fatalists Political Ecology Definition Conceptualization Application Water Quality Control: Main Discourse Water Pollution Accidents: Story Lines Institutional Change: Discourse Coalition Complexity Theory: Co-Evolutionary Approach Definition Conceptualization Application Private Sector Participation in the Water Sector Impacts of International Development Agencies on Water Policy Conclusion Chapter 4

Institutional Reform in Shanghai Water Policy

Introduction Institutional Framework Organizational Structure National Level Shanghai Institutions: Laws, Regulations, Rules, Measures and Standards National Level Shanghai Environmental Regulatory Programmes Environmental Lmpact Assessment The Three Synchronization Pollution Discharge Fees Challenges for Institutional Change Enforcement and Compliance

55 56 56 57 58 60 60 60 61 64 65 65 67 67 69 69

73 73 77 78 79 81 83 84 87 91 92 92 94 96 97

viii Contents

Trade Off between Economic Development and Environmental Protection Conflicts of Interest: Administrative and Organizational Disharmony Public Consultation Limited Achievements in Institutional Change Changes in Organizations and Institutions EIA Enforcement in Shanghai Shanghai Water Authority (SWA) Public Support Conclusion

104 105 109 109 112 113 116 118

Chapter 5

123

Development of Civil Movements

Introduction Identification of Environmental Groups Evolution of Environmental Groups Typology of Environmental Groups Environmental Groups in Shanghai Government Organized NGOs (GONGOs) Green Industry and Technology Promotion Center (GITPC) NGOs China Green Student Forum Shanghai Green Union Grassroots Community Other Small NGOs Quasi-Governmental Organizations Local Communities (.Shequ) The Media International NGOs Public Awareness Shanghai Environmental Protection Promotion and Education Center Shanghai Environment Specialty School (Green School)

101

123 128 128 131 138 138 138 140 141 143 145 146 148 148 149 149 152 153 155

Contents ix

Public Environmental Awareness Surveys Viability of Environmental Movement in Shanghai GONGOs NGOs Quasi-Governmental Organizations Local Communities (.Shequ) The Media International NGOs Public Awareness and Participation Continuous Development of Environmental Movement Evolution of GONGOs Alliances among Environmental Groups Funding for Environmental Education and Awareness Programmes Government's Need to Promote Public Participation and Awareness Conclusion

156 161 162 164 165 165 166 168 170 171 171 173

Chapter 6

181

Private Sector Participation

Introduction Understanding of Private Sector Participation The Private Sector in the Chinese Context Institutional Settings Types of Private Sector Participation Overview of Private Sector Participation Projects Water Market Analysis at the National Level Major Water TNCs Chinese Companies Water Market at the Local Level — Shanghai Mott MacDonald Thames Water Suez Veolia Chinese Companies: Youlian Consortium and Sound Group

176 177 178

181 186 186 189 192 193 193 194 197 199 200 201 202 203 205

x Contents

Institutional Change and Challenges in Private Sector Participation Institutional Change Challenges Socio-political Challenges Legal and Regulatory Uncertainty Revenue Risk Interactions between the Government, Private Companies and NGOs Conclusion Chapter 7

Impacts of International Development Agencies

Introduction Introduction of International Development Agencies Historical Perspectives Entry of International Development Agencies World Bank Shanghai Sewerage Project (SSP) Phase I (SSP-I) (1988-1993) PhaseII(SSP-II) (1995-1999) Shanghai Environment Project Shanghai Environment Project (1995-2002) Asian Development Bank and Other Development Agencies in Shanghai Asian Development Bank: Suzhou Creek Rehabilitation Project (SCRP) Other Development Agencies United Kingdom Norway Australia Other Countries Ramifications of Involvement from International Development Agencies Challenges

209 209 212 213 216 219 220 225

231 231 235 235 237 240 241 241 245 249 250 255 256 258 258 260 261 262 265 265

Contents xi

Reluctance to Institutional Reforms Technical Limitations The Chinese Customary Practice Achievements Institutional Dimensions Technical Improvement Participatory Approach Conclusion

265 267 268 269 269 270 272 273

Chapter 8

277

Index

Conclusion

285

Preface

This book focuses on China water policy issues with particular reference to Shanghai in the reform era. Whereas North China has suffered from water scarcity due to its low level of rainfall and high population growth, South China has been relatively water-rich and enjoyed its abundant water resources thanks to sufficient rainfall and surface water resources such as the Yangtze River. However, I realized that many of the mega-cities like Shanghai have faced the challenge of 'pollution-driven' water scarcity. Little research has been done on Shanghai's water policy although numerous research works have dealt with Shanghai's achievement of unprecedented economic growth since 1990. Water has played a pivotal role in Shanghai's development, but has been ignored. These factors motivated me to initiate research on Shanghai water issues in 2000. The formulation of theoretical framework was an outcome of a number of discussions with Professor Tony Allan and the then School of Oriental and African Studies (SOAS) Water Research Group (now King's College London Water Research Group) members, reflected on various case studies from the countries in the Middle East, Africa, and Asia. My first attempt to apply a set of social theories such as Mary Douglas' Grid/Group Theory and Hajer's discourse analysis xiii

xiv Preface

into the Chinese context "was encouraged by the water research group. The untested assumption without fieldwork in China did not make me confident. The fieldwork in Shanghai and Beijing in 2002 proved that the theory can work in the Chinese context. The co-evolutionary approach from the complexity theory was also introduced by the water group. This approach made my chapter on private sector participation useful in explaining how numerous social actors have co-evolved to achieve their common goal — Shanghai's water privatization. There have been various occasions where I received comments and opinions on my Shanghai's water policy research. I -was given an opportunity to present my early version of theoretical chapter at the Professional Association for Chinese Environment Conference in Nanjing, China in May 2002. I received invaluable comments and feedback on my early version of the impacts of international development agencies during the conference in Moscow in August 2002, which I attended, organized by the European Association of Chinese Studies (EACS). Some of the most exciting findings from my fieldwork in China in 2002 were the identification of emergence of non-governmental associations including environmental NGOs in Shanghai and the fast advance of foreign and local companies to the Shanghai water sector. These extraordinary findings have gained wide public interest. More academic attention has been paid to my thorough observation and analysis on the emergence of local environmental NGOs in Shanghai. I was invited to present a paper on Shanghai's environmental NGOs at the NGO conference jointly organized by Wageningen University and Qinghua University in April 2004, which will be published in a special issue of the China Information journal soon. My analysis on water privatization in Shanghai has drawn the attention of UK and French -water firms such as Thames Water and Veolia Environment China, which were willing to gain an in-depth evaluation of the business environment in the Chinese water market in 2003. A short but exclusive market information and analysis on water privatization in Shanghai was published in Global Water Intelligence in October 2003, titled, 'Shanghai growth overshadows

Preface xv

risks.' The chapter on Shanghai water privatization has also been received well in academia, and the Water Policy journal will publish a short and updated version of the chapter soon. I have been a lecturer at the Institute of Contemporary Chinese Studies, University of Nottingham since November 2004. The colleagues in the institute are primarily focusing on China with various disciplines, which has provided me with a good environment to complete this book. I have begun to teach a new course called 'Environment and Development in China' for undergraduate students since autumn 2005, which includes much about China and Shanghai water policy issues. I feel encouraged by students' active response to water issues in China. In this book, I have primarily focused on water challenges in Shanghai. However, I will launch a new research on water issues in China soon. This will be able to accommodate not only problems in mega-cities like Shanghai, but also the challenges China faces in the water sector and on how to achieve its sustainability together with its rapidly growing economy.

Acknowledgements

I would like to thank Professor Tony Allan at the Geography Department of SOAS/KCL, London and Dr Richard Edmonds in Chicago, USA, who have over the years greatly influenced my thinking and ideas. Tony has guided me to access a number of innovative and useful theoretical ideas. Rick's in-depth understanding of environmental as well as socio-political issues in China has provided me with critical viewpoints on how theories can be applied in the rapidly transforming society in China. Special thanks are due to all those who have contributed to my thinking for this research. In particular, the SOAS/KCL Water Research Group that I have belonged to since 2000 has led me to understand a number of water issues and to further develop my thinking through discussions and presentations. I would like to extend my thanks to Jeremy Berkoff, who has been very approachable whenever I need his year-long expertise as economist on China water issues, and Dr Stephen Merrett, who has been always kind to give me advice on research. I would like to thank Dr David L. Owen for being extremely helpful for my research on private sector participation in the Shanghai water sector.

XVII

xviii Acknowledgements

I would like to express my gratitude towards Professor Cindy Fan at the University of California in Los Angeles, who has introduced a number of eminent Chinese academics in Geography, Environmental Science, and Sociology. Many thanks are due to those who helped me to conduct my fieldwork successfully in 2001 and 2002. For financial support, I am indebted to the School of Oriental and African Studies for an Additional Fieldwork Award and the Senate House of the University of London for a Central Research Fund. In addition, I would like to mention the generous financial support from the Universities China Committee in London. Professor Ning Yuemin in East China Normal University in Shanghai has introduced to me a number of academics and governmental officials. He has also helped me to understand general issues on water policymaking in Shanghai together with the provision of innovative ideas and productive criticism. Professor Xu Shiyuan and Professor Liu Min in East China Normal University have guided me to comprehend technical aspects of Shanghai water policy. I appreciate the invaluable comments and advice of Mr Wu Jingsong in the Shanghai Environmental Protection Bureau. A discussion with Dr Wang Hua at the World Bank in Nanjing, China was a great privilege to me, and his comments on the early stage of this book were invaluable. Officials at the Overseas Department of the Shanghai Academy of Social Sciences provided me with great support to conduct my research in Shanghai, and I would like to extend my particular thanks to Ms Li Li at the Academy, who has taken care of many tedious jobs for me from arranging accommodation to introducing academics. One of the most exciting achievements in fieldwork in Shanghai, the identification of local environmental NGOs, was possible because of the continuous and extensive support from German consultants, Katja Hellkoetter at the Delegation of German Industry and Commerce Shanghai, Beatrix Etzkorn from the Centre for International Migration and Development, a German Development Agency, and Dr Eva Sternfeld and Tanya Plotz at the Center for Environmental Education and Communications in Beijing. I would like to thank the many people who agreed to be interviewed in China although time was often extremely precious for them.

Acknowledgements xix

Particularly, I would like to express my great thanks to anonymous environmental NGO activists in Shanghai, mainly university students, who enthusiastically responded to my enquiries and presented their great interest in my research. I am also indebted to Wen Bo in Beijing, China Coordinator of the Pacific Environment, who provided me with a thorough understanding and in-depth analysis of civil movements in environmental protection in China, and to Sha Shangzhi and Dr Peter R Bitschene at the Green Industry and Technology Promotion Centre (GITPC) in Shanghai. The discussion with Mr Olivier Garet, SNF Shanghai Office, was extremely useful in understanding environmental science-related issues as well as how foreign private companies have impacts on the Shanghai water sector. Professor Gu Youzhi at the Shanghai Academy of Environmental Sciences generously spent a hot summer afternoon with me to discuss large-scale water engineering projects along the Huangpu River and the Suzhou Creek. It was my privilege to become acquainted with officials in the British Embassy in Beijing, Peng Yan, then working at the Department for International Development (DFID) Beijing, and Jane Wang, Commercial Representative at the embassy, who helped grasp the roles of international development agencies in China and the activities of British water companies in China. Professor Li Jianxin, Institute of Geographic Sciences and Natural Resources Research at the Chinese Academy of Science made critical comments on my theoretical framework and helped make it more applicable to the Chinese case. With regard to data collection, I would like to thank John Smithson at Mott MacDonald, who kindly discussed with me the China water issues based on his rich experience in numerous water projects in China and let me have access to valuable project documents in Cambridge on the Shanghai Environment Project and the Shanghai Sewerage Project. Mr Bruce Murray at the Resident Representative China of the Asian Development Bank kindly sent me with a number of important project documents, such as on the Suzhou Creek Rehabilitation Project and the Chengdu BOT water supply project. Mr Graham Hutt in the Oriental and Indian Office of

xx

Acknowledgements

the British Library let me have access to articles in Chinese in the UK, and I am grateful to the librarians of the Oxford Bodleian Library for their kind support. Finally, I would like to thank all my extended family members, particularly to Hyegyoon, my wife, Sooyoun, my babygirl, and my parents, Duk-Joon Lee and Kyung-Ja Rhee, who have always inspired and encouraged me to take this exciting intellectual journey.

List of Figures

Figure 2.1

Pudong New Development Zone in June 2002

Figure 2.2

One of the Biggest Commercial Areas: Nanjing

16

East Road in Shanghai in June 2002

19

Figure 2.3

China and Shanghai

21

Figure 2.4

Yangtze River Basin

23

Figure 2.5

Shanghai Monthly Temperature and Precipitation in 2004 Shanghai Surface Water Resources

24

in Tai Lake Basin

28

Figure 2.7

Ship Building along the Huangpu River

35

Figure 2.8

Coal Shipping along the Huangpu River

36

Figure 3-1

Four Ways of Life

48

Figure 3-2

Transformation of Society in Shanghai

52

Figure 3-3

Interactions between Local and International Actors in Shanghai Water Policy

53

Figure 2.6

xxii

List of Figures

Figure 3-4

Discourse Analysis in Shanghai Water Policy

63

Figure 3-5

Co-Evolution in a Rugged Landscape: Private Sector Participation in the Shanghai Water Sector

68

Organizational Structure for Environmental Protection in China

80

Organizational Structure in the Shanghai Environmental Protection Bureau

83

Figure 4.1 Figure 4.2 Figure 5.1 Figure 5.2

Dinner Meeting of the China Green Student Forum in Shanghai in July 2002

142

Qingnian Chahui {Tea Meeting for Students) by the Grassroots Community in Shanghai in late June 2002

145

Figure 5.3 World Water Day — Environmental Awareness Campaign in Bund, 2001

154

Figure 6.1 Water Projects by Private Companies in Shanghai from the 1990s to 2003

208

Figure 7.1

Shanghai Sewerage Project (SSP) (Phase I and II)

242

Figure 7.2

Water Intake Move Project, Shanghai Environment Project, and Yangtze River Diversion to Huangpu River Project

252

Suzhou Creek Rehabilitation Project

259

Figure 7.3

List of Tables

2.1.

Average Annual Water Resources in Shanghai (billion m3)

25

2.2.

Shanghai Water Use in Selected Years (billion m3)

30

2.3-

Annual Sewage Discharge and Treatment Rate in Shanghai from 1990 to 2002

32

2.4.

Shanghai Sewage Treatment Plants in 2001

37

2.5.

Sewage Treatment and Drainage Capacity in Shanghai in 2001

39

Selected Laws, Regulations, Rules, and Measures in China Water Pollution Control Policy

86

Environmental Quality Standards for Surface Waters — 1 (GB 3838-88)

87

Environmental Quality Standards for Surface Waters — 2 (GB 3838-88) (concentration in mg/liter, except ph)

88

Selected Regulations, Rules, and Measures in Shanghai Water Pollution Control Policy

90

4.1. 4.2. 4.3-

4.4.

XXIII

xxiv

4.5. 4.6. 4.7.

5.1. 5.2.

5.3. 5.4.

6.1. 6.2. 6.3.

7.1.

7.2.

List of Tables

EIA and the Three Synchronization Implementation from 1993 to 2004 (Unit: Cases)

93

Pollution Discharge Fee Collection in Shanghai from 1991 to 2002 (RMB Million)

95

Ratio of Environmental Investment to GDP in Shanghai from 1991 to 2004 (RMB 100 Million)

103

Public Environmental Awareness Surveys in China from 1990 to 1998

157

Regarding Environmental Issues, the Extent to which Beijing and Shanghai Citizens Trust the Information Provided by Different Institutes/ Persons Shown Below (%)

159

The Extent to Which Beijing and Shanghai Citizens Feel About Environmental Pollution (%)

160

Listed Newspapers with Worse Record in 1997 Compared with in 1996

168

Laws and Regulations Related to Private Sector Participation in the Chinese Water Sector

189

Options for Private Sector Participation and Responsibility

193

Water Projects by Private Companies in Shanghai from the 1990s to 2003

207

Comparison of Water Quality Assessment Results in the Suzhou Creek between 1992 (pre-SSP-I) and 1994 (post-SSP-I)

243

Environmental Quality Standards for Surface Water (GB 3838-88) (concentration in mg/liter)

244

List of Tables xxv

7.3. 7.4.

Tap Water Tariff Comparison in the Selected Years in Shanghai US$/m3 (US$1 = RMB 8)

253

Effects of the Shanghai Sewerage Project Phase I and Phase II Compared "with the Southern Interceptor (mg/liter)

271

Notes on Abbreviations

ADB AWG CEEC CEN CCTV CIM CSES CSSD DFID EIA EPBs FOE FON GDP GITPC GONGO

Asian Development Bank Anglian Water Group Centre for Environmental Education and Communication (Beijing) China Environmental News China Central Television Centre for International Migration and Development (Germany) China Society of Environmental Science China Society for Sustainable Development Department For International Development (UK) Environmental Impact Assessment Environmental Protection Bureaux Friends of the Earth Friends of Nature (Chinese NGO) Gross Domestic Product Green Industry and Technology Promotion Centre (Shanghai) Government Organized Non-Governmental Organizations XXVII

xxviii

Notes on Abbreviations

GVB NGO NIVA NOK NPC ODA

PRC RMB SAES SCRP SEP SEPA SEPB SEZs SMSC SOEs SPURS SSC SSP SWA TDA TNCs TVEs WCS WWF

Global Village Beijing (Chinese NGO) Non-Governmental Organizations Norwegian Institute for Water Research Norway Kroner National People's Congress Overseas Development Administration (UK — now Department for International Development — DFID) People's Republic of China Ren Min Bi (Chinese currency) Shanghai Academy of Environmental Sciences Suzhou Creek Rehabilitation Project Shanghai Environment Project State Environmental Protection Administration Shanghai Environmental Protection Bureau Special Economic Zones Shanghai Municipal Sewerage Company State Owned Enterprises Support Programme for the Urban Rehabilitation of Shanghai Shanghai Sewerage Company Shanghai Sewerage Project Shanghai Water Authority US Trade and Development Agency Trans-National Corporations Township and Village Enterprises Wildlife Conservation Society World Wildlife Fund

Notes on Units

m3 m 3 /s m 3 /d m 3 /y

Cubic Cubic Cubic Cubic

meters meters per second meters per day meters per year

XXIX

Notes on Currency

In the book, most of the fiscal calculations are based on the US dollar using the conversion ratio of US$ 1 vs. RMB 8. This method is used to simplify figures.

XXXI

Notes on Translation

This book refers to a number of articles, newsletters, books, and manuscripts written in Chinese. The way of presenting reference materials in Chinese is a title in Chinese ipinyiri) first, and then the translated title in English. For instance, Shanghai Huanjing Zhuangkuang Gongbao 1990 (Shanghai Environmental Bulletin 1990).

XXXIII

•laaBaisiiiii!

Chapter

The book aims to explore the extent to which Shanghai has coped with freshwater demand with a focus on water quality control in the reform era since 1990. This study pays particular attention to major actors in Shanghai water policy who have contributed to the transformation of the political economy landscape in the water sector in the reform era. Water policy-making in Shanghai since the late 1990s has become complicated by the interaction of the Shanghai government with other newly emergent social actors, such as private companies, environmental NGOs, and the activities of Shanghai citizens. This complexity has been compounded by the presence of international development agencies. The emergence of these new social actors in water policy has played a key role in bringing about some of the unprecedented changes in water policy, such as private sector participation and the activities of environmental NGOs. The trajectory of policy shifts and changes in Shanghai water policy over the past decade reveals that the interactions between different actors have driven the Shanghai government to realize the need of mutual collaboration in ensuring the provision of high-quality water for Shanghai. China has experienced a rapid modernization since the establishment of People's Republic of China in 1949, and this new mode 1

2

Water and Development in China

of political economy has brought in new socio-economic, political and environmental challenges in Chinese society. Although environmental challenges have not been perceived as primary concerns in the central politics, the Chinese leaders have increasingly been alarmed by massive forces of natural disasters like floods and droughts, water shortage, deteriorating water quality, and out-of-dated water service facilities. The current major challenges in China's water are summarized in the three sectors: water supply; flood control; and water quality control. In terms of the total volume of water resources, China is water-rich, however, an availability of water resources per capita in China reaches only a quarter of the world average, about 2,600 m3. In addition, a myriad of causes prevent China from enjoying its substantive water resources, including over 1.3 billion population, the high seasonal variability of rainfall, and the uneven geographical distribution of water resources. Natural disasters such as floods have never left China untouched annually, and as of the early summer of 2005, more than 500 flood death tolls have been reported in the southern part of China. The rapid urbanization and industrialization in the reform era has triggered severe pollution in water bodies and has been adding another elusive task to the central government. This phenomenon has also generated a new pattern of water scarcity, namely 'pollution-driven water scarcity'. Shanghai is one of the many urban areas in China to suffer from this kind of water scarcity. This research pays more attention to water quality control rather than 'water supply issues in Shanghai. Contrary to the experience in Beijing and Tianjin, -which suffer water scarcity due to the semi-arid climate, overexploitation of the limited resources in North China, acute water pollution in Shanghai has overshadowed the natural advantage of the abundant surface water resources in the reform period since the 1980s. A number of large-scale water engineering projects have so far concentrated on water pollution amelioration rather than water supply. Numerous sewage treatment facilities have been constructed and new ones are planned or at the early stage of construction. These activities have facilitated the pace of private sector involvement in the water sector. In addition, poor living standards

Introduction 3

due to water pollution near rivers in Shanghai have led citizens to be very concerned about water quality issues and to participate in environmental protection activities in the last few years. There has been a new trend in the Shanghai water sector since 1990. Water policy-making in Shanghai has changed direction since the late 1990s. The political economy as a whole has been transforming. The water sector has been affected by the same forces that have impacted the political economy. A key feature under the new conditions is the interactions of the Shanghai government with other newly emergent social actors, such as private companies, environmental NGOs, international development agencies, and the activities of Shanghai citizens. The Shanghai government has transformed itself from a single service provider into a regulatory entity overseeing the institutional evolution of a diverse water sector. International development agencies have contributed to the complexity through development projects in Shanghai. Environmental NGOs have begun to influence environmental protection coupled with a growing increase in public awareness. A rapid expansion of the private sector in the Shanghai water sector has also taken place since the late 1990s, primarily led by water trans-national corporations. The research shows that the Shanghai water sector has transformed itself from the state-society duality to a multi-faceted institutional system in which diverse social actors interact in adapting to dynamic new environments. This study focuses on the reform period from the late 1970s to the present, particularly the past decade since 1990. The reason this research focuses on the recent decade is that since the launch of the Pudong New Development Policy in 1990, Shanghai has begun to implement its own social infrastructure projects to improve the environment, including its water resources, on the basis of economic achievement and political independence from the central government. Some of the distinctive policy and political economy changes in the water sector have occurred since the late 1990s, such as the growing expansion of private sector involvement, the activities of environmental NGOs, and the implementation of institutional change including the establishment of the Shanghai Water Authority.

4

Water and Development in China

The geographical scope of the research is Shanghai, the economic capital of China. In the course of the modernization of contemporary China, Shanghai has provided an important case of socio-political and economic development since the early part of the last century. The Mao period from 1949 to the late 1970s had negative impacts on the environment because of his stance against the nature. Shanghai was one of the worst affected regions through ecological degradation due to the concentration of heavy and manufacturing industries as economic center. The situation became even worse in the reform era due to the acceleration of economic development in China. Shanghai has been the epicentre of ecological degradation, particularly of freshwater resources. The Chinese leadership came to realize the need to reverse environmental degradation and began to implement a number of institutional and engineering methods to remedy environmental pollution issues. They believe that Shanghai, as a model city in China, should take a leading role in environmental protection. Shanghai has become a testing ground for implementation of innovative ideas and institutional reforms. A range of social theory will be used to analyze developments in Shanghai's water policy in the 1990s, such as the grid/group theory of Mary Douglas, the political ecology theory of Hajer, and the co-evolutionary approach of complex adaptive theory. Grid/group theory is useful in identifying different social actors to influence Shanghai water policy including newly emergent actors, such as environmental NGOs, private companies, and international development agencies together with the Shanghai government and citizens. The political ecology theory of Hajer provides an analytical framework to understand how water quality control has become a main discourse in the Shanghai government since the 1980s whereas most of the governmental bureaux were busy promoting economic development over the past two decades. The co-evolutionary approach of complex adaptive theory helps explain the way private sector participation in the Shanghai water sector has developed and transformed the political economy landscape of Shanghai. The approach is also useful in addressing the influence of international development agencies on the Shanghai water policy.

Introduction

5

Fieldwork, mainly in Shanghai, with a short period in Beijing, has provided an in-depth understanding and analysis of the past and current issues relevant to Shanghai water policy. The first fieldwork was conducted in Shanghai from March to April 2001 and the second major fieldwork was undertaken from February to July 2002 including a trip to Beijing. The fieldwork aimed to conceptualize current issues and problems in Shanghai water policy through interviews, site visits, and data search in various libraries and research institutes. Interviewees consisted of a variety of groups: professors, environmental NGO leaders, government officials, senior engineers, and business leaders. Interviewees were contacted through snowball sampling. All the interviewees were asked to introduce new relevant experts. German environmental consultants based in Shanghai and Beijing introduced a number of environmental NGO leaders, and Chinese professors helped contact government officials. Sixteen interviews "were conducted in Shanghai (three in 2001 and eight in 2002) and in Beijing (five in 2002). For instance, interviews with environmental NGO activists in Shanghai redressed the assumption that there would be almost no environmental NGOs in Shanghai. Interviews in Beijing provided me with opportunities to understand national environmental issues and a hierarchical but contentious relationship between the central government and the Shanghai government in policy-making and implementation. The interviews in Shanghai enabled me to comprehend how policies for water have an impact on society in Shanghai based on the perceptions of the citizens' own experience. The interviews illustrated the stark contrast in views between environmental NGOs and foreign environmental experts, and professors and governmental officials in their understanding of social change and the value of environmental resources. This book consists of eight chapters including introduction and conclusion. Chapter 2 explores the environment, politics, economy, and society in Shanghai for the provision of useful information in analyzing the challenges of water supply and water quality control in Shanghai. A range of information and data on the environment, politics, economy, and society in Shanghai will be reviewed.

6

Water and Development in China

The purpose of the chapter is to explain the linkage between water policy and socio-political and economic development over the past two decades. It will be shown that the dual development goals of economic gain and environmental protection in Shanghai have not been successfully addressed. Economic development has unambiguously been prioritized. Water bodies in Shanghai have seriously degenerated due to the anarchic discharge of industrial and domestic sewage caused by pro-growth policies and plans for decades. Chapter 3 provides a theoretical framework to examine the social and political relations based on social theory. The selected theory is first, the grid/group theory of Mary Douglas, second, the political ecology theory of Hajer, and third, the co-evolutionary approach of complexity theory. The grid/group theory is useful for the identification of social actors, such as the Shanghai government, environmental NGOs, private companies, Shanghai citizens, and international development agencies. An analysis of political ecology by Hajer examines the way the Shanghai government has reformed its institutions and organizations faced with water pollution through discourse analysis. The co-evolutionary approach of complexity theory helps explain the development of private sector and the nature of the participation in the Shanghai 'water sector by new social actors. Chapter 4 aims to evaluate the extent to which institutional reorganization in the Shanghai government has been effective in ameliorating water pollution from the 1990s to the present. The primary focus of the chapter is that the Shanghai government has been reforming its institutions and has reinforced regulatory regimes over the past two decades. Alongside grid/group theory, the political ecology theory of Hajer is deployed. Discourse analysis of Hajer provides a framework to understand the way water pollution has been emphasized and prioritized in Shanghai water politics. The Shanghai government has realized the need for intergovernmental cooperation and the balance of achieving both economic development and environmental protection for effective water quality control in Shanghai. Also the policy reform will be implemented insofar as the Shanghai government embraces the involvement of other social actors in civil society, environmental NGOs and Shanghai citizens.

Introduction 7

Chapter 5 analyzes the development of the civil realm of environmental politics in Shanghai. The study reveals how the civil realm in Shanghai has developed with a self-capacity to redress environmentally unfriendly policies over the last decade based on the grid/group theory. A number of environmental NGOs and other social groups have been identified through fieldwork in Shanghai in 2002. These environmental groups now commit themselves to various environmental issues although there is no particular NGO dedicated to freshwater issues in Shanghai. A collaboration of various environmental social groups in Shanghai has led to the formation of a civil force that influences Shanghai's environmental policy-making. Chapter 6 explores the extent to which private sector participation has had an impact on Shanghai's water policy. The emergence of private companies in the Shanghai water sector will be identified through grid/group theory. In addition, the co-evolutionary approach of complexity theory is used to identify and highlight the conflicts between a company's approach and the socio-political landscape in Shanghai in the expansion of the private sector since the late 1990s. This study pays attention to the way private companies in the Shanghai water sector have adapted to new changes resulting from political economic circumstances. The current picture provides evidence only of the interaction of government and private water companies, such as Veolia, Suez, Thames Water, and some Chinese companies. However, such a simple picture can change and turn into a more complicated one when environmental NGOs and Shanghai citizens participate actively in water projects in which private companies and the Shanghai government have already been involved. Chapter 7 discusses the impact of international development agencies on Shanghai water policy over the past two decades. An adaptation of the grid/group concept is used to highlight the relationship between the local and the international hierarchists, namely the Shanghai government and the international development agencies. The co-evolutionary approach of complexity theory is also useful explaining the extent to which Shanghai's water policy has

8

Water and Development in China

evolved by the interactions between the two hierarchists in the Shanghai's political economy and the way international development agencies have pressured the government to introduce institutional reforms. The experience of the Shanghai government's involvement with international development agencies has been marked by some significant achievements, for instance, in securing finance and the import of advanced technology and management expertise. However, socio-political tensions have been generated between the two actors because of the different visions and perspectives on water policymaking. The way the new political economy landscape has been developed results from the complex relations between the Shanghai government and the international development agencies. In Chapter 8, the book concludes that the state-society duality in Shanghai water policy has been transformed into a multi-faceted institutional system since the 1990s through the contributions of new social actors. The activities of newly emergent social actors, such as environmental NGOs, private companies, Shanghai citizens, and international development agencies, have proven to infuse new energy in the Shanghai water sector. The mutual cooperation between different actors has just begun and has provided an adequate path to the provision of high-quality water for Shanghai.

Chapter

Political Economy and Water in Shanghai INTRODUCTION This chapter reviews the political economy in Shanghai and addresses the challenges of water supply and water quality control over the past two decades. Diverse sources of information and data in Shanghai will be evaluated. The following assessment aims to delineate the linkage between Shanghai's water policy and its sociopolitical and economic development. It will be shown that the two development goals of economic gain and environmental protection in Shanghai have been unsuccessful, and economic development has been unambiguously prioritized. Among other environmental elements, water bodies in Shanghai have been the major victims of the discharges of industrial and domestic sewage caused by pro-growth policies for decades. Since the establishment of the communist regime in 1949, Shanghai has functioned as China's most important industrial and commercial base. Shanghai served as one of the main cash providers for the central government to implement the crucial goals of industrialization and modernization in Communist China over the past decades. During this period, it was not possible for the Shanghai 9

10

Water and Development in China

government to retain sufficient revenues to undertake its own urban infrastructure projects, including water supply and sewage treatment facilities. Also, owing to political and social upheavals until the late 1970s, there had been no room for the consideration of externalities such as impacts on the environment. The opening of China to foreign interests from 1978 was another type of political impetus to push hard economic development, which was unfavorable to the protection of water resources in Shanghai. Even though various economic indicators show that Shanghai has achieved remarkable goals, such as an economic growth rate of more than ten percent per annum since the early 1980s, the "opening" has not provided significant incentives to promote an accommodation between economic development and environmental protection. Water bodies in Shanghai have been one of the main victims of economic development. Water bodies in Shanghai became even more seriously degraded in the early 1980s than in previous decades. Their status remains serious, and more than 80% of the water bodies in Shanghai have been classified in the lowest classes — as Class IV and V.1 Shanghai is located in the Yangtze River Delta and enjoys a mild climate coupled with a large number of rivers and substantial annual rainfall. Despite its adequate water resources, Shanghai has a long history of water pollution since the early part of last century. The low priority accorded to the environment in the communist regime from 1949 to 1978 seriously influenced the water quality of rivers in Shanghai. This situation has deteriorated further since the open door policy was launched in 1978. Now Shanghai is known as one of the cities in China suffering from pollution-caused water scarcity. The data and figures will demonstrate that water bodies in Shanghai have been seriously polluted by point sources such as industrial sewage as well as non-point sources such as agricultural run-off, 1

The Environmental Quality Standards for Surface Water (GB 3838-88) in China has five different categories used to classify water bodies. Class I water is regarded as the best and Class V water the worst. The detailed discussion will be in Chapter 4. The water quality for drinking should comply with at least Class III and above.

Political Economy and Water in Shanghai

11

domestic sewage, and fertilizers, especially, since the mid-1990s. Confronted with the acute water pollution, dozens of sewage treatment plants have been constructed over the last few decades, and the redevelopment of sewage collection and interception systems has been undertaken. The first section of this chapter focuses on politics, the economy, and the society of Shanghai over the past few decades. As the most important economic powerhouse in China, the overall development of Shanghai was delayed in the pre-reform period. Shanghai remitted a large portion of its revenues to the central government for the construction of the socialist planned economy for the first decades of the Communist government. The opening to the outside world from the late 1970s and the launch of the Pudong New Development Zone in the early 1990s accelerated the pace of economic development in Shanghai. Over the past two decades, the revitalization of Shanghai as trading and financial hub has brought about the remarkable transformation of its economy. However, these achievements have been possible at the expense of the environment, particularly water resources. The overview of the environment in Shanghai will be the second focal point. The strategic location of Shanghai in the Yangtze River Delta Plain and the Tai Lake Basin explains the reason why Shanghai has emerged as a major economic centre in China in such a short period. Shanghai's numerous waterways have been a resource and a sink for pollution. The water resources of Shanghai consist of largely surface water such as the Yangtze River, Tai Lake, the Huangpu River, the Suzhou Creek, and ground water. The third part of this chapter provides in-depth information on water supply and water quality control in Shanghai. Attention will be paid more to water quality control rather than to 'water supply. Contrary to the experience in Beijing and Tianjin, in the northern part of China, which lack water resources, the challenge for water in Shanghai is pollution. This analysis will demonstrate that non-point source pollution is increasingly posing a greater threat to water resources in Shanghai than point-source pollution. Point-source pollution such as industrial sewage has been more targeted by

12

Water and Development in China

environmental regulatory agencies rather than non-point-source pollution. The chapter will conclude that the severe water pollution in Shanghai is still a chronic and elusive challenge. Awareness of the need for integrating economic development and environmental protection has just begun.

POLITICAL ECONOMY AND WATER IN SHANGHAI Development of Political Economy in Shanghai In the early part of the last century, imperial, commercial, and military interests and inland local trade along the Yangtze River made Shanghai transform from a quiet and small local town to a flourishing megalopolis. The Treaty Port System included Shanghai and facilitated an unprecedented pace of development in its commerce and industry until 1949-2 In the mid-1950s, Shanghai "was regarded as the seventh largest city in the world with a total population of almost four million. Shanghai essentially owed its great expansion of internal and external trade and commercial activities to the many waterways that connected inland lakes and rivers as well as Shanghai harbor. For instance, the Suzhou Creek, the Huangpu River, and the Yangtze River functioned as crucial waterways to trade goods such as tea, silk, eggs, wool, and peanuts between the harbor and inland markets in Zhejiang Province, Jiangsu Province and further hinterlands. Shanghai's conspicuous industrialization and commercialization earlier in the last century made Shanghai "the other China".3 2

Murphey, Rhoads, Shanghai: Key to Modern China (Cambridge (MA): Harvard University Press, 1953), p. 57. The treaty port system was launched on since the end of the Opium War in 1842. There were five coastal ports: Canton (Guangzhou), Amoy (Xiamen), Fuzhou, Ningbo, and Shanghai, which were opened to foreigners according to the Treaty of Nanking. A basic attitude of the Qing government about the result of the Opium War could be understood from the fact that concession of trade privileges only limited to these cities was able to restrict the scope of the Westerners and to prevent turmoil which would break out by them. 3 Li, Linda Chelan, Centre and Provinces: China, 1978-1993, Power as Non-Zero-Sum (Oxford: Clarendon Press, 1998), p. 114.

Political Economy and Water in Shanghai 13

Shanghai from 1949 to 1978 The flourishing economic and commercial activities of Shanghai in contact with the outside world ended when the Chinese Communist Party took power in 1949- The "golden age of the Chinese bourgeoisie" faded away, and the trajectory of development in Shanghai from 1949 to 1978 showed a completely different pattern compared with that of the pre-1949.4 Although the Communist leaders viewed Shanghai as "a leftover from a humiliating semi-colonial past", the economic achievement of Shanghai in the period from the 1950s to the late 1970s confirms that Shanghai continued to serve as a main industrial and commercial center for China.5 The annual economic growth of about nine percent in the period from the 1950s to the 1970s outperformed the national average of economic growth in China.6 However, Shanghai did not receive any political and financial support from the center to improve its own social infrastructure and public services. Rather, the city began to lose its prominent stance in trade and manufacturing and served to devote its skilled workers, machinery, and technology to inland industrial bases in China. In addition, Shanghai had to remit more than 60% of its GDP to the central government, which retarded Shanghai's economic and social development until 1978.7 The Communist regime continued a policy of restricting Shanghai's social and urban growth and demanded a massive remittance of funds and human capital from Shanghai to the

4

Bergere, Marrie-Claire, The Golden Age of the Chinese Bourgeoisie 1911-1937 (New York: Cambridge University Press), 1989. 5 Yeung, Y.M., 'Introduction' in Y.M. Yeung and Yun-Wing Sung (Eds.), Shanghai, Transformation and Modernization under China's Open Door Policy (Hong Kong: The Chinese University Press, 1996), p. 2. 6 Ibid, p. 8. 7 Naughton, Barry, 'Cities in the Chinese Economic System: Changing Roles and Conditions for Autonomy,' in Deborah S. Davis, Richard Kraus, Barry Naughton, and Elizabeth J. Perry (Eds.), Urban Spaces in Contemporary China (Cambridge, New York and Melbourne: Cambridge University Press, 1995), p. 74.

1A

Wafer and Development in China

inland provinces to narrow the gap between the coastal and interior regions. 8

Reform Period since 1978 The open door policy since 1978 slowed the even development policy by encouraging each provincial and municipal government to pursue its own development goals. The post-1978 Chinese policy embodies the promotion of "uneven development income distribution in the spatial aspect, through the forced growth of particular regions". 9 Despite this policy shift, Shanghai's economy did not achieve a fast growth rate in the 1980s compared with cities and areas that are located in Special Economic Zones (SEZs). These zones enjoyed preferential policies from the early 1980s. This was because political leaders in the central government did not want to make any mistake under the experimental economic reforms in such a politically and economically crucial city. The leadership would rather have preferred to test economic reforms in less politically and economically important areas, including Guangdong and Shenzhen. It was in 1984 that Shanghai began to enjoy more attention and favorable policies by being designated as one of the 14 open coastal cities. 10 This opportunity, however, did not give a stimulus to Shanghai's development, since various preference policies dedicated to other coastal cities and areas did not equally apply to Shanghai in the 1980s. It is interesting that the annual economic growth of 8

Tian, Gang, Shanghai's Role in the Economic Development of China, Westport, Connecticut & London: Praeger, p. 1 and 4-5. Tian argues that prior to 1949, the Chinese government emphasized the importance of narrowing the gap between urban (developed) and rural (less developed) areas. He added that large cities and the nation would benefit if the growth of population and economic activity would be diverted to medium-sized development poles, of which accelerated growth could be induced by government policies regarding infrastructure, taxation, capital subsidies and similar incentives. 9 Tian, Shanghai's Role in the Economic Development of China, p. 5. 10 Yeh, Anthony C O . , 'Pudong: Remaking Shanghai as a World City', in Y.M. Yeung, and Yun-Wing Sung (Eds.), Shanghai, Transformation and Modernization under China's Open Door Policy (Hong Kong: The Chinese University Press, 1996), p. 274.

Political Economy and Water in Shanghai 15

Shanghai in the 1980s did not reach eight percent, which was lower than that of the national average. The quality of Shanghai products and goods was not as good as that of other SEZs in the domestic market, and the high entrepreneurial spirit, one of the greatest assets in Shanghai, was observed to diminish.11

Pudong New Development

in 1990

The genuine breakthrough for the overall development in Shanghai took place only after 1990, when the Pudong New Development Policy was announced by the central government. 12 It is noteworthy that the Pudong New Development Policy was possible thanks to the strong support from the central government in which a number of Shanghai-based political leaders began to promote Shanghai's development from the mid-1980s. Shanghai-based political leaders had been working for the national government in the pre-reform period; however, with the advent of the reform era, they began to have an impact on the promotion of Shanghai's development through political support from the center, such as the 1987 land reform13 and the 1994 revenue sharing reform.14 11

Yeung, 'Introduction', p. 8. The official announcement was undertaken by Premier Li Peng on 18 April 1990. 13 Yeh, 'Pudong: Remaking Shanghai as a World City', p. 276. The land reform allowed the paid transfer of land-use rights or land leasing in Shanghai, which stimulated the creation of a land market and made the city achieve revenue from land. The revenue resulted in being used to improve and rehabilitate social infrastructure. 14 Cheung, Peter T.Y., 'The Political Context of Shanghai's Economic Development', in Y.M. Yeung and Yun-Wing Sung (Eds.), Shanghai, Transformation and Modernization under China's Open Door Policy (Hong Kong: The Chinese University Press, 1996), p. 55. This reform was related to the system of taxes and tax collection. The central government and local governments should set up parallel tax collection systems throughout the country. But in 1997, the Shanghai government refused to allow the separate central tax collector to operate, so taxes are paid against one return that is filled with the local bureau, which paved the way for the Shanghai government to possess the money, determine how to share revenues, and to define what are central and local revenues. See also Yabuki, Susumu, and Harner, Stephen M, China's New Political Economy (Boulder and Oxford: Westview Press, 1999), pp. 163-164. 12

16

Water and Development in China

The main goals of the Pudong New Development were to establish a new district equipped with a cutting-edge communication network and to lay the foundation of infrastructure and well-connected communication and information systems in order to make Shanghai become a pivotal trading and economic megalopolis in the new millennium.15 The development area covers 350 km2 and is divided into five independent sub-areas: Waigaoqiao-Gaoqiao, QingningsiJinqiao, Lujiazui-Huamu, Zhoujiadu-Liuli, and Beicai Zhangjiang Sub-area. In particular, the Lujiazui Financial and Trade Zone was the most spotlighted development district. The Zone was planned to be developed as "the Manhattan of Shanghai" and included the central business district of Pudong 16 (See Figure 2.1).

Figure 2.1 Pudong New Development Zone in June 2002 Source: Author. 15 16

Yeh, 'Pudong: Remaking Shanghai as a World City', pp. 278-279. Ibid.

Political Economy and Water in Shanghai 17

Shanghai's outstanding economic performance with a GDP growth rate of more than ten percent per annum since 1990 was achieved at the expense of the environment.17 In 1980, Shanghai was reported to hold notorious records in several categories compared with other large cities in China, including: an overcrowded population; too many factories in the city; the lack of green space; inadequate housing conditions, and high cancer levels due to environmental pollution.18 It is also reported that the levels of particulates and sulfur dioxide in air were unacceptable in accordance with the environmental standards, and the noise generated from roadways and factories had a far-reaching negative impact on large parts of the city. In addition, severe water pollution, in particular, in the Huangpu River, the main potable water source, put the city in danger of lacking available water for domestic as well as for industrial use. 19 The seriousness of pollution in the Huangpu River generated an offensive odor and turned the water black in the urban section of the river throughout the 1980s and the 1990s.20

Socio-Economic Conditions Population

and Administrative

Structure

Around 17 million inhabitants populated the Shanghai municipality in 2004. The total area of the Shanghai municipality is approximately 6,340 km2, with 140 km2 classified as urban, composed of 18 central 17

Shanghai Tongji Nianjian 2002 {Shanghai Statistical Yearbook 2002). Cheung, 'The Political Context of Shanghai's Economic Development', p. 55. It was reported in Jiefang Daily on 3 October 1980. 19 Lam, Kin-che and Tao Shu, 'Environmental Quality and Pollution Control', Y.M. Yeung and Yun-Wing Sung (Eds.), Shanghai, Transformation and Modernization under China's Open Door Policy (Hong Kong: The Chinese University Press, 1996), p. 470. 20 Zhang Chonghua, 'Case Study II, Shanghai Huangpu River China', in Richard Helmer and Ivanildo Hespanhol (Eds.), Water Pollution Control: A guide to the use of water quality management principles (London & New York: E & FN Spon, 1997), p. 317. 18

18

Water and Development in China

districts, one county, and 220 towns. 21 Owing to the continuous decentralization process since the 1980s, district governments are autonomous in implementing tax collection, budget allocation, and infrastructure provision and planning in Shanghai.22

Economic

Structure

The Pudong New Development Project in 1990 began to rejuvenate the high entrepreneurship of Shanghai and to rekindle the spirit of achieving economic wealth among Shanghainese (See Figure 2.2). Alongside the strong political support from the center, Shanghai achieved more than ten percent economic growth per annum throughout the 1990s. Shanghai achieved 13-0% of its GDP growth in the period of the Eighth Five Year Plan (1991-1995) and 11.4% of its GDP growth in the period of the Ninth Five Year Plan (1996-2000).23 In 2004, the GDP of Shanghai reached around US$ 93 billion (RMB 145 billion) and a per capita urban income was US$ 2,085 (RMB 16,682), and rural income reached US$ 883 (RMB 7,066).24 One of the major contributing factors to the rapid economic growth of Shanghai in the 1990s was the continuous and successful economic restructuring and diversification. Until the early 1990s, a number of energy-inefficient, out-of-date small-sized and traditional manufacturing factories were congested in the central Shanghai.25 The traditional manufacturing industries in Shanghai were steel, petrochemicals, energy, shipbuilding, and automobiles until 1978. 21

Zhongguo Tongji Nianjian 2005 {China Statistical Yearbook 2005). Yusuf, Shahid, and Wu Weiping, 'Shanghai Rising in a Globalizing World', Policy Research Working Paper (The World Bank: Development Research Group, 2001), p. 6. 23 Shanghai Tongji Nianjian 2002 {Shanghai Statistical Yearbook 2002). 24 Zhongguo Tongji Nianjian 2005 {China Statistical Yearbook 2005). The amount of per capita income in urban and rural areas of Shanghai would be different if this was calculated based on purchasing power parity (PPP). The level of PPP-based per capita income already reached over US$ 4,600 in 2000, and the current level would be estimated over US$ 6,000. 25 Yeung, 'Introduction', p. 9. 22

Political Economy and Water in Shanghai 19

Figure 2.2 One of the Biggest Commercial Areas: Nanjing East Road in Shanghai in June 2002 Source: Author.

These industries consisted of many State-Owned Enterprises (SOEs) and flourished primarily relying on governmental subsidies before the reform was launched. However, the trend of marketization put SOEs in the process of reforming management and production, and rising raw material prices, inefficient management, and subsidydependent business structure pushed the Shanghai government to embark on economic restructuring in the 1980s. Since the early 2000s, Shanghai has focused on six major industries, such as finance and insurance, wholesales and retails, real estate, transport and postal services, IT industry, and hotel business. 26 After the two decades of restructuring, Shanghai's industrial structure has changed. Service industries already accounted for around 50% of GDP in 1999, when the contribution of the service 26

Official webpage of the Shanghai Government. Available Online: http://www. shanghai.gov.cn

20

Wafer and Development in China

industries outpaced that of the manufacturing industry for the first time.27 The statistics from the Shanghai government in 2005 indicate that in 2004, primary industry accounted for 1.3%, secondary industry 50.8% and tertiary industry 47.9% compared with 4.3% for primary, 63.8% for secondary and 31.9% for tertiary in 1990.28 These figures illustrate that the industrial structure of Shanghai has shifted from being mainly dependent upon heavy industries to service (financial and banking) industries. The contribution of foreign trade in imports and exports has been increasingly important to Shanghai's economic and social development since the Pudong New Development Policy was launched in 1990. The total value of imports in Shanghai in 2004 was about US$ 86.5 billion, and the total value of exports to other countries was about US$ 73-5 billion. The scale of Foreign Direct Investment to Shanghai has grown exponentially since 1990 and in the year of 2003 reached US$ 5.4 billion (China Statistical Yearbook 2005). THE ENVIRONMENT

Location a n d Topography Shanghai is located in the Yangtze River Delta Plain on the southern side of the Yangtze River within the Tai Lake Basin. The administrative responsibility of the Shanghai government extends over the island of Chongming, bordered by Jiangsu Province in the north and west and by Zhejiang Province in the south. 29 The age-long sedimentation along the rivers in Shanghai has formed the extensive deltaic plain with the average elevation of 3^4 m. Situated in the 27

Dai Xingyi, 'Cong Jingjixue Kan Shanghai Chengshi Shengtai Jianshe (Shanghai Ecological City Building from the Economic Point of View)', Shanghai Gaige {Shanghai Reform) (January 2001), p. 16. 28 Official webpage of the Shanghai government. Available Online: http://www. shanghai.gov.cn 29 Yeung, 'Introduction', pp. 3-4, and Zhang, 'Case Study II, Shanghai Huangpu River China', p. 317.

Political Economy and Water in Shanghai 21

Figure 2.3 China and Shanghai Source: 2000 Encyclopedia Britannica.

middle of the deltaic plain, Shanghai has witnessed a great deal of development of canals and waterways, which link the city to neighboring provinces and cities (See Figure 2.3). Geo-politically, Shanghai is recognized as one of the most important hubs to connect to the port cities of North and South China as well as cities in Korea and Japan. Shanghai also has another invaluable asset in relation to its development, namely its "massive hinterlands". These areas are composed of flourishing urban and rural areas that produce abundant agricultural and raw products alongside a high degree of industrialization. A dense network of canals and waterways in the hinterland along the Yangtze River has provided a base for enormous trade and transshipment in Shanghai, which has benefited the city's economy (See Figure 2.4).

22

Water and Development in China JWNGSU

Figure 2.3 {Continued) Source: Official Website of the Shanghai government. Available Online: http://www.shanghai.gov.cn

Climate a n d Rainfall Shanghai's subtropical latitude (30 degrees 23' south to 31 degrees 21' north) and maritime location give the city a mild climate. The mean January minimum temperature is 3°C and the mean July maximum temperature 27°C.30 Compared with cities in North China, such as Beijing and Tianjin, Shanghai enjoyed abundant rainfall, 1,096.4 mm per annum on average in the period from 1956 to 1990.31 30

Zhongguo Tongji Nianjian 2000 (China Statistical Yearbook 2000), p. 7. Wang Songnian, 'Qianxi Shanghai Shuiziyuan Zhuangkuang (Analysis of Shanghai Water Resources Situation)', Shanghai Shuiwu Zhazhi (Shanghai Water Authority Magazine), 2001, Vol. 2, p. 1. The total rainfall in 2004 was 1,061.0 mm according to Zhongguo Tongji Nianjian 2005 (China Statistical Yearbook 2005). 31

Political Economy and Water in Shanghai 23

Figure 2.4 Yangtze River Basin Source: Lu Jinyou and Zheng Wenyuan, 'Progress of Sedimentation Research for the Yangtze River', Proceedings of the Ninth International Symposium on River Sedimentation, Yichang, China (18-21 October 2004). Available Online: http://www.irtces.org/old/irtces/report/9isrs/JinyouLu.pdf

In spite of its substantial rainfall, the characteristic feature of the rainfall pattern in Shanghai restricts the effective utilization of the rainfall volume. The rainfall volume in Shanghai varies on a large scale every year. For instance, there were 1,797 mm in 1999 compared with 596.8 mm in 1978. Although rainfall is well spread throughout the year, the volume varies depending on the seasons. Most rainfall occurs in the period from May to September and is particularly heavy in June and July and rare in December. 32 (See Figure 2.5)

Water Resources The water resources in Shanghai comprise surface -water and ground water. Surface -water resources come from rivers and waterways in the city center and the outskirts of Shanghai. The major sources are 32

Wang, 'Qianxi Shanghai Shuiziyuan Zhuangkuang (Analysis of Shanghai Water Resources Situation)', p. 2.

24

Water and Development in China 35

8

9

10

11

12

1 Mean Monthly Temperature (Celcius) - Mean Monthly Precipitation (mm) Figure 2.5 Shanghai Monthly Temperature and Precipitation in 2004 Source: Zhongguo Tongji Nianjian {China Statistical Yearbook 2005).

the Yangtze River and Tai Lake. The total annual volume of 'water resources in Shanghai is approximately 59.5 billion m 3 . Surface water comprises most of the water resources, accounting for 59-39 billion m 3 (99-76%). The annual volume of rivers and waterways in Shanghai is 1.96 billion m 3 (3-3%). The flow from Tai Lake is 10.2 billion m 3 (16.9%), and from the Yangtze River, it is 47.4 billion m 3 (79-8%). The volume of groundwater in Shanghai is negligible, about 145 million m 3 (0.24%)33 (See Table 2.1). The annual water resource per capita is estimated at around 5,240 m 3 per person, which is more than the national average of 33

Huang Changyin and Yang Kai, 'Shanghai Shuixi Wuran Fenxi ji Qibaohu Duice (Analysis and Protection Countermeasure of Shanghai River System Pollution)', Shanghai Huanjing Kexue {Shanghai Environmental Sciences), Vol. 21, No. 1, 2002, p. 58.

Political Economy and Water in Shanghai 25 Table 2.1 Average Annual Water Resources in Shanghai (billion m3) Water Resources

Surface Water

Ground Water

Rivers and Waterways in the City Flow from Tai Lake Flow from the Yangtze River

1.96 (3.3%) 10.2 (16.9%) 47.4 (79.8%)

0.145 (0.25%)

Total

59.39 (99.76%)

0.145 (0.25%)

Source: Huang Changyin and Yang Kai, 'Shanghai Shuizi Wuran Fenxi ji Qibaohu Duice (Analysis and Protection Countermeasure of Shanghai River System Pollution)', Shanghai Huanjing Kexue (Shanghai Environmental Sciences), Vol. 21, No. 1, 2002, p. 58.

2,670 m 3 per person. However, if the volume from the Yangtze River is excluded from the total volume of water resources in Shanghai, the annual water resource per capita is only 1,049 m 3 per person. In addition, each person in Shanghai can have only 162 m3 per person if the volume from Tai Lake is also excluded from the total volume of water resources in Shanghai.34 Despite the substantial surface water volume, Shanghai's water resources are substantially affected by the natural conditions of the Yangtze River and Tai Lake in neighboring provinces. There is high risk that Shanghai would be in danger of running out of water supply unless careful water resources management is adopted.

Surface

Water

Thousands of rivers in the city serve as major water supply sources for the urban population of Shanghai. The Huangpu River and the Suzhou Creek are the most significant among numerous rivers in terms of water supply, sewage discharge, and navigation. The Huangpu River originally stems from Tai Lake, but the mainstream of the river begins from Dianshan Lake. The length of the river is around 113-4 km from Dianshan Lake to Wusong Kou where the 34

Ibid., p. 58.

16

Water and Development in China

river joins the Yangtze River. The water flowing from the Tai Lake area during the summer has a significant impact on the flow rate, the volume, and the water quality of the Huangpu River and on its water quality. The average volume of water per annum of the Huangpu River is 10 billion m3, which ranges from 5 billion m 3 in a dry year to 24 billion m 3 in a wet year.35 A characteristic of the Huangpu River is that the river is influenced by a tidal flow from Tai Lake and the Yangtze River. Sometimes the tidal flow from Tai Lake and the Yangtze River traps sewage and solid waste flowing along the Huangpu River and reverses the flow of the Huangpu River upstream. This phenomenon poses a threat to the water quality of the upper reaches in the Huangpu River "where a water intake point for the urban center of Shanghai is located. Another major river flowing through the city center is the Suzhou Creek. The Suzhou Creek links the Huangpu River to Tai Lake, and the total length of the Suzhou Creek is about 125 km (53-1 km in Shanghai).36 The annual average flow of the Suzhou Creek, measured at Huangdu, 37 is about 10 m 3 /s. The creek contributes to Shanghai in various fields. The Suzhou Creek works as the most crucial navigation channel for facilitating commerce for towns and villages between Tai Lake and Shanghai conveying construction materials, grain, solid waste, and night soil. 38 Land and urban drainage facilities are situated along the creek, and the creek provides water for industrial and agricultural use. In addition, the close proximity of the creek to residential areas results in it receiving a massive amount of sewage from households as well as industrial 35

Gu Youzhi, 'Cut Down of Pollution Loading is Priority in Rehabilitation of the Huangpu River', paper presented at Sino-Germany Seminar on Water Protection and Treatment in Yangtze Delta Area, Shanghai (8 October 1998), p. 1. 36 Lu, Hongde, 'Shanghai Chengshi Shuihuanjing de Huigu he Zhanwang (Retrospect and prediction for the Shanghai municipality's water environment)', Shanghai Chengshi Fazhan {Shanghai City Development), No. 1, February 2001, p. 38. 37 Mott MacDonald and INTERCONSULT, Second Shanghai Sewerage Project Design Review and Advisory Services Appraisal Report, unpublished project report, 1995. 38 Zhang, 'Case Study II, Shanghai Huangpu River China', p. 320.

Political Economy and Water in Shanghai 27

users, which has caused severe water pollution in the Suzhou Creek for a few decades. Dianshan Lake's surface occupies 64 km2, and the volume of the lake is around 110 million m3. The lake provides an abundant freshwater, fishery resource and spectacular views, -which stimulates tourism. However, the development of Township and Village Enterprises (TVEs) and animal husbandry farms since the 1980s have contributed to massive amounts of sewage into Dianshan Lake, which has triggered a fast pace of eutrophication.39 The surface size of Tai Lake is 3,160 km2, and the volume of the lake is 5-77 billion m3. Tai Lake is part of the Yangtze River Basin and is connected to the Yangtze River in its north side (See Figure 2.6). As one of the two major tidal water resources of Shanghai, the tidal volume of Tai Lake into Shanghai is around 10 billion m 3 per annum. 40 The Yangtze River also influences the flow of the Huangpu River by its tidal water and provides the largest continental navigation channel in Asia. The total length of the Yangtze River is estimated at about 6,300 km, 41 and the annual average flow is estimated at around 933-5 billion m 3 per annum measured at Datong (lower reach) and 736 billion m 3 per annum measured at Hankou (upper reach). 42

Ground

Water

The other water resource for Shanghai is groundwater. The volume of groundwater is about 145 million m 3 . The groundwater in Shanghai has been exploited for years without any systematic plan 39

Yuan Renliang (Ed.), Shanghaishi Shuihuanjing Yanjiu {Shanghai Municipal Water Environment Research) (Shanghai: Kexue Press, 2000), p. 15. 40 Huang Xuanwei (Ed.), Taihu Liuyu Guihua yu Zonghe Zhili {Overall Management and Planning of the Tai Lake Basin) (Beijing: China Water Conservancy and Hydropower Press, 2000), pp. 13-14. 41 Zhongguo Tongji Nianjian 2000 (China Statistical Yearbook), p. 7. 42 Wang, 'Qianxi Shanghai Shuiziyuan Zhuangkuang (Analysis of Shanghai Water Resources Situation)' p. 1. See also UNESCO Water Resources Website. Available Online: http://www.webworld.nesco.org/water/ihp/db/shiklomanov.

28

Water and Development in China

Figure 2.6 Shanghai Surface Water Resources in Tai Lake Basin Source: Tai Lake Water Authority Website. Available Online: http://www.tba.;

or regulation.43 The monitoring of groundwater has also been poor. Extraction from private wells has caused grave concern about land subsidence in certain areas in Shanghai.44 This anarchic approach to 3

Zhang, 'Case Study II, Shanghai Huangpu River China', p. 321. In the early 1960s, the maximum extraction amount reached more than 200 million m3 per annum, which alarmed the authority to limit a random private extraction of ground water in Shanghai. Shanghai Water Supply Management Office, 'Shanghaishi Dixiashui Quanmian Dongtai Jiance Gouxiang (Proposal for monitoring the overall situation of groundwater in Shanghai)', Shanghai Shuiwu Zhazhi (Shanghai Water Authority Magazine), 2002, Vol. 1. Available Online: http://www.shanghaiwater.gov.cn/information. 44 Zhang, 'Case Study II, Shanghai Huangpu River China', p. 321.

Political Economy and Water in Shanghai 29

groundwater extraction began to come to an end in recent years, and as a new freshwater source for clean bottled water, the groundwater began to draw attention of the public according to a recent newspaper report. 45 The amount of extraction of groundwater in Shanghai in 2000 was 95 million m3, which matched the maximum limit of extraction amount (100 million m3) in Shanghai.46 WATER SUPPLY AND WATER QUALITY Water Supply a n d Water Use The total volume of the maximum water supply in Shanghai in 2004 was estimated at 11.8 billion m 3 per annum. In terms of actual water provision, Shanghai managed to supply 2.7 billion m 3 of water to domestic, industrial, and agricultural users in the year of 2004.47 In association with the actual volume of water supply in Shanghai, it is necessary to discuss the amount of water use in Shanghai in order to understand the general situation of water supply in Shanghai. The trend of the amount of water use in Shanghai for two decades is shown in Table 2.2. Table 2.2 demonstrates that there was a sharp increase from 1980 to 1990, and the period from 1990 to 2004 shows a modest decrease. Water Quality a n d Pollution Overview

of Current

Water Pollution

in

Shanghai

The abundant annual mean rainfall and rich surface water resources in Shanghai cannot guarantee sufficient water supply for Shanghai's 45

Zou Huilin, 'Water, water underground but not used', Shanghai Star (3 October 2000). 46 Shanghai Water Supply Management Office, 'Shanghaishi Dixiashui Quanmian Dongtai Jiance Gouxiang (Proposal for monitoring the overall situation of groundwater in Shanghai)', Shanghai Shuiwu Zhazhi (Shanghai Water Authority Magazine), 2002, Vol. 1. 47 Shanghai Shuiziyuan Gongbao 2004 (Shanghai Water Resources Bulletin 2004). The water supply amount from surface water was 11.7 billion m3, and that from groundwater 0.1 billion m3.

30

Water and Development in China Table 2.2 Shanghai Water Use in Selected Years (billion m3)

Year

Total Water Use

Industrial Use

Agricultural Use

Domestic Use

1980 1990 2004

8.053 10.719 11.141

4.672 6.292 7.605

2.876 3.576 1.923

0.505 0.851 1.613*

"This includes the volume of household and public domestic water use. Source: Yuan, Renliang (Ed.), Shanghaishi Shuihuanjing Yanjiu {Shanghai Municipal Water Environment Research) (Shanghai: Kexue Press, 2000) and Shanghai Shuiziyuan Gongbao 2004 {Shanghai Water Resources Bulletin 2004). Available Online: http://www.shanghaiwater.gov.cn/sw/2004_3_2.asp.

population. Although freshwater resource per capita in Shanghai is twice the national average (5,240 m 3 /y vs. 2,476 m 3 /y), most of the main water bodies in Shanghai are heavily polluted.48 An uneven distribution of rainfall, in particular relatively lower level in winter, worsens the pollution in water bodies in Shanghai through reduced water flow. According to a pollution source survey in 1985, around 60% of industrial sewage was discharged directly into rivers in Shanghai. Such a high portion of untreated industrial sewage became a major water pollution factor in Shanghai in the 1980s.49 This low level of sewage treatment in the mid-1980s was not much enhanced in the 1990s. It is recognized that in the early 1990s, approximately 25% of the industrial wastewater received primary and secondary treatment,50 48

Shanghai Water Conservancy Annals Publication Council (Ed.), Shanghai Shuili zhi {Shanghai Water Conservancy Annals) (Shanghai: Shanghai Academy of Social Sciences Press, 1998), p. 102. 49 Zhang, 'Case Study II, Shanghai Huangpu River China', p. 322. 50 Primary treatment removes phosphorous using the physical and chemical setting. In China, it is not common to adopt the chemical setting in sewage treatment facilities, and therefore, there remains a high percentage of phosphorous in Shanghai rivers. Biological processes in secondary treatment utilize biochemical reactions to remove soluble or colloidal impurities, usually organics. Tebbutt, T.H.Y, Principles of Water Quality Control, (Oxford: Butterworth-Heinemann, 1998), p. 120.

Political Economy and Water in Shanghai 31

and only 14% of the domestic wastewater was subjected to secondary treatment. 51 Because of the low level of sewage treatment for domestic as well as industrial use, the water quality of the Huangpu River has continued to deteriorate. Most parts of the Huangpu River still remain heavily polluted in the level of Class IV or V although a number of large-scale sewage treatment plants were constructed along the river in the 1990s. The 2004 Shanghai Environmental Bulletin, however, shows that in 2003, 95% of industrial sewage and 53% of domestic sewage were treated (See Table 2.3).52 Compared with the period from the 1980s and the mid-1990s, Shanghai increased remarkably its sewage treatment capacity in the late 1990s. But there remains a fundamental question on why the Huangpu River, the Suzhou Creek, and other branch rivers still remain severely polluted. The explanation stems from various factors. First, since 1997, the portion of domestic sewage has outpaced that of industrial sewage. This trend demonstrates that an increase of domestic sewage and the low level treatment of domestic sewage have offset the improvement of overall sewage treatment capacity in the Huangpu River. One of the main concerns in water quality control in the Huangpu River is how to regulate and control an increasing amount of domestic sewage. Second, there are a number of pollutants discharged into rivers, such as domestic and industrial sewage, excretion and waste from animal husbandry farms, polluted silt on the river bed, and wastes from small ports along rivers.53 The third factor is that the government has only targeted main rivers, such as the Huangpu River and the Suzhou Creek. Attention has not been paid to numerous small rivers, and the water quality of the small rivers without adequate treatment has continued to deteriorate. 51

Zhang, 'Case Study II, Shanghai Huangpu River China', p. 322. Shanghai Environmental Protection Bureau, Shanghaishi Huanjing Zhuangkuang Gongbao 1999 {Shanghai Environmental Bulletin 1999), p. 5. 53 Murray, G and Cook, I.G., Green China (London and New York: Routledge-Curzon, 2002), p. 67. 52

32

Water and Development in China Table 2.3 Annual Sewage Discharge and Treatment Rate in Shanghai from 1990 to 2002 Industrial Sewage

Domestic Sewage

Year

%

ton/y (million)

1990

80.0 74.8 77.0

1,332

12.7

1991 1992

13.9 14.2

1993 1994

82.3 82.2

1995 1996

86.4 93.7 93.8

1,325 1,370 1,280 1,181 1,161 1,141

1997 1998 1999 2000 2001 2002 2003

95.3 95.7

N/A 95.4 94.8 94.9

999 900 850 725 680 649 611

%

12.9 33.2 41.1

N/A 39.9 53.1 50.4 48.8 53.3

N/A N/A

ton/y (millio

667 633 658 750 855 1,840 1,140 1,110 1,180 1,176 1,212 1,270 1,272 1,211

Source: Shanghai Environmental Protection Bureau, Shanghaishi Huanjing Zhuangkuang Gongbao 1991-2004 (Shanghai Environmental Bulletin 1991-2004).

Polluting

Factors

There is a suite of polluting factors that contribute to the pollution of water bodies in Shanghai. First, massive amounts of organic substances are contained in the sewage flow from agriculture and domestic sources into the rivers in Shanghai. The organic substances containing nitrogen require large amounts of dissolved oxygen in water, and this problem has been regarded as one of the China's Seven Priority Environmental Problems in "the Environmental Action Plan of China 1991-2000".54 Second, over 80% of the small waterways in Shanghai 54

National Environmental Protection Agency and State Planning Commission, Environmental Action Plan of China 1991-2000, 1994. See also Ma Xiaoying and Ortolano, Lenoard, Environmental Regulation in China — Institutions, Enforcement, and Compliance (Lanham, Boulder, New York and Oxford: Rowman & Littlefield Publisher, 2000), p. 1.

Political Economy and Water in Shanghai 33

are seriously polluted, and these polluted waterways exacerbate the water quality of the Huangpu River and the Suzhou Creek. The heavy pollution in the urban areas in Shanghai is the third attribute influencing the pollution in the Huangpu River. This also poses a threat to the water quality of the Da Qiao water intake point in the Huangpu River. The urban water pollution results from a rapidly increasing pace of domestic sewage caused by material wealth and economic development. As seen from Table 2.3, the amount of sewage discharge from households in Shanghai has outpaced that from industrial users since 1997. Fourth, pesticides (agrochemicals) and chemical fertilizers are heavily used and discharged into rivers in Shanghai without adequate treatment. Every year, more than 100 tons of pesticides are reported to remain in the soil and flow into the rivers. The amount of chemical fertilizer consumption in 2002 was estimated at around 10,000 tons per annum, which increases nitrogen pollution in rivers and eutrophication in lakes.55 In addition to those fertilizers, animal husbandry has become another main source of pollution discharge. Seven million tons of animal excretion and other organic sewage were generated in 2002, and among them, over two million tons were discharged into water bodies without proper treatment. 56

55

Yang Yi, Liu Min, Xu Shiyuan, Hou Lijun, and Qian Changping, 'Shanghai Chengshi Zhoubian Diqu Zhuyao Huanjing Wenti ji Qiduice (Dominant Environmental Problems in the Ambient Area of Shanghai city and Their Relevant Countermeasures)', Changjiang Liuyuyu Huanjing {Resources and Environment in the Yangtze Basin), Vol. 11, No. 2 (March 2002), p. 156. 56 Gao Chao, Zhu Jian-guo, and Dou Yijian, 'Nongye Feidianwuran dui Taihu Shuizhide Yinxiang (Contribution of Agricultural Non-Point Source Pollution to Water Quality Deterioration in Tai Lake Basin)' Changjiang Liuyu Ziyuan yu Huanjing {Resources and Environment in the Yangtze Basin), Vol. 11, No. 3 (May 2002), p. 261.

34

Water and Development in China

The fast increase in the scale of non-point source water pollution57 in the animal husbandry industry has drawn more attention in recent years, especially since 1997.58 The fifth attribute of the system is unique, namely the tidal flow in the Huangpu River. The Huangpu River receives a large volume of tidal water from the Yangtze River and Tai Lake, and in particular, around 80% of the total water resources in Shanghai come from the Yangtze River. The total tidal influx from the Yangtze River to the Huangpu River is estimated at up to 48 billion m 3 per annum. 59 This tidal flow into the Huangpu River influences the pattern of the river flow and prevents organic pollutants from being released to lower stretches.60 All kinds of contaminants and wastes in the upstream of the Huangpu River cannot flow downstream, where most of the wastewater treatment plants are installed. The tidal process also contributes to the pollution of water intake points in the Huangpu River. The sixth factor for polluting the Huangpu River is linked to the slow flow rate of the Suzhou Creek. Part of the Suzhou Creek flow in upper reaches takes about a month to arrive in the estuary of the creek where the Huangpu River and the creek meet together. This brings about the result that sewage in the Suzhou Creek cannot flow

57

Non-point source water pollution occurs due to fertilizer run-off, pesticide run-off and discharges from intensive animal production enterprises. World Bank, China: Air, Land & Water (Washington D.C.: World Bank, 2001), p. 58. Shanghai has a number of non-point source pollutants to have a hazardous impact on rivers. These are: (1) domestic sewage; (2) sewage containing phosphorous; (3) sewage from small factories; (4) excrement and sewage from animal husbandry farms; (5) pesticides and other agricultural industry-driven sewage; and (6) domestic solid waters and wastes from riversides and wharfs. Dai Xingyi, 'Cong Jingjixue Kan Shanghai Chengshi Shengtai Jianshe (Shanghai Ecological City Building from Economic Point of View)', Shanghai Gaige (Shanghai Reform) (January 2001), p. 19. 58

This was confirmed by an interview with an official from the Shanghai Environmental Protection Bureau in April 2001. Interview-020401. 59 Zhang, 'Case Study II, Shanghai Huangpu River China', p. 321. 60 Ibid, p. 322.

Political Economy and Water in Shanghai 35

Figure 2.7 Ship Building along the Huangpu River Source: Author.

away into the Huangpu River, which worsens the pollution level in the creek as well as the Huangpu River.61 The last polluting factor is related to the city's economic development history dating from the early 20th century. The long history of industrialization has ironically driven Shanghai to retain out of date sewage treatment systems and an inefficient energy utilization infrastructure.62 The main traditional industries in Shanghai, such as the petrochemical, textile, metallurgical and ship-building industries, have been the major liquid effluent producers (See Figures 2.7 and 2.8).

Sewage Control — Sewage Treatment

Plants

Compared with spectacular economic growth in Shanghai, there has been no equivalent improvement of the water quality despite the 61

A senior Chinese engineer confirmed this, who has been involved in the Shanghai Sewerage Project and the Shanghai Environment Project. Interview-060602. 62 Lam and Tao, 'Environmental Quality and Pollution Control', p. 470.

36

Water and Development in China

Figure 2.8 Coal Shipping along the Huangpu River Source: Author.

enhanced capacity of sewage treatment until the late 1990s. In the urban and suburban areas of Shanghai, 20 wastewater treatment plants and facilities in total had been constructed and installed mainly along the Huang River and other small canals and rivers in the period between 1926 and 2001 63 (See Table 2.4). The number of sewage treatment facilities increased up to 38 in 2004 including 15 located in the city center and 23 in suburban or industrial development areas.64 63

Ouyang, Christine, Environmental Protection in Shanghai 1999, Shanghai: Consulate General of Sweden in Shanghai, 1999, p. 19. The report also shov/s that the municipal government was planning to construct another ten sewage treatmentplants in next three to five years and the designed capacity of treatment for the largest one in Shidong Kou will be 0.4 million m 3 /d. See also Shao, Fang, Huang, Shenfa, and Sun, Jian, 'Shanghaishi Wushui Chuli Sheshi Wenti Tanxi (Approach on the Problems of Sewage Treatment Installation in Shanghai)', Shanghai Huanjing Kexue {Shanghai Environmental Sciences), Vol. 20, No. 12, 2001, p. 570. 64 Shanghai Shuiziyuan Gongbao 2004 (Shanghai Water Resources Bulletin 2004).

Political Economy and Water in Shanghai

37

Table 2.4 Shanghai Sewage Treatment Plants in 2001 Design Service Actual Capacity Capacity Percentage of Construction Area Year (km2) 1,000 (m 3 /d) 1,000 (m 3 /d) Operation (%)

Location Name Dongqu Quyang Beijiao Caoyang Minhang Tianshan Central Longhua Changqiao Sitang Wusong Chengqiao Taopu

1926 1984 1968 1954 1961 1985 1986 1992 1992 1992 1989 1998

13.00 4.27 2.82 1.60 15.50 9.67 12.00 4.94 1.84 7.70 0.40 3.10

Nanqiao Jinshan Jiading Anting Suburbs Songjiang Nanhui Minhangqu Qingpu

1990 1998 1979 1987 1981 1988 1979 1986

4.00 8.00 15.00 12.00 12.00 14.00 30 7.5 141.84

Total

34 75 20 30 50 75 105 22 20 40 5 60

32.5 54.3 18.9 22.3 54.7 43.6 47.2 13.2 21.9 23.8 2.7 20

95 72 95 74 109 58 45 60 110 60 54 33

10 17 30 25 68 12.5 13.7 7.4

11.7 9.1 20 9 20 7.8 46 97

117 54 67 36 30 62

736.0

453.8

62 (Average)

Source: Reproduced based on Shao, Fang, Huang, Shenfa, and Sun, Jian, 'Shanghaishi Wushui Chuli Sheshi Wenti Tanxi (Approach on the Problems of Sewage Treatment Installation in Shanghai)', Shanghai Huanjing Kexue {Shanghai Environmental Sciences), Vol. 20, No. 12, 2001, p. 570.

The constant degradation of the water quality of the Huangpu River shows that the current facilities are insufficient in terms of treatment capacity. The effectiveness of operating the current facilities is also in question, with only about 60% of the facilities being in operation. There has been an absence of adequate drainage network systems linked to sewage treatment facilities in

38

Water and Development in China

the municipality. 65 In addition, most of the large-scale sewage treatment facilities are aimed at servicing urban areas. The current sewage treatment facilities are unable to cope with water pollution caused by the heavy use of fertilizers and pesticides as well as the random discharge of animal excretion from animal husbandry farms in the outskirts of Shanghai.

Sewage Control — Sewage Drainage

Systems

As discussed above, the low rate of sewage treatment in Shanghai results from an inadequate sewage network that covers only about 50% of discharged sewage in the city area. The designed capacity of the total sewage drainage systems in Shanghai is more than five million m 3 per day; however, the actual capacity is less than three million m 3 per day (See Table 2.5). To make the situation worse, only 30% of sewage covered by the total sewage drainage systems receive secondary treatment, which leaves organic wastes untreated, and such discharges pollute water bodies. 66 There have been four new sewage drainage systems constructed in Shanghai in the period up to the early 2000s. First, the Shidongkou sewage drainage system (Xigan Xian — also called the Western Interceptor) was constructed in order to improve the water quality of the Suzhou Creek in the early 1970s. This system covers the riversides of the Suzhou Creek in the northern part of Shanghai and has a daily capacity of 800,000 m3, and the discharge point is Shidongkou, located in the Yangtze River Estuary. This system is connected to the Shanghai Sewerage Project Phase I, and the Shidongkou sewage treatment plant with the capacity of 400,000 m 3 per day, which was built in January 2003- The second sewage drainage system is the Zhuyuan sewage drainage system, Nangan-Xian, the Southern Interceptor, and was established through the Shanghai Sewage Project Phase I in 199365

Shao, Huang, and Sun, 'Shanghaishi Wushui Chuli Sheshi Wenti Tanxi (Approach on the Problems of Sewage Treatment Installation in Shanghai)', p. 571. 66 Interview with China Representative of SNF (China) Flocculant Co., Ltd on 25 June 2002. Interview-250602.

Political Economy and Water in Shanghai

39

Table 2.5 Sewage Treatment and Drainage Capacity in Shanghai in 2001

Name Shidongkou Discharge System Zhuyuan Discharge System Bailonggang Discharge System Hangzhou Discharge System (Jinshan & Fengxian) Municipal Sewage Treatment Plants Total

Sewage Design Quantity Long Term Actual Scale Capacity Capacity After Primary 3 3 Treatment (1,000 m 3 /d) (1,000 m /d) (1,000 m /d)

Remarks

170

N/A

800

1,450

N/A

Primary

1,700

700

N/A

3,300 (Phase I & II) 1,700

339

155

135

539

Primary

736

454

' 454

350

Secondary Bio

800

1,700 (Phase I)

5,275

2,929 (55%)

589 (10%)

Secondary Bio

Primary

6,689

Source: Shao., Huang, and Sun, 'Shanghaishi Wushui Chuli Sheshi Wenti Tanxi (Approach on the Problems of Sewage Treatment Installation in Shanghai)', p. 569.

The coverage area is the northern part of Shanghai excluding the areas covered by the Shidongkou sewage drainage system. The daily capacity of the system is 1.7 million m3. To avoid further coastal pollution, the construction of the Zhuyuan No. 1 Sewage Treatment Plant was commenced in 2002. Third, the Bailonggang sewage drainage system covers the southern part of old Shanghai (Xuhui and Luwan) and part of the Pudong New Area with the daily capacity of 1.7 million m3. It was established through the Shanghai Sewerage Project Phase II in 1999 to supplement the function of the Zhuyuan sewage drainage system. The fourth sewage drainage system in

40

Water and Development in China

Shanghai is the Hangzhou Bay sewage drainage system, which delivers and discharges sewage from the city center to the Hangzhou Bay. The daily capacity of this system is around 150,000 m3.67

CONCLUSION This chapter has discussed water, politics, economy, and society in Shanghai and provided data and information necessary for understanding the past and current water supply and pollution situation in Shanghai. The analysis based on the data on Shanghai has revealed that owing to its geo-political and natural advantages, Shanghai has prospered economically since the early 20th century. In the process of the development of Shanghai, water has been one of the crucial elements supporting its socio-political and economic development. This fundamental resource, however, has deteriorated primarily through the accelerated pace of economic development since the beginning of the reform policy in the late 1970s. As a result, despite its abundant annual rainfall and surface water resources, water pollution has triggered water scarcity in Shanghai since the 1980s. Shanghai has tried to address water pollution through the construction of a number of sewage treatment plants and several sewage drainage systems, however, these facilities have not proved to be very effective. The mild climate, substantial rainfall, and rich surface water resources in Shanghai have served as a powerful engine for Shanghai to become an economic hub for commerce and trading activities. The Huangpu River has provided freshwater to Shanghai supplemented with the Yangtze River and Tai Lake. Water use in Shanghai has increased, particularly since the 1980s, because of the fast pace of economic development. The natural advantages of Shanghai, however, have been gradually damaged as a result of the neglect of the protection of the environment

67

Shao, Huang, and Sun, 'Shanghaishi Wushui Chuli Sheshi Wenti Tanxi (Approach on the Problems of Sewage Treatment Installation in Shanghai)', p. 571.

Political Economy and Water in Shanghai 41

in the Communist period from 1949 to 1978. Water quality constantly deteriorated in rivers of the Shanghai region in this period. The open door policy since the late 1970s made the situation worse, and the Pudong New Development Project in 1990 posed a new threat to water bodies in Shanghai. Even more sewage was discharged from domestic, industrial, and agricultural users. It has been shown that water bodies in Shanghai have been seriously polluted by point sources like industrial sewage as well as non-point sources such as agricultural run-off, domestic sewage, and fertilizers, especially, since the mid-1990s. Confronted with the acute water pollution, many sewage treatment plants have supplemented the plants built in the last century. Despite decades of efforts to abate water pollution in Shanghai, most of the major water bodies in Shanghai, such as the Huangpu River and the Suzhou Creek, are still heavily polluted. This gloomy outcome illustrates that there have been many loopholes in sewage treatment management, regulation, and a lack of facilities to treat the massive amounts of sewage from urban as well as rural areas in the Shanghai area. It is important to learn a lesson from previous mistakes so that the end-of-pipe management can be converted to preventive solutions and measures for freshwater management in Shanghai. In addition, the establishment of an integrated policy embracing environmental protection and economic development will be essential to guarantee the better quality of water for Shanghainese. This challenging task can only be addressed through the political will of the Shanghai leadership. In order to explore how Shanghai has coped with amelioration of water pollution for the provision of high-quality water, Chapter 3 will provide a theoretical framework to evaluate the social and political relations on the basis of social theory.

Chapter

Theoretical Framework INTRODUCTION The chapter aims to provide a theoretical framework which consists of a range of social theory. The theories found useful include the grid/group theory of Mary Douglas, the political ecology theory of Hajer, and the co-evolutionary approach of complexity theory. Fieldwork in 2002 in Shanghai showed that these theories not only helped shape the research strategy, but also enabled useful insights into the Shanghai water policy domain and why water politics have been developed and changed through the involvement of diverse actors in the reform era transition. The grid/group theory of Mary Douglas has been used to identify social actors and analyze their activities and interactions in the Shanghai "water policy domain. Mary Douglas conceptualized four different ways of life in society, which are the Hierarchists, the Egalitarians, the Entrepreneurs, and the Fatalists. The theory will be used to analyze the socio-political mechanisms with which actors in the Shanghai water domain have prioritized policies. Shanghai has experienced dramatic shifts in approach to the organization of society and politics over the past decade. Grid/group theory provides an analytical framework to demonstrate the way the state-society duality has been transformed into a multi-dimensional and complicated 43

44

Water and Development in China

society of contemporary China. The state was assumed to be capable of governing, planning, and managing an effective and secure political economy. The reforms of the last two decades of the 20th century have reflected a questioning of that assumption evident in the diversification and privatization of the economy and the growth of social movements. These developments question the entitlement of the communist state to be the only source of governance. In the Shanghai water sector, the theory has identified five major actors, the Shanghai government (the Hierarchists), environmental NGOs (the Egalitarians), private companies (the Entrepreneurs), Shanghai citizens (the Fatalists), and the international development agencies (the international Hierarchists). Theoretical approaches from political ecology developed by Hajer will also be discussed. Political ecology serves as an analytical tool to delineate the way the environment has been managed in a certain manner. Analysts in the field of political ecology, such as Hajer, have attempted to provide answers as to how environmental emblematic processes and events, such as acid rain, drought, and famine, have pushed governments to conduct the shifts and changes in their environmental policies. Discourse analysis will serve to shape discussion and provide a framework on how to track the development of water quality related polices in Shanghai. There are three main components in discourse analysis: main discourse; story lines; and discourse coalitions. The main discourse, focused on water quality control, has been emphasized through story lines based on a number of cases and experiences. These story lines were able to provide reformative ideas and contexts relevant to governmental agencies in new institutional contexts. Discourse coalitions develop based on an ensemble of story lines, diverse actors, and practices and rules that the actors follow in the main discourse. The Shanghai government has tried to commit an integrated approach to water pollution problems via discourse coalitions such as the establishment of the Shanghai Water Authority. It will also be shown that emblematic events, such as water pollution in rivers in Shanghai, could also drive the Shanghai government to introduce institutional change in the water policy domain.

Theoretical Framework 45

A co-evolutionary approach of complexity theory is used to analyze the extent to which private sector participation in the Shanghai water sector has developed, particularly since the late 1990s. Complexity theory explores complex systems where many actors such as organizations or institutions maintain dynamic interaction in nonlinear modes. In the course of the numerous interactions between actors, constant and energetic evolutionary processes develop in correspondence with internal and external environments. Different actors start to co-evolve in interaction with a myriad of actors that have impacts on internal and external environments. Simultaneously, these actors adapt to the new environments. The co-evolutionary approach shows that the interactions between the Shanghai government and private companies have brought about a new political economy landscape in Shanghai through co-evolutionary processes. The coevolutionary approach also contributes to the examination of the way the Shanghai government and international development agencies have co-evolved through development projects. The first theoretical discussion relates to grid/group theory identifying diverse actors in the Shanghai water sector. The analytical framework of grid/group theory will be discussed first, and the conceptualization of the theory will be explored and the hyper-cycle to explain the relationship between different actors. Fieldwork in 2002 in Shanghai revealed that there were newly emergent social actors, such as environmental NGOs, private companies, and international development agencies alongside the Shanghai government and Shanghai citizens. The political ecology theory of Hajer will be the next element of the chapter. Discourse analysis will be introduced as an analytic tool to examine the way some critical environmental issues, such as water pollution, have been prioritized and have become main features of the discourse in environmental politics. Discourse, story lines, and discourse coalitions will be discussed as three components of discourse analysis. Next, political ecology theory will be used to explain the way the Shanghai government has reformed its institutions and organizations faced with the evidence of very serious water pollution. The third part of this chapter is to discuss a co-evolutionary approach of complexity theory.

46

Water and Development in China

A definition of co-evolution will be introduced, and the properties of co-evolutionary processes will be explored. The co-evolutionary approach helps analyze the development of private sector participation in the Shanghai water sector and the way the Shanghai government and international development agencies have achieved institutional reform in the way development projects have been implemented. It is concluded that social theory has proved to be useful relevant to the Shanghai water sector, especially during fieldwork. GRID/GROUP THEORY Grid/group theory focuses on socio-cultural viability that indicates how ways of life sustain and maintain themselves. It illustrates 'the variability of an individual's involvement in social life.'1 The theory was developed by Mary Douglas, reflecting what has been discussed as a valuable typology that contains the lessons of the ageold tradition of sociology, anthropology and psychology.2 She has not paid much attention to abstractions such as values and worldviews, but has an insight into the more observable facets of culture in daily life. She also has kept three unchanged pre-suppositions: (1) human beings are social creatures; (2) the most significant actor in their lives is other people; and (3) diverse forms of society support, and different systems of belief and morality.3

Definition It is observed that all activities occur in a social context, and therefore, there is no freedom from the social context. Mary Douglas has tried to differentiate one from the other type of social context to present the extent to which beliefs and social environment appear to relate 1

Thompson, Michael, Ellies, Richard, and Wildavsky, Aaron, Cultural Theory (Boulder, San Francisco, Oxford: Westview Press, 1990), p. 5. 2 Fardon, Richard, Mary Douglas (London: Routledge, 1999), p. 210. 3 Ibid., p. 211.

Theoretical Framework 47

to each other. From this context, the concept of group is defined as 'the experience of a bounded social unit' for measuring membership of enduring social groups. 4 The other axis of the theory is grid, defined as 'the rules that relate people to one another through ego-centerd networks', which also means 'controlling the flow of behavior defining proper relations based on sex, age, seniority, etc'. 5 Actually the definition of grid and group has been evolved by Douglas as well as by her collegues, such as Michael Thompson, in the course of dynamic societal changes throughout a number of decades. In the book, Cultural Theory, Michael Thompson provides the different definitions of grid and group, but the main concepts embedded are the same: 'group, the extent to which an individual is incorporated into a bounded unit', and grid, the degree to which an individual's life is circumscribed by externally imposed prescriptions'.6

Conceptualization Grid/group theory has been summarized in a diagram that helps understand how the theory can delineate different ways of life demonstrating the interactions of different individuals and social entities in society. Figure 3-1 illustrates the identification of four different ways of life in a quadrant, which has been developed by a number of cultural theorists. These four ways of life have been conceptualized in the following terminology. The Hierarchists exist within strong group boundaries and observe a number of compulsory rules and regulations. In other words, individuals in the Hierarchists are controlled by other members in the group and to binding prescriptions. For the Egalitarians, every individual is strongly grouped and supposed to be free from being controlled by any form of authority or hierarchy aimed at achieving ethical and 4

Ibid., p. 219. This definition initially came out from the book, Mary Douglas, Natural Symbols: Explorations in Cosmology (London: Barrie and Rockliff, 1970). 5 Fardon, Mary Douglas, p. 219. 6 Thompson, Michael etal, Cultural Theory, p. 5.

48

Water and Development in China Private Sphere

The Fatalists

Public Sphere

The Hierarchists

Grid The Entrepreneurs

The Egalitarians

Group

Figure 3-1 Four Ways of Life Source: Reproduced by author based on Thompson, 'Socially Viable Ideas of Nature: A Cultural Hypothesis,' p. 62.

moral goals. The Entrepreneurs suppose that all boundaries are provisional, tentative and subject to negotiation at any time. Members belonging to the Fatalists are excluded from social groups and peripheral to the personal networks of others.7 Figure 3.1 also illustrates the structural analysis based on the public and the private sphere. The focus on the dynamic interaction between the public and the private sphere is useful to comprehend the activities in Shanghai's society. In this study, it is suggested that the private sphere includes the Entrepreneurs and the Fatalists, and the public sphere does the Hierarchists and the Egalitarians. The idea is particularly useful in explaining the changing relationship between the Hierarchists (the Shanghai government) and the Egalitarians (environmental NGOs and other social groups) in contemporary China. Also the approach helps identify the interactions between actors in the public and private spheres, such as the development of privatization in the Shanghai water sector between the Shanghai government and private companies. 7

Thompson, Michael et al, Cultural Theory, pp. 6-7, and Thompson, Michael, 'Socially Viable Ideas of Nature: A Cultural Hypothesis,' in Braak, E. and Svedin U., Man, Nature and Technology (Basingstoke: Macmillan, 1988), p. 62.

Theoretical Framework 49

The second discussion in grid/group theory relates to the hyper-cycle.8 The hyper-cycle explains that even though these four distinctive actors have different ways of life, each social actor cannot live without the other differently inspired actors. These mutualities keep a sort of equilibrium between the four different social actors, and also make the social actors manage their ways of life with stability through unceasing mutual challenges and changes, which achieves a form of stability.9 For instance, if there were no hierarchists or entrepreneurs, egalitarians would lose their target and undermine their justification for their strong group boundary. It is normal to observe alliances between groups and against groups. According to the mechanism of grid/group theory, the establishment of alliances between the Hierarchists and the Entrepreneurs takes place more commonly than any other alliance form. The phenomenon draws much attention not only because of the nature of the mechanisms of alliance between the two different approaches, but also because of its potential strength of the synergy of the alliance. The Entrepreneurs can keep business as usual based on the stability, such as property relationships and defence against outsiders, guaranteed by the Hierarchists. The Hierarchists can strengthen their capacity to control the masses and society and confront any exogenos or endogenos challenge through economic development supported by the Entrepreneurs. 10 It is noted that these ways of life is evident in the neo-liberal European and American cases. Particular Chinese cases differentiate from the neoliberal European and American cases. The communist system in China from 1949 to 1978 de-emphasized the existence of diverse 8

Thompson, Michael et al, Cultural Theory, p. 51. This concept was presented from E. Eigen and P. Schuster, 'Emergence of the Hypercycle', Naturwissenschaften 64 (1977); 541-65; Karl Sigmund and J. Hofbauer, Evolution of Hypercycles, Cambridge: Cambridge University Press, 1984. 9 Thompson, Michael, 'Policy-Making in the Face of Uncertainty: the Himalayas as Unknowns' in Chapman, G.P. and Thompson Michael (eds.), Water and the Quest for Sustainable Development in the Ganges Valley (London: Mansell Publishing, 1995), p. 35. 10 Thompson, Michael, et al, Cultural Theory, pp. 88-89-

50

Water and Development in China

social groups, and China achieved its government and industrial synergy from 1949 to 1978, mainly through a communist system. The Entrepreneurs were discouraged from participating in the establishment of the communist state, and the communist-controlled centrally planned economy that dominated all economic activities. Since the beginning of the reform era in 1978 China has introduced new socialist market principles creating a more complex socioeconomic environment in which the neo-liberal principles and the communist system co-exist and operate. Application There have been attempts to apply grid/group theory to the Chinese context by some China scholars. Lucian Pye identified the two dominant ways of life, hierarchy and egalitarianism in Chinese history in the book, The Mandarin and the Cadre.11 Pye asserts that the egalitarian culture emphasizes the need of the potential and innate goodness of human beings whereas the hierarchical Chinese tradition puts a stress on the value of institutions. But it is important to note that egalitarianism has been melted into the sphere of the governing philosophy and ideology in Chinese history. Hjellum argues that fatalism can also be included in one of the Chinese ways of life, and fatalism, egalitarianism, and hierarchy are all embedded in order to confine individual autonomy. Hierarchy and egalitarianism in China have prioritized the group over the individuals insofar as fatalism dominates the individuals. It would be plausible to contend that there have been three dominant ways of life in traditional China, fatalism, hierarchy, and egalitarianism, which worked based on hierarchy.12 These arguments provide the evidence of the Chinese mode of the 11

Pye, Lucian W., The Mandarin and the Cadre-. China's Political Cultures (Ann Arbor: University of Michigan Press, 1988), pp. 37-50. Referred to by Thompson, Michael et al, Cultural Theory, pp. 227-228. 12 Hjellum, Torstein, "Is a Participant Culture Emerging in China?", in Kjeld Erik Brodsgaard and David Strand (eds.), Reconstructing Twentieth-Century China: State Control, Civil Society and National Identity (Oxford: Clarendon Press, 1998), p. 224.

Theoretical Framework 51

public/private spheres prior to the communist regime from 1949, which were represented by the hierarchy-society duality. Regarding the analysis of the public and private spheres, the public sphere represents the spatial and institutional space where the party-state in China has been predominant although there is a spurt of environmental NGOs and other social associations since the 1990s. The reform policy since the late 1970s has induced private sector's active involvement in various business fields and the resurrection of market functions in the private sphere. In the Shanghai water sector, privatization began to come into being in the late 1990s. The masses, who were strictly controlled by the state in the pre-reform era, have started to be individualized in the reform era because of the withdrawal of the state in society and have become active participants in the private sphere. They now take an active part in divergent economic activities in the private sphere and become participants in forming social discourses including environmental protection and sustainable development. This transformation of society in contemporary Shanghai is shown well in Figures 3-2 and 3-3However, unlike the clear demarcation shown in the diagram, it is problematic to draw lines between public and private in contemporary Shanghai. Although the governmental capacity of control over society has withdrawn, the processes of devolution and marketization have provided new opportunities for the government and its subsidiaries to engage in economic activities as well as social "works. This implies continuous but indirect influence of the state on the private and the public sphere in new forms.13

The

Hierarchists

In the pre-reform period (1949-1978), the structure of Chinese society was dominated by the monolithic political system by the Chinese Communist Party. The state-society duality continued until the late 1970s to embrace all types of organizations, labor units and even 13

Mo, Ka-ho, Social and Political Development in Post-Reform China (Basingstoke: MacMillan, 2000), p. 189.

52

Water and Development Private Sphere The Fatalists

in China

Public Sphere

Private Sphere

Public Sphere

The Hierarchists

The Masses Rural Population

Nationalist Government

~w 4-

55s The Entrepreneurs

The Egalitarians

Private Sector Small Numbers

(a) Private Sphere ;

(b) Public Sphere

The MassesA-'-i Danwei v. I ICommunist State

Private Sphere Individuals . Waning of Danwei

Private enterprisesjaot neebejj - a pjartned Qfny


Public Sphere Communist State Quasi Government Organisations (GONGOs, Local Communities-shequ, The Media)

Incipient Civil Movement Private Sector Participation

No,PfTvate Sector

Communism CCP

Environmental NGOs

(c)

Figure 3.2 Transformation of Society in Shanghai, (a) Grid/Group Theory and a Dichotomy between the Private and the Public Sphere; (b) Development of the Chinese Communist Party (CCP) and Changing Dimensions of Chinese Society until 1949; (c) Communist State from 1949 to 1978 (State-Society Duality); and (d) Socialist Market Economy and Socio-political Reform from 1979 to 2003 Source: Reproduced by author based on Thompson.

private life through a complicated governing apparatus, danwei (see Figure 3.2c). The reforms, however, have begun to transform the duality into a multi-faceted society where numerous actors interact with each other. It was the Shanghai government (the Hierarchists) that dominated water policy until the late 1990s. Coupled with the egalitarian determination based on communism, the government established institutions and organizations and implemented large-scale water projects to reduce water pollution in major rivers in Shanghai. This trend has begun to change since the late 1990s when the newly emergent social actors became proactive in response to inadequate environmental conditions. These new actors are environmental NGOs, Shanghai citizens, and private companies

Theoretical Framework 53

Figure 3.3 Interactions between Local and International Actors in Shanghai Water Policy, (a) Relationships between Local and International Actors in the Shanghai Water Sector in the Pre-reform Era until the Late 1970s; and (b) Relationship between Local and International Actors in the Shanghai Water Sector in the Reform Period from the 1980s to the Present Source: Reproduced by author based on Allan, J.A., The Middle East Water Question: Hydropolitics and the Global Economy, London: LB. Tauris, p. 327.

54

Wafer and Development in China

with business interest in the water industry. The Shanghai government has started to understand the need to cooperate with other social actors to reinforce environmental governance and rejuvenate the regulatory capacity of environmental agencies (see Figure 3-2d). In addition to the Hierarchists at the local level, the Shanghai government, international development agencies have also played a pivotal role in Shanghai water policy as the Hierarchists at the international level. Led by the World Bank since the early 1980s, these development agencies have precipitated the adoption of innovative ideas and institutional change in the Shanghai water sector through many large-scale water projects, such as the Shanghai Sewerage Project and the Shanghai Environment Project. Such institutional reform brought obligations that the Shanghai government had to observe when it benefited from development loans through the international agencies. As a result, the Shanghai government is no longer the most powerful single social actor predominant in all sectors of society. The entry of the international development agencies, in effect international Hierarchists, to the Shanghai water sector has reduced the political influence of the Shanghai government and made the political economy of Shanghai more complicated (see Figure 3.3).

The

Egalitarians

The reform policy since the late 1990s has accelerated the emergence of new social organizations because of the looser control of the state over society and economic wealth. The newly emergent social groups are numerous. Some of the most distinctive social associations are environmental NGOs, Government Organized NGOs (GONGOs), and other civil movement groups that originate from former government subsidiary units in the pre-reform era. In Shanghai, such civil forces were invisible until the late 1990s although some prominent environmental NGOs, e.g., the Friends of Nature and the Global Village Beijing, had been active in Beijing. Fieldwork in Shanghai in 2002 identified a series of environmental NGOs that have grown up in Shanghai, such as the Shanghai Green

Theoretical Framework 55

Union, and the Grassroots Community. They have become active in environmental protection, education, and awareness campaigns. These NGOs have many constraints to prevent them from developing quickly: the lack of funding, management skills and technical information, and most importantly, non-registration status. The nonregistration status puts them in an unstable position making them vulnerable to governmental scrutiny and crackdown. Also water issues have been very serious and make embryonic environmental NGOs difficult to handle in Shanghai. Civil movements promoted by environmental NGOs are not yet mature in China.

The

Entrepreneurs

The dominance of the Hierarchists in Chinese society in the pre-reform period effectively nullified the role of the Entrepreneurs in the private sphere. The centrally planning economy did not need the contribution of private companies. The reform policy since the late 1970s has promoted the resurgence of private companies (the Entrepreneurs) in Shanghai. The need of investment and advanced technology has pushed the Shanghai government to adopt privatization in the water sector since the late 1990s. The resulting coalition between the Hierarchists and the Entrepreneurs is very common in the implementation of policy and an exemplary case of the hyper-cycle. The Shanghai government has been committed to undertaking reforms for privatization in the water sector. Good examples identified through fieldwork in 2002 were the Shanghai Pudong Veolia Water Supply Corporation Joint-Venture Project and the Youlian Consortium's the Zhuyuan No. 1 Sewage Treatment Plant Project. One of the characteristics of private sector involvement in the Shanghai water sector is that the water Trans-National Corporations (TNCs) have led the mainstream of privatization although some Chinese private companies have become influential through participation in water projects capitalizing on their local knowledge. The water TNCs in Shanghai seem to be determined to expand their business activities in the water sector in the coming years even though there are some political, legal, and fiscal risks to be resolved.

56

The

Water and Development in China

Fatalists

Chinese experience of the state-society relationship is different from the neo-liberal European experience. In Europe, the confrontation between civil society and the state has been integral to the evolution of the system. An important feature of the process has been the individualization of society. People are expected to develop their own personal as well as common goals. In China, hierarchy has been seen to be one of the major virtues of society. Deference to hierarchy has been accepted as rational social behaviour. The masses (the Fatalists) in China have been treated as a passive public element in the system. Their participation in political and social activities has been minimized. This Confucian tradition continued in the communist regime over environmental issues until the late 1990s. The Shanghai authorities still do not seriously encourage Shanghai citizens to become active in civil movements to achieve environmental protection. Most of the events and programmes in relation to environmental protection in Shanghai have been organized and controlled by the government. However, a number of Shanghai environmental agencies have become aware of the need for public support to prioritize environmental projects against pro-growth policies since the late 1990s. There have been a number of public participation and awareness programmes organized by the government on special days, such as World Water Day and World Environment Day. A high degree of environmental awareness caused by these environmental programmes will benefit local environmental NGOs as well as environmental agencies.

Political Ecology The environmental discourses in the 1970s and the 1980s were dominated by industrial modernity attempting to control nature and provide curative means to reconstruct the environment. This favoured technological innovation and economic development, which was hailed in the North and written into in the 1987 Brundtland Report, Our Common Future. But uncertainty has

Theoretical Framework 57

replaced the certainty of industrial modernity. The dominance of industrial modernity in the sphere of environmental politics in the 1980s and in the early 1990s has been weakened as a result of the unpredictable ecological disasters, such as acid rain. Also there were other problems derived from biotechnology and terrible nuclear incidents such as the case of the 1983 Chernobyl event. It was the green movement that led the environmental activist groups to challenge the certainties of industrial modernity. Since the Earth Summit at Rio in 1992 began to draw the attention of the public to the environment on a global scale, there have been a tremendous variety of environmental discourses conducted by a wide range of actors. Following the evolutionary periods from the 1970s to the 1980s, in the 1990s, environmental politics in the North have experienced the reflexive mode of modernization against the 'the flip-side of progress, the unwanted side-effects and externalities of industrial society' in industrial modernity.14 Such a dynamic mode of environmental discourses since the 1970s has led to the prominence of a whole array of concerns. With the evolution and development of environmental discourses, actors have interacted to exert an impact on political ecological processes. Amongst analysts in the field of political ecology, Hajer provides instructive theories and delineative narratives to enhance an understanding of political ecology.

Definition In order to understand such a complicated political ecology domain, Hajer introduces an analytical tool, 'discourse analysis'. He asserts that the method of discourse analysis is aimed at helping comprehend under which circumstances a certain understanding of environmental issue become dominant and then mandated whereas other understandings are neglected and lose their credibility. Following the Foucaultian definition of discourse, he identifies discourse as 'a specific ensemble of ideas, concepts, and categorization 14

Hajer, Maarten, A., The Politics of Environmental Discourse: Ecological Modernization and the Policy Process (Oxford: Oxford University Press, 1995), p. 36.

58

Water and Development in China

that is produced, reproduced, and transformed in a particular set of practices and through which meaning is given to physical and social realities'.15 It is useful to mention that a debate or discussion of environmental problems encounters various discourses, and therefore, the 'coherence' is not regarded as a critical element of discourse. The debate over acid rain in Europe and North America for more than two decades illustrates the uncertainties and complex interactions of a great variety of involved actors. Such processes indicate that there are many different actors involved in a wide range of issues, problems and claims in political ecology. Hajer also argues that an emblematic issue such as acid rain provides an instance of the way the different actors involved contact each other and the way the number of distinct elements of knowledge comes to consist of authoritative narratives on acid rain.

Conceptualization Hajer emphasizes the relationship between discourse and power in terms of political mechanisms. According to Foucault, discourses include internal rules and regulations, which make discourses serve as a structure to behaviour. Power is not understood and regarded as a feature of an institution, but relates to the way institutions and actors are involved with each other in discourses. It can be contended that the power of an institution is maintained insofar as it is a sustainable feature of the discourse by which the institution is conducted. 16 In consequence, it is noted that debates and discussions in political ecology can be maintained actively through constant discourses, which may relate to the formulation of power in environmental politics. For instance, the reason that industrial factories along the rivers of Shanghai observe sewage discharge standards is not because of the power of environmental agencies but because of relevant regulations and conventions in which the role of environmental agencies are defined. 15 16

Ibid, p. 44. Ibid, p. 49.

Theoretical Framework 59

It is noteworthy that the formulation of power through discourses can be realized by a consensus that will be expressed in a specific politically feasible tool. Hajer introduces the concept of 'story lines'. A story line is defined as 'a generative sort of narrative that allows actors to draw on various discursive categories to give meaning to specific physical or social phenomena'. 17 Most importantly, the essential role of the story line is to provide unity towards such a complicated issue, acid rain. In other words, the fragmentation of discourses in a number of different practices in politics can be rearranged, and a main discourse can be formed through story lines. Water pollution control in Shanghai, in effect a main discourse here, has been formed through numerous story lines such as water pollution-caused environmental disasters, the experiences of environmental law enforcement over polluting units, and the practices of environmental agencies in implementing environmental policies. Coupled with the concept of story lines in environmental politics, Hajer draws attention to 'discourse coalitions'. Discourse coalitions consist of the three main components and the integration of them; (1) a set of story lines; (2) the actors who lean on and tell these story lines; and (3) the practices in which this discursive activity is positioned and based. 18 It is understood that discourse coalitions make previously individual practices and opinions become closely associated with each other and a common discourse that mediates the way that politics evolve. The emphasis of sustainable development including pollution-free rivers by the Shanghai government has become a socio-political norm since the mid-1990s, which was previously marginalized in favor of progrowth policy. On the basis of these arrays of concepts, Hajer emphasizes the significance of emblematic issues such as pollution crisis in Shanghai 'the shifts in policy discourse'.19 His understanding of such 17 18 19

Ibid., p. 56. Ibid., p. 65. Ibid, p. 264.

60

Water and Development in China

issues and their ramifications in political ecology is that such extreme events could challenge the institutional settings, particularly industrial society. It is argued that they could challenge the Shanghai society. He also claims that the acid rain debates in Europe, especially with reference to the UK and the Netherlands, demonstrated that story lines could be centered upon the main theme of politics and then lead to significant shifts associated with a more reflexive approach to risk.20 Application Water Quality

Control: Main

Discourse

Acute water pollution in rivers in Shanghai since the 1980s have led the Shanghai government to pay special attention to water quality control. Nevertheless, environmental discourses have not developed to establish water quality as an imperative policy theme. Policy priorities have been given primarily to economic development in the reform period. This phenomenon is linked to Wang's argument that China is about to overcome the legacies of pre-modernity (the family-based governance) and is being positioned in the middle of process of rapid modernity. 21 As one of the most important economic hubs, Shanghai has reclaimed its prominent economic and political stance in China, particularly since 1990 when the Pudong New Development policy was launched.

Water Pollution Accidents: Story

Lines

Although large-scale water projects were implemented over the past two decades, the water quality in the major rivers in Shanghai, such as the Huangpu River and the Suzhou Creek, was not improved and constantly deteriorated. The serious water pollution in the rivers in Shanghai continued to alert the government to the crisis 20

Hajer (1995), p. 264. Wang, Fei-ling, Institutions and Institutional London and NY: Macmillan, 1998). 21

Change in China (Basingstoke,

Theoretical Framework 61

and helped environmental agencies to intensify institutional and regulatory reform in environmental governance in competition with pro-growth government bureaux. Some environmental disasters were emblematic events and provided political momentum to reinforce the institutional reform drive in water quality control in Shanghai. For instance, in the summer of 1984, the high level of the eutrophication in Dianshan Lake provoked public concern. In 1989, a large amount of phenol was discharged from the Wujing Coke works, which was only 10 km upstream of Linjiang where one of the major drinking water pumping stations is situated. In order to advance water quality control as the main discourse, the Shanghai government emphasized disastrous water pollution accidents as story lines. The politicized story lines imposed pressure on governmental agencies including pro-growth bureaux and led the participation of non-environmental governmental agencies in environmental discourses.

Institutional

Change: Discourse

Coalition

This development culminated in the establishment of discourse coalitions through which the government was able to introduce institutional change in water quality control. There is evidence of discourse coalitions in Shanghai water pollution control policy. The first example of such a coalition was evidenced in the enactment of new laws at the national and local levels, such as the new Environment Impact Assessment Law of 2002. This law should have been enacted earlier, however, pro-growth bureaux embedded in the development-first mindset did not cooperate with the State Environmental Protection Administration. The establishment of the law is the outcome of discourses in environmental politics in which numerous governmental agencies have been involved. Second, the establishment of the Shanghai Water Authority signals the policy shift from the end-of-pipe management to an integrated -water resources management including water pollution amelioration. The authority consists of previous environmental agencies as well as non-environmental agencies, including the

62

Water and Development in China

Municipal Engineering and Management Bureau, and the Public Utilities Management Bureau. Its mandates include the collection of wastewater discharge fees and the coordination of water pricing policies, which were previously handled by pro-growth bureaux. This case is another good example of institutional change through discourse coalitions within the government. Third, the Shanghai Environmental Protection Bureau in the late 1990s successfully prohibited the establishment of a terminal for oil tankers in the upper Huangpu River with the concern that any leakage from the terminal would bring about devastating contamination impacts on the near reservoir. It was an unprecedented example that a main discourse, water pollution, had a significant impact on more attention of industrial entities and the public to water pollution dangers in Shanghai. In many cases, environmental agencies were not as powerful as pro-growth agencies, such as the Shanghai Economic Commission and the Shanghai Foreign Investment Commission. But this case shows that these non-environmental agencies agreed to contribute to environmental protection through discourse coalitions. The fourth example is the promotion of public participation in environmental protection. Environmental agencies in the Shanghai government have had difficulty persuading political leaders to recognize that priority should be given to environmental protection even at the expense of economic benefits. The environmental agencies came to realize that strong popular demands for better environmental quality enable them to achieve policy goals for environmental protection. The Shanghai Environmental Protection Bureau is particularly active to accommodate an ethical mode for taking advantage of public supports by environmental NGOs in Shanghai. Figure 3-4 illustrates how discourse analysis helps understand the political ecology of water quality control policy in Shanghai. But as the government experienced intense confrontation in discourse coalition building with the pro-growth governmental agencies, process may leave the government in a difficult position regarding its wish to keep water quality control as the main

Theoretical Framework 63

Institutional Change in Shanghai Water Policy

XT Actors: Story Lines: Practices:

Discourse Coalitions governmental agencies environmental disasters and regulatory experiences norms and experiences through law enforcement

XT Story Lines Environmental agencies' experiences and cases

nr Main Discourse Shanghai Water Pollution Control

n Emblematic Events Eutrophication in Dianshan Lake Phenol discharged in Linjiang Figure 3-4 Discourse Analysis in Shanghai Water Policy Source: Author.

discourse. Little awareness of environmental protection among industrial entities in Shanghai often hampers the enforcement of environmental regulatory programmes. Pro-growth governmental agencies confront the decisions of governmental environmental agencies in favor of polluting industrial units prioritizing economic development.

64

Water and Development in China

The key to the successful implementation of water policy in Shanghai through discourse coalitions depends upon the political will to prioritize the administrative and regulatory position of environmental bureaux over development-driven governmental agencies. It is important for the government to accommodate a balance between economic development and environmental protection. The collaboration with other social actors, such as environmental NGOs and Shanghai citizens, to promote environmental protection will also play a key role in the establishment of new institutional settings in the Shanghai government.

COMPLEXITY THEORY: CO-EVOLUTIONARY APPROACH Complexity theory stems from organization theory. Complexity is defined as a variable in a structure of concern that determines how organizations co-evolve with the environments in which they exist. The theory originated early in the twentieth century and has developed extensively over the last four decades through the contribution of researchers who have studied general systems theory, nonlinear dynamical systems theory, catastrophe theory, and chaos theory. One of the recent research outcomes of these theoretical endeavors is complexity theory.22 Complexity theory examines complex systems in which a large number of components are interdependent, and all of the components together make a single formula that interacts with internal and external environments. A co-evolutionary approach is useful to address the adaptation of actors in a complex system. This approach does not attempt to reduce non-linear and unpredictable interaction into a set of rigid variables, but analyzes the way complex systems change and evolve influenced by interdependent and interconnected agents. 23 22

Anderson, P, 'Complexity Theory and Organization Science', Science, Vol. 10, No. 3 (May-June 1999), pp. 216-217. 23 Ibid., p. 220.

Organization

Theoretical Framework 65

Definition The idea of co-evolution is based on research in biology that defines co-evolution as 'a change in the genetic composition of one species (group) in response to a change in another.' 24 In other words, co-evolution means 'the idea of some reciprocal evolutionary change in interacting species'.25 But social science theorists understand coevolution differently. Co-evolutionary processes are regarded as interactions between actors through the combination of 'genealogical processes, such as replication of routines, capabilities, competencies, and ecological processes, such as dynamics of competition and selection'.26 Co-evolution is also referred to as 'the joint outcome of managerial intentionality, environment, and institutional effects' populated by numerous actors in a complex system.27 Conceptualization Regarding co-evolutionary processes, Lewin and Volberda introduce the essential properties of co-evolution that determine complicated interactions between actors in a complex system. The properties of co-evolution are; (1) multi-levelness/embeddedness; (2) multidirectional causalities; (3) non-linearity; (4) positive feedback; and (5) path and history dependence. 28 Multi-levelness/embeddedness indicates that co-evolutionary processes come into being at various levels within and between organizations. These processes also take place in the external context associated with economic, political and social entities, and in the internal context involving resources, capabilities, culture, and internal politics. Second, the co-evolution of organizations in a changing organizational environment represents 24

Available online: http://biomed.brown.edu/Courses/BI048/27.Coevolution.HTML Ibid. 26 Lewin, Arie Y., and Volberda, Henk W, 'Prolegomena on Co-evolution; A Framework for Research on Strategy and New Organizational Forms', Organization Science, Vol. 10, No. 5 (September-October 1999), pp. 519-534. 27 Ibid., pp. 526-527. 28 Ibid. 25

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Water and Development in China

the concept of multi-directional causalities. Changes occur driven by bi- and multi-lateral interactions and feedback between actors in many parts of a complex system. The third element, non-linearity, illustrates the pattern of feedback routes that determine actors' behaviours and interdependency. Actors are influenced by internal and external environments and institutional settings. Environments are also influenced by actors in turn. This process reflects a recursive cycle of mutual interaction between actors. The fifth element, path and history dependence, explains the way actors have adapted to different environments and institutional contexts at different times and in heterogeneous occasions.29 A metaphor on a topological space helps illustrate the co-evolutionary process. The rugged landscape results from the interactions between the forces of erosion and the diverse composition of the physical landscape. And the nature of a river channel is determined by the forces of the erosive water in the channel — determined by the volume of water and gravity and the varying resistance of the terrain traversed by the river. The terrain is composed of easily eroded strata as well as very resistant intrusions, as well as weakness through faulting. The topographical outcome is the result of the co-evolution of the terrain and the forces acting on it.30 Similarly, a co-evolutionary approach is useful to evaluate the extent to which organizations or institutions have an influence on and evolve in adapting to new political economy landscapes in which they play an active part. The organizations or institutions may have to meet certain demands and needs to adjust to the new environment through internal capacity building, and at the same time, may, or may not, be able to shift and change the institutional context where the related systems, such as the water sector, operate. 31 29

Ibid., p. 527. Lewin, Arie Y., Long, Christ P, and Carroll, Timothy N, 'The Co-evolution of New Organizational Forms', Organization Science, Vol. 10, No. 5 (September-October 1999), p. 539. 31 Ibid., p. 539. 30

Theoretical Framework 67

Application A co-evolutionary approach helps analyze the extent to which privatization has worked in the Chinese political economy (a complexity system), which is characterized by a web-like and complicated socialist economy system. Boisot and Child argue that companies in China from Europe and America have had two options in doing business in China. One is that they keep their business practice and impose such practices and norms on Chinese partners. The other is that they have to adapt to new socio-political and economic practices through cooperation with Chinese partners. The choice depends upon each firm's capacity to adapt itself to and/or change the political economy landscape in which it is operating. Large companies may attempt to change their environment through political means, such as lobbying their foreign governments to pressure the Chinese government to revise relevant institutions. On the contrary, small companies have no other option but to adjust to local practices, such as constructing the relationship of mutual support with Chinese business partners. 32

Private Sector Participation in the Water Sector The expansion of the private sector in the Shanghai water sector since the late 1990s is a case of such co-evolution. The need for investment, advanced technology, and rational management skills has pushed the Shanghai government to advance private sector participation in the water sector, and private companies have contributed to privatization. Amongst them, water Trans-National Corporations (TNC) have spearheaded the movement although there have been a growing number of Chinese local water companies. Private companies have demanded institutional change to hedge socio-political, legal and regulatory, and revenue risks in privatization in the Shanghai water sector. Faced with the challenge, 32

Boisot, Max and Child, John, 'Organizations as Adaptive Systems in Complex Environments: The Case of China', Organization Science, Vol. 10, No. 3 (May-June 1999), pp. 237-252.

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Water and Development in China

the Shanghai government has been required to implement a number of institutional rearrangements and reforms in order to take on a new role as the regulator rather than the service provider for water services. The success of privatization in the Shanghai water sector depends partially on the extent to which the government will be able to commit its work as regulator based on laws. The interaction of these different interests between the Shanghai government and private enterprises has brought about a very different political economy landscape in the water sector since the late 1990s. Together with the two main actors, environmental NGOs and Shanghai citizens began to be focused on as service consumers as well as participants in the privatization process in the Shanghai water sector. More complicated interactions are evident in the Shanghai water sector. This shows that the co-evolutionary process as expressed in the interaction of privatization processes, and the old institutional landscape has brought about a new landscape in the Shanghai water sector (see Figure 3.5). Privatization

International Agencies

Environmental NGOs, Shanghai Citizens

Water companies

Shanghai Government

Figure 3-5 Co-Evolution in a Rugged Landscape: Private Sector Participation in the Shanghai Water Sector Source: Author.

Theoretical Framework 69

Impacts of International Water Policy

Development

Agencies on

Evidence of co-evolutionary processes is also found in the impact of international development agencies on the Shanghai water sector. The co-evolutionary approach helps identify the way the Shanghai government has transformed its institutions into the ones that are favored by international development agencies, such as the World Bank, and the Asian Development Bank. The primary motive in Shanghai's invitation to international development agencies in the water sector was first, to channel investment, and second, to benefit local technical and managerial know-how and improve dilapidated water service facilities. These international agencies have imposed institutional reform and innovative ideas on the Shanghai government as evident in large-scale water projects, such as the Shanghai Sewerage Project (1988-1999) and the Shanghai Environment Project (1995-2002). The requirements of donor agencies have often imposed political and social challenges that the Shanghai government was unable to address in the short term. For instance, as for the masses, water has in the past not been treated as an economic good but as a social good. This expectation had deterred the government from applying cost-recovery pricing of domestic water to raise water prices and charge adequate sewage fees in the Bank-sponsored development projects over the past decades. In addition, the international development agencies learned the Chinese customary practices. These Chinese practices are known as the alternate dispute resolution and the rule of men rather than the rule of law. But the two hierarchist players, one at the local and the other at the international level, have themselves adjusted to the new political economy landscape in Shanghai by adopting more flexible strategies which have incrementally co-evolved to new circumstances.

CONCLUSION This chapter has discussed the extent to which a series of theories have been useful in exploring how Shanghai has tackled freshwater

70

Water and Development in China

supply and demand via evolving water quality control policies since 1990. Social theory is the main basis of the analysis in the study. The study has adopted the grid/group theory of Mary Douglas, the political ecology theory of Hajer and the co-evolutionary approach of complexity theory. These approaches have helped to identify the players and analyze their behavior in the socio-political and economic relations, -which have established and have influenced Shanghai water policy over the past decades. Grid/group theory has been used to identify social actors involved in Shanghai water policy. These major social actors are the Shanghai government (the Hierarchists), environmental NGOs (the Egalitarians), private companies (the Entrepreneurs), Shanghai citizens (the Fatalists) and international development agencies (the international Hierarchists). The hierarchy-society duality in Shanghai has been transformed into a multi-faceted institutional system in which these actors now interact with each other. The political ecology of Hajer has helped evaluate the extent to which the Shanghai government has managed to prioritize environmental protection, particularly water quality control based on an analytical tool, discourse analysis. The Shanghai government has partly succeeded in implementing institutional reform to ameliorate water pollution in major rivers in Shanghai, such as the reform of institutions, organizations, and environmental regulatory programmes. The co-evolutionary approach of complexity theory has helped clarify the way a complex system develops and changes with the involvement of different actors. Co-evolution in the Shanghai water sector has been evident first, in the evaluation of the way private companies in the Shanghai water sector has re-emerged and taken part in the Shanghai water policy domain through interaction with the Shanghai government. Second, some institutional reforms in relation to development projects in Shanghai water policy over the past decades have been the outcome of the co-evolutionary processes between the Shanghai government and the international development agencies. It is evident that there have been newly emergent social actors that begin to participate in water policy-making and implementation, such as environmental NGOs, private enterprises, and Shanghai

Theoretical Framework 7\

citizens. Water quality control is no longer a politically marginalized discourse among policy-makers. The political leaders in Shanghai have been aware of the need to establish environmentally friendly urban spaces for many purposes, including investment for its sociopolitical and economic development. The political economy landscape in the Shanghai water sector has been transformed into the more complicated system in which numerous actors co-evolve to environments. The positive result of the transformation of Shanghai water policy has been, and will be possible through the collaborative interactions between different actors. Among different actors, the next chapter will explore how the Shanghai government, still the most influential actor in water policy, has confronted water pollution problems through its institutional reforms and change over the last two decades. The discussions will also show the way the government has become aware of its need to collaborate with nonstate sectors, such as environmental NGOs and ordinary citizens for environmental protection.

Chapter

Institutional Reform in Shanghai Water Policy INTRODUCTION This chapter evaluates the extent to which institutional reform in the Shanghai government has been effective in ameliorating challenges in water service provision, particularly water quality control. As an analytical framework, the grid/group theory by Mary Douglas and an analysis of the public and private spheres will be used to examine the most influential actor in Shanghai water quality control policy, the Shanghai government. Its institutions, organizations, and environmental regulatory programmes will be reviewed alongside the national institutional, organizational and regulatory settings. This study has identified five major actors in Shanghai, which are populated in the two different social dimensions, namely the public sphere and the private sphere. The primary focus of this study is the public sphere where the Shanghai government has been reforming its institutions and has reinforced regulatory regimes over the past two decades. Fieldwork in 2002 revealed that the Shanghai government has begun to be increasingly open to the adoption of innovative approaches different from the rigid and 73

74

Water and Development in China

inflexible command and control management. There has been a shift towards managing water quality issues in collaboration with other governmental agencies as well as with other social actors, such as Shanghai citizens and environmental NGOs. This new strategy in water quality control policy by the Shanghai government is aimed at reinforcing environmental governance and rejuvenating the regulatory capacity of the Shanghai Environmental Protection Bureau, the Shanghai Water Authority and other environment agencies. Together with grid/group theory and the public and private analysis, the political ecology theory of Hajer will be deployed. 1 Hajer asserts that a careful observation and analysis of activities in the framework of political ecology "will provide insights on how the environment has been managed. Referring to 'emblematic' events, such as acid rain in northern Europe, Hajer endeavored to expound how emblematic events tend to have had a significant influence on shifts and changes in environmental policies. Similar to such high profile environmental disasters is the severe water pollution situation in Shanghai. Periodic serious pollution events have pushed the Shanghai government to seriously consider enhancement of the water environment. A number of the shifts and reforms aimed to regulate polluting sources and impacted upon "water managing and regulating institutions and organizations. Discourse analysis deployed by Hajer will serve to shape discussion and provide a framework on how to evaluate water quality control policies in Shanghai. Discourse analysis consists of three main components: discourse; story lines; and discourse coalitions. Faced with severe water pollution, the Shanghai government has needed to bring the water pollution issue into the main arena of politics in order to set up water pollution ameliorating policies. The main discourse has been shaped via efforts of the Shanghai government. On the basis of the consensus to abate water pollution in Shanghai, different entities have started to become involved in water pollution abatement 1

Hajer, Maarten A., The Politics of'Environmental Discourse: Ecological Modernization and the Policy Process (Oxford: Clarendon Press, 1995).

Institutional Reform in Shanghai Water Policy 75

discussions. A wide range of cases and different experiences has brought about the creation of story lines. These are essential in helping identify the main discourse and the related discourse coalitions. These story lines can impose a context of ideas on governmental agencies in Shanghai, which are not actively engaged in the main discourse, i.e. pro-growth bureaus and commissions but are affected by it. Discourse coalitions develop based on an ensemble of story lines, "which involve diverse actors, and practices and rules that the actors follow in relation to the main discourse. The Shanghai government has striven to conduct an integrated approach to water quality challenges via discourse coalitions. There have been some achievements in terms of institutional reform, such as the establishment of the Shanghai Water Authority. This body integrates previously fragmented governmental functions in relevant to water policy. Until the late 1990s, the Shanghai government dominated water policy. The government enacted a series of laws, established a set of environmental agencies, and implemented various environmental regulatory programmes to ameliorate water pollution in major rivers in Shanghai. But this single actor-dominated regime began to change in the late 1990s. Since then the influence of other social actors, such as Shanghai citizens and environmental NGOs have become influential and have drawn the attention of the government to water quality issues. The adoption of public hearings, interviews, and open discussions in the new EIA Law in 2002 is evidence of the changing approach to water policy in Shanghai where multiple actors now interact. The government has become aware that networks, specialties, and enthusiasm from other social actors play a useful role in policy-making and implementation and have positive impacts on water quality control. The new energy from civil society can benefit environmental agencies in Shanghai in overcoming political interference and conflicts of interests. Water quality control needed to be prioritized by the Shanghai government from the 1980s, and in order to advance the issue as the main discourse, the government emphasized disastrous water pollution accidents as story lines over the past two decades. This political manipulation imposed pressure on governmental agencies including

76

Water and Development in China

pro-growth bureaus. The politicized story lines and the participation of non-environmental agencies in the Shanghai government resulted in discourse coalitions, the energy of which paved the way for the government to introduce institutional change in water quality control policies. The successful examples of institutional change are first, the enactment of new laws at the national and local level. Second, the Shanghai Water Authority was established given mandate to manage water resources in an integrated way, and an EIA successfully prevented the construction of an oil tanker terminal upstream of the Huangpu River. Third, the government realized the need for cooperation with other social actors, such as environmental NGOs and Shanghai citizens and has begun to promote public participation by opening diverse channels to listen to their voices in policy making. In spite of these institutional achievements, there remain a number of challenges. These are related to the enforcement and compliance of environmental policies and regulatory programmes, and to the integration of economic growth and environmental protection. In addition, conflicts of interest between governmental agencies have to be mediated. There are also problems associated with the promotion and institutionalization of public consultation in water policy in Shanghai. Informal politics based on the rule of men rather than the rule of law is another hindrance to Shanghai's need to improve the implementation capacity of environmental agencies attempting to regulate industrial as well as domestic polluters. The first part of this chapter analyzes how the Shanghai government dominated environmental policy making and implementation by discussing the organizing structure of environmental pollution control in Shanghai as well as in China, and the laws, regulations, rules and standards with reference to water quality control in Shanghai and China. In addition, various programmes associated with environmental regulations will be explored. The evolution of institutions and organization will highlight the way these institutional settings have been reinforced by the political will of the central and local government to cooperate as a consequence of their alarm heightened by emblematic environmental disasters. The second section discusses a series of challenges in institutional reform. This

Institutional Reform in Shanghai Water Policy 77

section will provide a platform to look at problems of enforcement and compliance in environmental policy as well as the conflicts of interests among governmental agencies, the tug-of-war in policy priorities between economic gains and water quality control, and public consultation in policy-making and implementation. The third part of this chapter will identify the limited achievements by the Shanghai government in the area of institutional reform. In addition, this part assesses a successful case of environmental impact assessment enforcement in Shanghai and new approaches for water quality control, such as the establishment of the Shanghai Water Authority as well as the promotion of public participation. The conclusion "will evaluate the need of the intergovernmental cooperation and the balance of achieving both economic development and environmental protection for effective water quality control in Shanghai. Also, it is concluded that the policy reform will be improved if the government embrace the involvement of other social actors in civil society. INSTITUTIONAL FRAMEWORK The main discourse, water quality control policy in Shanghai, has been discussed and shaped by different governmental organizations. Water quality control has been promoted as the main discourse in the Shanghai government because of the occurrence of emblematic water pollution-induced environmental disasters over the past two decades. These events were not publicly well informed, but utilized as politically manipulative story lines to push forward the agenda of water quality control policy. For instance, the eutrophication report on Dianshan Lake in the summer of 1984 gave a far-reaching impact on environmental awareness in Shanghai. 2 2

Shanghai Environmental Protection Annals Editing Board, Shanghai Huanjing Baohuzhi {Shanghai Environmental Protection Annals) (Shanghai: Shanghai Academy of Social Sciences Press, 1998), p. 357. This report provoked public concern about acute water pollution not only in Dianshan Lake but also in the Huangpu River and other small rivers in Shanghai, because the Huangpu River stems from the lake.

78

Water and Development in China

In 1989, the Wujing Coke works from March to June discharged a large amount of phenol to the Huangpu River, just only 10 km upstream of Linjiang where one of the primary drinking water pumping stations is located. The level of phenol measured at Linjiang at that time was up to 10-15 times the Chinese standard.3 In the 1990s, a local newspaper reported the random discharge of industrial sewage into the Huangpu River by Jianglong Chemical Company. 4 These events as story lines played a pivotal role in making water quality control become and remain the main discourse in environmental protection. Whereas conflicts of interest have prevailed between government agencies, a set of laws, regulations, and measures at the national level and the municipal level, including in Shanghai, have been enacted. Such a legal basis for environmental protection has empowered environmental agencies such as the State Environment Protection Administration, and the Shanghai Environmental Protection Bureau in environmental governance. Environmental regulatory programmes, such as the Three Synchronization, have worked as useful policy measures to push forward environmental policies against polluting economic entities in Shanghai and China. However, a preference for economic gains in China has de-emphasized the importance of environmental protection, and indirect interference by politically powerful bureaus has undermined the effective enforcement of environmental regulations.

Organizational Structure It is useful to gain an understanding of the characteristics of organizations involved in the national environmental protection policy in China before focusing on the organizational structure of Shanghai's 3

International Bank for Reconstruction and Development, Shanghai Environment Project: Staff Appraisal Report, unpublished project report, 1994, p. 11. 4 Shanghai Environmental Protection Annals Editing Board, Shanghai Huanjing Baohuzhi {Shanghai Environmental Protection Annals), p. 357.

Institutional Reform in Shanghai Water Policy 79

water quality control policy. The hierarchical and centrally planned and controlled governing system in the communist China gave little leverage to local governments in policy-making and implementation until the late 1970s. However, decentralization in the reform period since 1979 has legitimized localized policy and development strategies. Shanghai also began to benefit from this new policy, particularly in the early 1990s. Although Shanghai has enjoyed a certain degree of autonomous policy-making and implementation, the fundamentals of the communist bureaucratic system have not been altered. Localized policies are tolerated by the central government insofar as the policies fit within centrally institutionalized guidelines. Therefore, it is necessary to overview environmental protection policy at the national level first and then delve into Shanghai's organization structure in water quality control policy.

National

Level

The main approach to analyze the national organizations in environmental protection policy in China is linked to discussions on the administrative and organizational system in environmental protection, in particular, with reference to industrial pollution. Although Shanghai has -witnessed the gradual change of the main polluting sector from the industrial to the domestic sector since 1997, the major organizational pillars in environmental pollution control in China have been established to abate industrial pollution. The industrial sector is still the major polluter in many areas in China. The governmental organizations involved in environmental protection in China are in a hierarchy along the three lines: (1) Environmental protection committees of the National People's Congress (NPC); (2) the State Environmental Protection Administration (SEPA) and the Environmental Protection Bureaus (EPBs); and (3) environmental protection commissions of the people's governments (see Figure 4.1).5 The role of environmental protection committees 5

Ma, Xiaoying and Ortolano, Leonard, Environmental Regulation in China, Lanham (Boulder, New York and Oxford: Rowman & Littlefield Publishers, 2000), p. 55.

80

Water and Development in China National People's Congress

State Council

H

Environmental Protection Committee of National People Congress

JL c==C>

C


Environmental Protection Commission of the State Council*

Provincial Environmental Protection Bureau

Environmental protection commission of provincial people's government

Municipal Environmental Protection Bureau

Environmental protection commission of municipal people's government

H

H

Urban construction and environmental protection committee of municipal people's congress

I

H

Persons in charge of environmental protection in county/district people's congress

| j I

I

H

Urban construction and environmental protection committee of provincial people's congress

State Environmental Protection Administration (SEPA)

B S I ^

County/District Environmental Protection Bureau

I

Environmental protection commission of county/district people's government

JL

Persons in charge of environmental protection in township governments and sub-district offices

Figure 4.1 Organizational Structure for Environmental Protection in China * In 1998, the Environmental Protection Commission of the State Council was eliminated in the administrative reform. The committee had been established in 1984. Source: Ma, Xiaoying and Ortolano, Leonard, Environmental Regulation in China (Lanham and Boulder, NY and Oxford: Rowman & Littlefield Publishers, Inc, 2000), p. 56.

in the National People's Congress is to propose environmental laws, and environmental commissions of people's governments usually incorporate non-environmental government responses to grave environmental problems. The primary role of the SEPA is to devise environmental policies and programmes at the national level and to implement rules only for projects related to national level agencies or important

Institutional Reform in Shanghai Water Policy 81

national projects. 6 Such a high profile status of the SEPA was achieved only when the 1998 administrative reform was implemented although many government ministry level bodies were streamlined.7 The promotion of the SEPA to ministerial status was aimed at strengthening the political power of environment agencies in a tug-of-war with other agencies involved. However, the outcome remains to be seen in the future. Local environmental protection bureaus (EPBs) are in charge of implementing local and national environmental regulations and deal with local polluters everyday. The hierarchical position of local EPBs illustrates that local EPBs are under the guidance and command of the SEPA. However, the late 1980s' administrative reform in tune with market principles pushed local EPBs to finance themselves without any financial support from the central government. 8 The basic salaries for local EPB employees have been paid by local governments, which attenuates local EPBs' independence out of interference by local governments. In addition, local governments' financial support for local EPBs does not cover all staff, but only pays for administrative staff. This phenomenon has driven local EPBs to become increasingly keen on generating income from pollution discharge fees and other outsourcing projects, such as environmental impact assessment (EIA) projects. Shanghai With respect to "water quality control policy, there are three major relevant organizations in the Shanghai government: the Shanghai Construction and Management Commission, the Shanghai Water Authority (SWA), and the Shanghai Environmental Protection Bureau 6

Ma and Ortolano, Environmental Regulation in China, p. 9 and p. 58. Jahiel, A.R., 'The Organization of Environmental Protection in China,' in Edmonds, R.L. (ed.), Managing the Chinese Environment (Oxford: Oxford University Press, 1998), p. 33. The previous name of the SEPA was the National Environmental Protection Agency (NEPA), established in 1987. 8 Ma and Ortolano, Environmental Regulation in China, p. 62. 7

82

Water and Development in China

(Shanghai EPB). The Shanghai Construction and Management Commission is in charge of constructing and managing water supply and sewage treatment facilities,9 and the SWA oversees various water management projects and policies. It is the Shanghai EPB that implements environmental regulatory programmes and enacts rules and regulations. Although there are many organizations involved in environmental protection in Shanghai, more than any other organization, the Shanghai EPB has played a key role in abating water pollution in Shanghai. The major tasks in the Shanghai EPB are: (1) to implement environmental protection related policies, laws, rules and regulations; (2) to set up environmental protection plans and strategies; (3) to regulate and monitor pollution in water bodies, air, noise, solid wastes, and soil and; (4) to propose municipal environmental quality standards.10 The organizational structure includes two main divisions, the department office and the subsidiary units. As discussed before, the tendency of fiscal decentralization to local EPBs since the 1980s has influenced the Shanghai EPB and set up a series of subsidiary research and service units for financial security (see Figure 4.2). It can be argued that the high degree of industrial wastewater treatment (98% in 2000) and the great improvement of the rate of domestic wastewater treatment from 12.9% in 1992 to 53.3% in 2001 have been achieved through the great efforts and activities of the Shanghai EPB.11 It is also assumed that story lines, namely numerous environmental disasters, over the past decades injected political momentum into environmental agencies, such as the Shanghai EPB, to reinforce environmental regulatory programmes to polluting industrial and domestic entities. The improvement of the regulatory capacity has been possible by building discourse coalitions with non-environmental agencies. 9

Interview with Mr Wu Jingsong, the Shanghai Environmental Protection Bureau, on 2 April 2001. Interview-020401. 10 Shanghai Huanjing Zhuangkuang Gongbao 2001 {Shanghai Environmental Bulletin 2001), Annex p. 1. 11 Shanghai Huanjing Zhuangkuang Gongbao 1992-2002 {Shanghai Environmental Bulletin 1992-2002).

Institutional Reform in Shanghai Water Policy

83

Shanghai Environmental Protection Bureau

1

Department Office

Subsidiary Service Units

Administrative Office

Shanghai Environment Monitoring Centre

Integrated Planning Department

Shanghai Environment Supervision Station

I

x

Policy and Legal Department

Shanghai Radiation Monitoring Centre

Science and Technology Standard Department

Shanghai Environmental Protection and Education Centre

Pollution Regulation Department

Shanghai Hazardous Waste Treatment Centre

I Water & Ecological Environmental Protection Department

Shanghai Environmental Science Research Centre

Monitoring & Management Department

I

Shanghai Environmental Protection Information

International Cooperation Department

I Organisation and Personal Department

I Inspection Department

Shanghai Environmental Protection Strategy

I Shanghai Environmental Science Magazine

Service Centre

Figure 4.2 Organizational Structure in the Shanghai Environmental Protection Bureau Source: Shanghai Huanjing Zhuangkuang Gongbao 2000 {Shanghai Environmental Bulletin 2000}.

Institutions: Laws, Regulations, Rules, Measures a n d Standards Institutions profoundly influence the way organizations evolve and change. In turn, organizations can influence the way institutions are formed and change. If the capacity of government environmental agencies dominates the water quality control discourse over other governmental organizations, the shift in power results from the

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Water and Development in China

establishment of sound institutions and enforcement capacity.12 Regarding environmental protection policy in China, the central government has established a wide range of laws, regulations, rules, and standards since 1949- In response to the legal institutions established at the national level, provincial and municipal governments began to establish their own legal systems more appropriate to local circumstances thanks to decentralization in the 1980s. Based on its economic strength, the Shanghai government has taken a lead in consolidating its formal institutions to regulate and monitor environmental pollution, in particular with a focus on water pollution in the Huangpu River, the Suzhou Creek and other water bodies in Shanghai.

National

Level

The PRC 1982 Constitution is providing a sound basis for the central government to undertake environmental protection policies in different social environments and units. 13 The PRC Environmental Protection Law (1979 and 1989) provides the legal basis for environmental regulatory programmes in the central government. On the basis of the law, the central government established national and local environmental protection bureaus, enforced polluters to comply with waste discharge standards, and guided industrial units to evaluate environmental impacts of projects in order to ensure that new projects were environmentally appropriate. 14 12

North, Douglas, C, Institutions, Institutional Change and Economic Performance (New York: Cambridge University Press, 1990), p. 5. 13 Sanders, 'The Political Economy of Chinese Environmental Problem: Lesson of the Mao and Deng Years', Third World Quarterly, 1999, Vol. 20, Issue 6, p. 1206. See also the website to obtain a full version of the PRC 1982 Constitution: http://www.environinfo.org.cn Article 26 in the PRC 1982 Constitution reads, "the state protects and improves the environment in which people live and the ecological environment. It prevents and controls pollution and other public hazards." 14 Ma and Ortolano, Environmental Regulation in China, p. 16. The importance of the 1989 Environmental Protection Law lies in four guiding principles: (1) coordination of environmental protection and economic development; (2) pollution prevention; (3) pollution responsibility; and 4) strengthening environmental management.

Institutional Reform in Shanghai Water Policy 85

There have been four laws enacted regarding water quality control policy at the national level: the PRC Water Pollution Protection Law; the PRC Water Law; the PRC Water and Soil Conservation Law; and the PRC Solid Waste Pollution Prevention and Control Law. Attention is first paid to the PRC Water Pollution Prevention Law adopted in 1984 and amended in 1996. This law has played an important role in preventing water pollution in major water bodies in China, such as the

Yellow River, and the Yangtze River. Faced with severe water pollution in major rivers, lakes, and oceans in China, the central government enacted the PRC Water Law in 1988 and revised it in 2002. The PRC Water and Soil Conservation Law was adopted in 1991 and reflects the integrated environmental protection and conservation approach. The PRC Solid Waste Pollution Prevention and Control Law in 1995 is particularly important in urban areas, such as in Shanghai where massive amount of solid wastes are discharged on the daily basis. Improper treatment of solid wastes in Shanghai has been detrimental to major rivers, especially to the Suzhou Creek. In terms of water quality control, there are two exemplary regulations: the Water and Soil Protection Law Implementation Regulations (1993); and the Municipal Water Supply Regulations (1994). Together with the national regulations, a number of national implementation measures in water pollution control have been established; the Drinking Water Protection Area Pollution Prevention Management Rules (1989); the Water Pollution Discharge Permit Management Measures (1988); and the PRC Water Pollution Prevention Law Implementation Measures (2000), to name a few (see Table 4.1). In order to secure better water quality standards, the central government has established two important standards: the Environmental Quality Standards for Surface Water and the Integrated Wastewater Discharge Standards. The Environmental Quality Standards for Surface Water include five different categories used to classify water bodies in accordance with the Illustrative Surface Water Quality Standards (see Tables 4.2 and 4.3). 15 The Integrated Wastewater 15

Ibid., pp. 18-19 and World Bank, Staff Appraisal Report: Second Sewerage Project t, unpublished report, 1996, p. 88.

Shanghai

86

Water and Development in China Table 4.1 Selected Laws, Regulations, Rules, and Measures in China Water Pollution Control Policy

National Level

Ministerial Level

Standards

Title

Year

PRC Constitution PRC Environmental Protection Law PRC Solid Waste Environment Pollution Prevention & Control Law PRC Water Law PRC Water & Soil Conservation Law PRC Water Pollution Prevention Law PRC Environmental Impact Assessment Law PRC Cleaner Production Law Water & Soil Protection Law Implementation Regulations Municipal Water Supply Regulations Water Pollution Discharge Permit Management Measures Drinking Water Protection Area Pollution Prevention Management Rules PRC Water Pollution Prevention Law Implementation Measures

1982 1989 1995

Municipal Water Supply Companies Qualification Management Rules (Ministry of Construction) Drinking Water Sanitation Monitoring Management Measures (Ministry of Construction and Hygiene) Municipal Water Supply Water Quality Management Regulations (Ministry of Construction) Environmental Quality Standards for Surface Water Integrated Wastewater Standards

1988 1991 1984 2002 2002 1993

Revision

2002 1996

1994 1988 1989 2000 1993

1996

1999

1988 1998

Source: Shanghai Environmental Protection Bureau. Available Online: http: //www.envir.online.sh.cn

Discharge Standards set up the limitation of concentration on the quality of wastewater releases. Regulated water pollutants are divided into two types: Type I: heavy metals and other toxic substances; and Type II: conventional water pollution indicators, such

Institutional Reform in Shanghai Water Policy 87 Table 4.2 Environmental Quality Standards for Surface Water —1 (GB 3838-88) Class of Water Use I II

HI

IV V

Description of Use Water that flows through national nature reserves Source of municipal drinking water supply (first grade conservation area); conservation areas for rare aquatic species; and areas for fish spawning Source of municipal drinking water supply with treatment required (second grade conservation area); conservation areas for common aquatic species; and areas for swimming Source of industrial water supply and recreational use other than swimming (e.g., boating and fishing) Source of industrial cooling water, irrigation water, and ordinary landscape

Source: Ma and Ortolano, Environmental Regulation in China, Annex B.

as total suspended solids, Chemical Oxygen Demand (COD), and pH. The Integrated Wastewater Discharge Standards were adopted in 1988, but revised in 1998.16

Shanghai In response to the national legal framework for water quality control, the Shanghai government has established its own legal framework that is more suitable and consistent with local socio-economic circumstances. The rapidly developing economy in Shanghai throughout the 1980s and the 1990s has often led the municipal government to be in the difficult position of balancing economic development and water quality control. Even though the water quality in the Suzhou Creek is at best Class IV and Class V, the eradication of unpleasant odour and black color in the creek in the late 1990s implies that the decades' effort of the municipal government starts to pay benefits. Such achievement in Shanghai has been possible not only by means of engineering solutions but also by way of the establishment of formal institutions. Improvements in environmental 16

Ma and Ortolano, Environmental Regulation in China, pp. 18-19. Available Online: http://www.envir.online.sh.cn/law/standard/wastwat.htm (GB 8978-1996)

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Water and Development in China

Table 4.3 Environmental Quality Standards for Surface Water — 2 (GB 3838-88) (concentration in mg/liter, except ph) Class of Water Use Constituent

I

II

III

IV

V

p H ( p H units) Hardness Sulfate Chloride Iron Manganese Copper

6.6-8.5 <450 <250 <250

6.5-8.5 450 250 250

6.5-8.5 450 250 250

6.5-8.5 500 250 250

<0.3 <0.1 <0.01

Zinc Nitrate nitrogen Nitrite nitrogen Un-ionized ammonia Kjeldahl nitrogen Total p h o s p h o r u s Permanganate value Dissolved oxygen CODBOD* Fluoride Selenium

0.05 <10 0.06 0.02

0.3 0.1 1.0 (0.01) 1.0 10 0.1 0.02

0.5 0.1 1.0 (0.01) 1.0 20

0.5 0.5 1.0 2.0 20

6.0-9.0 550 250 250 1.0 1.0 1.0 2.0

0.15 0.02 1 0.1 (0.05)

1.0 0.2 2 0.2

6

8

>5 15 4 1.0 0.01

>3 20

6

25 10

1.5 0.02

1.5 0.02

Arsenic Mercury

0.05 0.0001

0.1 0.001

0.005 0.05 0.05 0.2 (0.005)

0.005 0.05 0.05 0.2

0.1 0.001 0.01

0.005 0.05 0.2

0.01

Cadmium Hexavalent chromium Lead Cyanide Phenols Oil Anionic Surfactant

0.5 0.02 2 >90% salt

0.5 0.1 (0.025)

<15 <3 <1.0 <0.01

<15 3 1.0 0.01

0.05 0.00005 0.001 0.01 0.01

0.05

4 >6

0.005 0.002

0.00005 0.0005 0.05 0.05 0.05 (0.005) 0.002

0.05 <0.2

0.05 0.2

25 1.0 0.2 2 0.2 10 >2

0.1 0.1 0.2

0.5

0.1 1.0

0.3

0.3

* COD: Chemical Oxygen Demand. * BOD: Biological Oxygen Demand. Source: World Bank, Staff Appraisal Report: Second Shanghai Sewerage Project, Annex 9, World Bank, Unpublished Report, 1996, p. 88, and Shanghai Environment Online Website.

Institutional Reform in Shanghai Water Policy 89

regulatory programmes and in law enforcement in Shanghai also resulted from the fact that the main discourse, water quality control, has been placed as a central policy issue. In addition, discourse coalitions embracing non-environmental agencies have developed a common political domain, water quality control, and this political consensus has culminated in the creation of new and adequate formal institutions. One of the first enacted environmental regulations in relation to protection of water source areas in the Huangpu River was the Shanghai Municipal Huangpu River Upstream Water Source Area Protection Regulations (1985 and revised in 1990 and 1997).17 Another influential environmental legislature in Shanghai is the Shanghai Municipal Environmental Protection Regulations in 1995, which have influenced a range of environmental protection programmes, including the programmes in water quality control. Other important regulations are: the Drainage Management Regulations (1996 and 2001 revised); the Water Supply Management Regulations (1996); and the Waterway Management Regulations (1997). In addition to regulations, there are a list of rules in -water quality control in Shanghai. The Waterway Cleaning and Management Preliminary Rules in New Areas were adopted in 1990, particularly for the Pudong New Development Area. The Water Intake Permit System Implementation Rules (1995 and 1997 revised) indicate the determination of the Shanghai government to conserve water intake points against pollutants. As detailed implementation measures, the PRC Water Law Implementation Measures by the Shanghai government (1992) and the Water Saving Management Measures (1994) were also introduced. With reference to standards, the Shanghai government has worked hard in creating its own standards, which are known to be stricter than other economically less developed areas. The examples are the Municipal Industrial Wastewater Discharge Supplementary Standards (1989) and the Municipal Wastewater Integrated Discharge Standards (1997) (see Table 4.4). 17

Wu Renjing, Shengtai Chengshi Jianshede Yuanlide Tujing (Principles and Paths for Establishing an Ecological City) (Shanghai: Fudan University Press, 2000), p. 258.

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Table 4.4 Selected Regulations, Rules, and Measures in Shanghai Water Pollution Control Policy Title Shanghai Municipal Huangpu River Upstream Water Source Area Protection Regulations Municipal Environmental Protection Regulations Drainage Management Regulations Water Supply Management Regulations Waterway Management Regulations New Area Cleaning Waterway and Management Preliminary Rules Water Intake Permit System Implementation Rules PRC Water Law Implementation Measures Water Saving Management Measures Municipal Industrial Wastewater Discharge Implementation Standards Municipal Wastewater Integrated Discharge Standards Sources: Shanghai Water Authority. Available Online: http://www.shanghaiwater.gov.cn. Shanghai Environmental Protection Bureau. Available Online: http://www.envir.online.sh.cn.

Year

Revision

1985 1990 and 1997 1994 1996 2001 1996 1997 1990 1995 1992 1994 1989 1997

As discussed above, an array of new formal institutions in Shanghai has begun to be established since the mid-1990s in response to the national government's legal framework related to water quality control policy. Such an establishment of legal instruments for water pollution control in Shanghai has empowered environmental agencies to push forward the strict enforcement of regulations and rules. This highlights that the issue of water quality control has become central to political priorities. This trend in regulatory practice reflects a gradual change of the Shanghai government's environmental protection policy, which is increasingly based on the rule of law rather than the discretionary power based on the rule of men that prevailed over in the Mao period until late 1970s. The increasing number of regulations and rules in Shanghai demonstrates that the municipal government has improved its institutional capacity and has begun to consider institutional reform

Institutional Reform in Shanghai Water Policy 91

out of informal constraints. This development contrasts with little development of the civil movement supported by environmental NGOs and the public in Shanghai. As the state-society duality was predominant, it was hierarchy that spread its message to society about environmental protection in Shanghai. The driving force for the Shanghai government to adopt the precautionary and remedial environmental policies was not an external factor, such as civil movements by environmental NGOs, but internal factors, economic achievements in the 1990s and emblematic environmental disasters.

E n v i r o n m e n t a l Regulatory P r o g r a m m e s Environmental regulatory programmes have been devised and developed in China, mainly since the late 1970s, and the establishment of the eight different, but interrelated programmes which were completed in the 1980s.18 The current water quality control policies at the national and local levels are being implemented according to the Ambient Water Quality Standards and the Integrated Wastewater Discharge Standards together with the eight programmes. The laws, regulations, rules, and standards at the national and local levels also provide the legal framework in terms of imposing the standards on the industrial and domestic water users and consumers. The State Environmental Protection Administration (SEPA) takes a full control over the management of the programmes, and each provincial, municipal and other local Environmental Protection Bureau (EPB) implements environmental regulation policy through the programmes on a daily basis. In Shanghai, the Shanghai EPB implements the programmes to abate water pollution. Although there were five new environmental regulatory programmes issued in

18

These are: Environmental Impact Assessment, The Three Synchronization, Pollution Discharge Fees, Pollution Control with Deadlines, Discharge Permit System, Environmental Responsibility System, Assessment of Urban Environmental Quality, and Centralized Control of Pollution.

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Wafer and Development in China

the 1980s,19 attention is paid to the three major programmes, namely, the Environment Impact Assessment (EIA), the Three Synchronization, and the Pollution Discharge Fees. These were created in the 1970s and have been widely implemented over the past decades.

Environmental

Impact

Assessment

The Environment Impact Assessment (EIA) programme is based on the PRC Environmental Protection Law of 1989 and the PRC Environmental Impact Assessment Law of 2002. The idea of EIA promotes conducting environmental impact assessments when a project is actually ongoing and before the project is completed. In principle, the proposed project can be disapproved or approved depending upon the result of EIA by EPBs. However, cases of disapproval by EPBs are seldom found, because the general priority to economic growth over environmental protection gives more credit to enterprises that are willing to conduct the proposed project regardless of an EIA result. It is often possible to observe this phenomenon because local governments also prefer pro-economic growth projects at the expense of the environment, which hampers EPBs' strict implementation of EIA on industrial projects.

The Three

Synchronization

The legal basis for the Three Synchronization is also the PRC Environmental Protection Law of 1989- The Three Synchronization means that "the design, construction and operation of a new industrial enterprise (or an existing factory that is expanding or charging its production processes) must be synchronized with the design, construction, and operation of appropriate waste treatment facilities."20 This 19

The five programmes are the Pollution Control within Deadlines, the Discharge Permit System, the Environmental Responsibility System, the Assessment of Urban Environmental Quality, and the Centralized Control of Pollution. Ma and Ortolano, Environmental Regulation in China, pp. 24-26. 20 Ibid., p. 25. The definition comes from Article 26 in the PRC Environmental Protection Law in 1989-

Institutional Reform in Shanghai Water Policy

93

Table 4.5 EIA and the Three Synchronization Implementation from 1993 to 2004 (Unit: Cases)

EIA 3S*

93

94

637 442

564 596

98

99

00

01

02

03

04

94 112 115 101 1730 3366 4373 915

73 586

N/A N/A

138 217

N/A 1011

243 N/A

273 N/A

95

96

97

* 3S means Three Synchronization Source: Shanghaishi Huanjing Zhuangkuang Environmental Bulletin 1994-2005).

Gongbao 1994-2005

{Shanghai

programme has been assessed to stimulate investment in sewage treatment facilities in industrial enterprises, particularly in new factories. However, the lack of institutionalized inspection requirements before the construction stage by local EPBs has offset the effectiveness of the programmes whereas projects are relatively well managed in the design and operation stages.21 Moreover, together with pro-growth policies, the absence of specific requirements in the different stages of a project in the early 1990s made industrial units often ignore the rules for The Three Synchronization.22 The overall situation of EIA and the Three Synchronization implementation in Shanghai is shown in Table 4.5. The trend of EIA implementation in Shanghai has been fluctuated, for instance, the record of EIA being high in the consecutive two years in 1993 and 1994 (637 and 534 cases respectively) but suddenly having plummeted to around 100 cases since 1995- Since 2002, EIA enforcement has seemed to stabilize, recording over 250 cases per annum. The number of the Three Synchronization implementation in the past decade also illustrates an unexpected pattern, presenting high numbers in the years of 1996 and 1997 (3366 and 4373 cases respectively), but the dramatically low number in 1998 and 2001 (915 and 217 cases respectively). It is difficult to say what has caused such oscillating record of EIA and the Three Synchronization implementation in 21

Sinkule, Barbara J. and Ortolano, Leonard, Implementing Environmental in China (Westport, Connecticut and London: Praeger, 1995), p. 31. 22 Ma and Ortolano, Environmental Regulation in China, p. 26.

Policy

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Wafer and Development in China

Shanghai. However, it can be assumed that environmental policies may not be coherent, which has destabilized continuous monitoring and law enforcement by environmental agencies. 23

Pollution Discharge

Fees

The idea of the Pollution Discharge Fee System is that industrial units which violate standards on emissions and effluents must pay fees for emissions. Fees are on the basis of pollution indicator with the discharge standard (mg/litre). The main goals of the programme were both to support local EPBs with revenues and to subsidize waste control projects with fees. The Water Pollution Discharge Fees comprise a fee on wastewater that exceeds the standard and a fee for wastewater discharge.24 The Fees in Shanghai have been used to support the cost of pollution control activities, to provide loans to industrial units to install treatment facilities and environmental funds for future use. Table 4.6 illustrates the trend of the Pollution Discharge Fee collection in Shanghai over the past two decades (1991-2002). However, the fees have not been effective to achieve the primary goals, because they have usually been too low, covering less than 50% of the operating cost for pollution treatment facilities and in some cases as low as 10%.25 To overcome this constraint, from the late 1990s, the central government strove to replace pollution discharge fees with new revolving funds giving loans at near market rates to enterprises to help enhance their environmental performance.26 But such a market-based measure does not seem to have been easily 23

Shanghaishi Huanjing Zhuangkuang Gongbao 1993-2005 {Shanghai Environmental Situation Bulletin 1993-2005). 24 Zhang Tianzhu, Wang Dongqing, Wu Guangyou and Wang Jinnan, 'Water Pollution Charges in China: Practice and Prospects,' in OECD, Applying MarketBased Instruments to Environmental Policies in China and OECD Countries (Paris: OECD Publications, 1997), p. 245. 25 Ibid., p. 248. See also Sinkule and Ortolano, Implementing Environmental Policy in China, p. 3126 Ma and Ortolano, Environmental Regulation in China, p. 23.

Institutional Reform in Shanghai Water Policy 95 Table 4.6 Pollution Discharge Fee Collection in Shanghai from 1991 to 2002 (RMB Million) 91

92

93

94

95

96

97

98

99

00

01

02

120

121

121

124

137

140

140

133

120

N/A

210

116

Source: National Environmental Protection Agency, Zhongguo de Paiwushoufei 1991-1995 (Pollution Discharge Fee in China 1991-1995") (Beijing: China Environmental Sciences Press, 1997) p. 177, and Shanghaishi Huanjing Zhuangkuang Gongbao 1996-2003 (Shanghai Environmental Bulletin 1996-2003).

established under the current socialist economic system in China. Another problem in the Pollution Discharge Fee system is that the fees are not fully levied to small size industrial units, such as Township and Village Enterprises (TVEs), which have become one of the primary polluters in many areas, and animal husbandry farms in the outskirts of big cities, particularly in Shanghai. 27 Such an uneven coverage in applying the fees may impede fair competition among enterprises and undermine the implementation of effective pollution control.28 This section has explored how the main discourse, water quality control policy in Shanghai, is institutionalized and remains centered on the agenda at the national and local levels addressing organizations and rules. The process of institutionalizing water quality control policy in Shanghai highlights the way the Shanghai government has consolidated its control and mandate over polluting economic and social units. Although the government has tried to induce some market-driven economic solutions, such as the Pollution Discharge 27

Excretion of animal husbandry has become one of the worst major non-point source pollutants in Shanghai for the past decade. The annual discharge of excretion of animal husbandry amounts around 7 million tonnes per annum, and 30% of them are discharged into water bodies. This causes high levels of COD (up to 200 mg/L). Zhang Jiaqi and Wang Yagu, 'Shanghaishi Zhuyaode Feidianyuan Wuranji Qifangzhi Duice (The Main Non-Point Source Pollution in Shanghai Suburbs and Harness Countermeasure)', Shanghai Huanjing Kexue (Shanghai Environmental Sciences), Vol. 16, No. 3, 1997, p. 1. 28 Zhang et al, 'Water Pollution Charges in China: Practice and Prospects,' p. 248.

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Fees, the attempt did not generate outcomes motivated by economic incentives but dominated by the command-and-control mode. Innovative new environmental programmes, such as EIA and the Three Synchronization, do not accommodate any different voice or input from other parts of society in China. This implies that environmental discourses are still heavily dominated by the government and remain in the public sphere where these discourses are embroiled in politics. The uneven levy of the Pollution Discharge Fees to Township and Village Enterprises (TVEs) and other State-Owned Enterprises (SOEs) demonstrates that the incoherent and unfair environmental policies and programmes in Shanghai have undermined the creation of productive interaction between the government, the Hierarchists, and other social actors, such as the Entrepreneurs (private companies). In consequence, mechanisms such as informal politics have prevailed over water quality control policy in Shanghai. This has also brought about little compliance by industrial and domestic polluters including TVEs in the outskirts of Shanghai. The next section addresses challenges for institutional change in Shanghai "water quality control policy. The issues of enforcement and compliance will be discussed in the course of implementing environmental regulatory institutions by organizations related to Shanghai water quality control referring to some cases. In the context of the tug-of-war between economic development and environmental protection, the contentious relationship among environmental regulatory agencies and non-environmental regulatory agencies will be discussed. The issue of an increasing public awareness of environmental protection in policy implementation will also be introduced. It is maintained that these discussions based on various cases have become story lines that predicate the formation of discourse coalitions and have worked as a stepping stones to achieve institutional change in Shanghai water quality control policy.

CHALLENGES FOR INSTITUTIONAL CHANGE The consensus on the need to reduce water pollution in Shanghai has been formed through a number of discussions. Amongst

Institutional Reform in Shanghai Water Policy 97

environmental pollution issues, the Shanghai government has realized that many cases in relation to water pollution have been more serious than air and noise pollution. These story lines have eventually paved the way for the Shanghai government to focus on the more crucial issue, water pollution. In the course of devising plans and implementing environmental policies, however, various governmental agencies and organizations have confronted divergent challenges, such as the issue of compliance of industrial and commercial units, conflicts of interest between governmental agencies and public consultation. Enforcement and Compliance The success of environmental policy is closely linked not only to the establishment of a wide range of formal institutions and organizations, but also on how to implement and enforce these regulations. It is noted that until the early 2000s, China continued to enact and adopt a number of laws, regulations, rules, and standards for environmental protection as prerequisite to successful environmental policy implementation. Whether or not the already established legal instruments in environmental policy have been effectively implemented has been in question. The State Environment Protection Administration survey in 1999 revealed that 86% of the Chinese believed that poor law enforcement or failure to obey the laws was the main cause of environmental degradation.29 Sinkule and Ortolano point out two fundamental constraints that hinder full-fledged implementation of environmental protection and pollution prevention policies, 'fragmented authoritarianism' and 'consensus building.' 30 Fragmented authoritarianism indicates the fragmented and disjointed characteristic of the Chinese political system, which is often seen in the case that local governments do not strictly follow central government decisions considering local 29

Wu, Changhua and Robbins, Alicia, 'An Overview of Accountability Issues in China's Environmental Governance', Sinosphere, Vol. 3, Issue 2 (Spring 2000), p. 38. 30 Sinkule and Ortolano, Implementing Environmental Policy in China, pp. 12-19.

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circumstances. Faced with enormous pressure to promote economic development in the reform era, local governments often have their own interpretations and modifications of national environmental laws and regulations. Wu and Robbins also argue that in China, laws and regulations are regarded only as policy guidance from higher levels of the government. 31 The occurrence of coordination problems between agencies not on the same level of the administrative hierarchy is also related to fragmented authoritarianism. For instance, the low level of Pollution Discharge Fees was blamed on the fact that the fees were set far below the cost of wastewater treatment in many facilities. This problem was unsolved because the Ministry of Finance had rejected institutionalizing higher fees, contending that the higher fees might cause higher production costs to industry and slow down economic growth.32 In the similar context, Shen asserts that laws and regulations have not been effective due to a misunderstanding of 'how to achieve environmental objectives'.33 The characteristic of consensus building connotes the embeddedness of the Chinese tendency to keep harmonious relationships with other people or units. When EPBs try to impose harsh measures on polluting enterprises, EPBs cannot usually conduct aggressive or stringent enforcement of sanctions on the polluters 'unless local government leaders support EPBs'.34 This trend can also be delineated by the Chinese tradition and customs of 'saving face' as well as EPBs' pragmatism. Whereas EPBs let enterprises save face by not accusing them, EPBs would prefer the levying fines or penalties, which would at the same time raise EPBs revenues. In terms of court actions, EPBs normally try to avoid them, because lawsuits

31

Wu and Robbins, 'An Overview of Accountability Issues in China's Environmental Governance', p. 40. 32 Sinkule and Ortolano, Implementing Environmental Policy in China, p. 16. 33 Murray, G and Cook, I.G, Green China (London & New York: RoutledgeCurzon, 2002), p. 184. This is originally from Shen T.S., 'China Cannot Dismiss Pollution Hazard Haphazardly, Part 1 & 2, Chinaonline, 2002. Available Online: http:// www. chinaonline.com. 34 Sinkule and Ortolano, Implementing Environmental Policy in China, p. 19-

Institutional Reform in Shanghai Water Policy 99

normally spawn high transaction costs, for instance, the cost of gathering data necessary for legally convincing arguments.35 The careful analysis and examination of the cases in the Environmental Impact Assessment (EIA) in Shanghai and Guangzhou in the late 1990s illustrates an array of institutional constraints.36 Government bureaus that support polluting factories and industries normally lack self-regulation practice in environmental protection. The EPBs in these cities are in a difficult position to impose environmental regulation on the governmental bureaus. The governmental units are often higher and more powerful than EPBs in terms of administrative rank. This denotes the case that informal political mechanisms undermine the authority of the EBPs in Shanghai and Guangzhou. Another difficulty encountered by EPBs in Shanghai and Guangzhou is that the EPBs can receive very limited financial support from the local government treasuries. The EPBs in Shanghai and Guangzhou had no option but to involve income-generating activities and to focus on collecting more fines or fees from polluting enterprises. For instance, in 1997, the Department of Supervision and Administration in the Shanghai EPB hired eight staff, and they normally dealt with an average of 500-600 development projects per annum. This indicates the shortage of budget and human resources in local EPBs, even in the relatively rich city, Shanghai.37 This factor is also related to the issue of independence of local EPBs from political power games and conflicts. Since EPBs are seldom free from the influence of local governments because of the financial subsidy they receive from the local governments, enforcement of environmental regulations by EPBs is subject to interference from local governments.

35

Ma and Ortolano, Environmental Regulation in China, pp. 127-128. Tang, Shui-Yan, Lo, Carlos Wing-Hung, Chueng Kai-Chee, and Lo, Jack ManKeung, 'Institutional Constraints on Environmental Management in Urban China: Environmental Impact Assessment in Guangzhou and Shanghai', China Quarterly, No. 132 (December 1997), pp. 864-865. 37 Tang et al, 'Institutional Constraints on Environmental Management in Urban China: Environmental Impact Assessment in Guangzhou and Shanghai', p. 869.

36

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Water and Development in China

In relation to the issue of the independence of the Shanghai EPB from political influence, a study provides an exemplary case to reflect the limited range of the Shanghai EPB's regulatory authority, interfered by 'informal politics'.38 According to the study, it is commonplace to see some projects easily approved even prior to the start of the EIA process, which some political leaders prefer. Sony's plan for the installation of its production lines in the Pudong New Development Zone in 1996, for instance, urged the Shanghai government to offer favorable conditions to the company in competition with the Dalian government (a city in Liaoning province), including allowing Sony to commence construction work without the completion of the EIA process. 39 This case highlights the apparent preference of political leaders for development projects over environmental concerns, and the regulatory capacity of Shanghai EPB has often been nullified through a trade-off between economic development and environmental protection. It also implies that such a clandestine procedure of decision-making by informal politics undermines the Shanghai EPB's independence and legitimacy for implementation and enforcement of environmental regulations on polluting industrial units. One of the main reasons industrial units do not comply with environmental regulations is closely associated with the low level of pollution discharge fees and fines.40 In Shanghai, the municipal government in coordination with the Shanghai EPB had endeavored to improve this situation by adopting higher pollution fees and fines coupled with measuring the concentration and the amount of water pollutant. These attempts did not turn out to be successful, 38

Lo, Carlos Wing Hung, Yip, Plato Kwong To, and Cheung, Kai Chee, 'The Regulatory Style of Environmental Governance in China: The Case of EIA Regulation in Shanghai', Public Administration and Development, No. 20, 2000, p. 312. 39 Lo, Yip, and Cheung, 'The Regulatory Style of Environmental Governance in China: The Case of EIA Regulation in Shanghai', p. 313. 40 Wang, Jinnan and Lu, Xinyuan, 'Economic Policies for Environmental Protection in China: Practice and Perspective', in OECD, Applying Market-Based Instruments to Environmental Policies in China and OECD Countries (Paris: OECD Publications, 1997), p. 20.

Institutional Reform in Shanghai Water Policy 101

because the municipal government could not raise the fees and fines highly enough to reduce industrial pollution in Shanghai. 41 It is argued that this may result from opposition from other government agencies, such as the Finance Bureau, conducive to the industrial sector and the preference in the municipal government for economic gain. Trade Off b e t w e e n E c o n o m i c D e v e l o p m e n t a n d E n v i r o n m e n t a l Protection The global discourse of sustainable development in the 1970s and degraded environmental conditions in Shanghai throughout the 1980s and the 1990s began to raise public awareness. As discussed before, there were a number of environmental accidents along the Huangpu River, the Suzhou Creek, and other water bodies over the past decades. Since then, how to find a balance between economic development and environment protection has become one of the main discourses in socio-economic development and environmental policy in China. Although the 1989 PRC Environmental Protection Law highlights the cooperative relationship between the two conflicting issues in contemporary China,42 plans related to economic gains have been prioritized over environmental protection during the past two decades. For instance, the Shanghai Foreign Investment Commission has often ignored the authority of the Shanghai EPB associated with foreign investment projects. In the early 1990s, the commission pressured the Shanghai EPB to exclude an EIA investigation in the proposal stage for a Korean food manufacturer so that the company was allowed to discharge untreated sewage directly into the Huangpu River from 1994.43 41

Tang et al, 'Institutional Constraints on Environmental Management in Urban China: Environmental Impact Assessment in Guangzhou and Shanghai', p. 870. 42 Ma and Ortolano, Environmental Regulation in China, p. 16. 43 Lo, Yip, and Cheung, 'The Regulatory Style of Environmental Governance in China: The Case of EIA Regulation in Shanghai', p. 313.

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Water and Development in China

A series of environmental disasters related to water, air, and soil pollution throughout China drove the Chinese to consider preventing pollution in terms of reducing 'economic costs'. Although monetary estimates of environmental damage to the Chinese economy is not precise and difficult to calculate, the World Bank disclosed that during the mid-1990s, the annual economic cost of air and water pollution was between US$ 24 and 54 billion, accounting for between 3-5 and 7.7% of China's GDP.44 It can be contended that Chinese attention to environmental damage to economic development has helped develop and improve environmental regulation based on the 'Prevention first' principle. However, this attempt to quantify environmental damage to economic development has not persuaded the Chinese to be more concerned about the environment. The target ratio of environmental investment of 3% of GDP in Shanghai was achieved in 2000. This should be compared with the national average of just 1% of the national GDP. However, the vast scale of acute pollution in rivers, air, and land in Shanghai requires more constant investment until the city achieves ecological rehabilitation (see Table 4.7).45 It seems that there has been the tug-of-war between environmental protection and economic development, but in reality, it is often seen that economic development is mostly prioritized whereas environmental protection is marginalized. With regard to problems that EPBs often encounter, the fieldwork by Hukkinen, conducted in Hunan Province, exemplifies the 'cognitive dilemma' of EPBs when there is a conflict between economic development and environmental protection.46 The interviews in his fieldwork reveal that the environmental policy makers and experts (including EPB experts) recognized the need to consider the long-term sustainable development by enforcing environmental 44

Ma and Ortolano, Environmental Regulation in China, p. 1. This figure comes from the World Bank, Clear Water, Blue Sky (Washington, D.C.: World Bank, 1997), p. 27. 45 Wang Xiuchen, 'Approach on Finance Raising & Performance Mechanism of Environmental Protection Fund in Shanghai', Shanghai Huanjing Kexue {Shanghai Environmental Sciences), Vol. 20, No. 6, 2001, pp. 297-298. 46 Hukkinen, Janne, Institutions in Environmental Management: Constructing Mental Models and Sustainability (London and New York: Routledge, 1999), p. 135.

Institutional Reform in Shanghai Water Policy 103 Table 4.7 Ratio of Environmental Investment to GDP in Shanghai from 1991 to 2004 (RMB 100 Million)

Year

GDP

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

893.8 1114.3 1511.6 1971.9 2462.8 2902.2 3360.2 3688.2 4034.9 4551.1 4950.8 5408.7 6067.6 6250.8

Environmental investment 7.6 15.2 32.1 39.1 46.5 68.8 82.4 102.1 111.6 142.0 152.9 162.3 191.5 225.0

Ratio (%) 0.9 1.4 2.1 2.0 1.9 2.4 2.5 2.8 2.8 3.1 3.1 3.0 3.1 3.6

Source: Wang Xiuchen, 'Approach on Finance Raising & Performance Mechanism of Environmental Protection Fund in Shanghai', Shanghai Huanjing Kexue (Shanghai Environmental Sciences), Vol. 20, No. 6, 2001, p. 297; Shanghaishi Huanjing Zhuangkuang 2001-2005 (Shanghai Environmental Bulletin 2001-2005); and Shanghai Environmental Protection Annals Publication Board, Shanghai Huanjing Baohuzhi (Shanghai Environmental Protection Annals) (Shanghai: Shanghai Academy of Social Sciences Press, 1998), p. 146.

regulations on enterprises. However, the deeply embedded policy preference for economic well-being deters EPBs from enforcing strict measures on polluting enterprises. EPBs contemplate that it is necessary to implement environmental regulations vigorously, but also assume that such action might impede economic development.47 Another finding from Hukkinen's fieldwork is that environmental regulators, EBPs, are also actively engaged in developing and supporting environmental engineering technologies in State Owned Enterprises (SOEs). This situation places EPBs in a difficult position 47

Ibid., p. 135.

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when they have to enforce environmental regulation programmes over the SOEs they help for green engineering. EPBs are in dilemma that they have to consider the problem of unemployment and jeopardizing industrial production in the SOEs.48 This implies how difficult water pollution control policy is prioritized over economic development that has been predominant in Chinese daily life and becomes a certain type of informal constraint.

Conflicts of Interest: Administrative a n d Organizational Disharmony Conflicts of interest are associated with the issue of non-cooperation between environment regulatory agencies and other governmental units in environmental policy and contentious cases between agencies with regard to protecting their own revenues. First, the relationship between EPBs and urban construction bureaus gives us a good example of the lack of inter-agency cooperation in environmental pollution control. The relationship between EPBs and urban construction bureaus is often in conflict because EPBs are entitled to enforce discharge standards on the amount of effluent from municipal sewage treatment works, which are constructed and managed by urban construction bureaus. 49 The main dispute often comes out when there is a disagreement between the two about which organization should collect a pollution discharge fee. The collection of pollution discharge fees legally lies in the hands of EPBs before wastewater treatment plants are built. As soon as wastewater treatment plants begin to operate, the pollution discharge fee is supposed to be collected by the urban construction bureaus. But a number of EPBs have endeavored not to give up the fees because the fees are the major financial source for supporting the salaries of extra EPB staff and other costs. This phenomenon may cause sewage treatment facilities to be ill-operated, thereby impeding environmental protection efforts. The contention between EPBs and 48 49

Ibid., p. 149. Ma and Ortolano, Environmental Regulation in China, p. 68.

Institutional Reform in Shanghai Water Policy 105

urban construction bureaus highlights the problem of coordination across two different hierarchical systems.50 The second case stems from EIA enforcement in Shanghai. It is believed that EIA enforcement in China has little credibility since many EPBs work in assessing and enforcing EIA measures and also in providing services for construction projects to generate revenue. 51 In Shanghai, those involved in urban development projects would like to ask the Shanghai Academy of Environmental Sciences (SAES) to conduct their EI As. It is reported that the SAES has monopolized EIA works for most of the large and medium-sized projects in Shanghai. The dominance of the SAES arises from the perception of developers that the EIA reports prepared by the SAES will not be rejected by its respective Shanghai EPB. It is pointed out that all the EIA reports prepared by the SAES have been accepted by the Shanghai EPB. Staff members in the Shanghai EPB are often obliged to assess and evaluate the EIA reports prepared by their colleagues in the SAES, with resulting in conflicts of interest. Since the Shanghai EPB channel extra income through its subsidiaries, such as the SAES, it is difficult for Shanghai EPB to reject the EIA reports through its subsidiaries.52 The newly enacted PRC EIA Law in 2002 stipulates that an EIA implementing agency is not allowed to keep a close tie with an EPB or other environmental agency. However, it is too early to judge if the law can prevent such an unfair EIA implementation.53

Public Consultation Although public participation in environmental regulation policy has not been institutionalized in China, the issue is becoming important 50

Sinkule and Ortolano, Implementing Environmental Policy in China, p. 14. Tang et al, 'Institutional Constraints on Environmental Management in Urban China: Environmental Impact Assessment in Guangzhou and Shanghai', p. 870. 52 Ibid., p. 872, and Lo, Yip, and Cheung, 'The Regulatory Style of Environmental Governance in China: The Case of EIA Regulation in Shanghai'. 53 Stender, Neal, Wang Dong, and Zhou Jing, 'New environmental laws should raise standards', 2 December 2002, Coudert Brothers. Available Online: http://www. ahk-china.org/umwelt/new-environmental-laws-should-raise-standards.htm

51

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Water and Development in China

as one of the major components in implementing environmental regulation enforcement. It is argued that the non-existence of public support and open discussion makes environmental policy bureaus vulnerable to internal interference from other powerful governmental agencies in informal authority relationships at the local level.54 Lo and Leung also point out that the communist political system in China does not embrace any institutional channel for the public to exercise strong influence on environmental policy. Environmental NGOs in China, i.e. the Friends of Nature and China's Environmental Protection Foundation, are subjected to tight governmental control and only work according to governmental guidelines. Environmental NGOs in Shanghai such as the Shanghai Green Union and the Grassroots Community are not legitimized because of their nonregistration status. This leaves environmental NGOs in Shanghai in a politically unstable position. Therefore, the current institutional framework largely lacks a basis for the public to become an invigilator to oversee governmental environmental policy.55 A breakthrough is the new PRC EIA Law issued in 2002. The law provides a legal basis that the environmental impacts of some governmental plans have to be investigated through public hearings, interviews and discussions. 56 However, whether or not this law will be strictly enforced remains to be seen. As a particular case, there has been no public review of any EIA report in development projects in Shanghai or in Guangzhou. 57 Even though limited public participation took place through opinion surveys in projects financed by the World Bank and the Asian 54

Tang et al, 'Institutional Constraints on Environmental Management in Urban China: Environmental Impact Assessment in Guangzhou and Shanghai', p. 864. 35 Lo, Carlos Wing-Hung and Leung, Sai Wing, 'Environmental Agency and Public Opinion in Guangzhou: The Limits of a Popular Approach to Environmental Governance', China Quarterly, No. 163 (September 2000), p. 67956 Stender, Wang, and Zhou, 'New environmental laws should raise standards'. 57 Tang et al, 'Institutional Constraints on Environmental Management in Urban China: Environmental Impact Assessment in Guangzhou and Shanghai', p. 867, and Lo, Yip, and Cheung, 'The Regulatory Style of Environmental Governance in China: The Case of EIA Regulation in Shanghai', p. 313.

Institutional Reform in Shanghai Water Policy 107

Development Bank,58 in Shanghai and Guangzhou, there has been no institutional framework in place for the public to review EIA projects. This situation jeopardizes the credibility of the environmental regulatory process and of concerned environmental protection bureaus. Public participation is also not popular among officials in local governments. According to a report from US Embassy in Beijing in March 1998, a number of local officials rejected revealing regular reports of air or water quality measurements to the public, because it might bring about social unrest and needed to be in secret out of 'diplomatic necessity'.59 Officials who are opposed to public access to such environmental information also claim that public consultation may raise the cost of the environmental policy process and lower the efficiency of bureaucratic control over the policy results.60 The lack of public access to related information and resistance from officials in Shanghai results in no transparency in environmental governance. This discourages the public from becoming a powerful non-bureaucratic ally to support environmental regulation policy. The Shanghai EPB has not allowed the public to access Shanghai EPB's official documents and other government papers on environmental protection.61 It is still common that most of the information on environmental protection is inconsistent, simple, and selective. Although the Shanghai Environmental Bulletin, annually published by the Shanghai EPB, provides substantial information and data in environmental protection policy, inconsistency is often found, for example, in the provision of polluting discharge fees, the size of environmental agencies in Shanghai, and the percentage of domestic

58

Tang et al, 'Institutional Constraints on Environmental Management in Urban China: Environmental Impact Assessment in Guangzhou and Shanghai', p. 868. 59 US Embassy Beijing, 'The Fading of Chinese Environmental Secrecy', A report from the US Embassy Beijing, (March 1998). 60 Lo and Leung, 'Environmental Agency and Public Opinion in Guangzhou: The Limits of a Popular Approach to Environmental Governance', p. 701. 61 Lo, Yip, and Cheung, 'The Regulatory Style of Environmental Governance in China: The Case of EIA Regulation in Shanghai', p. 313.

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sewage treatment. 62 In Guangzhou, the section of how much a construction project cost is often left out in the annual reports. 63 It is argued that the weak voice of environmental NGOs in Shanghai also results from their lack of access to environmental information, officials unfavorable over environmental NGOs' roles as well as the low degree of public awareness of environmental protection. As discussed above, the Shanghai government, in this context, the Hierarchists, has continued to reject collaboration with other social actors in the public sphere, particularly the Egalitarians, in the environmental social movements and NGOs. Such governmentmonopolized policy direction in Shanghai, however, has not brought about the improvement of the environment.64 The monopolized environmental policy has not been effective in monitoring environmental polluters. The government began to realize gradually that it is necessary to adopt multi-faced environmental policymaking and implementation in the advent of complicated society brought about by economic reform. Although the government has succeeded in putting water quality control as the main discourse through story lines in environmental policy, it also became aware of the need to have an ally outside, such as the environmental NGOs and Shanghai citizens. This recognition has increasingly led the government to work on institutional reform and to be more open to public consultation and tolerate new social entities, such as environmental NGOs in the public sector. The next section examines some achievements in institutional change regarding water quality control policy. The discussion will illustrate how major actors that want to influence water policy interact over environmental policy enforcement and compliance. Discourse coalitions emerge over the main discourse, water quality control, and story lines have been formed in the course of making and implementing water 62

Shanghaishi Huanjing Zhuangkuang Gongbao 1990-2005 {Shanghai Environmental Bulletin 1990-2005). 63 Lo and Leung, 'Environmental Agency and Public Opinion in Guangzhou: The Limits of a Popular Approach to Environmental Governance', p. 702. 64 Murray and Cook, Green China, p. 179-

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quality control policy in Shanghai. First, the nature of institutional change efforts will be introduced. The efforts have included the introduction of new laws and a successful case of EIA enforcement in Shanghai water quality control. Second, discussing the Shanghai Water Authority (SWA) will highlight how the Shanghai government opts to implement policies for water quality control and better water supply in an innovative manner. Third, the issue of public participation will be discussed to examine the potential that the public can become a positive non-governmental ally to support environmental regulatory agencies, i.e. the Shanghai EPB. LIMITED ACHIEVEMENTS IN INSTITUTIONAL CHANGE There have been achievements by the Shanghai government in water quality control. These achievements have been possible through a general consensus that -water pollution is severe, and there should be remedial solutions via institutional change. This main discourse has been bolstered by divergent story lines which environmental agencies have experienced in the course of enforcing environmental policies and regulations over polluting economic entities. Such practical and institutional experience has generated discourse coalitions bringing together environmental agencies as well as non-environmental bureaus such as the Shanghai Foreign Investment Commission, and the Shanghai Economic Commission. Also attention began to be paid to public consultation in raising environmental awareness. There was a shift from the monopolistic policy direction to a collaborative path with other non-governmental social actors becoming involved, environmental NGOs in the public sphere. However, it is very unlikely that the government would give up its predominant stance to influence social entities and be determined to work hand-in-hand with other social actors.

C h a n g e s i n Organizations a n d Institutions There has been the move for the central government to strengthen State Environmental Protection Administration (SEPA)'s administrative

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power for better enforcement in environmental regulation. For instance, for those who cause serious pollution or hinder enforcement, the 1996 State Council order "State Council Decision on Some Environmental Protection Issues" was to be implemented for criminal prosecution, and the SEPA was planning to launch a system of 'random checks' to reinforce compliance with national regulations.65 Alongside the empowerment of the SEPA, the consolidation of the regulatory capacity and the independence of EPBs have been central to institutional rearrangements of environmental protection policy. In 1998, the Chinese leadership called for a fundamental change related to this issue, insisting that the Ministry of Finance and the local finance commissions under the ministry would take charge of special fees levied by governmental agencies at all levels. If this policy was implemented, EPBs would be able to reinforce environmental regulations over enterprises through subtle political power relationships with other governmental agencies if EPBs were funded from Beijing.66 However, the policy has not materialized despite its possible benefits of reducing corruption and streamlining the size of organizations at the local level. The efforts to improve institutional capacity in China are also seen in enacting new laws coupled with recent attempts to change the organizational structure in environmental regulation policy. The National People's Congress (NPC) issued the revised PRC Water Law in 2002, the new Environmental Impact Assessment Law (EIA) in 2002, and the new PRC Cleaner Production Law in 2002.67 The new EIA Law in 2002 aimed to enforce environmental requirements for industrial investors, clarifying the roles of different government departments, liability allocation, and emphasized environmental protection in modernizing China.68 The law reflects 65

Wu, Changhua and Robbins, Alicia, 'An Overview of Accountability Issues in China's Environmental Governance,' Sinosphere, Vol. 3, Issue 2 (Spring, 2000), p. 3966 Ibid, p. 41. 67 Stender, Neal, Wang Dong, and Zhou Jing, 'New environmental laws should raise standards'. 68 Ibid. In the EIA Law, 'construction projects' include not only the construction of new facilities but also the renovation or expansion of existing facilities.

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two interesting features that have been developed in China's environmental governance. Articles 5 and 11 state that environmental impacts of some governmental plans have to be scrutinized by the public, experts, and other concerned groups through public hearings, interviews, and discussions. This implies the government's official tolerance of public participation and can pave the way for environmental NGOs to be legitimized as a social entity to contribute to environmental protection. It also represents a serious gesture on the part of the Shanghai government to accommodate an ethical and civil society mode advocated by environmental NGOs. The other characteristic is that in Article 19, an EIA implementing entity is not allowed to keep a close tie with an EPB or other environment related agencies. This article is expected to be effective in eradicating the close relationship between the Shanghai EPB and the Shanghai Academy of Environmental Science (SAES), which is the Shanghai EPB's subsidiary unit and has almost monopolized EIA projects in Shanghai. Also EIA reports can be dealt with by other qualified environmental research units or companies in Shanghai, which will lead to fair competitions and result in better quality EIA reports, which are not influenced by informal politics.69 These rosy expectations, however, remain to be judged, since law-making and law-enforcement are often different and separate issues in China. Regarding public consultation, it is still difficult to envisage that the Shanghai government with all of a sudden allows public access to environmental documents and information associated with serious environmental disasters, such as the accident of oil leakage in the Yangtze River Estuary a few years ago.70 In addition, the close tie between the Shanghai EPB and the SAES will not change in the short term due to their administrative and financial interdependency. As long as the Shanghai EPB keeps its mandate to judge environmental impacts of projects and the SAES is one of the 69

Ibid., The full text of the PRC EIA Law is on the website of the State Environmental Protection Administration. Available Online: http://www.sepa.gov.cn 70 Interview with China Representative of the Wildlife Conservation Society on 28 June 2002. Interview-280602.

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subsidiaries of the Shanghai EPB, the SAES will supposedly enjoy its semi-monopolistic position in the Shanghai EIA market. Together with its push to introduce new laws, the SEPA has revised some environmental programmes, for instance, the Discharge Permit System and the Pollution Discharge Fee System.71 It is assumed that a concomitant implementation of the two systems has not worked well. They are totally different systems. The Discharge Permit System is a market-based instrument,72 and the Pollution Discharge Fee System is based on the command and control mechanism. Therefore, the simultaneous implementation of the two systems has been counter-productive and effectiveness has been reduced. The future lawmaking work will be closely associated with environmental regulations and standards. One of the attempts is to introduce a new Regulation and Treatment of Hazardous Waste. In this regulation, Shanghai's advanced experience in water quality control will be reflected, because the Implementation Guidelines will be based on the results of the implementation of the Shanghai Hazardous Waste Management Regulations.73

EIA E n f o r c e m e n t i n Shanghai The EIA history in Shanghai for more than two decades has witnessed almost no successful case related to banning environmentally unfriendly industrial and commercial units. This result stems from various causes, such as conflicts of interest between government agencies, and a tug-of-war between economic gains and environmental protection. Nevertheless, efforts by environmental agencies have resulted in raising environmental awareness in Shanghai. In addition, a series of environmental disasters over the past two decades in 71

Stover, J., 'China's Environmental Framework 2000 and Beyond', China Business Review, Vol. 27, Issue 2 (March/April 2000), p. 50. 72 The processes of the Discharge Permit System are as follows. Enterprises must register with EPBs and apply for permits. Then EPBs allocate allowable pollution loads to enterprises and issue discharge permits. EPBs also enforce permit conditions. Ma and Ortolano, Environmental Regulation in China, p. 24. 73 Stover, 'China's Environmental Framework 2000 and Beyond', p. 51.

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Shanghai water bodies have helped create powerful story lines in the public domain that center upon the main discourse, water quality control. Such circumstances have empowered the Shanghai EPB to enforce environmental regulation programmes more vigorously. In the late 1990s, the Shanghai EPB was informed about the decision of the Shanghai government to allow construction of a terminal for oil tankers in the Upper Huangpu River. The project had not been investigated by EI A process, despite the fact that any leakage would bring about devastating contamination impacts on the near reservoir. Therefore the Shanghai EPB immediately conducted an EIA and strongly recommended to the government that the construction should not be allowed. As a result, the project site was moved to a new site further from the reservoir in accordance with the new governmental standards. 74 This case implies the enhancement of the political status of the Shanghai EPB in competition with other pro-growth agencies. It seems that environmental concerns have become to be regarded as part of necessary requirements for development projects in Shanghai. The main discourse, water quality control policy, becomes one of the salient policy agendas, and sometimes it is prioritized over economic development. This change in emphasis has been possible because of lengthy and discursive processes, which created discourse coalitions coupled with story lines and involving many actors.

Shanghai Water Authority (SWA) Faced with continuously severe water pollution, the Shanghai government has recently set up an intergovernmental water management organization, the Shanghai Water Authority (SWA).75 74

Lo, Yip and Cheung, 'The Regulatory Style of Environmental Governance in China: The Case of EIA Regulation in Shanghai', p. 313. 75 The Chinese title is Shanghaishi Shuiwuju, and if the title is literally translated, it may be 'the Shanghai Municipal Water Affair Bureau'. However, this manuscript follows the conventional use of term, the Shanghai Water Authority, which can be found in US Embassy Beijing, 'Environmental Protection in China's Wealthiest City: Shanghai Water Quality', July 2001 Report from US Embassy Beijing.

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The SWA was established in May 2000, with the purpose of integrating the supervisory and planning functions of water conservancy and resources management into a single overarching authority. The main tasks of SWA are; (1) to implement laws, regulations, rules, and standards regarding water conservancy; (2) to draw up short and long term water conservancy development plans; (3) to collect water discharge fees, and organize and manage the water intake permit system; (4) to conduct research on water quality, water bodies, and the amount of wastewater; and (5) to solidify a policy of consumer pays for the real cost of water supply and treatment.76 As a multi-faceted single authority, the SWA is composed of various governmental agencies in the Shanghai government, i.e. the Geology and Mining Bureau, the Water Conservation Bureau, the Public Utilities Management Bureau, and the Municipal Engineering and Management Bureau. Because of this regional administration, the SWA can handle issues on water conservancy and resources management with an integrated approach equipped with various mandates.77 The past decades have witnessed that water management was handled by different government agencies, which caused a myriad of administrative problems. These included the lack of information exchange and no cooperation among government departments or bureaus, a lack of coordination for plans and implementation of programmes, and conflicts of interest among different government authorities.78 One of the most important implications is that the SWA is expected to finance water management projects through its vigorous 76

Main tasks in the Shanghai Water Authority are described at http://www. shanghaiwater. gov. cn/zzjg/default. asp. 77 Water Affair Organization Reform on the Web: http://www.shucm.sh.cn/bxsd/ swgl_l.htm These are: (1) water conservation management from the Water Conservation Bureau; (2) groundwater management and development from the Geology and Mining Bureau; and (3) management of water discharge and treatment, and flood prevention walls from the Municipal Engineering and Management Bureau. 78 Zou Ji and Zhou Jing-bo, "Restructuring Water Industry in China: Towards sustainable urbanization", Journal ofEnvironmental Sciences, Vol. 11, Issue. 3 (September 1999), p. 319.

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policy of ensuring the consumer pays for the actual cost of water supply and treatment.79 The integrated water resources management by the SWA will also be expected to have a positive impact on water quality control in Shanghai. Prior to the existence of the SWA, it was commonplace that disparate water management plans and projects in Shanghai had triggered ineffective water resources management and raised costs of constructing and operating water projects. A difficult task for the SWA, however, is the process of developing water projects in collaboration with the Shanghai EPB and the Shanghai Construction and Management Commission. For example, the SWA needs further cooperation from other governmental agencies, such as the Shanghai Construction and Management Commission, which takes control of the construction of water supply and sewage treatment plants. In addition, in the field of reducing water pollution, a cooperative tie between the SWA and the Shanghai EPB is essential. It is the Shanghai EPB that regulates polluting factories and economic units in Shanghai. Therefore, the SWA's collaborative work with other government agencies is a key to achieving the integrated water resources management. The independence of the SWA without unnecessary political interference is another important prerequisite for sustainable water resources management in Shanghai. This depends upon the reform of the prevalent pro-growth mindset of governmental bureaus, such as the Shanghai Foreign Investment Commission and the Shanghai Economic Commission, together with the political will to prioritize policies and law enforcement for the environment. The SWA has just started to operate, and therefore it needs some time to implement its full-fledged operational capacity. Indeed, a Shanghai water engineer that had involved in the Shanghai Environment Project and the Shanghai Sewerage Project commented that the SWA might need more time to establish its role in the government. 80 79

US Embassy Beijing, 'Environmental Protection in China's Wealthiest City: Shanghai Water Quality', p. 3. 80 Interview with Professor Gu Youzhi, Engineer-in-Chief, World Bank ChinaShanghai Environment Project Office on 6 June 2002. Interview-060602.

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Public Support There have been governmental efforts for public participation, in particular, since the 1990s. The recent socio-economic development plan in China, the Tenth Five Year Plan (2001-2005), highlights SEPA's promotion of the development of environmental NGOs and public participation in decision-making process during the plan period although the outcome remains to be seen. 81 In addition, the new EIA Law in 2002 clarifies the need for public consultation through public hearings, discussions, and interviews in relation to environmental impacts of development projects. Shanghai has recently promoted public participation in environmental regulation enforcement although local governments in China have in practice usually been inactive in promoting public participation. Public participation in Shanghai is practiced through the numerous written materials and interviews from citizens. The Shanghai Environmental Bulletin provides the data and information on letters of complaint and visits on an annual basis. Among unsatisfactory environmental issues, complaints relating to water pollution occupied the third rank behind air and noise pollution. For instance, the percentage of complaints on water pollution was 10.3% in 2003 whereas the percentage of air and noise pollution were 32.2 and 44.5% respectively. 82 In addition, the Shanghai government advertises some particular dates related to the environment, such as World Water Day and World Environment Day, in order to raise public awareness about the importance of environmental protection. Environmental education is actively promoted by the Shanghai EPB as well as the municipal government, designating 'green schools' in primary and middle schools in Shanghai and encouraging communities' involvement with the

81

Wu and Robbins, 'An Overview of Accountability Issues in China's Environmental Governance,' p. 40. 82 Shanghaishi Huanjing Zhuangkuang Gongbao 2004 {Shanghai Environmental Bulletin 2004).

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establishment of 'Green Community for Environmental Protection' in 2999.83 The Shanghai EPB has its own subsidiary service unit, called the Shanghai Environmental Protection Promotion and Education Centre. Through this service unit, the Shanghai EPB fosters public awareness to support the Shanghai EPB and other government agencies in implementing environmental pollution abatement policy and regulations. 84 The recent development of websites by the Shanghai EPB provides a good example on how local EPBs can encourage public participation to support their environmental regulatory enforcement. Also the two websites, 'Shanghai Environment' (http://www.sepb.gov.cn) and 'Shanghai Environment Hotline' (http://www.envir.online.sh.cn) have become useful channels for Shanghai citizens to access information on environmental protection as well as environment related knowledge and common sense. 85 These initiatives imply the tolerance by the Shanghai government to accommodate and institutionalize an ethical mode for taking advantage of public support generated by the environmental NGOs in Shanghai. These endeavors by the Shanghai EPB and the municipal government are not implemented solely by public initiative. They have mainly come about as a result of a top-down process. Fieldwork in 2002 showed that independent civil movements such as environmental NGOs since the late 1990s have been increasing based on the wide spread level of environmental awareness and education in Shanghai, especially among university students. Even though the influence of civil movements on green issues in Shanghai is still not determining governmental policy, public demands for better living standards, the support of environmental agencies, and increasing environmental awareness all help the voice of civil society to grow progressively. 83

Shanghaishi Huanjing Zhuangkuang Gongbao 2000 {Shanghai Environmental Bulletin 2000), p. 20. 84 The Shanghai Environmental Protection Education Centre will be discussed further in Chapter 5. 85 Shanghaishi Huanjing Zhuangkuang Gongbao 2000 (Shanghai Environmental Bulletin 2000), p. 21.

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This section has addressed the notion of 'discourse coalitions' insofar as they influence institutional change. On the basis of a wide range of story lines related to environmental regulation, including water pollution control, the emergence of new organizational arrangements in national and local government as well as new social actors have been identified. There have been environmental policy initiatives and new enforcement measures. Interactions between governmental bureaus, such as the SEPA, the Shanghai EPB, and non-environmental bureaus, and new non-state social forces, for example, the Shanghai citizens and environmental NGOs are all evidence of the transformation of environmental policy making processes and discourse coalition processes. In addition, the SEPA and the Shanghai EPB's experiences and knowledge reflect the kinds of strategies and practices needed. A growing number of public participation cases, in particular, in Shanghai also show that the transformation is gathering pace. These trends are expected to lead to further institutional change to achieve better water quality and supply in Shanghai.

CONCLUSION This chapter has explored the extent to which institutional reform in Shanghai government has been effective in ameliorating water pollution. On the basis of cultural theory of Mary Douglas and an analysis of the mode of public and private transactions in China, the Shanghai government has proven to be the most influential actor in initiating environmental law reform and in enforcement in the public sphere. However, fieldwork in 2002 suggested that the trend of the single actor-dominated policy making and implementation in the public sphere has begun to change, and the voices of other social actors, such as the environmental NGOs and Shanghai citizens, have been reflected in policy-making and implementation, for instance, via letters of compliant and visits to the SEPB by the public regarding environmental issues. The Shanghai government has come to realize the need for, as well as the utility of, multi-level cooperation. Other social actors bring influences and networks that

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have a positive impact on the rate of innovation and policy reform in the area of water quality control. They can also be especially useful in overcoming political interference and in mediating conflicts of interest between government agencies. Political ecology theory of Hajer based on discourse analysis provides a complementary framework. Regarding discourse analysis, water quality control in Shanghai is initially hypothesized as the main discourse. The resulting story lines have many different and diverse contents related to policy implementation and enforcement. The two major components have led to discourse coalitions in which the main discourse, water quality control, is highly politicized and has been transformed to address sustainable living environments in Shanghai. Awareness of story lines tend to impose pressure on governmental agencies, which are not actively involved in the main discourse i.e. the Shanghai Foreign Investment Commission and the Shanghai Economic Commission, to participate in the main discourse. In a version of these coalition building processes and achievements, the Shanghai government has developed an integrated approach to water pollution problems, which has led to institutional change. Discourse coalitions initiating institutional change are evident, first, in the efforts to introduce new laws at the national and the local level, second, in at least one successful case of EIA implementation, the establishment of the Shanghai Water Authority (SWA), and third, in the promotion of public participation. Shanghai is in a good position to conduct its own water quality control effectively because of its ongoing rapid economic growth and the increasing demand from citizens who would like to enjoy a higher standard of living with more income than before. But as thoroughly discussed in this chapter, there remain an array of challenges, such as the enforcement and compliance of environmental policies, achieving a balance between economic development and environmental protection, mediating conflicts of interest between governmental agencies, and public consultation. Some believe that these challenges might prevent Shanghai from solving its water pollution problems and from achieving better water quality, supply and

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distribution. Others see benign signs that have already emerged as shown in the case of the establishment of the SWA and increase in the levels of public participation. However, informal institutions embedded in people's behaviors, habit and conventions, cannot easily be changed. There is still little awareness of the seriousness of water pollution among domestic water users, industrial water users and even government agencies. Changing informal institutions (people's perceptions and customs) is a difficult task. Other dominant informal institutions in China are the prevailing mode of informal politics. The informal politics are based on 'the rule of men' rather than 'the rule of law'. The rule of men is traditional in Chinese political culture, a form of informal institution, which will not be easily altered in the foreseeable future.86 This historically and culturally evolved political culture continues to undermine the implementation capacity of environmental agencies attempting to regulate polluting factories and industrial units in Shanghai. A real breakthrough for cleaner water in Shanghai depends upon the political will to prioritize the administrative and regulatory position of the Shanghai EPB and other environment bureaus over development-driven government agencies. The future of how efficient water pollution control in Shanghai is depends upon 'whether the Shanghai government can establish institutional settings through changes and adjustments including the involvement of other social actors to contribute to water policy. It is also important to find new ways to balance the two ultimate policy goals, economic development and environmental protection. These goals will be achieved through establishment and implementation of legal instruments and the effective enforcement of environmental programmes based on the rule of law rather than the rule of men. It has been the purpose of this chapter to show the pace of policy reform will be improved if this essentially public/private hierarchical process is enriched by the

8

" Peesenboom, Randell, China's Long March Towards Rule of Law (Cambridge: Cambridge University Press, 2002).

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involvement of other social actors. The following chapter will evaluate how new social organizations in the public sphere in Shanghai have had incremental impacts on environmental policymaking and implementation, paying particular attention to various quasi-governmental organizations as well as local environmental NGOs in Shanghai.

Chapter

Development of Civil Movements INTRODUCTION This chapter analyzes the development of the civil movements in Shanghai water policy. This study is an effort to identify environmental communities based on Mary Douglas's grid/group theory and an attempt to comprehend the nature of the dynamic interaction of the private and the public spheres, particularly within the public sphere between the state (the Shanghai government) and ethical social entities (environmental NGOs and other social groups). The contribution of the study lies in its revelation of how the civil movements in Shanghai have developed with a selfcapacity to redress environmentally unfriendly policies over the last decade. Fieldwork carried out in 2002 identified a number of environmental Non-Governmental Organizations (NGOs) and other social groups in Shanghai. It proved to be possible to highlight the recent emergence of environmental NGOs, including university studentsbased organizations. The study evaluates how these groups have evolved and have survived in the transitional period in alliance with Government Organized NGOs, GONGOs, local communities (shequ), the media, international NGOs and the government. Although these environmental groups now commit themselves to 123

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various environmental issues, Shanghai does not have any particular NGO mainly engaged in freshwater issues.1 It is concluded that a collaboration of GONGOs, NGOs, and various environmental groups alongside international NGOs has led to the formation of a civil force that impacts Shanghai's environmental policy-making. In order to lead to a comprehensive understanding of the current dynamics of the civil movements in Shanghai, it is useful to identify a theoretical framework relating the private and the public sphere to grid/group theory. In relation to grid/group theory, the private sphere includes the Entrepreneurs and the Fatalists, and the public sphere the Hierarchists and the Egalitarians. There were only two main actors in Chinese society before 1949 and even during the prereform era there were also only two, the Hierarchists, the Shanghai government, and the Fatalists, the masses. Chinese society in the pre-reform period was not socially, economically, or politically divided into two separate realms. The monolithic political system dominated by the Communist Party from 1949 to 1978 planned and controlled all types of organizations, labor units and even private life through a complicated and sophisticated apparatus, the work unit, danwei? It seems that the Chinese government was in full control of social organizations as well as individuals through the danwei, which led to the development of a private sphere which was very different from that evolved in the

1

In China, it is assumed that there is one environmental NGO primarily focusing on water issues, which is Green River in Sichuan Province (West China). This NGO aims to protect the source of the Yangtze River through a variety of projects. Available Online: http://www.greenriver.org Turner, Jennifer (ed.), China Environmental Series, Issue 5 (Washington D.C.: Woodrow Wilson Center, 2002), p. 205. 2 The danwei has been characterized in five major features: (1) controlling personnel; (2) providing communal facilities; (3) operating independent accounts and budgets; (4) having an urban or industrial role; and (5) being in the public sector. Saich, Tony, Governance and Politics of China (Basingstoke: Palgrave, 2001), p. 198. But even under the danwei system, there were private garden plots in agriculture and a minor amount of what might be called private enterprises.

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neo-liberal West.3 This trend reinforces some scholars' arguments that China has been a corporatist state4 and society in the communist era as well as in the preceding periods. 5 The Chinese reforms since 1978 have, however, spawned staggering and revolutionary changes in every aspect of Chinese society. The strength and control of the state has been modified through the introduction of market mechanisms. The basic work unit system has waned since the central government began to apply market-centered theories and approaches to social systems. One of the major changes is the break-up of state-society duality although privacy and individualism, features of the neo-liberal Western private realm, were not tolerated by the state in the pre-reform period. The Chinese social structure itself has been shaken and altered because of marketization, privatization, and decentralization. During the on-going reform period, there has been a steady evolution of institutions both the public and the private

3

Neo-liberalism is generally characterized in a few points: (1) the rule of the market, liberating private enterprises from any control/regulations by the government, open to international trade and investment, and no price control; (2) cutting public expenditure for social services like education and health care; (3) deregulation; (4) privatization including social infrastructure like water supply; and (5) removing the concept of 'the public good' and 'community', instead replacing it with individual responsibility. 4 A corporate state dominates all social organizations and entities directly and determines which organizations or units are legitimate. In Communist China, the state has restricted individual autonomy, and society has been regarded as cells of the corporate body. The Chinese Communist Party (CCP) has taken control of society through a number of different agents in China. Gold, Thomas, 'Bases for Civil Society in Reform China', in Kjeld Erik Broadsgaad and David Strand (eds.), Reconstructing Twentieth-Century China: State Control, Civil Society, and National Identity (Oxford: Clarendon Press, 1998), p. 166. 5 Unger, Jonathan, "Bridges: Private Business, the Chinese Government and the Rise of New Associations," China Quarterly, No. 147 (September 1996), p. 795. See also Throp, Ralph, 'Informal Development in the Market Socialist City: The Case of the Floating Population of Beijing,' in Michael Carley, Paul Jenkins and Narry Smith (eds.), Urban Development and Civil Society: The Role of Communities in Sustainable Citie, (London: Earthscan, 2001), p. 90, and Pei, Minxin, 'The Growth of Civil Society in China', in Dorn, J.A. (ed.), China in the New Millennium (Washington D.C.: CATO Institute, 1998), p. 245.

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spheres. Marketization and privatization in Shanghai have encouraged the upsurge of private companies, and this also has stimulated the masses to pursue their own economic gains as well as to develop their entertainment and leisure values. Figure 3-2 illustrates how contemporary Chinese society has evolved from 1949 to the present based on the theoretical perspectives of grid/group theory and the relationship of the private and the public spheres.6 Since the mid-1980s, Chinese scholars and other researchers in Europe and America began to discuss the existence and development of the civil realm in China.7 In the public sphere, China has witnessed incipient civil movements stimulated by environmental NGOs as well as by GONGOs and other already institutionalized social groups, such as local communities (sheqii), and the mass media throughout the 1980s and the 1990s. This phenomenon has resulted from the vacuum in social services of the post-reform era, which the government used to cover. 8 The withdrawal of the government in the social service sector required other forces, such as GONGOs, social/mass associations and local communities, to take over provision of social services.

6

See Chapter 3Ma, Shu-Yun, 'The Chinese Discourse on Civil Society', China Quarterly, No. 137 (March 1994), p. 180. Some Chinese articles and books propose the concept of 'the third sector' (the first: state & the second: market). See Ren, Yuan, 'NGOs, Public Participation and Urban Community Development: Social Reform in Local Urban Governance in China', Conference Paper in Cities in China: The Next Generation of Urban Research, 14-15 June 2002, University at Albany, and Yun, Chizuo (ed.), Tizhigaige yu Shehui Zhuangkuang (System Reform and Social Transformation: Report Social Development) (Shanghai: Shanghai Academy of Social Sciences Press, 2001). Nick Young also argues that the trichotomy (state-market-society) can validate the notion that autonomous organizations have a natural place in market economies without directly addressing the more sensitive questions of the relation between the state and private citizens, and the sources of state legitimacy. Young, Nick, 'Introduction: Searching for Civil Society,' in Nick Young (ed.), 250 Chinese NGOs— Civil Society in the Making (Hong Kong: China Development Brief, 2001). 7

8

Yun, Tizhigaige yu Shehui Zhuangkuang (System Reform and Social Transformation: Report Social Development), p. 230.

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However, it is noteworthy that the government would not allow the new social forces to exert their influence on society in ways that were beyond the control of government. A cascade of quasi-governmental organizations provides a spectrum of controls by which the state has continued to influence social organizations and to keep the civil ream under control, thereby manipulating civil movements through those quasi-governmental apparatuses. 9 The Chinese government seems to believe that damage derived from the extended influence by new social groups, such as environmental NGOs, would catalyze splitism and instability in Chinese society. The Chinese governmental approach to the civil realm epitomizes Frolic's conceptualization of the civil realm in China, a 'state-led civil society'. 10 Therefore, the quasi-governmental organizations have become increasingly important in dealing with social services in districts and counties in Shanghai and also follow-up environmental campaigns and awareness programmes initiated by the municipal government since the early 1980s. Newly emergent civil forces in Shanghai, such as environmental NGOs, were not visible until the late 1990s. Prominent environmental NGOs, e.g., the Friends of Nature (FON), and the Global Village Beijing (GVB), have been all located in Beijing, and there was little evidence of environmental NGOs in Shanghai. The most important achievement of the fieldwork in 2002 was the identification of a series of environmental NGOs that have grown up in Shanghai. They have become important in environmental protection, education, and awareness campaigns. It is observed that despite constraints and challenges, the NGOs have become a new force playing an increasing role in Shanghai environmental protection, including water pollution amelioration and reduction, in cooperation with other social forces, GONGOs, local communities, the media, international NGOs and even the Shanghai government. 9

Saich, Tony, Governance and Politics of China, p. 205. Frolic, Michael B., 'State-led Civil Society', in Timothy Brook and B. Machael Frolic (eds.), Civil Society in China (New York: M.E. Sharpe, 1997), p. 58. 10

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The first section of the chapter will discuss the identification of social organizations and associations in China and Shanghai providing a typology of these groups. Analysis and evaluation of NGOs, GONGOs, and other social organizations in Shanghai will come in the next section enriched by the empirical evidence from the fieldwork in 2002. The third section will explore how public awareness has been promoted in Shanghai environmental protection processes -with a review of the Shanghai Green School, and the Shanghai Environment Protection Promotion and Education Center. The elusive challenges that environmental groups confront will be addressed in the fourth section, and the fifth section will discuss positive signals evident in the development of environmental awareness in public in Shanghai. The future will also be discussed focusing on alliances among different social groups. IDENTIFICATION OF ENVIRONMENTAL GROUPS

Evolution of Environmental Groups The beginning of environmental groups' activity in China came with the establishment of the Chinese Environmental Science Institute, founded by the Chinese government in 1979. n Since then, there has been a surge of environmentally concerned groups in China, including non-governmental organizations established by individuals, such as the Friends of Nature (FON) in 1994. The first group of organizations are regarded as GONGOs, namely Government Organized Non-Governmental Organizations, and the second as NGOs, namely Non-Governmental Organizations. According to a study in 2002, there were about 40 domestic environmental groups including GONGOs and NGOs that had registered with the central government. 12 Difficulties related to registration with the government still leave a number of environmental groups unregistered. These organizations

11

Turner, Jennifer, and Wu, Fengshi (eds.), Green NGO and Environmental Journalist Forum, (Washington D.C.: Woodrow Wilson Center and University of Hong Kong, 2001), p. 5. 12 Ibid., p. 1.

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are mainly engaged in local environmental issues, such as the environmental NGOs in Shanghai. A number of student environmental groups in China have actively participated in the activities of environmental NGOs. These organizations had increased from one in the mid-1980s to one hundred and twenty in 2001.13 However, there are no reliable data on the number of registered and non-registered environmental groups in China.14 The current social system in China also includes other kinds of environmental groups, local communities, the media, and a few international NGOs. Shanghai's environmental groups differentiate themselves from the ones in Beijing where most of the famous environmental groups exist. Shanghai environmental groups have two characteristics. First, the origin of Shanghai environmental groups stemmed from the student activism in the late 1980s when democratic social and political movements emerged in relation to the events in Tiananmen Square in 1989- An example is the Fudan University's Dajia Salon (Salon for Everyone). This student group was one of the city's most popular university-based social associations and provided a forum for political debates and discussions, supported from high-ranking officials with the Fudan administration. Such student associations provided ordinary citizens with opportunities to present their ideas and to discuss social issues in open spaces, such as dining halls, lawns, and walkways on campuses. 15 It can be argued that the past few years' upsurge of student environmental groups in Shanghai is based on this type of initiation. 13

Ibid., p. 2. Interview with a project coordinator of the China Green Student Forum on 20 May 2002. Interview-200502. Although incomplete, China Development Brief's 2001 publication, 250 Chinese NGOs— Civil Society in the Making, and its updated information booklet in 2003 provides a long list of environmental groups in China. See also The inventories of China Environment Series, Issues 1-5, and US Embassy Beijing's list of environmental NGOs in China. Available Online: http://www.sepaeic. gov.cn/NGO/index.htm. 15 Wasserstrom, N.J, and Liu, Xinyong, 'Student Associations and Mass Movements,' in Deborah S. Davis, Richard Kraus, Barry Naughton, and Elizabeth J. Perry (eds.), Urban Spaces in Contemporary China (Cambridge, New York and Melbourne: Cambridge University Press, 1995), p. 388. 14

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The second characteristic of Shanghai environmental groups is that compared with Beijing which boasts a large number of environmental GONGOs and NGOs, Shanghai does not have many. The answer to the question why there are not many environmental groups in Shanghai was sought from Shanghai environmental activists during the 2002 fieldwork. First, Shanghai citizens generally acknowledge that the Shanghai government has made excellent progress in environmental protection via legal instruments, improved enforcement of environmental regulations, and various projects.16 Therefore environmental activists feel that there is little space in which environmental NGOs can play a role.17 The second reason is linked to the different history of Beijing and Shanghai. Beijing has been the capital of China for many years in which many intellectuals come together and generate the spirit of civil culture and activism. However, Shanghai does not enjoy a long history of such development compared with Beijing, and the intellectual capacity of Shanghai cannot compete with that of Beijing.18 Also as for environmental NGOs, it would be more useful to be located in Beijing, the capital, so as to exercise influence on governmental policies. Third, due to a small number of international NGOs, local environmental NGOs in Shanghai have fewer opportunities to learn skills of organizing and managing projects from international NGOs. The last point is something to do with the Shanghai government's control over the media. A Shanghai environmental leader pointed out that Shanghai has been treated as the showcase for all the areas and cities in China, and therefore the city should not be 'spoilt and contaminated' by any negative reports in the media, such as the poisonous material leakage in the Yangtze River in 2001. Such tight control and 16

Such similar opinion is also prevalent among Shanghai NGO student members. See also Wu, Fengshi, 'Commentary — Shanghai Greenies,' Jennifer Turner (ed.), China Environment Series, Issue 5 (Washington D.C.: Woodrow Wilson Center, 2002). 17 Interview with a project coordinator of the China Green Student Forum on 20 May 2002. Interview-200502. 18 Interview with Wen Bo, China Project Coordinator of Pacific Environment on 5 July 2002. Interview-050702.

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censorship over the media attenuates public participation by environmental groups and has not promoted public environmental awareness in Shanghai.19

Typology of Environmental Groups There are different views of how to categorize diverse environmental groups in China. As discussed earlier, dismantling the work unit system in China has brought about the emergence of new environmental groups, i.e., GONGOs and NGOs. Local communities (sheqii) and the media have also become more engaged in environmental protection and awareness campaigns in Shanghai. Regarding such diverse environmental groups, the primary question hinges upon if the categorization is conducted on a micro or macro scale. Jin Jiaman from the Green Earth Volunteers presents a typology of classifying environmental groups into many small subgroups, and Knup divides these groups into three, GONGOs, individual-organized NGOs, and voluntary organizations.20 It is sensible to classify these groups into four: (1) government-organized NGOs (GONGOs); (2) NGOs; (3) quasi-governmental organizations: local communities (shequ), and the media; and (4) international NGOs. GONGOs, Government-Organized NGOs, began to emerge from the 1980s as a 'parastatal non-profit sector' initiated by the government and party departments. These new entities usually work in the forms of foundations, charities, and research centers. 21 The 19

Interview with China Representative of the Wildlife Conservation Society on 28 June 2002. Interview-280602. 20 Turner and Wu (eds.), Green NGO and Environmental Journalist Forum, pp. 5-7 and Knupp, Elizabeth, 'Environmental NGO in China: An Overview,' in Aaron Frank (ed.), China Environment Series, Issue 1 (Washington D.C.: Woodrow Wilson Center, 1997) pp. 11-13. 21 Young, 'Introduction: Searching for Civil Society.' Young maintains a better term for government-related NGOs as 'SONGOs' — State-Owned NGOs, emphasizing both the analogy with state-owned enterprises and the potential for these agencies to be corporatised and placed in a semi-independent relation to government, or even to be completely away from the state.

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primary purposes of GONGOs in China can be summarized in three elements: (1) to receive assistance from multilateral, bilateral or international NGOs; (2) to strengthen technology and information support; and (3) to resolve new social problems. 22 The main funding source for GONGOs used to come mainly from the government until the mid-1990s. However, the 1990s' administrative reforms have decreased the flow of funds into these GONGOs. This new situation has pushed GONGOs to become more financially independent and seek more cooperation with international and domestic NGOs to gain advanced technology, management skills, and funding. GONGOs vary in their legal status, the policy influences, the level of access to local organizations, and access to international resources such as funding, partnerships, and information.23 GONGOs have registered as social associations or affiliated units with the Ministry of Civil Affairs, but sometimes they have registered differently depending on the type of units.24 For instance, Wu introduces three major GONGOs in Beijing under the State Environmental Protection Administration (SEPA): (1) China Environment Science Association (CESA); (2) China Environment Protection Industry Association; and (3) China Environment Fund.25 The Green Industry and Technology Promotion Center (GITPC) was identified as a GONGO through fieldwork in Shanghai, 2002. GONGOs are unique and distinctive in two ways: (1) GONGOs are initiated and established by government-agencies or party-related institutes; and (2) GONGOs do not conduct projects in direct contact with formal administrative systems. Rather, GONGOs work on 22

Wu, Fengshi, 'New Partners or Old Brothers? GONGOs in Transnational Environmental Advocacy in China,' in Jennifer Turner (ed.), China Environment Series, Issue 5 (Washington D.C.: Woodrow Wilson Center, 2002), p. 47. 23 Wu, 'New Partners or Old Brothers? GONGOs in Transnational Environmental Advocacy in China,' p. 47. 24 Ibid. The compulsory registration procedure for any social organizations in China is based on the "PRC Social Organisation Registration Management Regulations" (1989 and Revised in 1998). Wu also introduces that some GONGOs have registered as public enterprises, semi-affiliated units, and double-governed units. 25 Ibid., p. 48.

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1 33

research or consulting projects for government agencies.26 Although often criticized as parastatal entities and extended organs of government agencies, GONGOs enjoy several advantages. First, GONGOs can place high caliber scholars and officials together from various institutions, which can generate a synergic effect of interdisciplinary study and research. Second, leaders and members of the GONGOs in the environmental field are often very well known in academia as well as governmental administration, which consolidates the stable status of GONGOs closely linked to the government. Third, the prestigious membership of GONGOs can become a bridge for the flow of information and ideas between GONGOs and environmental policy-making officials in the government. Apart from these, GONGOs have been well rooted in the environmental field because of: (1) no financial constraint; (2) political stability through registration; and (3) better access to international NGOs.27 In the Chinese context, NGOs include loosely organized university student associations and voluntary associations. These groups play an important role in environmental activities in China even if they lack capacity, speciality, funding, and clear goals. These groups can also be divided into two subgroups: (1) the registered; and (2) non-registered. Registered NGOs are established by influential individuals that keep some connection with the government even if the relationship is not publicly recognized. The most famous and influential registered NGOs are the Friends of Nature (FON), established in 1994 by Liang Congjie, and the Global Village Beijing (GVB), established in 1996, by Liao Xiaoyi. Both are based in Beijing. There was no registered environmental NGO in Shanghai as of 2002. Based on this relationship with the government, Beijing NGOs succeeded in registering themselves with governmental bureaus, such as the Bureau of Cultural Affairs in the central government (FON), and the Department of the Industry and Commerce in municipal governments (GVB). Although these NGOs are politically less secure than GONGOs, the registration status provides them with a sound basis for expanding Ibid., p. 47. Knup, 'Environmental NGO in China: An Overview,' p. 12.

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their lively activities and drawing a number of volunteers and scholars dedicated to environmental protection and education. The funding of registered NGOs stems from various sources, such as personal savings of the leaders, some donations from members, and grants from international foundations and NGOs. Their financial constraints, however, make their projects to keep going only on a 'pay as you go' basis.28 Non-registered NGOs have the most autonomous character among environmental groups discussed here. However, these groups are not publicly and legally recognized by the government, which makes them politically unstable and often suspected by the government. The non-registered NGO does not have a good organizational structure or regular staff, but occasionally gathers to work for a common goal. Non-registered NGOs include university student associations and voluntary associations, and all of these groups are composed primarily of university students. The mid-1990s saw the upsurge of the establishment of a number of such non-registered NGOs mainly in university areas in China, for example, two Beijing-based NGOs. The Green Earth Volunteers (GEV) was founded in 1997 by Wang Yongchen, focusing on environmental conservation works,29 and the China Green Student Forum was established in 1996, dedicated to disseminating environmental information and inspiring discussions among university students throughout China. These kinds of environmental groups in Shanghai began to come into being in the late 1990s. Three such groups are the Shanghai Green Union, the Grassroots Community, and the Shanghai Wildlife Protection Station. The funding channel in these groups is very irregular and diverse, i.e., micro grants from international NGOs and foundations, small donations from volunteers, and sometimes symbolic help from local communities, such as the free use of computers and office equipment. These groups lack funds, legal status, technical and managerial expertise, and organizational strength due to their loose membership. However, it is expected that today's university students, members of these groups, will grow into potential 28 29

Ibid, p. 12. Ibid., p. 13.

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environmental leaders. They will lead the public to be more aggressive and enthusiastic in public participation and awareness on environmental issues in the future. The third type of activist group can be identified as Local Communities, shequ in Chinese.30 According to many Chinese articles, the newly spotlighted social unit has been likely to play a pivotal role in orienting contemporary Chinese society in the 'Right' direction and serving local communities.31 The 'PRC Municipal Residential Council Organization Law' promulgated in 1989 is the legal basis for local communities, and the characteristics of such groups are: (1) commonality: common interest, culture, recognition, and value; (2) organizational uniqueness: diversified and loosely tied among members; (3) basic welfare service providers for society; and (4) localism.32 The major functions of these groups are to meet demands of the masses in everyday life, and furthermore, to play a bridging role between state, society and individuals as 'media and carriers'. Amongst the social associations in contemporary Shanghai that used to belong to the pre-reform social system, local communities have become the most far-reaching and influential social groups in the new millennium, because this group is taking over the jobs and tasks closely related to daily life, which used to be under the duty of work units (danwei). Regarding environmental protection issues, local communities in Shanghai organize environmental protection campaigns with university student organizations, such as cleaning small rivers, and collecting used batteries. The Chinese media have contributed to environmental protection by raising environmental awareness through TV broadcasting, radio programmes, and newspaper articles. There are three major media 30

The term, Shequ, can be translated in 'Community'. However, in order to emphasize a localized character of this group, the word, 'local', is used together with community in this thesis. Also some argue that the implication of Community in English includes the meaning of "common (interest) group for the masses." Yun (2001), p. 152. Chinese scholars note that the term was imported from Europe in the 1940s. 31 Yun (ed.), System Reform and Social Transformation: Report of Social Development in Shanghai 2001. 32 Ibid., p. 152.

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organizations influential in environmental reporting: (1) the Xinhua News Agency; (2) the China Central Television (CCTV); and (3) the China Environment News (CEN). Amongst them, the China Environment News (CEN), established in 1984 by the National Environmental Protection Agency (now the State Environmental Protection Administration), has been specializing particularly in environmental issues.33 The Chinese authorities are well aware of the usefulness of the media for publicizing new laws and regulations and delivering environmental messages from government environmental agencies and departments.34 Therefore, all the media companies and units are owned by the government, and it is hard to envisage that the government will loose its control over the media in the foreseeable future. Similarly with the China Environment News (CEN), there are the Environmental Protection Herald established by many environmental agencies in southwest China and the China Green Times sponsored by the Forestry Bureau, for instance.35 In Shanghai, there is the Shanghai Environmental Protection Information, published by the Shanghai Environmental Protection Bureau.36 But its influence and covering issues are not as extensive and in-depth as the CEN. Also environmental news is often reported in daily newspapers, especially with relevance to water pollution in the Suzhou Creek and the Huangpu River. The turmoil caused by some international NGOs, for example, by Greenpeace in the mid-1990s has induced international NGOs to keep a low profile for a while. 37 On the basis of previous lessons, it 33

Available Online: http://www.cenews.com.cn Frank, Aaron (ed.), 'Environmental Policymaking in China, 26 May 1998, the Working Group Public Meeting Summary,' China Environment Series, Issue 2 (Washington D.C.: Woodrow Wilson Center, 1998), p. 77. 35 Ibid. 36 Available Online: http://www.envir.online.sh.cn/shnews 37 In August 1995, a few foreign Greenpeace activists conducted a demonstration in Tiananmen Square protesting nuclear testing in China and traveled to Shanghai Harbor against China's nuclear testing in 1996. Wen Bo, 'Greening the Chinese Media,' Aaron Frank (ed.), China Environment Series, Issue 2 (Washington D.C.: Woodrow Wilson Center, 1998), p. 39. 34

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appears that international NGOs implement environmental projects rather quietly and do not risk making Chinese authorities nervous. The past two decades have seen a growing number of international environmental NGOs establish their offices in China, mainly in Beijing. Examples are the World Wildlife Fund (WWF), Greenpeace, Roots and Shoots, the Wildlife Conservation Society (WCS) and the Friends of the Earth (FOE), Hong Kong. 38 Regarding environmental and ecological conservation projects, the WWF and the WCS have worked with governmental agencies and channeled funds for various projects. In Shanghai, the WCS has its China representative office, and Roots and Shoots and the WWF are often involved in environmental education projects sometimes in cooperation with Shanghai government agencies. 39 These international NGOs recently pay more attention to working with local NGOs by providing small grants and technical assistance, which will strengthen capacity building of local NGOs in the long term. The next section will examine the diverse environmental groups in Shanghai based on the typology discussed above. It is informative to have insights into a few NGOs in Shanghai primarily consisting of university students with extensive activities in environmental protection, education, and conservation. In addition, discussions of GONGOs and quasi-governmental organizations will illustrate the influence of the Shanghai government on the civil movements by means of new governmental apparatuses in environmental protection. It is emphasized that international NGOs in Shanghai are not as noticeable as they are in Beijing.

38

The WWF and Greenpeace are the only international environmental NGOs registered with the government as March of 2003- 'Greenpeace is 'legal' on the mainland', South China Morning Post, 17 March 2003. For more comprehensive list of active international environmental NGOs in China, see the inventories of China Environment Series, Issues 1-5, Washington D.C.: Woodrow Wilson Center. 39 Interview with a project coordinator of the China Green Student Forum on 20 May 2002. Interview-200502. See also Wu, 'Commentary — Shanghai Greenies,' p. 100.

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ENVIRONMENTAL GROUPS IN SHANGHAI Government Organized NGOs (GONGOs) Environmental GONGOs in Beijing began to be established from the 1980s, and their activities are often reported through newspaper, TV, radio as well as through literature in English. However, there is very little coverage in the media about environmental GONGOs in Shanghai, which leads to the suspicion that the Shanghai government does not support the establishment of environmental GONGOs. Considering the main purposes of GONGOs, namely the pursuit of external funds and advanced technology and skills from international NGOs, the fact that the small number of international NGOs is based in Shanghai can fortify the above hypothesis. During the fieldwork research in 2002, a Shanghai environmental GONGO was identified: the Green Industry and Technology Promotion Center (GITPC), and it is helpful to discuss its origins and goals.

Green Industry and Technology Center (GITPCY0

Promotion

The Green Industry and Technology Promotion Center (GITPC) was established in 1998 by Sha Shangzhi. There were six administrative staff, and Sha Shangzhi and a German Consultant are in charge of technical and communicating works in 2002. Members in collaboration with the GITPC come from scientific research institutes, universities, and colleges, and major industrial enterprises in Shanghai. The purposes of the GITPC are: (1) to popularize clean production; (2) to improve utilization and efficiency of energy sources; (3) to provide information and technologies for the reduction of waste; (4) to help enterprises to acquire knowledge on pollution prevention and control; (5) to enhance the ability of sustainable development; and (6) to push forward new modes of economic development. 41 40

All the information about this GONGO is based on the author's fieldwork interview on 19 June 2002. Interview-190602. 41 See the website of the GITPC. Available Online: http://www.gitpc.com

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The GITPC has currently registered with the Shanghai Economic Commission, which smoothes the activities of the GITPC, such as cooperating with the Center for International Migration and Development (CIM) under the German Economic Cooperation and Development Agency and securing little but symbolically cooperative help from the government. Funding for management and implementation of projects by the GITPC comes from the GITPC's diverse activities, such as providing green technology related training and seminar programmes to enterprises and universities. As for the most recent project, the GITPC puts forward green technologies in mechanical, electric, chemical, petrochemical, and light-industry, authorized by the China Environmental Label Certification Committee. The historical notion of how the GITPC has been set up demonstrates the recent circumstances about GONGOs' identity. Although the registration was delayed for two years, the successful GITPC's registration with the government resulted from two causes. First, Sha maintained a close relationship with governmental officials based on 15 years' working experience in the government-funded research center (the previous GITPC). Second, the government needed alternative institutes that could absorb redundant government employees like researchers in the research center due to on-going administrative reforms from the early 1980s. Such a unique background of the GITPC's establishment delineates how the GITPC is better to be regarded as a GONGO, rather than an NGO. The registration of the GITPC with the government implies that this group could make the registration possible via a year-long established 'cooperative relationship with the government'. The first stage in establishment of the GITPC was supported by limited governmental help. A small grant was allocated to renovate office spaces that the research center used to occupy. Apart from working in the GITPC, Sha is president of three environment-related enterprises, 42 which have provided the GITPC with free office 42

The three enterprises specialize in producing wastewater treatment facilities, water purification machines, and coil-making machines.

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space. Given that these enterprises came into being for the purpose of resolving the unemployment problem of redundant researchers, it is possible that the GITPC benefits from these enterprises in terms of funding. The involvement of the German Development Agency, the CIM, indicates some interesting features of the GITPC as a GONGO. The German consultant from the CIM advises the GITPC about technical matters as well as promotes the GITPC's communication with German and EU countries' environmental enterprises. Interestingly, he insisted that he is not paid by the GITPC, but by 'a foundation' belonging to the government in Germany. The discussion of the funding issue with Sha and the German consultant gave the impression that they wanted to stress the GITPC is nothing to do with the government. However, another CIM expert in Beijing confirmed that CIM experts in China are partly paid by the German government, 43 and this is the usual way in which foreign consultants are working in governmental bureaus. Therefore, it is maintained that the GITPC is a GONGO which has successfully obtained advanced environmental technologies and management skills from an international agency.

NGOs Until the late 1990s, there "were almost no environmental NGOs in Shanghai. However, with the growing number of environmental NGOs in Beijing, Shanghai has also witnessed over the past few years a spurt in the formation of environmental NGOs primarily supported by university students. These NGOs have experienced a wide range of constraints, such as the lack of funding, specializa43

Dr. Eva Sternfeld, a CIM expert, confirmed that there are about 20 CIM experts in China. Interview with Dr. Eva Sternfeld, Director of the China Environment and Sustainable Development Reference and Research Center under the Center for the Environment Education Communication (CEEC) on 2 July 2002. Interview-020702. Personal communication with Beatrix Etzkorn by email on 2 June 2003.

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tion, clear goals, and the non-registration status. However, the energy, autonomous ambience, and flexible working and organization styles in these NGOs signify potential for them to become a major force to implement people-centered environmental protection works in the future. Discussions were mainly focused on university student groups on the basis of fieldwork in 2002. The China Green Student Forum is an example of a student-supported NGO, and the Shanghai Green Union and the Grassroots Community are to be discussed next. Small environmental NGOs are also focused in the last discussion.

China Green Student

Forum44

The China Green Student Forum was established in Beijing in 1996, and its network-based approach paved the way for this group to establish a nation-wide network in China. Members of this group are primarily university students who are inclined to contribute to environmental conservation and protection. The activities are: (1) to support environmental protection activities by local universities (students) that are appropriate to local circumstances and needs; (2) to help achieve specialized techniques, mass communication, and to establish domestic and international network; and (3) to create materials, information, facilities, and technique sharing and human networks. The China Green Student Forum is normally active online, however, sometimes members of the Forum in each locality gather to discuss local environmental issues (See Figure 5.1). This NGO regularly publishes a bulletin, introducing various environmental activities by members throughout China, which plays a role in escalating mutual understanding about different activities among members and establishing nation-wide networks among environmental activists.45 The China Green Student Forum has not registered with the government and does not secure any continuous funding source. 44

This section is based on an interview with a coordinator of the China Green Student Forum on 20 May 2002. Interview-200502. 45 The bulletin is available online: http://www.greenchina.org

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Figure 5.1 Dinner Meeting of die China Green Student Forum in Shanghai in July 2002 Source: Author.

The Shanghai branch encourages university students to organize and plan localized environmental protection projects disseminating information and exchanging ideas through email, telephone and fax. Recently some offline activities were initiated to attract environmentally aware university students, such as training camps for green student leaders held in Donghua University in March 2002. Also the Shanghai project coordinator informed a few other projects, such as the Green Bookshelves in universities and the Environmental Education Interaction between university and middle school students. There are some interesting features related to project coordination and implementation. The FOE, Hong Kong helps this NGO by sending project coordinators and providing small grants in Shanghai. 46 Aware of these projects, officials in environmental agencies and bureaus in the Shanghai government do not forbid this NGO to implement its projects despite its illegal status. It is argued that as long as NGOs' projects are beneficial to the government, the 46

The Friends of the Earth (FOE), Hong Kong introduces its project of helping the China Green Student Forum.

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authorities do not ban NGOs' activities and favor the projects appreciating 'free help' from NGOs. These cases suggest the evidence of cooperative relationships between local and international NGOs, and between local NGOs and the government, which makes other NGOs in Shanghai realize that there is a mode of survival enabling them to continue their green activities. Shanghai

Green

Union47

The Shanghai Green Union was established in 2000 by university students partly coordinated by the FOE, Hong Kong. The Union consists of 20 university environmental protection societies from different universities in Shanghai. Each society usually has approximately 50 members, and therefore the Union possibly has more than a 1,000 members in Shanghai. The main purposes of this NGO are to exchange information and to share resources on environmental issues among Shanghai university students. In order to achieve these goals, the Union publishes a monthly bulletin, 'Green Corridor'. The Green Corridor introduces environment books, renowned people in environmental protection, and environmental events and issues provided by different universities in Shanghai. The Union has not registered with the government yet, and funding for maintenance and projects are secured through different channels, small donations from members and small grants from international foundations, such as the Global Greengrants Fund.48 There are two different types of projects conducted by this NGO: (1) regular projects; and (2) event projects. This NGO organized rubbish recycling and used battery collection in Shanghai universities as regular projects. Each university's environmental protection society is in charge of collecting used batteries and advises students not to 47

This discussion about the Shanghai Green Union is based on the interview with a project coordinator of the Shanghai Green Union on 31 May 2002. Interview-310502. 48 The Global Greengrants Fund distributes small grants to various domestic NGOs in China. Each grant cannot be over US$ 5,000 per project normally, but in China, the Fund confines the grant limit up to US$ 2,000 per each group, because they want to encourage more NGOs to apply for funds.

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dump used batteries randomly to protect the environment. Also these societies are encouraging students to separate beverage cans and plastic vessels from other organic wastes and put them into different garbage tins on campuses. An event project is the Green Gas Station. This is a project that involves a training course for student leaders in each society. The course is normally held twice a year, and project coordinators provide various techniques of how to run societies, organize discussions, make a good proposal for fund-raising, and to introduce case studies about environmental protection. Another good example as an event project is that with the grant (US$ 300) from the Global Greengrants Fund, members of this NGO conducted a habitat survey and evaluation for birds in Chongming Island, which is the biggest natural habitat (wetland) in Shanghai. It is interesting that even though water pollution in the Suzhou Creek and the Huangpu River has drawn attention of the public in Shanghai, none of the Shanghai environmental NGOs has been deeply engaged in any particular project or activity pertinent to water pollution amelioration. It was informed from a Shanghai environmental leader that elementary and middle school students have been more encouraged by the government to participate in diverse activities to protect rivers and waterways from pollution than university students. It is suspected that university students, including members of the Shanghai Green Union and other environmental NGOs, also feel the same as ordinary people that the water pollution amelioration issue should be handled by the government. The Shanghai Green Union focuses on the relationship with the Shanghai government and attempts to 'navigate shifting political tides,'49 keeping a low profile and managing a collaborative relation with the authorities. Members are not encouraged to identify themselves as members of an 'NGO' in China, since the concept of NGO does not give a positive impression to the government authorities, and one of the main strategies for survival in this NGO is not to engage in any politically sensitive project. This implies there is a long way to go to secure some room for NGOs independent from the Shanghai government. Knup, 'Environmental NGO in China: An Overview,' p. 14.

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Figure 5.2 Qingnian Chabui (Tea Meeting for Students) Community in Shanghai in late June 2002 Source: Author.

Grassroots

by the Grassroots

Community

The Grassroots Community was established in 1996 in order to provide legal advice, particularly for those in the marginalized communities. After establishing the firm ground in local communities, the Grassroots Community transformed itself into an NGO in 2001 to pay particular attention to environmental issues, and at the same year, managed to secure generous financial support through private donations. This NGO has organized biweekly seminars and inspires lively discussions on a wide range of environmental issues since September 2001 inviting famous speakers 50 (See Figure 5.2). 50

The seminar is called, 'Qingnian Chabui (Tea Meeting for Students)' and the topic of the late June 2002 seminar was to introduce Chinese Green NGOs in Mainland China, Hong Kong, and Taiwan, presented by a PhD student from the US. See also Wu, 'New partners or Old Brothers? GONGOs in Transnational Environmental Advocacy in China', pp. 99-101 and Young, 'Civil Society in the making', China Development Brief Vol. 5, No. 2, (Autumn 2002), p. 17. This group has the website: http://www.community.org.cn

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It seems that this NGO has gained the status as a mediating forum where different kinds of people gather, present their ideas, and share information on environmental issues, which induces a build-up of networks among environmental activists, university students, researchers, and journalists in Shanghai. This makes the Grassroots Community different from other student-centered NGOs in Shanghai. It promotes networking among NGOs and also provides a leveling up capacity for Shanghai NGOs to give a bigger voice to the government on environmental issues and related governmental policies. This NGO started to work with local district governments on a number of green community development projects in May 2002 and are working with local communities identifying a feasible path for other environmental NGOs to take. Other Small

NGOs

The Shanghai Wildlife Protection Station is a voluntary association loosely related to the Shanghai Agriculture Commission.51 In this NGO, there are approximately 300 professionals and expert members dedicated to environmental conservation 'works and projects. The main aims of this NGO are, first, to draw public attention to endangered species and second, to bring in advanced methods and technologies for wildlife conservation in Shanghai. The recent endeavor of looking for grants to establish an outdoor wildlife education center implies that the Shanghai Wildlife Protection Station tries to be financially and administratively independent from the municipal government. 52 In contrast with other student groups, the Shanghai Normal University Urban Group boasts a relatively long history. It was

51

Some differentiate NGOs from voluntary associations, however, it is difficult to apply appropriate parameters to put them into different categories. Here NGOs largely include university student organizations and voluntary associations. 52 Wu, 'New partners or Old Brothers? GONGOs in Transnational Environmental Advocacy in China', p. 100.

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established in 1988.53 Members from Shanghai Normal University have been actively engaged in various environmental protection activities. One of the most outstanding achievements was to ameliorate the severe pollution of the Caojing Creek near the university. Students undertook research on water quality and quantity and appealed to the municipal government to ameliorate water pollution in the creek.54 In addition, this group initiated the 'Green Camp', an environmental protection Organization in 1998 for all Shanghai university students, and through this Organization, tried to facilitate volunteers' awareness of green projects under the mottos of "Saving the Earth" and "Protect House Gardens". The Shanghai Normal University Urban Group also contributed to the formation of the Shanghai Green Union.55 The past decade in Shanghai has seen a growth in the number of small NGOs involved in environmental works. A unique NGO in terms of its target membership group is the Shanghai Youth Environmental Society, focusing on middle school students. This NGO was first established in 1986, but was temporarily disbanded until 1993 because of the lack of funding. It was re-established in 1994. Since then the society has encouraged young students to become more aware of the importance of environmental protection activities and to realize the importance of conserving nature in Shanghai. This NGO is continuously active in many ways, such as meeting each member from about 50 middle schools in Shanghai and sometimes gathering together in the Shanghai Children's Palace.56 By 2002, a growing number of Shanghai universities were taking part in environmental activities. The East China Science and Engineering University environmental protection association imple53

Luse Daxuesheng Luntan {China Green Student Forum Newsletter), Issue 3, 2001. Luse Daxuesheng Luntan {China Green Student Forum Newsletter), Issue 3, 2001. 55 Shen Guoming and Zhu Dajian (eds.), Shengtaixing Chengshi yu Shanghai Shengtaihuanjing Jianshe {Report of Eco-environmental Construction) (Shanghai: Shanghai Academy of Social Sciences, 2001), p. 30956 Interview with a project coordinator of the China Green Student Forum on 20 May 2002. Interview-200502. 54

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mented the "Water for Life" activity in association with the Shanghai Environmental Protection Promotion and Education Center. Donghua University conducted 'a Survey on Environmental Awareness of Shanghai Citizens' on 5 June, World Environment Day. The used battery collection projects were also underway by students from the East China Science and Engineering University and the Shanghai Finance Study University.57

Quasi-Governmental Organizations Although quasi-governmental organizations are not directly dedicated to environmental activities, these groups are worth focusing on in terms of their closeness to and far-reaching influence on ordinary people. It should be noted that these quasi-governmental organizations are a new form of governmental apparatus to regulate and control Shanghai citizens in the course of the waning of the work unit, danwei. As examples, local communities and the Shanghai media are to be discussed. Local communities have recently begun to pay more attention to social welfare issues including hygiene and environmental protection. The Shanghai media have contributed to raising environmental awareness through various environmental reports. Whether or not these groups evolve as social entities to become more aware of environmental issues in the future will be key to a high degree of public awareness and concern about the environment.

Local Communities

ishequ)

A number of local communities in Shanghai are influencing everyday life mostly pertinent to social welfare works, which used to be dealt with by the work units (danwei) in the pre-reform period. In 2002, there were many placards and posters hung around the streets of Shanghai to promote the 'establishment of local communities', initiated 57

Shen and Zhu (eds.), Shengtaixing Chengshi yu Shanghai Jianshe {Report of Eco-environmental Construction), p. 310.

Shengtaihuanjing

Development of Civil Movements 149

by the Shanghai government in 1996.58 In addition to providing basic social services to local people, Shanghai local communities began to pay more attention to environmental protection issues working with schools and local NGOs. For instance, there was a project conducted in cooperation with schools and local communities, "School-community, Our Common Green Gardens", and in 1999 various schools and local communities implemented the "Environmental Protection Green Community" activity. Inspired by these environmental projects, it is reported that there have been increased 'Green Volunteers' in districts, such as Changning, Putuo and Huangpu Districts.59

The

Media

There have been a number of news articles and reports on the environment in newspapers, for example, Wenhui News, Xinmin Evening News, and Liberation News, and TV programmes by Shanghai Oriental TV, and Shanghai Satellite TV in the period from the early 1990s to the present. One of the most popular topics pertaining to the environment is the Suzhou Creek Rehabilitation Project, cleaning up the Huangpu River, expanding green spaces in the city center, and establishing ecological conservation parks in Chongming Island and other suburban areas. Recent interesting news coverage on the Shanghai Satellite Channel was entitled the 'Expedition to the Huangpu River'. This programme continued from 13 to 27 April 2002, every night for 20 mins, and showed separate teams on each riverside to monitor and assess water quality and environmental protection activities in local villages and cities along the Huangpu River. There were interviews with local people who have become environmental victims due to water pollution.

38

Yun (ed), System Reform and Social Transformation: Report of Social Development in Shanghai 2001, p. 6. 59 Shen and Zhu (eds.), Report of Eco-environmental Construction in Shanghai 2001, pp. 311-312.

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Water and Development in China

The interviews were realistic, and some scenes showed that the random discharges of wastewater from boats and local factories were very striking. A strong message was delivered against environmental pollution.60

International NGOs As mentioned previously, there are three international NGOs in Shanghai, Roots & Shoots, the Wildlife Conservation Society (WCS), and the World Wildlife Fund (WWF). Roots & Shoots programmes usually aim to integrate educational goals, environmental awareness, and community involvement. This NGO occasionally works with schools to educate students about environmental protection. Although their activities are not easily detectable in Shanghai, together with the Shanghai Green Union, Roots & Shoots incorporated a project called, the 'Environmental Advertisement Design Competition' in 2001, targeting students in elementary, middle, high schools, and universities.61 The Wildlife Conservation Society (WCS) began to enter China on joining the Giant Panda Project in early 1998 in collaboration with the WWF. The WCS actually does not commit itself to any conservation project in or near Shanghai. The WCS China has implemented various projects related to endangered species protection and nature conservation, such as protecting Chinese alligators, Siberian Tigers and conducting biodiversity research in Tibet. The NGO keeps on good terms with the Shanghai Bureau of Agriculture and Forestry pertinent to conducting cooperative projects.62

60

The brief description of how to make the series is available online in Chinese: http: //www. stv.sh.cn/documentarychannel/hdtd/zthpj. htm 61 See the website of Roots & Shoots: http://vax.wcsu.edu/cyberchimp/roots/ roots.html 62 Interview with China Representative of the Wildlife Conservation Society on 28 June 2002. Interview-280602.

Development of Civil Movements 151

Since the opening of its representative office in Beijing in 1996, the World Wildlife Fund (WWF) has focused on nature conservation for endangered species, such as Giant pandas. Compared with activities in Beijing and the northern part of China, WWF projects are not noticeable in Shanghai. Recently, it is reported that the WWF established a chat room on the Internet, and this facilitated lively and serious discussions about environmental concerns in Shanghai.63 The FOE, Hong Kong also do not promote their own projects in Shanghai very much. Instead, as seen from the case of the China Green Student Forum, this NGO occasionally distribute small grants to encourage Shanghai NGOs to undertake their own small-scale environmental conservation and protection projects. It is noted that compared with Beijing, there have been no lively activities organized by GONGOs or NGOs in Shanghai. As discussed in the section on the media, the Shanghai government has appeared to commit itself to stretching its far-reaching influence to every aspect of society. This indicates that in the public sphere, there has been little space for environmental ethical communities to conduct their own activities free from the governmental control. The public sphere in contemporary Shanghai shows the predominant state power with scarce room for civil movements. All the GONGOs, NGOs, quasi-governmental organizations, and international NGOs reviewed here need members. Members are expected to have a certain degree of environmental awareness and information to understand complicated environmental issues and problems. The next section focuses on the development of public awareness in Shanghai environmental protection, and introduces special environmental education programmes such as Shanghai Environmental Specialty School (Green School) and activities organized by the Shanghai Environmental Protection Promotion and Education Center. A study on environmental awareness surveys will demonstrate how ordinary Shanghai people are aware of environmental issues. 63

Wu (2002a), p. 100.

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PUBLIC AWARENESS After the Stockholm meeting in 1972, the Chinese government organized the first 'National Environmental Protection Conference' in 1973- Since then, there have been two more such conferences in the 1980s, and in the meantime, a set of environment laws and regulations have been enacted coupled with institutional measures and policies. Also, local governments including Shanghai have been encouraged to promote environmental awareness among elementary, middle, and high school students through textbooks and special programmes and to organize particular events on World Water Day, World Environment Day, and World Earth Day. Until recently, environmental awareness has been promoted and supported through diverse governmental programmes. These programmes have three dimensions: (1) direct news coverage or reports drawing public attention to environmental disasters; (2) formulation of favorable public opinions for advocating government's environmental protection works; and (3) reporting environmental protection works for highlighting party and administrative leaders. These programmes, however, indicate an official approach to public policies associated with Shanghai citizens. A policy of 'infantalization of society' in contemporary China has stemmed from China's traditional cultural value of state and society as a 'moral and ethical unity'.64 Intellectuals were entitled to overseeing all social relationship and to preaching and setting moral examples. Such deeply rooted political culture has influenced the Communist Party and has made Mao be respected as 'great teacher'. 65 On the contrary, individuals have been treated as children who are not capable of realizing their self-interests.66 This governing philosophy in China has had an impact on environmental policies in

64

Saich, Tony, Governance and Politics of China (Basingstoke: Palgrave, 2001), pp. 199-200. 65 Ibid. 66 Ibid.

Development of Civil Movements 153

Shanghai. Relevant examples are the way the Shanghai government has 'educated' citizens how to protect the environment and the way the government has legitimized its achievements through environmental events and campaigns. In addition, the governing ideology which results in the infantalization of Shanghai citizens delineates the reason officials have been against public participation, because they believe the masses are simply unable to understand environmental issues as well as policy-making and implementation. The Shanghai government adopted various programmes to raise public awareness of environmental protection and conservation in accordance with the central government's policy lines. The Shanghai Environmental Protection Bureau (SEPB) has its subsidiary unit for environmental education and the promotion of environmental awareness, the Shanghai Environmental Protection Promotion and Education Center. Many events and programmes are initiated by the center for elementary, middle, and high schools, and some projects have been co-organized with local and international NGOs.

Shanghai Environmental Protection Promotion and Education Center The Shanghai Environmental Protection Promotion and Education Center was established as a subsidiary unit of the Shanghai Environmental Protection Bureau (SEPB) in the early 1980s. The primary purpose of the center was to enhance environmental awareness through education among policy makers, governmental officials, students, and business people. The center publishes its own periodical, called, 'Shanghai Environmental Education,' in which young students present their creative ideas of how to protect the environment and reduce pollution in water, air, and living ambience. 67 The periodical is available online: http://www.envir.sh.cn/educa/

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Figure 5 3 World Water Day — Environmental Awareness Campaign in Bund, 2001 Source: Author.

A couple of main projects of the center have proved to be important. The first project is related to the Special Day Activities, on World Water Day, 22nd March, Earth Day, 22nd April, World Environment Day, 5th June, and Animal Protection Day, 4th October. The center has been devoted to organizing large-scale events in cooperation with other governmental agencies to encourage citizens to participate in environmental protection activities. Under the "Saving the Earth is to save the future" event on World Environment Day, 5 June 1999, the center involved a great number of environmental protection events in Shanghai for 20 days before and after 5th June. Various projects in collaboration with local communities are the second main work dealt with by the center. The center often works with local communities (sbequ) to promote ways of how to save energy and water, appropriate disposal of domestic wastes, and the used batteries collection campaign (see Figure 5.3).68 68

Shen and Zhu (eds.), Report of Eco-environmental 2001, p. 312.

Construction in Shanghai

Development of Civil Movements

155

Shanghai Environment Specialty School (Green School) Since the 1980s, elementary and middle schools in Shanghai encouraged children to participate in many activities for environmental protection. Governmental agencies for the environment organized some interesting competitions, summer camps, and writing activities for environmental protection. For instance, in 1995 the "We Love Mother River — Huangpu River" project was implemented, and in the years of 1998 and 1999, a series of events were held as part of the "Shell Environment Improvement Activity".69 On the basis of these arrangements, the concept of the Green School was established in China in the 1990s, and Shanghai adopted a similar concept, the 'Shanghai Environmental Education Specialty School' in 1990. This scheme is based on the 'Activity Principles on National Environmental Promotion and Education (1996-2010)'. The main purposes of the Green School are: (1) to encourage students to understand environment-related issues on different subjects; (2) to enhance environmental awareness among students and teachers; (3) to improve the participation of schools in environmental monitoring and awareness activities; and (4) to clean school campuses. 70 As of November 2000, the Shanghai municipality had 150 Green Schools, and amongst them, 36 schools were located in the city center. In addition to raising environmental awareness and strengthening environmental education for students, the Green School scheme also promotes capacity building for school teachers in environmental education through an array of programmes. For instance, in 2000, there were up to more than a thousand teachers under environmental education training at the district and county levels.71

69

Ibid., p. 307. Shanghai Huanjingjiaoyu (Shanghai Environmental Education), Issue I, 2001, p. 1. 71 Shen and Zhu (eds.), Report of Eco-environmental Construction in Shanghai 2001, p. 308. 70

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Public Environmental Awareness Surveys Thanks to economic development and material wealth, Shanghai citizens have come to enjoy more choice in buying goods. They have become more concerned about purchasing products using natural elements rather than artificial ones, including organic foods. This current trend illustrates the increasing interest of Shanghai people in their health and environment. However, the level of environmental values and ethics is not high. A series of surveys on environmental issues targeting Shanghai citizens in the period from 1990 to 1998 confirmed the position. Table 5.1 shows a series of surveys on public environmental awareness in China from 1990 to 1998. Regarding environmental values, Shanghai citizens seemed indecisive about the question on the trade-off between environmental protection and economic development. The Survey on Environmental Awareness of Beijing and Shanghai Citizens in 1994 revealed that 56% of the interviewees in Shanghai agreed the notion of "in order to prevent degradation of the environment and environmental pollution, it is necessary to slow down the speed of economic development", and 43% agreed the notion that "it is imperative to continue to keep the rapid economic development at the expense of the environment". 72 This 1994 survey also disclosed interesting results on the extent to which Shanghai citizens trust environmental information provided by different social organizations and entities. As seen in Table 5.2, Shanghai citizens normally placed their trust more towards government-related informants rather than non-state ones. This result indicates that non-state units and associations are not generally accepted by ordinary citizens in Shanghai, which may make local NGOs difficult to work in environmental protection activities attracting local people. 73

72

Chi and Xu (eds.), Zhongguo Gongzbong Huanjing Yishi Diaocha {Public Environmental Awareness Survey in China) (Beijing: Beijing Environmental Science Press, 1999), p. 119. 73 Ibid., p. 120.

Development of Civil Movements

157

Table 5.1 Public Environmental Awareness Surveys in China from 1990 to 1998 Responsible unit

Survey method

Number of samples

Completion date

Environmental pollution problems

Central people's broadcasting company and others

Broadcast and Answer

1600

May 1990

Industrial enterprises' workers EA*

National science commission research center

Questionnaire

1734

November 1991

15412

January 1994

Survey name

Middle and high China Questionnaire school students' environmental EA news and others EA of citizens in Qingdao

Qingdao EPB

Questionnaire

1143

October 1994

EA of Beijing and Shanghai citizens

National science commission research center

Questionnaire

3200

December 1994

Global Environmental Survey (China)

Beijing Lingdian Questionnaire survey company

1050

March 1995

Beijing and Gallup Survey Shanghai muni- Company cipalities' EA

Questionnaire

822

October 1995

EA of all citizens in China

Questionnaire

3662

October 1995

EA in newsFriends of Nature Newspaper papers in China Analysis

52,70,76

April 1996, 1997, 1998

Public EA in Zhejiang Province

Zhejiang EPB

Questionnaire

9367

June 1996

International environmental monitoring survey (China)

Guangzhou Damen Info Industry Company

Questionnaire

1850

March 1997

China environmental protection fund and People's University

158

Water and Development in China Table 5.1 {Continued")

Survey name

Responsible unit

Survey method

Number of samples

Completion date

300

June 1997

Shanghai environmental quality and citizens' EA

Shanghai Xinwen News Company and Questionnaire Shanghai Shenzhou Survey Company Beijing city environmental

Beijing citizens' EA

Protection fund, Beijing EBP, Beijing evening news

Questionnaire 2317 in newspaper and return

June 1997

Lianyungang citizens' EA

Lianyungang city EPB

Questionnaire

7396

July 1997

Chongqing citizens' EA

Chongqing EPB

Questionnaire

3324

October 1997

* EA: Environmental Awareness. * Grey parts indicate Shanghai related surveys. Source: Chi Xiaolin and Xu Qinghua (eds.), Zhongguo Gongzhong Huanjing Yishi Diaocha (Public Environmental Awareness Survey in China) (Beijing: Beijing Environmental Science Press, 1999), p. 30.

Another attempt was to find out how citizens value environmentally friendly goods or policies. The Survey on Shanghai Environmental Quality and Citizens' Environmental Awareness on 5 June 1997 provided evidence of a rather mature environmental awareness in Shanghai citizens. In the course of undertaking the second subway line in Shanghai, the Shanghai government decided to preserve 34 trees that were 150 years old and to transplant them away from construction areas to other places, which required additional RMB 30 million construction cost. In this case, 75.9% of Shanghai citizens valued these measures, commenting that 'it was worth doing it'.74

74

Ibid., p. 149.

Development of Civil Movements 159 Table 5.2 Regarding Environmental Issues, the Extent to which Beijing and Shanghai Citizens Trust the Information Provided by Different Institutes/Persons Shown Below (%) Beijing

Shanghai

Very Well Not very Not at N/A Very Well Not very Not at N/A much much all much much all Newspaper

46

39

11

3

1

46

44

8

1

1

Central government

71

24

3

1

1

76

21

2

0

1

Municipal government District/county government Resident committee Environmental

69

27

4

1

-

75

21

3

1

0

54

37

8

1

0

52

40

6

1

0

50

38

10

2

1

47

41

9

2

1

31

36

23

7

2

28

43

22

6

1

victims g r o u p Unit leaders

24

42

25

4

2

22

49

24

5

1

Courts

55

33

8

2

2

50

41

6

2

1

Experts and professors Family and friends

44

42

10

2

2

40

47

9

3

1

26

42

24

1

2

21

46

23

10

1

Information sources can be categorized into three. Government related: central government, municipal government, district and county governments, courts, news agents (China — state-owned), and resident committees. Non-state: environmental victims groups, resident self-associations. Individuals: experts, unit leaders, and family & friends. Source: Chi Xiaolin and Xu Qinghua (eds.), Zhongguo Gongzhong Huanjing Yishi Diaocha {.Public Environmental Awareness Survey in China) (Beijing: Beijing Environmental Science Press, 1999), p. 120.

It is argued that citizens in Shanghai pay more attention to water pollution than those in other cities, such as Beijing. The evidence can also be found at the Survey on Environmental Awareness of Beijing and Shanghai Citizens in 1994. Table 5.3 shows the extent to which Beijing and Shanghai citizens feel about water pollution. The study

160

Water and Development in China Table 5-3 The Extent to Which Beijing and Shanghai Citizens Feel About Environmental Pollution (%)

River & waterways pollution Beijing Very serious Serious Not very serious Not serious No idea No answer

22 24 17 13 24 1

Deterioration of drinking water quality

Shanghai

Beijing

34 41 7 6 13 0

13 26 25 20 16 0

Shanghai 42 38 12 5 3 0

Source: Chi Xiaolin and Xu Qinghua (eds.), Zhongguo Gongzhong Huanjing Yishi Diaocha {Public Environmental Awareness Survey in China) (Beijing: Beijing Environmental Science Press, 1999), p. 123.

clearly indicates that Shanghai citizens were more concerned about river and drinking water pollution than Beijing citizens, 75% vs. 46% in river pollution, and 80% vs. 39% in drinking water pollution.75 Such serious concern about water pollution among Shanghai citizens was also found in the Survey on Shanghai Environmental Quality and Citizens' Environmental Awareness on 5 June 1997. Shanghai citizens were willing to contribute to the Suzhou Creek Rehabilitation Project, -which commenced in 1998. 64.8% of the interviewees expressed their trust and support to the Shanghai government, 25.3% planned to 'contribute to the project by donating certain amount of money', 24.7% were willing to 'contribute to the project by providing information or ideas', and 30.7% would be happy to 'do voluntary works'. Only 4.4% would not want to take part in this project in any way. 76 The most recent surveys with regard to environmental awareness among Shanghai citizens were the 1998 survey by Donghua University and the 2000 survey by the Tongji University Environmental 75 76

Ibid., p. 128. Ibid., p. 150.

Development of Civil Movements 161

Engineering Study Research Center and other organizations. Interviewees were from different groups of citizens: party cadres, teachers, students, workers, and retired cadres. Based on the two surveys, questions were proposed on three issues: (1) environmental attitude; (2) environmental behavior; and (3) environmental knowledge. Regarding environmental attitude, 90% of the interviewees agreed that there should be the separate collection of domestic garbage and collection of used batteries. However, only 61% of them agreed that they would take responsibility for the additional cost of separate collection of domestic garbage. With regard to environmental behavior, almost all of the interviewees did not tolerate environmentally unfriendly behavior, however, only 20% of them would stop such behavior. The environmental knowledge of Shanghai citizens proved to be disappointing, because only 18% of the interviewees understood the negative impact of heavy metal elements included in batteries, and 34% were entirely unaware of such a hazard.77 To sum up, although Shanghai citizens in general have a certain level of environmental awareness and pay attention to environmental issues, they understand these issues superficially rather than comprehensively. Also Shanghai citizens seem to be unable to comprehend the close relationship between the way they live and the environment. VIABILITY OF ENVIRONMENTAL MOVEMENT IN SHANGHAI The following two sections discuss challenges and positive signs for the environmental groups in Shanghai. GONGOs are struggling to survive as financially and politically independent bodies separate from the government. NGOs encounter politically and socially formidable barriers in contemporary China because of their undefined identity in Chinese society. Quasi-governmental organizations need to adopt a new approach that will be appropriate to the diversified society, and political uneasiness and public recognition with the Chinese authorities will still give a burden to international NGOs. 77

Ibid., p. 312.

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Wafer and Development in China

These new challenges, however, will be expected to strengthen each environmental group's capacity to establish a new and dynamic position in the non-state space in Shanghai. GONGOs' influence on environmental policy-making has a positive impact on other non-state actors. For instance, GONGOs can initiate alliances with other environmental groups to find alternative solutions and to make their voices bigger in Shanghai's environmental policy-making, including water quality control policy.

GONGOs The major challenge for GONGOs in Shanghai is the achievement of freedom from governmental interference. Knup provides two measures on the extent to which a NGO is autonomous: (1) the degree of funding received from the government and the number of government officials on the staff or board of directors; and (2) the extent to which activities of any NGO are implemented without government influence.78 Although these are not easy to quantify, a number of GONGOs rely on governmental funding and are not independent from government influence in terms of conducting environmental projects. For instance, the Green Industry and Technology Promotion Center (GITPC) in Shanghai, albeit a small one, received a commencing fund from the Shanghai government. The main projects of the GITPC are promoting green technologies and training governmental officials about green and clean production. Difficulties in implementing projects out of government control are linked to the registration process for GONGOs. The registration status as a GONGO can provide them with advantages to attract members and to carry out fund-raising activities. However, at the same time, because GONGOs officially register with a government bureau, they dare not undertake any project beyond general governmental policy guidelines. Also the governmental bureaus with Knup, 'Environmental NGOs in China: An Overview', p. 11.

Development of Civil Movements 163

which GONGOs register can scrutinize GONGOs' works very closely via regular reports and monitoring. A number of GONGOs are proud of high profile membership. For instance, the China Society of Environmental Science (CSES), the oldest GONGO in China, boasts of having more than 35,000 scientists, teachers and environmental specialists.79 However, as seen in the case of the GITPC in Shanghai, many GONGOs were intentionally established by the central and local governments faced with the streamlining of administrative systems in order to absorb redundant governmental officials, researchers, and cadres. Similar cases are found in the CSES, the China Society for Sustainable Development (CSSD), the China Wildlife Conservation Association (CWCA), and the China Environmental Protection Fund (CEPF).80 In the area of funding, GONGOs have been supported by the government. However, the year-long reforms since the 1980s have downsized administrative organizations in local governments. As a result, there is no guarantee of governmental funds for a GONGOs' survival any more. The leader of the GITPC in Shanghai pointed out that apart from the small grant from the Shanghai government during the commencement of the GITPC, there had been no further financial help from the government. This phenomenon is also associated with a governmental effort to reduce administrative costs because of the city's financial deficit. It is noted that a new tentative regulation for social organizations including GONGOs will possibly be promulgated in the foreseeable future, and this regulation will institutionalize different financial, personnel, and organizational requirements for social organizations than the 1998 amended Regulation of Social Organizations.81 79

Ibid., p. 11. Wu, 'New Partners or Old Brother? GONGOs in Transnational Environmental Advocacy in China', p. 52. 81 Wu, New Partners or Old Brother? GONGOs in Transnational Environmental Advocacy in China', p. 47. The translated text of the 1998 Regulation of Social Organizations is available in Young, 'Civil Society in the Making', pp. 290-294. 80

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Water and Development in China

NGOs Among the many challenges faced by Shanghai environmental NGOs, the registration issue is the most difficult and crucial one. Three requirements based on the 1998 Regulation of Social Organizations strictly limit activities of NGOs.82 First, NGOs must find a proper sponsor in the government. However, the regulation does not mention any obligation from concerned governmental bodies to accept applications. In these circumstances, concerned government bureaus are not usually willing to approve the registration of NGOs. Second, only one organization in any one type can register at each administrative level, which prohibits the growth of NGOs' registration and reduces competition. Such limits in competition for NGOs contradict the recent trend of economic policies to favour the recognition of many economic entities in markets. It appears that there remain some command and control economic legacies affecting non-state organizations.83 The third element is that local governments do not allow registered organizations to implement any activities outside of the local area. This requirement forbids local NGOs to help other local NGOs and delayk the development of NGO networks in China. Such strict requirements for NGO registration discourage local NGOs to embark on the registration process. The project coordinators interviewed in Shanghai complained of the instability of Shanghai NGOs due to their non-registration status. This prevents them from attracting large membership and conducting fund-raising activities.84 Despite help and donations from individuals and international NGOs, there is often a lack of funding for NGO projects, their maintenance, and their communications. Unregistered NGOs are not allowed to implement any fund-raising events or activities for environmental protection. Funding can be attracted from international foundations, such as the Global Greengrants Fund, with environmental

82

ibid. Ibid. 84 Interviews with project coordinators of the China Green Student Forum and the Shanghai Green Union in May 2002. 83

Development of Civil Movements 165

protection or conservation related proposals, as seen in the case of the Shanghai Green Union's nature conservation project. It is often found that most of the members in NGOs are university students. This is very common in Shanghai. Except for the Grassroots Community, all of the Shanghai NGOs' members in 2002 were university students. This mode of membership constraints activities because of the narrow experience of the membership which lacks technical information on environmental issues. Also student NGOs are often loosely organized, and they rarely have full-time staff. A low degree of environmental awareness among students and ordinary citizens in Shanghai has resulted in a low level of public participation in environmental protection and conservation activities organized by NGOs.

Quasi-Governmental Organizations Local Communities

(Shequ^)

It is argued that the extent to which most local communities can contribute to local environmental enhancement hinges upon how autonomous they are in implementing localized environment-related projects. According to a survey in Shanghai 2002, Shanghai citizens did not really regard local communities as independent or autonomous organizations. 34% of the interviewees regarded local communities as 'government', and 39% thought of the local communities' function as 'administering residents' issues coupled with the government'. Only 13% of them agreed that local communities serve as 'autonomous local organizations'. On the issue of how much Shanghai citizens were familiar with the staff of local communities, 50% of the interviewees admitted that they did not even know the names of local community's staff, and 25% just knew the names of the staff but had no contact with them. Only about 8% of the interviewees expressed their familiarity.85 85

Ren, 'NGOs, Public Participation and Urban Community Development: Social Reform in Local Urban Governance in China'.

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Water and Development in China

These results suggest a low level of autonomy of the local communities. The leaders of local communities are not aware of a clear line between the governmental administrative system and local autonomy. This unclear status of local communities causes environmental projects to become short term ones, for instance, scavenging garbage in small rivers around the Suzhou Creek, rather than long term ones to set up overall development schemes for local rivers. This is an example of the Chinese approach to the private and public relationship faced with the revitalized private sphere in which individuals have been less controlled by the government. Although the work unit system, danwei, has waned, the Shanghai government has been still trying to regulate individuals by local communities, shequ. In other words, the government has endeavored to maintain the public and private spheres under its control as it did in the pre-reform period.

The Media The Chinese media have reported a high level of news on the environment for public consumption, but they have rarely encouraged the public to take initiatives in environmental protection activities. In other words, the media coverage has been successful in informing the public on the environment. However, newspaper articles and TV programmes have not stimulated the public to deal with environmental issues and suggested what to do about the environment.86 This trend is prevalent in Shanghai, and over the past two decades, many news-paper articles and TV programmes have often reported water pollution problems and achievements of the government for cleaning up the Huangpu River and the Suzhou Creek. However, there have seldom been reports or articles providing in-depth analysis of environmental problems and proposing long-term projects that can meet fundamental challenges, such as institutional and managerial constraints in environmental policy-making and implementation. Wen Bo, 'Greening the Chinese Media,' p. 39.

Development of Civil Movements

167

Another challenge for the media is to report environmental issues which are politically sensitive. In the Green NGO and Environmental Journalist Forum in 2001, journalists from Mainland China revealed that they have avoided politically sensitive topics and stated "We support the government on major issues and direct our criticisms on minor issues."87 The same logic may be applied to the Shanghai media, since there are few reports or articles about misdeeds of environmental officials linked to bribes or environmental policy-failures have been identified. Despite numerous news articles and reports about the environment, Shanghai does not have any high profile news media dedicated only to environmental issues, such as the China Environment News or the China Green Weekly. The Survey on Environmental Awareness in Chinese newspapers in the years of 1996 and 1997 (70 newspapers in 1996 and 76 in 1997) revealed the lower degree of Shanghai newspapers' contribution to environmental reporting. The survey was conducted by the Friends of Nature (FON), Beijing with four distinctive parameters: level of attention to the environment; level of participation; level of in-depth analysis; and level of environmental perspective. Shanghai newspapers, such as Wenhui News, Shanghai Youth News, and Liberation News occupied lower middle ranks in 1996.88 Such a low ranking result became worse in 1997. Table 5.4 shows the listed newspapers in lower ranks in 1996 and 1997, and except for Xinmin Evening News, all other Shanghai newspapers stepped down in 1997 compared with in 1996. It is maintained that Shanghai newspapers did not pay much attention to the environment compared with other local and national newspapers. Thus, Shanghai newspapers do not seem to take a leading role in promoting environmental protection and to have an indirect impact on the growth of the non-state sector.89 This seems to result from the Shanghai government's censorship of issues and 87

Turner and Wu (eds.), Green NGO and Environmental Journalist Forum, p. 27. Chi and Xu (eds.), Zbongguo Gongzhong Huanjing Yishi Diaocha {Public Environmental Awareness Survey in China), pp. 200-201. 89 Ibid., p. 201. 88

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Wafer and Development in China

Table 5.4 Listed Newspapers with Worse Record in 1997 Compared with in 1996

Guanxi News Anhui News Xijiang News Shenzhen News Wenhui News Shanghai Youth News Liberation News Xinmin Evening News

1996 Rank

1997 Rank

66 57 70 52 45 63 43 38

22 10 59 49 67 70 54 30

Rank progress 44 47 11 53 -12 -7 -11 8

Source: Chi Xiaolin and Xu Qinghua (eds.), Zhongguo Gongzhong Huanjing Yishi Diaocha (.Public Environmental Awareness Survey in China) (Beijing: Beijing Environmental Science Press, 1999), p- 200.

coverage by the media. Also the way the Shanghai media have covered environment related issues illustrates that the Shanghai authorities have regarded the public as 'children' who can only learn what the government 'teaches' through the news media, which is another example of the infantalization policy.90 It can be analyzed that the media have been a useful tool for the Shanghai government to prevent public initiatives for environmental protection and to discourage the Shanghai citizens to present critical opinions on environmental issues.

International NGOs Officials of international NGOs in Shanghai, such as the World Wildlife Fund (WWF), the Wildlife Conservation Society (WCS), and Roots & Shoots, are well aware that they should maintain a long-term cooperative relationship with the Shanghai government. There is no relevant legal framework about the registration of international NGOs with the government. According to Wang Ming, director of the NGO Research Institute in Qinghua University, the Saich, Governance and Politics of China, p. 200.

Development of Civil Movements 169

crackdown on Falun Gong 91 generated uneasy feeling in the central government towards unregistered social organizations, including NGOs. Accordingly, the Falun Gong issue had seriously interrupted the enactment of new regulations or laws that can be applicable to international NGOs.92 The only mechanism for securing stability for international NGOs is to establish a favorable relationship with local governments. As the Chinese Representative of the WCS in Shanghai in 2002 pointed out, it seems difficult for international NGOs to undertake any environmental project without collaboration with the Shanghai government. If international NGOs ignore the importance of their tie with the government, their political and social position will eventually be destabilized and become a target of the government's criticism. In terms of publicizing environmental issues, it is not feasible for international NGOs to use the media for advertising their projects and activities, which can aggravate the Chinese authorities. As seen in the events by Greenpeace and the Rainbow Warrior, disclosing politically sensitive environmental issues through the media without consultation with the government endangers international NGOs' viability in China. Like domestic NGOs, international NGOs should also learn how to navigate well depending on different political tides.

91

Falun Gong is one of a variety of Chinese health and spiritual practices known as "qigong". This consists of gentle exercise and special postures, combined with a meditation component. The discipline was publicly introduced in 1992 by Li Hongzhi and became popular in the 1990s. Although Falun Gong has gained success in the West, the PRC government has outlawed and prosecuted the practice. Since July 1999 communist officials, including Jiang Zemin, have campaigned to "eradicate" Falun Gong and any support for it among the Chinese people or foreign governments for fear that Falun Gong may provoke social unrest. Friends of Falun Gong Website. What is Falun Gong? Available Online: http://www.fofg.org/about/about_what_is_fg.php 92 China Project Network, 'Political Status & Legal Situation of NGOs in China'. Available Online: http://chinaproject.net/Texts/NGO-status.shtml

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Public Awareness a n d Participation In spite of decades of governmental efforts to raise environmental awareness in the public, a myriad of surveys discussed above confirm that there is still a low degree of environmental awareness among Shanghai's citizens. This situation results from the lack of a particular legal framework to promote environmental awareness activities, such as the 'Environmental Education Law/Act'. Also public participation in environmental issues is not clearly guaranteed by legal instruments although the PRC Environmental Protection Law and the PRC EIA Law promote public initiatives to monitor environmental accidents. A recent study on the Shanghai Environmental Impact Assessment (EIA) system discloses that there has been no channel for public scrutiny in the EIA process in Shanghai, which has undermined the 'accountability and credibility' of the Shanghai EIA system.93 Another factor to hamper mature public participation is associated with the way governmental officials understand public participation. They do not acknowledge the independent function of public participation but try to take control over related activities in a top-down fashion. They also believe that public participation should support government policies rather than criticize them. 94 Referring to a Guangzhou's case, Lo and Leung argue that the Chinese government has tried to confine the role of public participation within the government's environmental policy framework. Officials themselves do not encourage public participation being wary of: (1) public criticism; (2) delay cost of the policy process and reduction of bureaucratic control over the policy outcomes; and (3) sceptism over the productive outcome from public participation. There are clearly a number of formidable challenges for environmental groups. Nevertheless, there are positive signs of the 93

Lo, Carlos Wing Hung, Yip, Plato Kwong To, and Cheung, Kai Chee, 'The Regulatory Style of Environmental Governance in China: The Case of EIA Regulation in Shanghai', Public Administration and Development, No. 20, 2000, p. 313. 94 Lo, Carlos Wing Hung and Leung, Sai Wing, 'Environmental Agency and Public Opinion in Guangzhou: The Limits of a Popular Approach to Environmental Governance,' China Quarterly, No. 163 (September 2000), p. 700.

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development in the non-state sector in Shanghai. Alliances among NGOs, GONGOs, international NGOs, quasi-governmental groups, and international NGOs become pervasive, which empowers them to contribute to environmental policy-making and implementation. The Shanghai government has come to realize the need of public support, in particular, in monitoring and regulating polluting domestic and industrial units. These new trends can pave the 'way for Shanghai environmental groups to be more publicly legitimized and to buttress their capacity to conduct various environmental projects together with the government. CONTINUOUS DEVELOPMENT OF ENVIRONMENTAL MOVEMENT Evolution o f GONGOs A growing number of China researchers and some international NGO leaders admit that local NGOs cannot survive without a coalition with GONGOs, and GONGOs can become one of the major forces in civil society in the future.95 GONGOs often enjoy highly qualified human resources, stable relationship with the government through the registration and official connection, good management and organizational structure, and more access to international resources. These favorable conditions can drive GONGOs to carry out a wide range of environmental projects more aggressively if they become independent from the government's grip, financially and politically. In addition, a recent trend of environmental NGO development in China shows that GONGOs have been gradually moving out of the tight governmental control thanks to on-going social and economic reforms.96 This trend is also reflected on foreign NGOs' advice and 95

Wu, 'New Partners or Old Brothers? GONGOs in Transnational Environmental Advocacy in China', ICnup, 'Environmental NGOs in China: An Overview', and the interview with the China Representative of the Wildlife Conservation Society (WCS) on 28 June 2002. 96 Liao, Sheri, 'Development and Role of Chinese Environmental NGOs,' Sinosphere, Vol. 2, Issue 4 (Fall 1999), p. 41.

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suggestions in recent years. For instance, in the First NGO Forum on US-China Environmental Cooperation in 1999, Joel Levin of Counterpart International suggested that NGOs in China should seek ways in which they can work with GONGOs, because GONGOs have established a sound infrastructure already.97 It is plausible to argue that Chinese NGOs and GONGOs will be able to provide bases for civil society embracing different social organizations, classes, and geographical regions between state and society.98 Financial support to GONGOs from international NGOs and foundations can make GONGOs more autonomous. The Chinese government is usually reluctant to be involved in any environment project funded by international NGOs, because the government strives to avoid any uneasy relationship with international bodies. 99 If GONGOs become more organized and empowered, they will be able to infiltrate their ideas and perspectives into government policies. Whereas GONGOs maintain their close ties with the government by providing technical advice and contributing to government projects, they can incrementally exert influence on policy-making, and even present their critical opinions and ideas to the government. The exemplary case is the work of the Center for Environmental Education and Communication (CEEC) in Beijing. Since two German consultants of the CEEC are sponsored by the German government, although the CEEC is under the State Environmental Protection Administration (SEPA), the interference by the SEPA to the CEEC is limited. The CEEC has been visited and contacted by many scholars, professionals, and students, who are engaged in Chinese environmental issues, including NGO activists from Europe and North America. The CEEC is also taking part in NGO activities funded by the World Bank and other international institutions. The center 97

Hamburger, Jessica, 'The First NGO Forum on US-China Environmental Cooperation,' Sinosphere, Vol. 2, Issue 4 (Fall 1999), p. 37. The Second NGO Forum on US-China Environment Cooperation was held in Xian City, China, from 22 to 24 October 2001. 98 Gold, Thomas, 'Bases for Civil Society in Reform China', p. 176. 99 Wu, 'New Partner or Old Brothers? GONGOs in Transnational Environmental Advocacy in China', p. 54.

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publishes a monthly newsletter covering environmental issues in China, which is widely circulated among policy makers and scholars inside and outside China.100 It is expected that the CEEC will be the case of a GONGO to increasingly influence environmental policymaking. Unfortunately, there is no such body in Shanghai although the Shanghai Environmental Protection Promotion and Environment Center could play a similar role. However, the Shanghai center is fully managed and operated by the Shanghai Environmental Protection Bureau (SEPB), and therefore, it will be difficult to see such similar transformation take place soon.

Alliances among Environmental Groups Previously it was difficult to observe close ties between GONGOs and NGOs in environmental protection. However, based on mutual needs and understanding, cooperative relationships and coordinated projects between GONGOs and NGOs become prevalent in China. For example, the Center for Environmental Education and Communication (CEEC) keeps continuos contacts with major Chinese environmental NGOs, such as the Global Village Beijing (GVB) and the Friends of Nature (FON).101 The 2002 fieldwork revealed that it seems still difficult to observe alliances between GONGOs and NGOs in Shanghai, because there 'were few environmental NGOs in Shanghai, and most of the environmental protection projects and events have been organized and arranged by relevant environment concerned bureaus and agencies. This serves to emphasize the predominance of the Shanghai government in the public sphere which allows little room for independent environmental protection activities by local environmental NGOs. Shanghai environmental NGOs have no other option but to incorporate environmental projects together with governmental bureaus or international NGOs. 100

Ibid., p. 53, and the interview with Dr Eva Sternfeld the Director of China Environment and Sustainable Development Reference and Research Center of the CEEC on 2 July 2002. Interview-020702. 101 Ibid, p. 55.

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Pointing out the positive role of environmental GONGOs in China, Wu stresses that GONGOs can provide a bridge between government agencies and local NGOs, which will facilitate the growth of 'a green civil society' in China. Local NGOs can be legitimized and publicly recognized through GONGOs' moral support, and such collaboration will lead to building mutual trust.102 It will be necessary for GONGOs and NGOs to adopt a win-win strategy to formulate a new civil realm for promoting environmental activities in China. The China Green Student Forum provides a good example of how local NGOs can communicate each other and constitute a network for pursuing environmental works. Although the forum is based in Beijing, since it is run online, and members communicate through fax, telephone, newsletter and email, the forum members in Shanghai and other areas are well aware of what environmental issues are being addressed in other provinces and cities. This networking is also an ideal example of how to overcome the limitation of the legal restriction to only one organization allowed in one type at each administrative region. Shanghai university students are organizing their own environment projects actively in communication with the forum members who are located in other cities and provinces. Sometimes they organize offline meetings to discuss common environmental issues. 103 Shanghai environmental NGOs incorporate popular environmental activities, such as the used battery collection and the recycling of garbage. They are also well connected with each other. For example, the Shanghai Normal University Urban Society partly initiated the establishment of the Shanghai Green Union in 2000, and some training camps have been co-organized by the Shanghai Green Union and the China Green Student Forum. The 'Tea Meeting for Young Students' organized by the Grassroots Community serves a venue where 102

Ibid., p. 56. 103 p o r instance, in July 2002, I was invited to have dinner and discussions on environmental issues with the Forum members from different areas in China, Shanghai, Nanjing, Beijing, and even Xinjiang Province.

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environmental activists working in different environmental groups come together and share information based on their experiences. The alliance between NGOs and the media has worked very well as shown in the case of the Friends of Nature (FON) and the Global Village Beijing (GVB). The FON comprises many journalists, who manage to access various environmental news and information and to promote environmental protection and conservation through far-reaching media coverage. In Shanghai, environmental NGO leaders consulted a TV program 'the Expedition to the Huangpu River' by Shanghai TV,104 and this may have contributed to giving some strong environmental messages to the pubic about protecting water from pollution in the Huangpu River. International NGOs and foundations have established co-operative relationships with local NGOs in many environmental protection and conservation projects. For instance, the Global Greengrants Fund has assisted small local NGOs by providing micro grants to encourage local NGOs like the Shanghai Green Union to take an active part in environmental protection projects.105 The alliance between NGOs and local communities emerged recently. Such bilateral or multilateral alliances between different social groups are ideal in terms of local community development in the future. An exemplary case for local community development is that the Shanghai Green Union conducted the Rubbish Recycling Project in cooperation with local communities. When the union was working on the project, the local community committee allowed them to use the committee's phones, venues, and computers free of charge. It is argued that this alliance will be beneficial for NGOs' stable social position, political stability, and even raising public awareness of the importance of environmental protection. Also NGOs' involvement in such small-scale development projects in local communities will be one of the most feasible means to extend NGOs' environmental influence on Shanghai society. 104

Interview with a project coordinator of the China Green Student Forum on 20 May 2002. Interview-200502. 105 The Global Greengrants Fund publishes its annual report that includes grant recipients every year. Available Online: http://wwTV.greengrants.org

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Funding for Environmental Education a n d Awareness Programmes Perennial financial support is important not only for the development of environmental groups but also for the promotion of environmental education and awareness in the public. Thirst for more funding in environmental education and awareness programmes in Shanghai can be quenched through corporate donations. In Shanghai, the Baoshan Steel Group, the biggest steel state-owned enterprise (SOE) in China, and the Jinshan Petrochemical Group have been providing financial support to various cultural and welfare activities through donations since the late 1980s. Although these big SOEs may have donated due to their political position in China, it is evident that Chinese companies are at least prepared to donate to social projects. Shanghai local companies do not usually provide a big proportion of their donations to environmental issues according to a research on donations of 355 Shanghai medium and large local companies in 1999-2000. The research disclosed that in 1999 the portion of donations by the 355 companies devoted to environmental protection occupied only 4.2% compared with 40.3% for the bailout fund for natural disasters damages. 106 Foreign enterprises have donated for environmental education and awareness programmes for more than a decade. In Shanghai, Intel Shanghai Corporation in 1998 began to support environmental protection and youth education by providing equipment and human resources. Over the past few years, the enterprise has continued to support many public welfare activities including 'the Youth Environmental Protection Writing Competition'.107 Another case is 'the Dupont Cup Environmental Knowledge Internet Competition' held in May 2001 commemorating the 2001 World Environment Day in Shanghai.108 BASF Shanghai also organized 'the Environmental 106 Yun (ed.), System Reform and Social Transformation: Report of Social Development in Shanghai 2001, p. 220. 107 Ibid., p. 216. 108 Shanghai Huanjing Jiaoyu {.Shanghai Environmental Education), Issue 1, 2001, p. 6.

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Protection University Students Performance Competition', which attracted many students from Fudan, Jiaotong, Tongji, and other major Shanghai universities. 109 There is a suspicion that foreign enterprises in Shanghai have endeavored to establish a 'green image' through these donations for environmental education and awareness programmes so as to de-emphasize their pollution activities. However, it is contended that such a flow of corporate donations to environmental protection will encourage public participation through education for young students and raise environmental awareness, which can ignite active participation of environmental activities organized by NGOs.

Government's Need to Promote Public Participation a n d Awareness Environmental agencies in local governments, such as the Shanghai Environmental Protection Bureau (SEPB), have had difficulty persuading political leaders to recognize that priority should be given to environmental protection even at the expense of economic benefits. 110 It is argued that strong popular demands for better environmental quality enable environmental agencies to realize such a tough goal in the Shanghai government. 111 In order to gain public support, Shanghai citizens have been encouraged to report noncompliance cases and deliver their complaints about environmental pollution to environmental agencies, such as the SEPB. The SEPB can also strengthen the implementation of environment monitoring and assessment through public participation in the Environmental Impact Assessment (EIA) process. Although the PRC Environmental Protection Law does not clearly stipulate the right of public consultation in EIAs on new construction projects, the Shanghai government has enacted 'the Shanghai Environmental Protection Act', 109

Lust Daxuesbeng Luntan (China Green Student Forum Newsletter), Issue 2, 2001. Lo and Leung, 'Environmental Agency and Public Opinion in Guangzhou: The Limits of a Popular Approach to Environmental Governance,' p. 680. 111 Ibid., p. 682. 110

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which provides a platform to facilitate public participation. 112 And the new Environmental Impact Assessment Law, enacted in 2002, is expected to play a major role in promoting the public initiatives. CONCLUSION This chapter explored diverse environmental groups in China, with a focus on Shanghai, which have emerged throughout the 1980s and the 1990s. Various environmental groups can belong to 'the Egalitarians' among various social actors, identified based on Mary Douglas' grid/group theory. In addition to grid/group theory, the focus on the dynamic interaction between the public and the private sphere has been useful to understand the Shanghai civil realm in the public sphere, particularly the changing relationship between the state (the Shanghai government) and ethical social entities (environmental NGOs and other social groups). These environmental groups embrace their own characteristics and are very different in terms of organizational structures, membership, funding, strategies and political stability. However, they have a common goal of implementing environmental protection and conservation activities and are struggling to establish their position and legitimacy in the new civil realm where the work unit system (danwef) has weakened and state control has lessened. In order to dilute far-reaching impacts on society in the reform era, the Chinese government has invented quasi-governmental organizations coupled "with maintaining its influence on the media and mass organizations. The quasi-governmental organizations have become a useful apparatus to keep the civil realm under governmental control. These organizations have evolved from mere extended branches of governmental bureaus to more open and

112

Shanghai Ninth Five Year Plan Social Development Issue Research Team (ed), Shanghai Kuashiji Shehui Fazhan Wenti Sikao {Challenges of Trans-century Social Development in Shanghai) (Shanghai: Shanghai Academy of Social Sciences Press, 1997), p. 294.

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accessible social associations in interactions with local NGOs, mainly in Beijing throughout the 1990s. Under these circumstances, there have been incipient civil movements spearheaded by local NGOs in Shanghai in the public sphere since the late 1990s. These NGOs, however, have many constraints to prevent them from developing themselves: a lack of funding, management skills and technical information, human resources and clear goals. Non-registration status and weak organizational structure are also referred to. These constraints have also hindered the emergence of any local NGOs in Shanghai primarily dedicated to freshwater issues including water pollution amelioration. Also water issues, including water pollution, have been as too serious and big for an environmental NGO to handle in Shanghai. The seriousness of the problem may have led the government to ban environmental NGOs to involve this area. Although activities by Shanghai environmental NGOs occasionally include water or river protection works, such as cleaning small rivers around the city center, it is imperative to have specialized NGOs in Shanghai focusing on water pollution issues so as to make Shanghai rivers cleaner. Such an unfavorable atmosphere on environmental priorities in Shanghai makes it inevitable that environmental NGOs make progress incrementally. The developing profile of local environmental NGOs in the recent years has been led by university students. Although the social movement is not yet mature, a variety of projects and activities dealing with environmental protection indicate a great potential. However, Shanghai NGOs are not alone in environmental protection. Multilateral collaboration for environmental protection, including water pollution amelioration, can materialize through the alliances among the media, local communities, other domestic NGOs, GONGOs, international NGOs, and even the Shanghai Environmental Protection Bureau (SEPB). The Chinese governing philosophy of infantilizing the public has discouraged the masses (the Fatalists) from taking an active part in environmental issues until recently. However, Shanghai environmental agencies have become increasingly aware of the need for public support to prioritize environmental projects over pro-growth

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government policies. Diverse public participation and awareness programmes have been organized by the government on special days, such as World Water Day, and World Environment Day. Some environmental education programmes for students have been financially supported by enterprises. A high degree of environmental awareness resulted from these environmental programmes will benefit local environmental NGOs as well as environmental agencies. It is argued that potential changes in the civil realm -within the public sphere in Shanghai can be expected to take place gradually. The economic reform since the late 1970s in China has dramatically brought about rapid change to the public and private spheres in society. The success of the reform process has come because of the strong political will in the public sphere coupled with the sound economic achievements in the private sphere. Compared with the scale of the innovation in the economy, a possible innovation in the Shanghai civil realm within the public sphere in water pollution amelioration has not been rapid and eye-catching but slow and steady. Social and cultural values and traditions normally require more time to change rather than industrial skills and technologies. The social innovation in relation to water pollution amelioration in Shanghai began only in the late 1990s, and the 2002 fieldwork identified a spurt in the occurrence of innovation through interviews and discussions with environmental experts, NGO leaders, professors and students. The evolution of Shanghai society from the statesociety duality to the multi-faceted dimensions populated by diverse social organizations has already begun. This unprecedented social transformation will be expected to generate an outcome of formulating and implementing people-friendly policies against water pollution in Shanghai freshwater bodies. The next chapter will illustrate how the multi-faceted social system in the Shanghai water sector contributed by the entry of environmental NGOs has become more complex through private companies, including water Trans-National Corporations (TNCs), and Chinese companies. The discussions will also show that the processes of private sector participation over the past few years have developed through the interactions between social actors, including the Shanghai government, and private companies.

Chapter

6 Private Sector Participation INTRODUCTION This chapter answers the question of the extent to which private sector participation has exerted an influence on Shanghai's water policy. Mary Douglas' grid/group theory and the public and private analysis will be used as an analytical framework to examine the emergence of private companies in the Shanghai water sector, particularly since the 1990s. It has been possible to identify private companies as well as the Shanghai government at the local level and international development agencies at the international level, environmental NGOs, and Shanghai citizens. This study focuses on the private sphere where private companies in the Shanghai water sector have adapted to new changes resulting from political and economic circumstances. Recent observation and findings based on fieldwork in 2002 disclosed that the Shanghai government has been committed to implementing reforms for water privatization in the water sector, including the introduction of private investment, for example, in the Shanghai Pudong Veolia Water Supply Corporation Joint-Venture Project. Alongside grid/group theory and the analysis of public and private sector interaction, the concept of co-evolution from complexity theory provides a complementary framework to analyze private sector 181

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involvement in the Shanghai water sector. Complexity theory explores complex systems and the numerous elements (organizations or institutions) that actively interact in non-linear modes. 1 In the course of the multi-interactions in such complex systems, elements co-evolve according to the state of the internal and external environments. This co-evolutionary process can be exemplified by the way in which a river interacts "with the physical landscape. 2 By analogy, such a co-evolutionary approach can assist in the evaluation of the extent to which organizations or institutions in the private sector have an impact on and adapt to new political, economic, and social landscapes into which they are introduced or introduce themselves. For example, they may have to respond to particular needs by enhancing their capabilities, 3 and they will almost always change the institutional context in which the relevant services operate. A co-evolutionary analytical approach helps delineate the extent to which privatization has worked in the Chinese political economy (a complexity system), which is characterized by a web-like and complicated socialist economy system. The theory helps identify and highlight the conflicts between a private enterprise's approach and the socio-political landscape in Shanghai. For example, water pricing and privatization would be politically contentious. In brief, the extent to which privatization has been adopted and been successful in the Shanghai water sector has been conditioned by the nature of the socio-political landscape of China. In examining the trend of private sector involvement in the Shanghai water sector, it was found that foreign companies,

1

Anderson, P, 'Complexity Theory and Organization Science', Organization Science, Vol. 10, No. 3 (May-June, 1999), pp. 216-217. 2 Lewin, Arie Y., and Volberda, Henk W, 'Prolegomena on Co-evolution; A Framework for Research on Strategy and New Organizational Forms', Organization Science, Vol. 10, No. 5 (September-October 1999), pp. 526-527, and p. 539. 3 Lewin, Arie Y, Long, Christ P, and Carroll, Timothy N, 'The Co-evolution of New Organizational Forms', Organization Science, Vol. 10, No. 5 (September-October 1999), p. 539.

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namely Trans-National Corporations (TNCs)4, were spearheading private sector participation although some local companies had won a few water contracts. Such private sector participation, however, is unlikely to continue on a smooth path unless the Shanghai government establishes legal and regulatory frameworks for private sector involvement. Socio-political and legal uncertainty and risks have pushed private companies to adapt to new circumstances in China through 'negotiation'. In addition, it has become usual for private sector organizations to listen to environmental NGOs and Shanghai citizens in order to legitimize their works without provoking public opposition. It is concluded in the study that privatization in the Shanghai water sector will be an unavoidable process for the rationalization of water services stimulated by the programme of economic reforms initiated in the late 1970s. However, this process has been, and will continue to be, balanced and bolstered first by the government's role in regulating privatized water services, second by activists in the environmental community, and third by the constant interaction between the private companies and those representing consumers' interests. The provision of water supply and sewage treatment services in Shanghai "was regarded as the responsibility of the government until the late 1990s. The idea that water is an economic good has still not been widely recognized and accepted in Chinese society. In addition, the firm grip of the government over social services in the communist regime consolidated the state-society duality whereas the growth and involvement of the private sector was discouraged. In such circumstances, private sector involvement in the Shanghai

4

The Trans-National Corporation is defined as 'a network of related enterprises, composed of a parent in one country and subsidies or affiliates in other countries.' This term can be interchangeable with the Multinational Corporation (MNC), defined as 'an enterprise that engages in foreign direct investment and that owns control of value-added activities in more than one country.' Finger, Matthias and AUouche, Jeremy, Water Privatization: Transnational Corporations and the Re-regulation of the Water Industry (London: Spon Press, 2002), p. 107.

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"water sector had not been noticeable until the early 1990s although the rapidly changing political economy has prevailed over many aspects of society and economy in Shanghai since 1978. The slow but gradual shift of the government's policy towards water privatization in Shanghai had developed during the 1990s. The shift in approach began because of chronic problems in water supply and sewage treatment services. Management was inefficient, and skills and facilities were out of date. There was a lack of finance, and raw water sources were polluted. At the national level, one of the priorities for the reform of water services from the early 1980s was to attract foreign investment, and the statistics show that the total foreign investment in water resources projects in the period between 1982 and 1997 reached over US$ 4 billion.5 Foreign investment in the China water sector had increasingly been needed since the mid-1990s. The scale of investment in water services in the Ninth Five Year Plan period (1996-2000), estimated at US$ 20-25 billion. 6 In Shanghai, the total investment plan for water projects in the year 2002 was RMB 7.3 billion (US$ 900 million), 7 and the necessary investment for water services during the Tenth Five Year Plan period (2001-2005) was estimated at more than RMB 38 billion (US$ 5 billion).8 Aware of the high potential of the China and Shanghai water market, water TNCs, such as Veolia, Suez, and Thames Water, began 5

Donoghue, Neil, Nelson, Stephen, and Smith, David, 'Water Project: Growth for Foreign Investment, Financing Problematic', in Sorabl, Beena and Rogers Benedict, Project Finance Models for Greater China (Hong Kong: Asia Law & Practice, 1999), p. 83. 6 Horton, Paul, 'For All the Water in China', Water & Environment International, Vol. 9, Issue 66 (March 2000). 7 'Shanghai Bufen Wushui Sheshi Xiangmu Xiang Shehui Zhaoshang (Private Sector Participation will Partially be Needed for Sewage Treatment Projects in Shanghai)', 4 March 2002, Zhongguo Huanjing Bao {China Environment News). Available Online: http://www.cenews.com.cn/news/2002-03-04/15135.php. 8 'Opening of the Shanghai Water Market', 10 June 2002, Zhongguo Huangjing Bao {China Environment News). Available Online: http://www.cenews.com.cn/news/ 2002-06-10/17080.php.

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to enter the water market in China as well as in Shanghai from the 1980s. They have striven to expand their business in water supply and sewage treatment services. The hard drive for economic reforms and development in Shanghai since the early 1990s has provided foreign and local private companies -with favorable circumstances in which they can participate in water supply and sewage treatment services. Some of the recent major achievements by private companies were the Veolia's Joint Venture with the Shanghai Pudong Water Supply Corporation and the Zhuyuan No. 1 Sewage Treatment Plant by a group of domestic companies in 2002. Even though an array of achievements by private companies has been identified, it is still early to be certain that private companies will play a major role in the Shanghai water sector and have a permanent place in governmental water policies. The uncertainty occurs because the socialist political economic system in Shanghai still does not have stable socio-political and market circumstances in which legal and regulatory systems function in a systematic way. As a result there are unpredictable political, regulatory, and revenue risks. It is also noteworthy that the control and command socialist economy system, at least in the Shanghai water sector, does not seem to have changed fundamentally given that private companies are not allowed to deal with certain water service areas, such as the water distribution sector according to the 1997 Catalogue for Guiding Foreign Investment in Industry. 9 The Shanghai government's regulatory role in the water sector has become more important as privatization proceeds. Such a revitalized position for the Shanghai government will be reinforced by environmental NGO activists and Shanghai citizens' proactive relationship with private companies. The general review of the private sector participation in the China water sector will be introduced in the first section of this chapter. The second section discusses the overview of private sector participation focusing on foreign and local private companies' 9

Donoghue et al., 'Water Project: Growth for Foreign Investment, Financing Problematic', p. 84.

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activities in China. In the third section, private enterprise activities in Shanghai will be discussed between the mid-1990s and 2002, paying particular attention to water projects already contracted. The fourth section also analyzes the implications of private sector participation in the Shanghai water sector, including the water sector reform in Shanghai, and challenges to water privatization. This section also introduces an analysis of how the different actors (the Shanghai government, private companies, environmental NGOs, Shanghai citizens, and international development agencies) interacted during the privatization process. The understanding of the current stage of private sector participation in Shanghai leads to the discussion of a possible development path based on previous lessons and challenges.

UNDERSTANDING OF PRIVATE SECTOR PARTICIPATION The Private Sector in t h e Chinese Context Prior to 1978, communist China did not accommodate private sector participation in economic development. The socialist political economy had taken control over every field of society since 1949 including the business sector through government ownership of all kinds of State-Owned Companies (SOEs). The first breakthrough in the development of the private sector in China occurred in the late 1970s in accordance with the launch of economic reform, and private sector involvement in public utility services could be identified from the 1980s. In the Chinese context, the private sector can be narrowly defined as the sector composed of 'domestically owned private and household companies, not including companies owned by foreigners and those owned by overseas Chinese from Hong Kong and Taiwan'.10 In a broader sense, the official definition of the 10

Sun, Laixing, 'The Dynamics of the Private Sector', Laixing Sun, Edward X. Gu, and Robert J. Mclntyer, The Evolutionary Dynamics of China's Small- and MediumSized Enterprises in the 1990s, (Helsinki: The United Nations University, World Institute for Development Economics Research, 1999), p. 75. This definition is quoted from the State Council of China, 'Provisional Regulations of Private Enterprises in PRC, 30 June 1998, People's Daily.

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private sector is defined as 'private companies that refer to economic organizations that aim at making profit and in which assets are privately owned and there are eight or more employees'. 11 A privately owned enterprise that employs less than eight people can then be classified as household or joint-household enterprise. In this book, the private sector means the inclusion of Chinese and foreign private water companies, because water Trans-National Corporations (TNCs) are currently more influential and powerful players than Chinese private companies in the Shanghai water sector although the number of water TNCs is small. The concept of private sector participation can be found in the definition of privatization. According to the World Bank, privatization's scope varies from 'leaving the provision of goods and services entirely to the free operation of the market to 'public-private partnership' in which government and the private sector cooperate to provide services or infrastructure'. More specifically, privatization can include the following activities; (1) private companies' involvement in the areas where government has previously monopolized; (2) contracts where private companies manage public services or facilities; (3) private companies' participation in financing public sector programmes via the capital market; and (4) the divestiture of state-owned companies through the transfer of the responsibility in public services from the public to the private sector.12 Except for the full divestiture of state-owned companies, the Chinese experiences of private sector participation in the water sector fit the range of activities described in the privatization activities defined above. The Shanghai government approached water TNCs in the 1990s, such as Veolia, Suez, and Thames Water to contribute to the upgrading of water supply and sewage treatment. These water TNCs have developed to become influential in the international arena. Fingers and Allouche (2002) argue that the strong position of water TNCs in 11

Sun, Laixing, 'The Dynamics of the Private Sector', p. 75. Available Online: http://www.worldbank.org/publicsector/decentralization/different. htm. 12

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the international water market derives from their cooperative relations with the World Bank. The World Bank has pushed forwarded two main policies in the water sector: (1) reforms in infrastructure in relation to the process of deregulation and privatization; and (2) environmental concerns related to water stress.13 They also contend that water TNCs' abundant experience in different countries and advanced know-how have led to the establishment of economic and political capacity that can play a part in policy making and the implementation of development strategies of the World Bank.14 Shanghai is one of the showcases in which a number of water contracts funded by the World Bank have been implemented through private companies. For instance, a British engineering company, Mott MacDonald, has been involved in such water projects over the past two decades. These water TNCs have made successful bids for water projects in Shanghai and will expand their business in the coming years. Compared with water TNCs, local private companies dedicated to the water industry in Shanghai have not won many water project contracts. One factor that has prevented the development of Chinese companies in the water industry is the fuzzy relationship between the current Chinese private companies and governmental bureaus that used to own most of them until recently. Also the long controlled management style of local private companies, relying on subsidies, deters more profit-oriented corporate activities. The local companies have been engaged in a large number of water management facilities via subcontracts for water TNCs. Equipped with such experience and know-how, these companies began to emerge as principal contractors in the Shanghai water sector. One of the most recent achievements by domestic private companies was the Youlian Consortium's winning of the Build-Operate-Transfer (BOT) contract with the Shanghai government in the Zhuyuan No. 1 Sewage Treatment Plant in June 2002.

13

Fingers and Allouche, Water Privatization: Transnational Corporations and the Re-regulation of the Water Industry, p. 12 and p. 102. 14 Ibid., p. 10.

Private Sector Participation 189

Institutional Settings There are a number of factors that stimulate the involvement of private companies in the Shanghai water sector. These factors are in relation to first, the legal settings, second, the administrative structure, and third, water tariffs. There are a myriad of national laws, such as the PRC Water Law (1988 and amended in 2002), and the PRC Water Pollution Prevention Law (1984 and amended in 1996). In addition, there are numerous laws and regulations associated with private sector involvement in the water industry in China (see Table 6.1). The PRC Water Law and the PRC Water Pollution Prevention Law, for instance, indirectly encourage private sector involvement by promoting the protection of water resources. Although these laws and regulations relate to private sector involvement in Shanghai, none of them specify any guidelines for foreign investment in the water industry. Table 6.1 Laws and Regulations Related to Private Sector Participation in the Chinese Water Sector Year 1995 1995

1995 1997 1997 1998 1999

Name The certain matters relating to project financing by domestic institutions notice The several issues concerning the examination, approval & administration of experimental foreign invested concession projects circular (the BOT circular) The PRC Security Law The catalogue for guiding foreign investment in industry The administration of project financing conducted outside China's tentative procedures (the interim procedures) The administration of borrowing international commercial loans by domestic organizations procedures The PRC Contract Law

Sources: Compiled from Rozner, Steven (ed.), Infrastructure Financing Strategies in the PRC, March 1998, A China Law & Practice Guide (Hong Kong: Asia Law & Practice Publishing Ltd., 1998), and Sorab, Beena and Rogers Benedict (eds.), Project Finance Models for Greater China (Hong Kong: Law & Practice, 1999).

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The Shanghai government's private sector administrative structure looks simple but in reality encompasses a complex system dominated by internal politics. The continuous administrative reforms in the Shanghai government influenced the water sector and led to the setting-up of the Shanghai Water Authority (SWA) in May 2000. With the integration of different governmental bureaus associated with water services, the SWA oversees the operation of the city's water management and sewerage services to which private water companies pay special attention. The SWA's efforts towards private sector participation, however, can be interrupted by the fragmented structure of the central administration in Beijing. Although the SWA's administrative position falls under the Ministry of Water Resources, the State Development and Reform Commission (SDRC) takes responsibility for assessing projects involving an investment of over US$ 30 million as well as setting guidelines for water prices.15 The Ministry of Construction deals with water projects in urban areas,16 and in this part of the bureaucratic hierarchy, the Shanghai Construction and Management Commission is responsible for the construction of water projects and water distribution. Regarding the amelioration of water pollution, the State Environmental Protection Administration (SEPA) is involved. The Shanghai Environmental Protection Bureau (SEPB) implements various water pollution control policies together with the SWA. Such complicated mechanisms in water resource management often discourage private companies from participating more aggressively in water projects in Shanghai as well as in China. The issue of deciding water tariffs for water supply and sewage treatment is crucial to private companies, because this is one of the main instruments for the realization of profits for these businesses. In China, water is priced depending upon the type of customers, such as farmers, residents, and industrial users, the three main consumer groups. Even though the SDPC fundamentally influences 15

However, these tasks are not conducted by the SDPC any more, because the reform in early 2003 included the dismantlement of the SDPC and set up new ministries. 16 Horton, 'For All the Water in China', p. 14.

Private Sector Participation 191

-water pricing at the national level, the constant decentralization process since the late 1970s allows local governments to set water prices in accordance with local conditions. 17 This suggests that private companies involved in any water supply project have to negotiate with the Shanghai government about water prices on every occasion. For private companies, such an unpredictable and risky situation destabilizes this type of business in Shanghai.18 The way the private sector relates to state bodies, on the other hand, is an expression of the Chinese political culture of deference to hierarchy. Local governments follow the central government's basic guidelines diffused through the political and administrative hierarchy. But implementation principles as well as practice in localities have been different depending upon the local negotiations between local government agencies and private companies. Accordingly privatization in China's divergent regions has emphasized different features of the privatization approach. Shanghai has implemented privatization in water services via a number of negotiations, which confirms a deference to hierarchy. The rapid pace of privatization in Shanghai since the late 1990s has been possible, because water TNCs have introduced direct investment into water service facilities in ways -which accord with the norms set out by the Shanghai authorities. The Da Chang plant conducted by Thames Water in 1995 was the first privately invested drinking water treatment plant in Shanghai, and more private sector involvement has been identifiable from joint venture projects by Suez in 2001 and 2002 and the Veolia's unprecedented equity share contract with the Shanghai Pudong Water Supply Corporation in 2002. These projects illustrate the way the Shanghai government has integrated and controled the privatization of its water services. The Shanghai government has continued to play the dominant role of the state in the provision and improvement of -water supply, disposal, and treatment. However, the contracts with private companies 17 Donoghue et al, 'Water Project: Growth for Foreign Investment, Financing Problematic', p. 85. 18 Ibid.

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demonstrate that the government is increasingly open to various forms of negotiations according to the circumstances of the local political economy and has been ready to accommodate collaborative partnerships with local and international private sector companies.

Types o f Private Sector Participation There are a number of privatization options (see Table 6.2). Among the options, the most frequently adopted one in China is the Joint Venture. For example, the Suez Group entered the Chinese water market for the first time in the mid-1970s and has established more than a dozen joint ventures in cooperation with the New World Development Co. Ltd based in Hong Kong to rehabilitate and expand water treatment works. 19 The Build-Operate-Transfer (BOT) option has been spotlighted in China since the mid-1990s because the public sector can transfer risks to the private sector and reduce public debt. 20 The first BOT-based water supply project in China was the Chengdu Water Supply Project launched in 1998.21 The Da Chang Project by Thames Water (RWE) awarded in 1995 was the first BOT water treatment project in Shanghai.22 On the basis of this general understanding of private sector participation in the Chinese context, the next section explores the main players in private sector participation in China and Shanghai with particular reference to the activities of water TNCs. Amongst a few influential water TNCs in the Chinese water market, Suez and

19

Owen, David, Masons Water Yearbook 2002-2003 (London: Masons Solicitors, 2002). 20 Rozner, Steven (ed.), Infrastructure Financing Strategies in the PRC, A China Law & Practice Guide, March 1998, (Hong Kong: Asia Law & Practice Publishing Ltd, 1998), p. 6. 21 Wei, Hong, 'Private Sector Finance for Infrastructure', ADB Report, the Western Region Development Workshop, 21 July 2001, Beijing. 22 Owen, Masons Water Yearbook 2002-2003, and British Water Project Profile's website: Thames Water Da Chang Project. Available Online: http://www.projectprofiles. co. uk/thames-proj ect_shanghai. htm.

Private Sector Participation

193

Table 6.2 Options for Private Sector Participation and Responsibility

Option Service contract Management contract Lease BOT Concession Joint venture Divestiture

Asset ownership

Operations & maintenance

Capital investment

Commercial risk

Usual duration

Public

Public

1-2 years

Public

Public & private Private

Public

Public

3-5 years

Public Private Public Joint corporate Private

Private Private Private Joint corporate Private

Public Private Private Joint corporate Private

Shared Private Private Joint corporate Private

8-15 years 20-30 years 25-30 years Indefinite

Public

Indefinite

Source: Modified from Johnstone, Nick and Wood, Libby (eds.), Private Firms and Public Water: Realizing Social and Environmental Objectives in Developing Countries (Cheltenham, UK and Northampton, MA, USA: Edward Elgar, 2001), p. 13.

Veolia Group have firmly established their positions in water supply and sewage treatment services in diverse regions in China. The Veolia's Pudong Shanghai Joint Venture contract in 2002 will be thoroughly evaluated and discussed. The recent prominent achievements by Chinese companies in water services are also discussed, particularly the Zhuyuan No. 1 Sewage Treatment Plant by the Youlian Consortium in 2002. OVERVIEW OF PRIVATE SECTOR PARTICIPATION

PROJECTS Water Market Analysis at t h e National Level The urgent need for private sector participation in the water sector has been discussed in numerous news articles and research reports inside and outside China. The Chinese Academy of Science predicts that freshwater consumption for domestic and industrial uses in China will be expected to rise by 60% over the 50 years, up to 800 billion m 3 /y, and the current water supply capacity should be

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Wafer and Development in China

increased by 25% by 2010.23 In addition to such huge potential for investment in the water supply sector, the sewage treatment sector has been recognized as a high potential business field by private companies. The Chinese government has poured large investments into sewage treatment, which culminated in the investment of approximately US$ 25 billion in the sewage treatment sector during the Ninth Five Year Plan (1996-2000).24 China's winning of the 2008 Olympic Games has also driven the central government to push forward its sewage treatment schemes, and therefore, the Ministry of Construction has drawn up a blueprint that all cities in China should establish sewage treatment facilities that can deal with 45% of sewage by 2005 and 60% by 2010.25

Major Water TNCs Aware of these business opportunities, water TNCs, such as Suez, Veolia, Bouygues (SAUR), Thames Water, and Anglian Water have scrambled to join the Chinese water market since the 1980s, however, their active participation in water supply and sewage treatment services began to take place in the 1990s. Equipped with international experience and advanced know-how and technologies, these -water TNCs have surpassed their Chinese counterparts that do not have competitive cutting-edge technologies and advanced management skills. Through a series of international conferences and workshops, the water TNCs in China have researched the water sector and have decided to concentrate on the water supply and sewage treatment sector.26 Among these water TNCs in China, the Suez Group is the leading water TNC in terms of the number of water contracts won 23

'Water Guzzlers', 18 February 2002, Business China, The Economist Intelligence Unit, p. 6. 24 Horton, 'For All the Water in China'. 25 'China Seeks Foreign Investors for Sewage Treatment', 19 June 2002, Xinhua Net. Available Online: http://news.xinhuanet.com/english/2002-06/19/content_4484l3.htm. 26 'Waizi Weihe dui Zhongguo Gonggong Shuiwu Shichang Dagan Xingqu? (Why do Foreign Investors Have Great Interest in the China's Public Water Industry Market)?', 24 May 2002, Shuili Xinwen (Water Conservancy News).

Private Sector Participation 195

and the population the group serves. In China, Ondeo Degremont, an engineering subsidiary of the Suez Group began to enter the market in 1975 and has so far commissioned more than 100 water and sewage treatment construction contracts. Such a business record implies that the Suez Group takes responsibility of about 10% of China's water and sewage treatment facilities. The unique stance of the Suez Group in the China water sector can be found in its cautious strategy to do business in China in collaboration with the New World Development Co. Ltd based in Hong Kong.27 With the strategy of entering the Chinese market with a guide (New World Development), Suez has set up 18 joint ventures in many parts of China and provided water services to around 13 million customers in China.28 In the joint ventures, Suez's partners have always been local municipal water authorities. This strategy has been regarded as 'the best insurance to avoid legal, regulatory, and political risks.'29 The Suez Group's territorial influence now reaches Shanghai, and it built two joint ventures in the Pudong New Development Zone in the years of 2001 and 2002.30 Another globally competent water TNC is Veolia (Veolia Environment).31 Although Veolia entered the Chinese water market 27

Owen, Masons Water Yearbook 2002-2003Owen, Masons Water Yearbook 2002-2003, and 'Ondeo (Suez) Strengthens Its Leading Position in China's Water Market', 22 May 2002, Ondeo Press Release. Available Online: http://www.ondeo.com/press/eng/cp_shanghai_qingdao_eng.pdf. See also Water Market China (Oxford: Global Water Intelligence), 2004. 29 'Love that dirty water — Suez Lyonnaise des Eaux,' 10 November 1997, Business China, The Economist Intelligence Unit. 30 Owen, Masons Water Yearbook 2002-2003, and 'Shanghai Gets Its First Joint Waterworks', 27 March 2002, China Daily. Available Online: http://wwwl. chinadaily.com.cn/news/cb/2002-03-27/62898.html. See also 'Ondeo Strengthens Its Leadership in China with a New Industrial Services Contract Win in Shanghai', 20 March 2002, Suez Press Release, Year 2002. Available Online: http://www.suez. com/finance2/english/news/. 31 Veolia Environment was called 'Vivendi Environment' between 2000 and 2003. The new company name Veolia was adopted in April 2003. The company engaged in water management was more famous with its original name, 'Compagnie Generate des Eaux'. In this book, the new name Veolia is used. 28

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in the early 1980s through OTV (subsidiary),32 it was in the late 1990s that Veolia began to stabilize its strong position in China by establishing its China office in Beijing33 and winning the contract for the Chengdu BOT Water Supply Project in 1998. The Chengdu Project has drawn much attention, because it was the first BOTbased water supply project in China with the total investment of US$ 106.5 million. Veolia participated in the Chengdu Project by setting up a consortium with Japan's Marubeni.34 Considering its late entry to the Chinese water market, the current record of Veolia is impressive. As of 2002, Veolia was providing water services to around eight and half million customers in China and implementing water projects in Shanghai, Chengdu, and Tianjin. Veolia's success in -winning the contract for a joint venture with the Shanghai Pudong Water Supply Corporation will be discussed in more detail later in this chapter. In addition to these powerful water TNCs in China, there are a few foreign players from France, Germany, and UK.35 Their influence, however, is not as significant as the Suez and Veolia's. Bouygues (SAUR) is another leading French water TNC active in the Chinese water market. The company first entered the market by signing a contract with the Harbin municipality to construct a sewage treatment plant. The Harbin project is now serving a total population of 2.8 million.36 Thames Water, which is now part of the German RWE Group, penetrated the Chinese water market in 1989-37 One of the most successful cases was the BOT contract with 32

Calmels, Regis, 'Veolia Water in China Combining Global Water Knowledge and Local Expertise', Vivendi Environment Introduction at the EU-China Partenariat website. Available Online: http://www.euchinapartenariat.com/docc/5-3.htm. 33 'French Group Generale des Eaux adds investment in China', 2 February 1998, Beijing Review, Issue 5/6, pp. 35-38. 34 Wei, 'Private Sector Finance for Infrastructure'. 35 For more detailed information about water TNCs in China and Chinese private water enterprises, refer to Owen, Masons Water Yearbook 2002-200336 Owen, Masons Water Yearbook 2002-200337 Thames Water Website on China. Available Online: http://www.thames-water. com/TW/division/en_gb/content/general.

Private Sector Participation 197

the Shanghai government in Da Chang to provide water treatment services in 1995-38 The EWE Group acquired a 48.8% of the equity of the China Water Company through Thames Water39 and is aggressively expanding its business territories throughout China, covering Shenyang, Shaoxing, Taixing, and Changchun, and serving about four million customers.40 With the UK's water privatization experience, the Anglian Water Group (AWG) has also sought to take a slice of the big pie of the Chinese water market. The AWG has been active in managing around 30 water service projects in China. The most recent AWG projects were the water treatment joint venture contract (operation) in Hexian, Anhui Province in 2000, the Beijing water treatment BOT project in 2001, 4l and the water provision contract (operation and management) in Tiazhou, Jiangsu Province in 2002.42

Chinese

Companies

Although it is difficult to define Chinese companies as privately owned companies free from any relationship with governmental bureaus and agencies, Chinese companies are gradually becoming major competitors with water TNCs in China. It is observed that in order to meet local water service needs, numerous local municipalities have established their subsidiary water companies, and some of them have begun to be partially privatized. Exemplary companies are the Beijing Sound Environmental Industry Group, Shanghai Liangqiao Tap Water Corporation, Shanghai Municipal Raw Water 38

Owen, Masons Water Yearbook 2002-2003, and Thames Water Da Chang Project. Available Online: http://www.projectprofiles.co.uk/thames-project_shanghai.htm. 39 'Thames Expands Its Chinese Dynasty', Utility Week, 28 June 2002, Vol. 17, Issue 25. 40 Owen, Masons Water Yearbook 2002-2003. 41 Interview with Peng Yan, Project Officer in DFID Beijing and Jane Wang, Commercial Representative, British Embassy China on 4 July 2002. See also 'Anglian Water Ranked First in Race of World's Largest Water Contract — Beijing No. 10', Anglian Water Press Release. Available Online: http://www.anglianwater.co.uk/ releases/25.html. 42 Owen, Masons Water Yearbook 2002-2003-

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Corporation, Shenyang Public Utilities, and Wuhan Shanzheng Industry Holding, to name a few.43 Among them, Beijing Sound Environmental Industry Group (Sound Group)'s recent performance deserves attention. In 2001, the Sound Group signed agreements in Beijing with 11 local representatives to build sewage treatment plants, including Shanghai, Qinghai Province, and Hubei Province. These large scale projects will require about US$ 240 million in total, and the company will have a responsibility to implement project financing and constructing plants via the form of BOT.44 Another notable achievement by Chinese private companies is the Shanghai Zhuyuan No. 1 Sewage Treatment Project contract by Youlian Enterprise Development Company with two other domestic investment companies. 45 The discussion of achievements by TNCs and Chinese private companies in the China water sector indicates strong evidence of the contribution of the private sector. The reform drive since the late 1970s has started to change the landscape of the political economy in China, and the water sector in China has needed cutting-edge technology as well as investment from abroad. These factors attracted the water TNCs' to the China water market with the proliferation of water TNCs in many parts of China. The processes of the reforms have also allowed Chinese companies to grow, and their competitiveness has been improved over the past decades. These international and national entrepreneurs have been beneficiaries of the reform policy and at the same time, have influenced national water policies, for instance, by advocating rational water pricing and tariffs. It is argued that such interactions between the private sector and the public sector imply a co-evolutionary process. The co-evolutionary 43

Ibid. 'Sewage Treatment Goes Private', 15 June 2002, China Daily. Available Online: http://wwwl.chinadaily.com.cn/hk/2001-06-15/l4l27.html. 45 'Shanghai Starts Building New Sewage Treatment Plants', 8 June 2002, Xinhua Net. Available Online: http://news.xinhuanet.com/english/2002-06/08/content_ 430309.htm and 'China's Largest Sewage Treatment Factory to Be Run Privately', 5 June 2002, Xinhua Net. Available Online: http://news.xinhuanet.com/english/ 2002-06/05/content_426068.htm. 44

Private Sector Participation 199

process enables numerous actors in China to interact in the rapidly changing economic reform era albeit with unpredictable outcomes. Private institutions have adapted to new circumstances and at the same time have been proactive by influencing the surrounding environments. The landscape of political economy of the China water sector has co-evolved through the continuous interaction between international and national private companies and governmental agencies. The new and expanded form of private sector participation in the Shanghai water market, has been, and will be the outcome of continuous negotiation between the actors, operating in the private sector and in governmental agencies. The professionals working in these two sectors — ways of life — are differently inspired. The way these different inspirations have been accommodated in the Shanghai water sector via complex adaptive processes augurs well for the economy.

Water Market at t h e Local Level — Shanghai The previous section has discussed various water projects performed by water TNCs and Chinese companies at the national level. This section examines water service projects in Shanghai by water TNCs and Chinese companies' ventures. The seeds of private sector participation in Shanghai were planted in the 1990s when Mott MacDonald, a British engineering company, began to take part in the World Bank's Shanghai Sewerage Project Phase II and Shanghai Environment Project in collaboration with some European consulting firms. Since then, two leading French water TNCs, Veolia and Suez, have endeavored to take advantage of the trend towards the privatization in water supply and sewage treatment services in Shanghai. There are some Chinese companies that managed to win largescale sewage treatment plants in Shanghai in the years of 2001 and 2002. The analysis of the performance of these companies in Shanghai will assist understanding the extent to which there has been a reshaping of the political economy of China towards the neo-liberal mode exemplified by the four ways of life identified by

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Water and Development in China

Douglas. Clearly the private sector approach is being adopted for the expansion of Chinese water supply and sewage treatment services. The evolving interface between the domestic and international private sector and the Chinese government is shaped by the public and private relationship of Chinese society and politics. Mott

MacDonald

As discussed before, the World Bank has initiated and advocated the privatization of infrastructure development in developing countries over the past decades, and China was one of the biggest recipients of World Bank loans for the water sector development. Shanghai's first large scale water service project in cooperation with the World Bank was the Shanghai Sewerage Phase II Project (1995-1999).46 One of the major contractors, Mott MacDonald, took part in the project together with some European consulting companies. Mott MacDonald also became a major contractor in the Shanghai Environment Project (1995-2001), whose main purpose was to move the water supply intake points upstream of the Huangpu River, Da Qiao area. Even though Mott MacDonald contributed to these projects through managerial and technical consulting under the World Bank's loans, it can be argued that the company had established a sound platform for foreign private companies to undertake other water projects in Shanghai. It is also asserted that Mott MacDonald's entry to the Shanghai water market was possible because the World Bank has advocated privatization of public facilities in Shanghai through loans to the Shanghai government. For the Shanghai government, the experience of more advanced technology and management skills gained from these projects have driven governmental officials to consider extending invitations to more water TNCs.

46

The primary purpose of the project was to enhance its capacity of abating wastewater pollution by extending the wastewater pollution measures combined with the Shanghai Sewerage Project Phase I.

Private Sector Participation 201

names Water The earliest private sector participation project in Shanghai was the Da Chang BOT water project by the Thames Water and Bovis consortium that commenced in 1995.47 The goal of the project was to build and manage a water treatment plant in Da Chang, Shanghai, with an operation period of 20 years. The capacity of the water treatment plant is 400,000 m 3 /d (peak: 520,000 m 3 /d), and the total investment is US$ 78 million. The water supply service began for two million customers in late 1997, and Degrement (the Suez Group) was upgrading a second water treatment plant in 2003.48 The Da Chang water project is considered successful in terms of limiting financial risks at the municipal level without any of the central government's symbolic support letters or guarantees. This was possible because Thames Water was confident of the political and economic stability and strength of the Shanghai government coupled with the favorable economic conditions for China's infrastructure projects in 1996.49 The Da Chang Project, however, has become an example to illustrate how difficult it is for foreign companies to cope with the uncertain and risky China's water market. The Da Chang Plant was handed over by Thames Water to the Shanghai Shibei (Northern City) Water Treatment Corporation in June 2004. The major reason for this sudden event stemmed from the State Council's decision in 2002 that guaranteed rates of return for infrastructure projects are illegal, and risks and returns in BOT projects should be shared by Chinese as well as foreign partners. The contract guaranteed a fixed 47

In early 2002, Thames water became the sole owner and operator of the water treatment plant by buying the full shares of its joint venture partner, Bovis. Owen, Masons Water Yearbook 2002-200348 Ibid., and Thames Water Da Chang Project. Available Online: http://www.projectprofiles.co.uk/thames-project_shanghai.htm. See also Wang Xiuchen, 'Shanghai Huanbao Zijin de Chouchuo Fangshi ji Yunzuo Jizhi Tantao (Approach on Finance Raising and Performance Mechanism of Environmental Protection Fund in Shanghai)', Shanghai Huanjing Kexue {Shanghai Environmental Sciences), Vol. 20, No. 6, 2001, pp. 297-298. 49 Donoghue et al. 'Water Projects: Growth for Foreign Investment, Financing Problematic', p. 86.

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Water and Development in China

return of 15% per annum in 1996 but the term became illegal. Although Thames Water tried to negotiate terms of conditions with the Shanghai Waterworks Company (owned by the Shanghai government) but the companies did not come to agreement. 50

Suez Compared with impressive achievements in other cities and provinces in China, the Suez Group's activities in Shanghai had been negligible until 2000. Since 2000, the Suez Group has entered the Shanghai water market more aggressively. In July 2001, Ondeo in the Suez Group won a contract for the management of water services in the Shanghai Pudong Spark Industrial Zone over a 30-year period.51 More extensive activities of Suez in the Shanghai water market were visible in the year of 2002. In March 2002, Sino French Water Development, a subsidiary of Ondeo and the Hong Kong based New World Group, set up a joint venture with the Shanghai Chemical Industrial Park on the same site to provide an industrial sewage treatment service. The duration of the contract is 50 years, and the total investment will be more than US$ 54 million for the treatment of sewage volume of 50,000 m 3 /d. Ondeo is in charge of designing, financing, and managing water treatment installations and services.52 Another successful contribution by Suez in Shanghai was the reconstruction project of the Nanshi and Yangshupu drinking water treatment plants signed in May 2002. The project cost is estimated at US$ 31.2 million and the total capacity of two plants is 860,000 m 3 /d. On the technical 50

'Thames Step Backs from China,' Global Water Intelligence (May 2004). 'Ondeo Strengthens Its Leadership in China with a New Industrial Services Contract Win in Shanghai', 20 March 2002, Suez Press Release, Year 2002. Available Online: http://www.suez.com/finance2/english/news/detail.php?id=819&pg=year& anneeteq=2002. 52 Ibid., 'Shanghai Gets Its First Joint Waterworks', 27 March 2002, China Daily. Available Online: http://wwwl.chinadaily.com.cn/news/cb/2002-03-27/62898.html, and 'Zhongwai Shouci Hezuo Gaizao Shanghai Shuizhi (Sino-French Joint Venture will Improve Water Quality in Shanghai)', 11 March 2002, Xinwen Wanbao {Xinwen Evening News). 51

Private Sector Participation 203

side, the plants will be equipped with more advanced technology in order to provide better drinking water in Shanghai.53

Veolia The Veolia's joint venture with the Shanghai Pudong Water Supply Corporation was a striking development during fieldwork in Shanghai in 2002. It had been commonplace to see various types of joint ventures in Shanghai as well as other areas in China, such as the Suez Group's joint ventures to provide water services in the Shanghai Spark Development Zone. However, Veolia's acquisition of a 50% share of the Shanghai Pudong Water Supply Corporation was unprecedented and regarded as a genuine breakthrough for foreign private companies to take part in the entire waterworks process, from water processing to water distribution, in Shanghai as well as in China. Veolia was selected as the winner of the international bidding for the contract. The contract period is 50 years, and Veolia agreed to invest around US$ 311 million.54 The Sino-French joint venture is scheduled to make, distribute, and sell running water for domestic use. The service area by the new joint venture covers 319 km2 and about 550,000 customers whose average daily drinking 'water consumption is estimated at 1.2 million m 3 /d. 55 The increase in water sales is expected to be up to 3% per 53

'Ondeo (Suez) Strengthens Its Leading Position in China Water Market'. 'Vivendi Environment wins the international tender for the 50 year outsourcing contract to operate and manage Pudong water services, Shanghai's leading business district', 22 May 2002, Vivendi Water Press Release. Available Online: http://www. vivendiwatersystems.com/uk/CP_311001/shanghai.htm. See also 'Waizi Shuiwu Kaituo Shanghai Shichang (Foreign Investment Entering Shanghai Water Market)', 24 June 2002, Zbongguo Huanjing Bao {China Environment News). Available Online: http://www.cenews.com.cn/news/2002-06-24/17393.php. 55 'Vivendi Environment wins the international tender for the 50 year outsourcing contract to operate and manage Pudong water services, Shanghai's leading business district'. See also 'Shoujia Zhongwai Hezhi Zilaishui Gongsi-Shanghai Zilaishui Pudong Weiwangdi Youxian Gongsi zai Hu Tansheng (First Sino-French Joint Venture Water Supply Corporation — Establishment of the Shanghai Pudong Vivendi Water Supply Corporation)', 26 May 2002, Shuiwu Xinwen {Shanghai Water Authority News). 54

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Water and Development in China

annum, and Veolia plans to enhance water quality with its advanced technology and know-how. In addition to the first foreign private enterprise's involvement in the entire water service process and acquisition of state-owned water supply corporation's shares, the importance of this project lies in the fact that Veolia will be able to contact Chinese customers directly for the first time as a foreign private water enterprise. For customer service, the joint venture company will establish customer call centers as well as make and distribute water customer handbooks. 56 The direct contact with Chinese water consumers by foreign private companies has in the past been banned in accordance with the Catalogue for Guiding Foreign Investment in Industry in 1997. The flexibility of the interpretation of laws and regulations by local authorities may allow Veolia to provide customer services through its direct contact -with Shanghai customers. As a profit-seeking private enterprise, Veolia seems to be happy about this new breakthrough, because water prices and distribution systems will be more transparent. This may enable Veolia to realize more profit through price negotiation. However, it is expected that Veolia will be involved in painstaking and long-term negotiations with the Shanghai government about water prices. With regard to some concern about higher water prices due to privatization, the Shanghai authorities have reiterated their policy of maintaining the unitary water price system throughout the Shanghai municipality areas.57 The ramifications of the Veolia's contract in Pudong are evidence of the dynamic co-evolutionary processes in which divergent actors (joint venture partners, Shanghai government agencies, and other

56

'Shanghai Pudong Weiwangdi Zilaishui Youxian Gongsi Jin Zhengshi Jiepai (Official Launch of the Shanghai Pudong Vivendi Water Corporation)', 30 August 2002, Sbuiwu Xinwen (Shanghai Water Authority News). 57 'Zhongwai Shouci Hezuo Gaizao Shanghai Shuizhi (Sino-French Joint Venture will Improve Water Quality in Shanghai)', 11 March 2002, Xinwen Wanbao (Xinwen Evening News).

Private Sector Participation 205

equipment/supply companies involved) have been and are interacting in order to shape environments favorable to their own interest. Veolia has endeavored to lobby for the rationalization of water prices, and the Shanghai government has been defensive in keeping water prices low faced by the through-going political and social pressures established by the socialist egalitarianism of the Communist state since 1949- There have been no particular patterns or rules on how these actors influence each other and what the outcome would be. However, the final version of the new political economic landscape is the one formed on the basis of co-evolutionary processes rather than zero-sum game assumptions.

Chinese Companies: Youlian Consortium Group

and Sound

One of the most frequently quoted projects in the media during the summer of 2002 was the Zhuyuan No. 1 Sewage Treatment Project. The contract winner was a consortium (Youlian Consortium) consisting of three Chinese private companies, namely, Youlian Enterprise Development Company, Huajin Information Industry Investment Company, and the Shanghai Construction and Engineering Group. 58 The Youlian Consortium agreed to invest RMB 870 million (US$ 110 million) for the next 20 years, and the contract is based on the BOT scheme. The sewage treatment capacity is expected to reach 1.7 million m 3 /d. 59 The capacity of the Zhuyuan sewage treatment plant is the biggest of all the sewage treatment plants in China except for that of a plant in Hong Kong. The Zhuyuan plant is one of the subprojects in the Shanghai Sewerage 58

'Minjian Ziben Shoujin Shuiwu Gongyong Shiye Lingye (First Private Sector Involvement in the Public Water Service Area)', 5 June 2002, Shuiwu Xinwen (Shanghai Water Authority News). 59 'China's Largest Sewage Treatment Factory to Be Run Privately', 5 June 2002, Xinhua Net. Available Online: http://news.xinhuanet.com/english/2002-06/05/ content_426068.htm.

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Project Phase III, which has been underway since 2001. 60 It is reported that the Youlian consortium's bidding costs for sewage treatment were much lower than the current market cost, which illustrates the potential of the lucrative sewage treatment market in Shanghai. Jin Zhigang, chief engineer of Youlian Enterprise Development Company, presented his optimistic view that the Youlian Consortium would be able to start payback in the 13th year of the project during the 20-year contract period. 61 The Beijing Sound Environment Industry Group (Sound Group) is another Chinese private enterprise that is expected to expand its influence in the Shanghai water market. The Sound Group is an engineering company specializing in water and sewage treatment facilities. The group's entry to Shanghai was in June 2001 when it agreed to build sewage treatment plants in 11 Chinese cities, including Jinshan District in Shanghai.62 Each of the 11 sewage treatment plants will have the capacity of more than 1.7 million m 3 /d, which will be equal to that in the Zhuyuan No. 1 sewage treatment plant. The contracts were made on the basis of a BOT scheme, and the total investment for all the plants will be around RMB 2 billion (US$ 240 million) during the 25 year concession period. 63 Considering its financial and engineering capacity confirmed from the case of its simultanous 11 contracts, it will be interesting to observe if the Sound Group can grow to be one of the major competitors with water TNCs. Table 6.3 and Figure 6.1 provide a summary of water projects funded by foreign and Chinese companies in Shanghai from the 1990s to 2003. 60

Lu Hongde, 'Shanghai Chengshi Shuihuanjing de Huigu he Zhanwang (Retrospect and prediction for the Shanghai Municipality's Water Environment)', Shanghai Chengshi Fazhan {Shanghai City Development), No. 1 (February 2001), p. 40. 61 'Shanghai Zhuida Wushui Chuli Xiangmu Minjian Ziben Zhuyu Huoli (Shanghai's Biggest Sewage Treatment Project Introduced Private Investment)', 6 June 2002, Xinwen Chenbao (Xinwen Morning News). 62 'Sewage Treatment Goes Private', 15 June 2002, China Daily. Available Online: http://wwwl.chinadaily.com.cn/hk/2001-06-15/l4l27.html. 63 Owen, Masons Water Yearbook 2002-2003.

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Table 6.3 Water Projects by Private Companies in Shanghai from the 1990s to 2003

Name

PJT Name

Contract type

Mott Shanghai Sewerage MacDonald Project II Shanghai Environment Project

World Bank loan World Bank loan

Thames Da Chang Water Water Treatment (*Shanghai government)

BOT

Suez (Onded)

Veolia

Pudong Spark Joint venture Industrial Zone Water Supply Services Pudong Spark Joint venture Industrial Zone Industrial Sewage Treatment Reconstruction Reconstruct of the Nanshi and the Yangshupu Water Treatment Plants Shanghai Pudong Veolia Water Supply Corporation

Zhuyuan No. 1 Youlian Consortium Sewage Treatment Plant Beijing Sound Group

Cost Concession (US$ Mil;) period

Capacity (m 3 /d)

1995-1999 1995-2001

78

20 years 400,000 from 1996 (peak 520,000) 30 years from 2001

54

50 years 50,000 from 2002

31

2002-

860,000 (combined capacity)

Joint venture 311 (Purchase of a 50% share of the Chinese counterpart)

50 years from 2002

BOT

20 years 1.7 million from 2002

110

Shanghai Jinshan BOT Sewage Treatment Plant

Source: Author's compilation of information from fieldwork.

1.7 million 25 years from 2002

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Water and Development in China

Vivendi Pudong Vivendi Water Supply Corp.

Youlian Consortium ZhuyuanNo.l STP

Beijing Sound Group Jinshan District STP Zhejiang Province

"T

Suez Water Supply Service & Industrial Sewage Treatment W

Figure 6.1 Water Projects by Private Companies in Shanghai from the 1990s to 2003 Remarks: WTP: Water Treatment Plant STP: Sewage Treatment Plant Source: Author's Compilation of Information From Fieldwork.

The next section introduces a discussion of the implications of private sector participation in Shanghai "water policy. The reform of public water services is addressed, and then socio-political and economic challenges and multi-faced aspects of privatization confronting the numerous stakeholders are also discussed. With the advent of the fast mode of privatization, since 2001, the Shanghai government was determined to spearhead water sector reform. At the same time,

Private Sector Participation 209

private companies vigorously pressured the government to rearrange organizations and regulations in favor of privatization. The intense conflicts between different actors have accelerated the creation of a new institutional context. An insight into the socio-political and economic risks, which private companies have faced, reveals that the risks function as bargaining instruments with which the Shanghai government has been able to utilize. Such a government stronghold has, however, been weakened by the constant attempts by private companies to change the institutional context in favor of themselves. Meanwhile, there has been the entry of new actors in the water market, environmental NGOs and Shanghai citizens. Privatization of the water sector in Shanghai confronts a very complicated situation with complicated multilateral discursive activity. These complex interactions reflect a co-evolutionary process that has evolved into a new socio-political and economic system.

INSTITUTIONAL CHANGE AND CHALLENGES LN PRIVATE SECTOR PARTICIPATION Institutional C h a n g e The public utility sector in Shanghai had remained 'a sacred cow' even under the rapid and wide range of economic reforms since the late 1970s.64 The monopolization of the Shanghai government in the water industry continued until the late 1990s, which caused losses of more than RMB 800 million (US$ 97 million) in 1999 due to an inefficient institutional framework in water management including water pricing and metering, and out-of-date technologies.65 Then, in the late 1990s, a radical reform in the Shanghai water supply sector was introduced, and this resulted in integrating 10 waterworks companies into four limited ones, covering Minhang District, Pudong District, southern 64

'Love that dirty water' — Suez Lyonnaise des Eaux, 10 November 1997, Business China, The Economist Intelligence Unit, p. 7. 65 'French Firm Enters Chinese Drinking Water Market', 23 May 2002, China Daily. Available Online: http://wwwl.chinadaily.com.cn/news/2002-05-23/70831.html.

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districts, and northern districts respectively.66 The Shanghai Water Authority was also established to operate water management and sewage services in an integrated way after converting various water conservancy and management bureaus into one in May 2000.67 Even though it was reported that the Shanghai water industry began to make profits in 2001, the Shanghai authorities came to realize the need to enhance operational efficiency and management due to the accumulated deficit of water sector services over the last two decades. Chi Jianguo of the Shanghai Water Assets Operation and Development Corporation68 commented, "To break the monopoly is the first step in reform. We have to import foreign technology and management to create more value to increase our competitiveness in the local market." 69 It is argued that these problems and

66

Southern districts include central districts such as Huangpu, Jing'an, Luwan, Changning, Xuhui Districts, and part of Putuo and Minhang districts. Northern districts include Yangpu, Hongkou, Baoshan, Zhabei, Putuo Districts and part of Jiading District. Available Online: http://www.shanghaiwater.com/index.htm. 67 'Guowai Shuiwu Qiangtan Shanghai (Scramble of Foreign Investment for Water Industry in Shanghai)', 10 December 2001, Zhongguo Huanjing Bao {China Environment News). Available Online: http://www.cenews.com.cn/news/2001-12-10/ 13458.php. 68 This was established in part of the water sector reform in Shanghai in the early 2000s. The corporation has RMB 9 billion asset (US$ 1 billion) and aims: (1) to provide water enterprises with necessary fund for water business; (2) to take charge of national assets; (3) to monitor enterprises' business activities; and (4) to experiment the marketization of water market. 'Shuili Xinshanguang — Cong Shanghai Kan 21 Shiji Zhongguo Shuili Xiandaihua (Modernization of Water Conservancy in the Twenty-first Century in Shanghai),' Zhongguo Shuilibao {China Water Conservancy News). Available Online: http://www.mwr.gov.cn/tjzzth/bjzl/xw-9.htm. Following the water supply sector, the water drainage sector in Shanghai was reformed in the early 2000s. The government divided the Shanghai Municipal Drainage Company into five specialized companies. These are the Drainage Works National Asset Investment Company, the Shanghai Water Environment Construction Company, and three drainage management companies covering different areas, southern, northern, and central part of the city. 69

'French Firm Enters Chinese Drinking Water Market', 23 May 2002, China Daily. Available Online: http://wwwl.chinadaily.com.cn/news/2002-05-23/70831 .html.

Private Sector Participation 211

circumstances have generated favorable conditions for private sector participation and have driven the Shanghai government to allow Veolia's acquisition of the Shanghai Pudong Water Supply Corporation's equity and the Youlian Consortium's investment in the Zhuyuan No. 1 Sewage Treatment Project in the mid 2002. This development illustrates the beginning of governmental recognition of the need to bring in new elements (private companies with investment and technology) that can rejuvenate the existent system, which generates positive feedback that is one of the essential parts in co-evolution.70 Increasing loans from international development agencies such as the World Bank and private banking consortiums have continued to pressure the Shanghai government to repay its debts. The loans channeled from the World Bank, the Asian Development Bank (ADB) and other commercial banking consortiums became a budgetary problem for the Shanghai government. 71 Therefore financing through other channels, such as the BOT scheme and joint ventures in Shanghai was considered. Based on these new strategies, a myriad of water projects successfully attracted private investment through water TNCs and Chinese private companies in the early 2000s. It is argued that China's entry to the World Trade Organization (WTO) in 2001 has, to some extent, contributed to an increase of foreign water private companies' entry to the Shanghai water sector as well as the expansion of water TNCs business activities in Shanghai. In addition to the tariff reduction and liberalization of a wide range of services sectors, transparent laws and the rule by law

70

Lewin and Volberda, 'Prolegomena on Co-evolution; A Framework for Research on Strategy and New Organizational Forms', p. 527. 71 'City Waterworks Tap Foreign Pool', 23 July 2002, China Daily. Available Online: http://wwwl.chinadaily.com.cn/bw/2002-07-l6/79H4.html.

21 2

Water and Development in China

will be necessary for the WTO system in Shanghai and China.72 Such new environments for the water industry caused by the WTO entry of China expect the fast growth of the China water market, requiring an investment of around RMB 1,000 billion (US$ 120 billion) by 2005. This investment includes RMB 200-300 billion (US$ 24-36 billion) from central and local government. The remaining portion, equivalent to more than 70%, would be channeled through foreign investment, which will pave the way for water TNCs to extend their market shares in the Shanghai and China water market. 73 Shanghai's blueprint to attract an investment of around RMB 38 billion (US$ 5 billion) for water services by 2005 will be viable only if there is enough foreign investment, particularly through water TNCs under the WTO system in China.74

Challenges The recent emergence of private companies in the Shanghai water sector indicates that Shanghai is in a new era in which the 72

Netherlands Embassy in Beijing Market Report. Available Online: http://www. nlembassypek.org/01_20020626_environment.pdf. See also US Department of Commerce, 'Environmental Technologies — Opportunities in China', March 2002. Available Online: http://www.chinatrademission.net/environment_tech.html. (JAS Travel Website) and the Economic and Commercial Council's Office of the Embassy of the PRC in the Republic of Singapore, 'Post China's WTO Accession - opportunities and challenges for Singaporean companies in Shanghai — 'what and how?'. Available Online: http://www.bizcn-sg.org.sg/post%20china's%20wto%20accession. doc. In response to the WTO requirements, the State Development Planning Commission in March 2002 issued the Guide for Foreign Investment in Industries, listing water supply and drainage, thermal power and fuel gas, and telecom as areas open to foreign investors. She Shui, 'A good time for foreign investment in the Chinese water industry', 14 October 2002, Hong Kong Development Trade Council Website. Available Online: http://www.tdctrade.com/report/indprof/ indprof_021003.htm. 73

She Shui, 'A good time for foreign investment in the Chinese water industry'. 'Shanghai Shuiwu Shichang de Qishi (Opening of the Shanghai Water Market)', 10 June 2002, Zhongguo Huangjing Bao {China Environment News). Available Online: http://www.cenews.com.cn/news/2002-06-10/17080.php.

74

Private Sector Participation 213

demarcation between the private and the pubic sector has become clearer although very complex. This process has accelerated since the economic reforms were launched in the late 1970s. In other words, the willingness of modernizing Communist China during the reform era has facilitated the resurgence of the private sector so that private companies have become a constituent of the process. The Shanghai water sector has become more multi-dimensional in the process. The private sector has started to exercise influence on the reformed but government-controlled water sector in Shanghai. This indicates the early stage of a co-evolutionary process. Faced with this situation, water TNCs and Chinese private companies are not satisfied with the current business environment. Although Shanghai boasts its strategic location, a highly skilled labor force, favorable foreign investment policies, and political stability, private companies perceive a high degree of uncertainty as well as various risks in putting their investment in the Shanghai water sector. Such uncertainty and risks facing private sector participation in the Shanghai water sector can be analyzed according to three categories: socio-political challenges; regulatory uncertainty; and revenue risk.

Socio-political

Challenges

With regard to socio-political challenges, attention is first paid to the issue of challenging the traditional perception of 'water as a public and social good in China, rather than an economic good as it is seen in most Northern countries. This situation has caused water prices to be much lower than would be reasonable if they were to reflect the actual costs of construction, distribution, and maintenance for water supply and sewage treatment services in Shanghai. A Chinese source points out that the water prices of Shanghai are much lower than those of cities in Europe.75 The current water price for domestic

75

'Waizi Weihe dui Zhongguo Gongong Shuiwu Shichang Dagan Xingqu (Why do Foreign Investors Have Great Interest in the China's Public Water Industry Market)?', 24 May 2002, Shuili Xinwen (Shanghai Water Authority News).

214

Water and Development in China

use in Shanghai is RMB 1.03/m3 (US$ 0.13),76 and there is no price adjustment to reflect the volume used. 77 Although the water authorities in Shanghai seem to be well aware of inappropriate water prices, it is difficult for them to plan and launch a radical change of water pricing that would recover the costs of water supply and sewage treatment services. Such sensitivity in water prices for the public has prevented the Shanghai government from allowing private companies to adjust water prices in order to bring about commercial gains. Rather, as observed from the cases of negotiations between the Shanghai government and Veolia and Suez, the Shanghai government has shown its explicit will to keep the unitary water price system which applies to all areas in the municipality, including the economic development zones in Pudong covered by Veolia and Suez's joint ventures. This implies that the government "would not be inclined to provoke public anger or unrest through a sudden increase of water prices but will keep the water prices low in order to maintain the government's legitimacy. The government's position contradicts its privatization policies for water services and indicates a fuzzy relationship between the public and the private spheres in Shanghai and China. Although private sector participation has been stressed and pursued since the late 1990s in the Shanghai water sector, the socialist political economic system and state-led society have prevented the government from operating the private modes of management optimally. It is relevant here to note Lewin and Volberda's assertion that a co-evolutionary process is susceptible to previous experiences and historical trajectory. This means that different previous experiences in each organization may result in some unpredictable patterns of behavior. The Shanghai government has been reluctant to adapt to the new

76

'Jintian de Shuijia (Today's Water Prices in Shanghai), on 24 Jan 2003', Shanghai Water Authority Website. Available Online: http://www.shanghaiwater.gov.cn/ gsfw/waterprice .asp. 77 Owen, Masons Water Yearbook 2002-2003- The water bill for each month during the summer of 2002 (May, June, and July) was always RMB 16 (less than US$ 2), the fixed price no matter how much I consumed.

Private Sector Participation

215

external environment, which is the wave of private sector participation in the water industry across China, even if the national government is promoting it.78 Political uncertainty for private investors in China has continued to make water TNCs seek some form of guarantee from politically influential government bureaus related to water projects, such as the State Planning and Development Commission and the Ministry of Water Resources. This legally unbinding guarantee is called, a 'Government Support Letter/Comfort Letter'.79 Given political uncertainty and local government's low creditworthiness, water TNCs have had no option but to appeal to hierarchically superior central ministries and bureaus for these letters. Since the concept of these letters is based on a Chinese tradition of 'gentlemen's honour and agreement', it would be difficult for project-concerned local governments to give water TNCs with these letters unfavorable deals, worrying that they would lose face'.80 The use of these letters has been commonplace in a number of joint venture water projects until 2003. As the decentralization process has gone further, the central government has become reluctant to provide these letters to local water projects. As for water TNCs involved in water projects in Shanghai, it may not be necessary to gain these letters for the avoidance of political and credit risks, because the relative risks of political unrest and credit-worthiness in Shanghai are lower than in other areas in China. However, it can be contended that these letters will remain as important as other essential documents for water projects in Shanghai and China. Nothing can be sure and guaranteed in the future for water TNCs in China, particularly during the water project concession period of about 20-30 years, based on the previous 78

Lewin and Volberda, 'Prolegomena on Co-evolution; A Framework for Research on Strategy and New Organizational Forms', p. 527. 79 Turner III, Edward L. and Seem, Alan D, 'The New Project Finance — Legal Solutions, Legal Strategies', in Beena Sorab and Benedict Rogers, Project Finance Models for Greater China (Hong Kong: Asia Law & Practice, 1999), p. 20. 80 Ibid.

216

Water and Development in China

experiences of Chinese politics.81 This case illustrates a useful example of the public and private interface under the situation that there is no politically stable environment for private companies. It shows that private companies are adapting to the new environments where totally different socio-political and economic settings obtain in relation to other countries and areas in "which they have worked in. Under the hard to fathom and unpredictable political systems encountered, private companies have realized the need of co-evolving to shape their approach to the new political economy in Shanghai and China. A political guarantee like Government Support Letters/ Comfort Letters has been a medium with which private companies can minimize their risks in complex negotiations and contracts with local and central government agencies, local companies, and other stakeholders.

Legal and Regulatory

Uncertainty

Another challenge in the course of private sector participation in Shanghai is how to improve the legal and regulatory frameworks. As discussed before, there have been a series of laws and regulations enacted for private sector participation in the China water sector. These laws and regulations, however, do not include any provisions to address terms of financing for private sector participation in water services. This legal vacuum is also linked to the lack of 'a uniform supervisory legal system'82 able to provide a coherent legal system in China. For example, if a private water contractor in Shanghai appealed to the Beijing People's Court regarding the inconsistency of certain Shanghai regulations with national laws, the Court would not be authorized to examine the regulations due to the lack of 'a uniform supervisory legal system.'83 Such a discrepancy between legal interpretation and regulatory mandate comes from 81

'Love that dirty water' — Suez Lyonnaise des Eaux, 10 November 1997, Business China, The Economist Intelligence Unit. 82 Blackman, Carolyn, 'Local Government and Foreign Business', China Business Review, May/June 2001, Vol. 28, Issue 4, 2001, pp. 26-31. 83 Ibid.

Private Sector Participation

217

the fact that national laws can be differently interpreted depending upon local socio-political circumstances.84 This situation has driven water TNCs to feel uncertain and insecure about the Chinese legal system and has often discouraged them from expanding their activities, but instead to keep the status quo. The low profile of water TNCs in relation to the Chinese legal system reflects a co-evolutionary process in which they have adapted to the new environment. It would be different if water TNCs were operating in European or American markets. Compared with the Chinese market, these markets provide more predictable and stable circumstances in which legal systems are implemented and enforced in a systematic manner. The external surroundings (legal institutions and law enforcement) in China have had an influence on the organizational behaviors of water TNCs, which has generated more prudent market approach and tactics as part of the co-evolutionary process. The generally accepted concept, 'everything is negotiable', has been popular in China, and this way of life can be linked to the issue of the inconsistent applications of laws mentioned above. The regulatory risk is frequently observed in many of the daily business practices of foreign private companies, and one interesting example is found in the taxation imposed on foreign invested companies. Blackman "warns that foreign invested companies should be careful when making budget projections, because if they are working on the projects relying on national tax rates and regulations, they often have to revise their projections because of unexpected taxes levied by local and municipal authorities. 85 As for water projects in Shanghai and China, the process of managing joint ventures by water TNCs together with Chinese counterparts shows the validity of the notion, 'everything is negotiable'. Since each joint venture has different administrative and management structures in China, it is usual for water TNCs to face numerous negotiations with their

84 85

Ibid. Ibid.

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Water and Development in China

Chinese counterparts as Suez has experienced for more than two decades. Although BOT water contracts with standardized process and documents have become commonplace in Shanghai and China, it is still difficult to remove legal and regulatory risks that come from the Chinese customary practice based on negotiation rather than laws and regulations. This situation is another good example of a co-evolutionary process, namely, how -water TNCs that are unfamiliar with the Chinese socio-political and economic system have adapted to the new environment in their interactions with different government agencies. Suez's successful localization over the past decades exemplifies the extent to which water TNCs can adjust themselves to local customs and norms and at the same time achieve their primary goals, economic gain. It is noted that such dual successes have been possible because of a constant adaptive process through protracted negotiations and compromises between water TNCs and government agencies. One good example related to the unpredictable regulatory risk is the case from an interview with the representative of a French sewage treatment product supply enterprise in Shanghai in 2002. A local factory with sewage treatment facilities approached the French company and purchased some products from the company. The representative assumed that the local factory could become a regular customer, however, the factory afterwards notified the company that they would not need the products any more. Thorough investigation disclosed that the factory was required to meet certain environmental quality standards that the Shanghai Environmental Protection Bureau (SEPB) levied during a 'special environmental standard monitoring period'. However, after the period, the factory decided not to use the company's products any more, since the SEPB did not intend to strictly enforce environmental standards on the local factory any longer. This case is illustrative of inconsistent regulatory application by the Shanghai government. 86 86

Interview with chief representative of SNF (China) Flocculant Co. Ltd on 25 June 2002.

Private Sector Participation 219

Revenue

Risk

Whereas the Shanghai government has endeavored to channel foreign private investment, water TNCs do not seem to be fully sure of the creditworthiness of the government regarding various water projects. Because of the 1997 Catalogue for Guiding Foreign Investment in Industry, any water joint venture project company has not been allowed to own and manage the right of water distribution, which makes the project company unable to secure a certain level of profits. This also means that the continuous ownership by the government about the water distribution system prevents the project company from charging users through proper utilization of metering according to the volume of water they use. As pointed out before, the public perception of water embedded in Chinese culture makes it difficult for the government to implement the rationalization of water prices. As a result, the government has to subsidize water services in order to make up the difference caused by unrealistic water pricing. There is little research on how much the current unitary water price system in Shanghai can cover the cost of water supply and sewage treatment services. The expectation of an increase of water prices in Shanghai is high. The projected increase of water prices in Shanghai is one of the main reasons many water TNCs have been knocking on the door of the Shanghai water market.87 However, it is reasonable to assume that a series of water joint venture projects including the Shanghai Pudong Veolia Water Supply Corporation should need long and tough negotiations with the government to make water prices realistic. It is necessary for water TNCs in Shanghai and China to convert their revenue to hard currency and transfer the revenue to overseas accounts. This necessary process for water TNCs, however, is often delayed, which drives foreign companies to doubt the availability of foreign exchange and RMB convertibility in China. Although the central government has stressed that there will be no abrupt revaluation 87

'City Waterworks Tap Foreign Pool', 23 July 2002, China Daily. Available Online: http://wwwl.chinadaily.com.cn/bw/2002-07-l6/79H4.html.

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Water and Development in China

of the Chinese currency (RMB), foreign water companies in China cannot avoid the possibility of RMB revaluation on a large scale. This is also linked to the issue that revenues of Sino-foreign joint ventures and wholly foreign-owned companies in China will be in RMB.88 Water TNCs in Shanghai, such as Suez, Veolia, and Thames Water are likely to have experienced these risks and may try to hedge to avoid further risks. It is assumed that these companies will have their own strategies to tackle this issue through extensive negotiations with the Shanghai authorities. Interactions b e t w e e n t h e G o v e r n m e n t , Private C o m p a n i e s a n d NGOs Since the 1990s, Shanghai has experienced an influx of water TNCs into the water market, and during recent years, water TNCs and Chinese private companies have rejuvenated the activities and capacity of the private sector in implementing water joint ventures and participating in BOT water projects. Such private sector participation in the Shanghai water sector seems likely to develop further and even speed up thanks to China's entry into the World Trade Organization (WTO). This point of view reflects the fast changing picture of the Shanghai water market as well as water policy. It is also important to be aware of the mechanism of internal change that have impacted on proactive and multilateral relationships between newly emergent private companies and other social actors, the Shanghai government, environmental NGOs, and Shanghai citizens. It is understood that private sector participation in the Shanghai water sector is now underway in a rapidly evolving arena where multilateral relationships are producing a localized version of privatization. The privatization process also highlights the ambiguous picture of the public and private distinction in which the government has striven to take control of essential elements for privatization, i.e., 88

Nakagawa, Moor and Or, 'Financing Power in the PRC: Whither the 'Five China issues?' p. 10.

Private Sector Participation 221

water tariffs. Faced with this situation, private companies have adapted to the new Shanghai political economy. An important part of this study is to analyze such co-evolving processes that involves multilateral interactions. There have been a number of players in the privatization process: the central government in China, local (Shanghai) government institutions, international agencies, and the international and Chinese private sectors. At the national level, the central government has recognized the importance of private sector participation in the Chinese water industry since the early 1980s. One of the more recent governmental blueprints to attract foreign financing for the improvement of water infrastructure was the 21st Century Urban Water Management Pilot Scheme in 1997. In the Scheme, the liberalization of water tariffs on projects funded with foreign capital was scheduled, and foreign financiers were allowed to gain favorable rates of return for water projects in China.89 Following the Scheme, the Urban Water Price Regulation of 1998 has allowed foreign investors to gain a net return rate of 12% and local governments to decide water price on the condition that water companies should provide detailed information on their costs. These governmental plans and regulations have resulted in an increase of foreign investment in the water sector since 1998.90 The scheme and the regulation are co-evolutionary phenomena at the national level, and their existence may have guided the wave of private sector participation in Shanghai in the late 1990s. The central government was willing to reform the water sector in order to remove irrational management and unrealistic water tariffs that were some of main causes of the large-scale deficit from the 1980s. Such necessity induced an influx of foreign investment as well as of water TNCs in the 1980s and the 1990s. The external influences have reshaped the landscape of the political economy in the water sector. There has been a new era with adjusted coalitions between the Hierarchists (the government) and 89

Rozner (e<±), Infrastructure Financing Strategies in the PRC, p. 43. Wang, Junhao and Chen, Ping, 'China Modernises Public Utilities,' China Business Review, Vol. 28, Issue 4 (July/August 2001), pp. 44-49.

90

222

Water and Development in China

the Entrepreneurs (private companies). New demands and requirements in relation to loans from international development agencies, such as the World Bank and the Asian Development Bank, have at the same time conditioned institutional rearrangements in favor of privatization. Water TNCs have taken advantage of this trend and influenced Chinese governmental policies in water services in cooperation with international development agencies. In response to the central government's new policy, the Shanghai government has also tried to attract many water TNCs as well as Chinese private companies in water supply and sewage treatment services. The recent governmental report in Shanghai announced various water project schemes during the Tenth Five Year Plan (2001-2005), which attracted private water companies' attention. These included: the Shanghai Sewerage Project Phase III, the construction of 10 additional sewage treatment plants in the city center; the construction of a sewage collection network; the renovation of dilapidated sewage treatment plants; and the control of runoff sewage. 91 Most of these scheduled projects expect to attract private sector participation. In addition to many water projects, the Shanghai government has developed a marketing strategy to channel the huge scale of water infrastructure investment required in the future. These optimistic plans for private investment and project opportunities, however, would not be viable if there had not been much redefinition of governmental roles and responsibilities for the privatization of the water sector in Shanghai. Most importantly, the Shanghai authorities have to be aware that they are no longer the direct providers of water supply and sewage treatment services but only the regulator. The separation of administrative and commercial functions in the government needs to be implemented. 92 The 91

'Shanghai Daishoubi Tuijin Tuijin Wushui Zhili Gongzhuo Liangge Baiwan dun ji Wushui Chulichang Tongshi Kaigong (Shanghai's Full-fledged Sewage Treatment Works — Commencing of Construction of Two 1 million capacity Sewage Treatment Plants)', 7 June 2002, Shuiwu Xinwen (Shanghai Water Authority News). 92 Johnstone and Wood (eds.), Private Firms and Public Water: Realizing Social and Environmental Objectives in Developing Countries, p. 2, and Wang and Chen, 'China Modernises Public Utilities.'

Private Sector Participation

223

Shanghai Water Authority (SWA) is the likely candidate to become a relatively independent regulatory institution to manage complicated issues related to water services. It is still questionable if the SWA can manage to harmonize different governmental bureaus' interests and conduct the regulatory roles effectively. For example, the construction of water supply and sewage treatment plants are handled by the Shanghai Construction and Management Commission, and water pollution discharge fines and fees levied to companies are collected and managed by the Shanghai Environmental Protection Bureau. It seems that the Shanghai government still needs more time to redefine its new governmental roles for private sector participation. The shift of the governmental role in water services as the regulator and the establishment of the SWA highlights how the approach of the Shanghai government has changed faced with privatization. The new environment has brought a situation where privatization does not require the government to sustain the monopolistic power over operation. It requires that the government co-evolves to adopt the new role as guide and regulator in response to private sector participation. The relationship between environmental NGOs and water TNCs in other countries has not been smooth, and environmental NGOs have often criticized the profit-seeking behavior of water TNCs and their lack of social, cultural, and environmental values. The situation in Shanghai 2002 illustrated that there were a small number of local environmental NGOs that were not even aware of privatization issues in Shanghai and did not have enough capacity to organize environmental events against the water TNCs' encroachment into the Shanghai water market. Their not-officially registered social status caused by the government's unfriendly policy about NGOs has also influenced their low-key activities. Environmental NGO groups in the Shanghai water privatization process have played a very minor role to date. Environmental activists on the green agenda have been much more prominent in Shanghai. But there has been no antiprivatization activism. Civil environmental activism in Shanghai water privatization has no profile because of the way it has been handled by the Shanghai government as well as because civil society

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has been conventionally deferential. However, the increasing environmental awareness of the public and environmental demands caused by higher living standards in Shanghai may lead to an understanding of water issues and encourage Shanghai citizens to be more concerned that water prices may be raised in the future. The entry of new social actors, environmental NGOs and Shanghai citizens, will affect the privatization process in the Shanghai water sector. The socially and politically marginalized, which are environmental NGOs and Shanghai citizens, are beginning to reclaim their positions and participate in political processes taking an active part in environmental issues. This phenomenon also implies that all these divergent actors have begun to advance a new phase of adaptive co-evolution in which the new landscape includes more social actors with more complicated and multi-directional interactions than have existed since 1949. Regarding water pricing, private companies that manage water services in Shanghai will be wise to choose a path that requires them to work with environmental NGOs and Shanghai's citizens rather than one that may provoke public unrest or opposition. Johnstone and Wood maintain that a standard service for water may be less efficient than different rates of services for different consumers or neighborhoods. They add that such differentiated services of water for different customers can be only possible via local environmental NGOs that are well aware of the needs of the local consumers. 93 It is also important to ensure that such cooperation between local environmental NGOs and private water service providers allows the local consumers to have a voice in the course of the design and implementation of water projects.94 Similarly, water TNCs involved in joint ventures and BOT projects in Shanghai should develop cooperative relationships with environmental NGOs in order to make those projects more viable socially and environmentally. The alliance between environmental NGOs and private water companies in Shanghai 93

Johnstone and Wood (eds.), Private Firms and Public Water: Realizing Social and Environmental Objectives in Developing Countries, p. 15. 94 Ibid., p. 43.

Private Sector Participation 225

would be an example of the environmental NGOs' bridging role between water service providers and Shanghai citizens. These evolving relationship in the water sector may be able to realize 'effective public outreach' without further commercial cost and to avoid public opposition to higher water prices.95 The collaboration with environmental NGOs in the unstable and unpredictable socio-political and economic circumstances is a new challenge to private companies. Negotiations and interactions with environmental NGOs who advocate ethical principles will induce a new evolutionary tactics on the part of private companies. Similarly, environmental NGOs will require more in-depth understanding of privatization issues and seek innovative approaches to working with private companies to achieve their goals. How constructively private companies and environmental NGOs establish a relationship is another new dimension in the co-evolutionary processes, which private companies have to face in private sector participation in the Shanghai water sector. CONCLUSION This chapter evaluated the dynamics of private sector participation in the Shanghai water sector since the late 1990s. The need of investment, advanced technology, and rational management skills has pushed the government to adopt private sector participation in the water sector, and foreign and Chinese companies have responded by contributing to privatization in Shanghai. These main social actors, however, have faced unprecedented challenges in order to secure their interest, and such conflicts of interest have culminated in a very different political economy landscape. Private companies, mainly water TNCs, have experienced unpredictable and challenging socio-political circumstances, uncertainty of laws and regulations, and revenue risk. The case of Thames Water's exit 95

Kohli, Harinder, Mody, Ashoka, and Walton, Michael (eds.), Choices for Efficient Private Provision of Infrastructure in East Asia (Washington D.C.: World Bank, 1997), p. 76.

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from the China's water market is a good example of how risky it is for foreign water companies to run their business in China. The continuous demands from the private sector to reform water tariffs and establish sound legal instruments have driven the government to bring about change in its internal organizations. The identification of multiple actors and the deployment of complexity theory with its co-evolutionary approach have provided a new perspective on how the divergent actors in the water sector in Shanghai interact and influence each other. The Shanghai government and private companies have adapted to the new landscape of the political economy in the Shanghai water sector through numerous negotiations and compromises. The need of investment, advanced technology, and rational management skills has pushed the government to adopt private sector participation in the water sector, and private companies have responded by contributing to privatization in Shanghai. These main social actors, however, have faced unprecedented challenges in order to secure their interest, and such conflicts of interest have culminated in a very different political economic landscape. In the co-evolutionary process, private companies, mainly water TNCs, have experienced unpredictable and challenging sociopolitical circumstances, uncertainty of laws and regulations, and revenue risk. The continuous demands from the private sector to reform water tariffs and establish sound legal instruments, for instance, have driven the government to bring about change in its internal organizations. In addition to such interactions between the two main actors, environmental NGOs and Shanghai citizens entered the already complicated privatizing system. The co-evolutionary process in privatization in the Shanghai water sector has just encountered a new era in which more social actors are playing a role, and more complicated multi-dimensional interactions are in evidence. The analyses of the diverse socio-political, legal and regulatory, and revenue risks demonstrate that the Shanghai authorities are required to implement a number of institutional rearrangements and reforms in order to take the new role as the regulator rather than the service provider for water services. The Veolia's joint venture project in Pudong and a group of Chinese private companies' Zhuyuan

Private Sector Participation 227

No. 1 BOT Sewage Treatment Plant in 2002 were impressive. However, the success of privatization in the Shanghai water sector hinges partially on the extent to which the Shanghai government will be able to accomplish its work as a regulator based on laws. Otherwise, the early privatization projects will become the price the government could pay for such lessons. Alongside the governmental efforts, private companies in the Shanghai water sector need to pay attention to customers' needs in collaboration with environmental NGOs which can play a bridging role between the private sector and Shanghai citizens. The thorough insight into the interaction between the public and the private spheres in the Shanghai water sector has three important components that reflect the nature of the Chinese mode of privatization. The first component is negotiation. The Chinese preferred mode of negotiation is an important variable on which to focus. Negotiation normally slows the process of privatization but if fully implemented, will make outcomes more secure. The second feature of the public and private sector interaction in China and East Asia is the tendency to deference. Hierarchy is assumed to be good, and deference is rational social behavior. Even though privatization is appropriately 'negotiated' at the central government level, it is likely that it will be different at the lower regional level of government. A mix of deference and negotiation is likely to lead to a measured expansion of privatization. Financial capacity is the third component. The pace of the expansion will be further affected by the lack of finance available in the course of privatization. The low degree of financial capacity has caused the Shanghai government to invite water TNCs and Chinese private companies and to adopt new forms of financing methods such as BOT schemes, joint ventures, and equity sales evident in the deal with Veolia related to water supply services in the Pudong New Development Zone. The effort of the Shanghai government to strengthen its financial capacity has become an engine to speed up the pace of privatization in the Shanghai water sector. It is argued that private sector participation in Shanghai water policy has just begun and seems likely to develop rapidly in the

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foreseeable future. It is expected that China's entry to the WTO may become a catalyst to further push the Shanghai government to implement policies favoring the private sector for water services rigorously. Requirements in accordance with the WTO standards will help implement the legal, economic, and institutional rearrangements in Shanghai. This will bring in an influx of foreign investment, advanced technology and management skills to the Shanghai water market, thereby influencing the landscape of Shanghai's political economy and business environments. More transparent and internationally standardized laws, regulations, and implementation of policies in Shanghai will provide favorable conditions for foreign investment and privatization in the water sector. The most important contribution of this chapter on private sector participation in the Shanghai water sector is the analysis of private companies involved in privatization and the accelerating trend in the adoption of private sector approaches. In Shanghai water policy, there are the five social actors, the Shanghai government, private water companies, environmental NGOs, Shanghai citizens and international development agencies, and they have all played a role. The chapter has mainly concentrated on the interaction of the Shanghai government with the international and local companies in Shanghai. It has been shown that the interaction has been intensifying since 1978 and in particular since 2000 with relevance to Shanghai. Ethical environmental groups have played only a minor role in accord with the Chinese public/private mode of conventional deference. Any interaction of environmental NGOs with the emerging alliance between government and the private sector (hierarchy/entrepreneurs) has been very low profile. Environmental NGOs have been much more conspicuous on green issues. The low profile state-private sector interaction in Shanghai reflects another feature of the Chinese public/private mode of social organization, namely the importance of negotiation. Negotiation delays the discursive process, avoids high profile confrontations, and legitimizes evolving agreements, contracts, and institutions. The government is expected to play a role as an efficient regulator, and private water companies are expected to provide a water service

Private Sector Participation 229

with a reasonable price regime. Environmental NGOs will stimulate the development of the evaluation and regulation of environmental issues and play a bridging role between the private sector and Shanghai citizens. At the same time, Shanghai citizens, as rational consumers, need to be willing to pay a reasonable water price. This complicated picture of the Shanghai water sector exemplifies a complex system in which a number of divergent political and economic factors influence water policy, and diverse actors actively interact in non-linear fashions. The privatization process in the Shanghai water sector provides a useful example of how such actors in this complex system have an influence on and adapt to new political, economic, and social landscapes by improving their capabilities. The co-evolution of these actors in the privatization process can induce the creation of a Shanghai-style model of private sector participation in the water sector. The next chapter will deepen the discussion of the complicated water sector in Shanghai, with a particular focus on the impact of international development agencies on Shanghai water policy. This chapter will serve to analyze the way local and international actors (the Shanghai government and international development agencies) have co-evolved to establish a new path to the provision of high quality water supply.

Chapter

Impacts of International Development Agencies INTRODUCTION This chapter explores the extent to which international development agencies have had an impact on Shanghai water policy through technical assistance and development loans to the Shanghai government over the past two decades. One important element of this study is the analysis of the relationship between the Shanghai government at the local and international development agencies at the global levels. An adaptation of the grid/group concept of Mary Douglas is used to highlight the relationship between the local and the international by means of three-dimensional diagram.1 Since this study particularly focuses on the Shanghai government and international donor agencies, the two Hierarchists at the local and at the global levels, attention will be paid primarily to issues in the public sphere rather than in the private sphere. However, it cannot be overlooked that the involvement of international development 1

Allan, J.A., The Middle East Water Question: Hydropolitics and the Global Economy (London & New York: LB. Tauris, 2002), p. 327. See Figure 3.3 in Chapter 3.

231

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Water and Development in China

agencies in Shanghai water policy has brought about privatization and a rationalization of water tariffs. Such institutional change was some of the conditions that the Shanghai government was obliged to observe when it received development loans from the international agencies. In such circumstances, companies, particularly the water TNCs, in the private sphere have enjoyed the benefits of institutional reforms including higher water tariffs than those in the pre-reform era and more opportunities to engage in the provision of water services. This phenomenon explains that the coalition between the government and companies has taken place at the both international and local levels. A co-evolutionary approach of complexity theory constitutes another aspect of the theoretical framework. A co-evolutionary analytical approach is useful elucidating the extent to which Shanghai water policy has been influenced by the interactions between the Shanghai government and the international development agencies, in the Shanghai's political economy (a complex system). The theory helps address the way the Shanghai government has transformed its institutions into the ones that are favored by international development agencies. The co-evolutionary approach also helps assess the way international development agencies have pressured the Shanghai government to introduce institutional reform and innovative ideas, such as new water tariffs based on the cost-recovery price mechanism. Consequently, such interactions between the two have culminated in the formulation of the new socio-political and economic landscape in Shanghai. The primary motive in Shanghai's invitation to international development agencies to participate in the Shanghai water sector was first, to channel investment, and second, to improve local technical and managerial know-how, and dilapidated "water service facilities. Since the 1980s, many social priorities in Shanghai have required high levels of investment, particularly, in the renovation of social infrastructure, including water services. The challenge of the pollution-caused water scarcity in Shanghai has also pushed the Shanghai government to endorse a set of development plans including the amelioration of pollution levels in the Huangpu River and the Suzhou Creek.

Impacts of International Development Agencies 233

The first wave of development loans in Shanghai came from the World Bank. The Shanghai government and the World Bank worked well until the early 2000s in remedying the city's chronic water pollution (Shanghai Sewerage Project) and augmenting the volume of fresh water supply (Shanghai Environment Project). The Asian Development Bank also worked with the Shanghai government on various water projects, for instance, the Suzhou Creek Rehabilitation Project. A cascade of development loans from many different countries, such as the UK, Australia, and USA, has also come to Shanghai contributing to numerous development projects in water supply and water quality control, particularly since the mid-1990s. This development over the past two decades has, however, faced the Shanghai government with new realities in that the government is no longer able to dominate water policy in the public sphere. Although it seems that the marriage between the Hierarchists (local and global) has not triggered serious disputes, the Shanghai government as borrower of the development loans from the agencies has been in a dependent position. As a result, the requirements and guidelines of international development agencies, such as the rationalization of water tariffs and restructuring governmental agencies, have appeared in policy and practice. From the Shanghai government's point of view, such requirements from donor agencies have often brought political and social challenges which the government was unable to solve in the short term. For instance, one of the necessities for people in China, water, has in the past not been treated as an economic good but as a social good. This expectation has deterred the government from applying cost-recovery pricing of domestic water supply and sewage treatment. The World Bank has continued to pressure the government to raise water prices and charge adequate sewage fees in the Bank-sponsored development projects over the past decades. Institutional changes have never been implemented smoothly because of internal resistance in the Shanghai government. For instance, the tension bet-ween them has grown both in politically and socially sensitive issues such as water pricing. In addition, the international development agencies had to learn the Chinese customary practice in the course of

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Water and Development in China

implementing projects, such as the alternate dispute resolution approach and the rule of men rather than the rule of law. However, the Shanghai government and international development agencies became adjusted to the new political economy landscape in Shanghai by adopting flexible strategic which have gradually co-evolved in adapting to new circumstances. One of the most significant impacts of the international development agencies was the introduction of cutting-edge technology and management know-how. However, some technical recommendations to remove pollution sources, such as dredging riverbeds along the Suzhou Creek, have been criticized by many Chinese water engineers, who argue that this method will even worsen the water quality by stirring up accumulated polluting substances on riverbeds.2 Also it is necessary to shift policy preference in the Shanghai government, from focusing on individual projects such as the Shanghai Sewerage Project and the Shanghai Environment Project to concentrating on institutional reform.3 The least emphasized dimension in development loan-based water projects in Shanghai has been public participation. Although the issue of resettlement of inhabitants living in project-affected areas has been dealt with, the case of an Environmental Impact Assessment (EIA) coupled with public surveys was found only in the Suzhou Creek Rehabilitation Project. The first section in this chapter introduces a historical perspective of the entry of international development agencies from the early 1980s. Spearheaded by the World Bank, there have been a number of international development agencies involved in the Shanghai water sector. The second part of this chapter focuses on two major water projects supported by the World Bank, namely the Shanghai Sewerage Project and the Shanghai Environment Project. The third 2

Interview with Professor Ning Yuemin in East China Normal University on 28 March 2001, Interview-280301, and interview with Professor Gu Youzhi, Engineerin-Chief, World Bank China-Shanghai Environment Project Office on 6 June 2002. Interview-060602. 3 World Bank, Staff Appraisal Report: Shanghai Environment Project (17 June 1994), unpublished project document, p. ii. Available Online: http://www4.worldbank.org/ sprojects/Project.asp?pid=P003586.

Impacts of International Development Agencies 235

section will examine the contribution of the Asian Development Bank via the Suzhou Creek Rehabilitation Project and of other bilateral development agencies. The ramifications of water projects funded by international development agencies will be discussed in the fourth section. Challenging issues have been found in the fields of institutional reform, in some technical constraints, and in the Chinese customary practice embedded in the socio-political and their economic systems. The limited achievements of development projects will be described, including institutional reforms, technical improvements, and the introduction of participatory approach. The chapter will conclude that the experience of the Shanghai government's involvement with international development agencies has been marked by some achievements, most importantly, in securing finance and the import of advanced technology and management expertise in the water sector. But the cooperation with international development agencies has generated socio-political tensions because of the different visions and perspectives on water policy-making. The way the new political economy landscape has been developed results from the complex relations between the Shanghai government and the international development agencies. The outcome is a good example of how different actors seek their interests in co-evolutionary processes and adapt to internal and external circumstances in proactive and non-linear modes. INTRODUCTION OF INTERNATIONAL DEVELOPMENT AGENCIES Historical Perspectives The severe water pollution in Shanghai was recognized from the early 1920s when some sewage treatment services with simple manure pits appeared in international settlements in Shanghai. 4 4

Lu, Hongde, 'Shanghai Chengshi Shuihuanjing de Huigu he Zhanwang (Retrospect and prediction for the Shanghai Municipality's Water Environment)', Shanghai Chengshi Fazhan {Shanghai City Development), No.l (February 2001), p. 38.

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Water and Development in China

The proliferation of light industries and the increase of population along the Huangpu River and the Suzhou Creek caused the worsening of water pollution until the 1940s.5 The environment was never prioritized during the socialist modernization from 1949 to the late 1970s. By this time, Shanghai contributed about 10% of the national GDP, and the city authorities had little concern to protect the water bodies in its environment. There were a number of water engineering achievements implemented by the Shanghai government in the 1960s and the 1970s. Since 1949, a series of sewage treatment plants had been constructed and began to operate until the 1970s.6 The new era of sewage treatment in Shanghai began with the construction of the Southern Interceptor and the Western Interceptor.7 These interceptors had decreased the loads of sewage into the Huangpu River and the Suzhou Creek. However, these systems -were faulty. Since the sewage delivered through the interceptors did not receive any treatment before being discharged into the East Sea, the sewage discharged through these interceptors generated the heavy pollution of coastal areas near Bailonggang and Shidongkou.8 The end-of-pipe management did not succeed in remedying the fast rate of water pollution in water bodies in Shanghai. The ignorance of protection of water sources in Shanghai prevailed 5

Murray, Geoffrey, and Cook, Ian G, Green China (London and New York: RoutledgeCurzon, 2002), p. 65. 6 Lu, 'Shanghai Chengshi Shuihuanjing de Huigu he Zhanwang (Retrospect and prediction for the Shanghai Municipality's Water Environment)', p. 38. 7 Ibid., and see also Gu, Youzhi, 'Shanghai Jianshe Lianghao Shuihuanjingde Duicesilu (Thought of countermeasures for the construction of the better environment in Shanghai)', in Chen Guoming and Zhu Dajian (eds.), Shengtaixing Chengshi yu Shanghai Shengtai Huanjing Jianshe (A Report of Eco-environmental Construction) (Shanghai: Shanghai Academy of Social Science Press, 2001), p. 103. These interceptors were designed to drain sewage separately and discharge it into Bailonggang (south) and Shidongkou (west) near the Yangtze River Estuary. The capacity of the Southern Interceptor was about 0.58 million m 3 /d and the Western Interceptor approximately 0.78 million m 3 /d. 8

Gu, 'Shanghai Jianshe Lianghao Shuihuanjingde Duicesilu (Thought of countermeasures for the construction of the better environment in Shanghai)', p. 103-

Impacts of International Development Agencies 237

in the pre-reform period and led to the deterioration of the water quality in the Huangpu River and the Suzhou Creek. There were no specialized governmental agencies monitoring the situation of water quality and no regulatory basis to penalize polluting economic and commercial entities in Shanghai until the late 1970s. The serious water pollution, however, did not improve but even worsened after the open door policy was launched in the late 1970s. Shanghai was spotlighted again as economic powerhouse and started to spearhead the burgeoning Chinese economy, especially from the early 1990s. The rapidly growing economy in Shanghai in the reform era has been possible at the expense of the environment. Water bodies in Shanghai have been amongst the most severely damaged environmental elements in the phase of rapid economic development.

Entry of International Development Agencies The lack of finance, out-of-date technology, and inefficient management continued to strangle the efforts of those wanting to remedy water pollution in Shanghai. The Shanghai government began to introduce advanced technology and management enabled by development loans from international development agencies. Such initiatives started in the early 1980s, taking advantage of the open door policy from the 1970s. In 1982, a World Bank mission visited the municipality and undertook the Shanghai Urban Studies Project in 1983 in cooperation with Australian consultants. This was amongst the first foreign development planning-driven initiative in water management in Shanghai.9 9

The Shanghai Urban Study concluded that most of the water supply intakes were located near sewage discharge points, which had caused water quality to deteriorate in Shanghai. One of the core recommendations in the study was to move the main urban water intake point to Mishidu, approximately 40 km upstream of the city and to establish a strategic plan for handling the liquid wastes discharged from the city.

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Water and Development in China

A milestone in the management of water and wastewater in Shanghai was the endorsement of the Huangpu River Waste Water Integrated Prevention and Control Plan in 1985. The plan consisted of two primary engineering projects to harness "water pollution by constructing new sewerages (Shanghai Sewerage Project) and to protect drinking water source areas by moving the main urban water intake point to the upper reach of the Huangpu River (Shanghai Environment Project). The Shanghai government succeeded in negotiating with the World Bank regarding the two large-scale projects. The other major development agency contributing to Shanghai water policy is the Asia Development Bank (ADB).10 The active involvement of the ADB in Shanghai water policy began when the Suzhou Creek Rehabilitation Project was launched in 1998. Although the ADB's influence has not been as extensive as the World Bank's, the introduction of public surveys in the ADB EIA report related to the Suzhou Creek Rehabilitation Project has led the Shanghai government to consider a new aspect in water project planning and implementation.11 Other bilateral development agencies have mainly been involved in a small portion of the World Bank funded projects, such as the Shanghai Sewerage Project and the Shanghai Environment Project. Their activities became noticeable in the 1990s. The Support Program for the Urban Rehabilitation of Shanghai (SPURS) was an 10

The first development project funded by the ADB in Shanghai was the Shanghai Environmental Information Project. The project was part of a national project that planned to promote environmental information management systems in two other cities in China, and the primary purpose of the project was to enhance the capacity of the Shanghai Environmental Protection Bureau in managing environmental information systems with the ADB loan of US$ 600,000. Ou Yang, Christine, Environmental Protection in Shanghai 1999 (Shanghai: Consulate General of Sweden in Shanghai, 1999), p. 10. 11 Asian Development Bank, Summary Environmental Impact Assessment: Suzhou Creek Rehabilitation Project in the PRC (February 1999), unpublished project document. Available Online: http://www.adb.org/Documents/Environment/prc/ prc-suzhou-creek.pdf.

Impacts of International Development Agencies

239

assistance program by the Overseas Development Administration UK (ODA) from 1995 to 1997.12 The Norwegian government participated in supporting the Suzhou Creek Rehabilitation Project feasibility study in the late 1990s. There have been small- and medium-sized water projects in Shanghai, funded by USA, the Netherlands, Denmark and New Zealand in the 1990s. The entry of international development agencies indicates that the Shanghai water sector that had been monopolized and dominated by a single actor (the Shanghai government) became more complicated as the result of the involvement of other actors. In terms of the institutional context, the influence of the new actors has been minimal. Development projects funded by the international agencies, however, made the Shanghai government become familiar with some European environmental (water) standards, for instance, through the SPURS (the UK) and the Norway feasibility study in the Suzhou Creek Rehabilitation Project. The international development agencies have also played a pivotal role in promoting the business activities of their private companies in privatization in the Shanghai water sector. It is argued that foreign companies including water TNCs in the Shanghai water sector began to enter the Shanghai water market in collaboration with the international development agencies and eventually succeeded in taking an active part in privatization in the water sector from the late 1990s. Consequently, the co-evolutionary processes in the Shanghai water sector have developed both in the public and the private spheres whereas the Hierarchists at the local and the international and the Entrepreneurs interact. The next section pays close attention to the two engineering water projects funded by the World Bank, the Shanghai Sewerage Project (SSP), and the Shanghai Environment Project (SEP). The 12

Lu, Shuping and Samiullah, Yusaf, How the ODA Support Programme for the Urban Rehabilitation of Shanghai {SPURS) was Developed and is being Implemented, Overseas Development Administration (ODA) and Shanghai Environmental Protection Bureau, Working Group No. 3, Paper No. 2 (November 1996), unpublished project report, p. 1.

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primary goal of the SSP was to intercept sewage in the city center and deliver and discharge it into the Yangtze River. The SSP will be analyzed in two different phases. The salient component of the SEP was to secure better drinking water for Shanghai citizens by moving the main urban water intake point to the upper reach of the Huangpu River. It is noteworthy that the World Bank has continued to pressure the Shanghai government to implement institutional change whereas the Shanghai government has been trying to secure finance for water projects, to adopt advanced technology and to import water management expertise. In the course of numerous negotiations with the World Bank, the Shanghai government has become aware of what to take and what to avoid in this new political economy of water management. By project-by-project, the two actors have incrementally co-evolved and adapted to new conditions and environments. WORLD BANK The wave of devolution from the late 1970s encouraged local governments to seek investment for their own development projects in the international arena. Shanghai decided to resort to the assistance from the World Bank in the early 1980s for large-scale water projects. It is argued that the policy choice of large-scale engineering projects stemmed from the fact that institutional solutions such as administrative, legal, and law enforcement reforms would take more time and require high transactional costs. In consequence, the political leaders in Shanghai tended to choose engineering solutions that could be visible in the short term. The two decades' interactions with the World Bank through the Shanghai Sewerage Project and the Shanghai Environment Project have led the Shanghai government to undergo very new water policy-making experience. The monopolistic power of the government in the public sphere had never been questioned in the Chinese hierarchy in terms of policy-making and implementation. However, a series of policy guidelines from the World Bank shook the foundations of the socialist economy system and its approach to governance and forced the government to adapt to the new circumstances that had

Impacts of International Development Agencies 241

been established through the unprecedented interaction of the Shanghai government and the World Bank. Shanghai Sewerage Project (SSP) Phase

I (SSP-O

(1988-1993}

The primary purpose of the SSP-I was to intercept domestic and industrial sewage and deliver it away from the areas along the Suzhou Creek, the north-eastern part of the city, to a new outfall at Zhuyuan on the Yangtze River Estuary to reduce the pollution load into the Huangpu River.13 The SSP-I was commenced in August 1988 and completed in December 1993- The total cost of SSP-I was estimated at US$ 200 million, partly financed by the World Bank.14 The project included the establishment of the Shanghai Sewerage Company to manage the new sewage drainage systems. The Shanghai Sewerage Project Construction Company was created in 1986 to construct the civil works. 15 The project was designed to drain sewage at the flow capacity of 1.4 million m 3 /d. Sewage was to be carried to Zhuyuan near the Yangtze River Estuary after basic treatment. 16 The size of the service area was 70.6 km 2 , where around 2lA million people lived and over a 1,000 industrial plants were in operation (see Figure 7.1). 13

Zhang, Chonghua, 'Case Study II, Shanghai Huangpu River, China', in Richard Helmer and Ivanildo Hespanhol (eds.), Water Pollution Control: a Guide to the Use of Water Quality Management Principles (London and New York: E & FN Spon, 1997), p. 334. 14 UNDP, China Environment and Sustainable Development Resource Book: Compendium of Donor Activities, 1994, p. 25. The financing came from the International Bank for Reconstruction and Development (IBRD) (US$ 45 million) and the International Development Association (IDA) (US$ 100 million) in 1987. See also Lu, 'Shanghai Chengshi Shuihuanjing de Huigu he Zhanwang (Retrospect and prediction for the Shanghai municipality's water environment), p. 39. 15 World Bank, Staff Appraisal Report: Second Shanghai Sewerage Project ill February 1996), unpublished project document, p. 18. Available Online: http:// www4.worldbank.org/sprojects/Project.asp?pid=P003648. 16 Gu, 'Shanghai Jianshe Lianghao Shuihuanjingde Duicesilu (Thought of countermeasures for the construction of the better environment in Shanghai)', p. 103.

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Figure 7.1 Shanghai Sewerage Project (SSP) (Phase I and II) Source: Reproduced by author based on Mott MacDonald and INTERCONSULT (1995), Second Shanghai Sewerage Project Design Review and Advisor)' Services Appraisal Report, unpublished project document.

Through the operation of the SSP-I, there were a series of expected environmental benefits in the Suzhou Creek. Prior to the SSP-I, the Suzhou Creek was ranked as one of the worst rivers in China in terms of the water quality class (Class V) according to the National Environmental Quality Standards of Surface Water. One of the most important goals through the SSP-I was that the water quality of the Suzhou Creek was to be enhanced. In addition, the collection

Impacts of International Development Agencies 243

of industrial and other kinds of sewage from several major river outfalls would be expected to reduce total pollution loading to the Suzhou Creek and the Huangpu River. The result of water quality assessment in the post-SSP-I period shows that the situation of water pollution in the lower reaches of the Suzhou Creek had been improved (see Table 7.1). The study discloses that some of the major water quality standard parameter levels downstream in 1994 were lower than those in 1992. In the mid-1990s, the government and the media reported that the colour of the Suzhou Creek was gradually becoming from black to grey or sometimes dark yellow. However, most of the levels of the parameters shown in Table 7.1 exceed those of the National Environmental Quality Standards for Surface Water for Class IV and V (see Table 7.2). For instance, Baihe demonstrates the best water quality at different monitoring points along the Suzhou Creek in Table 7.1. But the Table 7.1 Comparison of Water Quality Assessment Results in the Suzhou Creek between 1992 (pre-SSP-I) and 1994 (post-SSP-I) Suzhou Creek assessing points

Upper Baihe Reaches Huangdu Huacao

DO (mg /liter)

CODcr (mg/1iter)

BOD5 (mg/liter)

1992

1994

1992

1994

1992

4.51 4.45 2.65

4.75 4.3 2.59

35.60 46.66 69.04

25.1 26.7 40.84

3.79 5.18 8.41

Lower Beixinjing 2.23 Reaches Wuning 1.13 Road Bridge Zhejiang 1.93 Road Bridge

NH3-N (mg/1iter)

1994 1992

1994

4.72 5.49 9.77

2.35 2.85 5.16

4.51 4.98 7.99

0.32 101.44 0.44 158.36

75.37 45.35 84.65 62.43

25.52 17.44 13.34 31.65 19.93 17.66

0.76 104.04

78.48 34.2

21.79 10.56 10.72

Remarks: DO: Dissolved Oxygen. CODcr: Chemical Oxygen Demand (dichromate used). BOD5: Biological Oxygen Demand (tested for 5 days). NH3-N: Ammonia Nitrogen. Source: Lu, Hongde, 'Shanghai Chengshi Shuihuanjing Huigu he Zhanwang (Retrospect and Prediction for Shanghai's Water Environment),' Shanghai Chengshi Fazhan {Shanghai City Development), No.l, (February 2001), p. 39-

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Water and Development in China Table 7.2 Environmental Quality Standards for Surface Water (GB 3838-88) (concentration in mg/liter) Class of Water Use

Constituent

DO COD BOD NH3-N

I

II

III

IV

V

>90% salt <15 <3 <10

>6 <15 3 10

>5 15 4 20

>3 20 6 20

>2 25 10 25

Source: World Bank, Second Shanghai Sewerage Project: Staff Appraisal Report, Annex 9, World Bank, 1996, Unpublished Report, p. 88, and Shanghai Environment Online Website. Available Online: http://www.envir.online.sh.cn/law/ standard/4.htm.

levels of the parameters in Baihe mostly exceed those of the national standards for surface water for Class IV (DO: Class IV, CODcr: worse than Class V, BOD: Class IV, and NH3-N: Class I). Although the SSP-I primarily aimed to reduce pollution loads in the Suzhou Creek and enhance the water quality in the Huangpu River, the outcome was not successful. One of the main reasons for this failure was that the SSP-I was unable to cover the whole areas of the city. Other remaining areas in the city, namely the south-western part along the Suzhou Creek, the upper reach of the Huangpu River and undeveloped areas in Pudong, remained intact and continued to contribute massive amounts of industrial and domestic sewage to water bodies in Shanghai. The accelerated economic development from the 1980s to the early 1990s and the launch of the Pudong New Development Policy also served as another malign element to deteriorate the water quality in Shanghai. In the institutional area, the failure of the SSP-I resulted from the lack of an adequate set of laws and regulations and poor enforcement to prevent the random discharge of sewage. Apart from the internal constraints of the Shanghai government, it was evident that the cooperation between the Shanghai government and the World Bank was limited, and this also brought about a limited success of the SSP-I. The World Bank intended to push the Shanghai government to rationalize sewage charges, but this reform

Impacts of International Development Agencies 245

was delayed. The World Bank realized that its innovative approach to Shanghai water management would require more time for implementation. This lesson led the Shanghai government and the World Bank to adopt new negotiation and implementation strategies for various projects in the 1990s. This was the early stage of coevolution in which actors began to appreciate how their new complex system was operating. All these factors together made the water quality in Shanghai continue to deteriorate. The Shanghai government needed to launch the second phase of the Shanghai Sewerage Project (SSP-II). Through the SSP-II, the sewage treatment and drainage systems in Shanghai for the first time were able to cover the whole area of the city including the Pudong New Development Zone. The sewage treatment in the Pudong New Development Zone was urgently needed by the mid-1990s to attract more foreign capital. In the SSPII, the co-evolutionary process between the Shanghai government and the World Bank was deepened and intensified. The complex system in Shanghai was also complicated because other bilateral development agencies started to participate in development projects in Shanghai water policy. These agencies participated in the SSP and the SEP in collaboration with the World Bank.

Phase II (SSP-IO

{1995-1999}

The Shanghai government launched the Shanghai Sewerage Project Phase II (SSP-II) in 1995 to enhance its capacity to abate sewage pollution in water bodies continuing the achievements of the SSP-I. The primary aim was to provide new interception sewers serving the area in the south-western part, the eastern part of Shanghai (Pudong), and the south of the SSP-I area in association with the Shanghai Environment Project interceptors in Wujing and Minhang. The SSP-II construction began in 1995 and was completed in 1999-17 17

Lu,'Shanghai Chengshi Shuihuanjing de Huigu he Zhanwang (Retrospect and prediction for the Shanghai municipality's water environment)', p. 40. However, a British engineer, who was involved in the project, commented that the project had been completed and began to operate practically since the early 2000. Smithson, John, Personal Communication by email, 4 May 2001.

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The total investment was estimated at around US$ 600 million, partly funded by the World Bank.18 The carrying capacity of the SSP-II was 1.7 million m 3 /d. 19 The total service area was 269.6 km 2 with 4.7 million people by the mid-1990s.20 The areas covered by the SSP-II were Xuhui and Luwan Districts, the south of the Pudong New Development Zone, and the upper Huangpu River areas including Minhang District (see Figure 7.1). Three major project components constituted the SSP-II: 1) improvement of the sewage and sanitation collection system; 2) development of sewage treatment and disposal system at Bailonggang comprising the construction of a pre-treatment system, a discharge point, and sewage pumping facilities, and the enhancement of existent sewerage systems; and 3) institutional development and training.21 With the lessons derived from the SSP-I, the SSP-II aimed to conduct more in-depth institutional development. This effort culminated in merging the Shanghai Sewerage Project Construction Company and the Shanghai Sewerage Company into the Shanghai Municipal Sewerage Company (SMSC). The creation of the SMSC came from the limited achievement of the Shanghai Sewerage Company in the SSP-I. The World Bank tried to accelerate the pace of institutional reform by allowing the SMSC to conduct more effective management with empowered responsibilities and leverage in sewage management. 18

Lu, 'Shanghai Chengshi Shuihuanjing de Huigu he Zhanwang (Retrospect and prediction for the Shanghai municipality's water environment),' p. 40. According to Lu, the World Bank channeled a loan of US$ 250 million to the Shanghai municipal government. See the World Bank's Project Report: http://www4.worldbank.org/ sprojects/Project.asp?pid=P003648. 19 Gu, 'Shanghai Jianshe Lianghao Shuihuanjingde Duicesilu (Thought of countermeasures for the construction of the better environment in Shanghai),' p. 103. 20 Ibid. Lu hongde provides different data; the covering area is 271.7 km2 where about 3.5 million people are living. Lu, 'Shanghai Chengshi Shuihuanjing de Huigu he Zhanwang (Retrospect and prediction for the Shanghai municipality's water environment)', p. 40. 21 World Bank, Staff Appraisal Report: Second Shanghai Sewerage Project, p. 15.

Impacts of International Development Agencies 247

The cost-recovery pricing policy advocated by the World Bank was reflected in the introduction of new sewage tariffs from 1996. These reforms provided the financial capacity and managerial independence of the SMSC independence from the governmental interference.22 The establishment of the SMSC was associated with serious tension between the Shanghai government and the World Bank — the local and the international — intensified during the negotiations and the implementation of the SSP-II project. The reform and streamlining of organizations in the Shanghai government required the government to adopt new institutional arrangements that were acceptable by the World Bank. This unfamiliar mode of development reflects the new and dynamic circumstances in Shanghai's political economy associated with the interaction of the two actors. Institutional reform was incrementally reflecting a co-evolving and adapting process. One of the most significant achievements of the SSP-II in the 1995-1999 period was to further abate the pollution level of the Huangpu River by collecting and disposing of sewage discharged from the south-western and eastern part (Pudong) of Shanghai. These areas had not been covered by the SSP-I. Nonetheless, the water quality in the Huangpu River until 2002 was not much improved. The water quality of the areas, Dianfeng and Songpu, in the upper reaches of the Huangpu River in 2002 managed to meet Class II although it could deteriorate further due to the rise of pollution loads in Tai Lake. The water quality of the areas near the western edge of the city center, Nanshi and Songpu Bridge, was worse than Class IV in 2002.23 It is too early to argue that the SSP-II was unsuccessful in addressing the water quality of the Huangpu River. On the institutional side, the Shanghai government seemed to satisfy the World Bank by delivering an improved performance of the Shanghai Municipal Sewerage Company (SMSC) through charging sewage fees to households. The SMSC successfully 22

Ibid., p. 10. Shanghaishi Huanjing Zhuangkwang Bulletin 2002}. 23

Gongbao 2002 {Shanghai

Environmental

248

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complied with the guidelines and requirements of the World Bank in strengthening financial capability from 1995 to 2000.24 The assessment of the SMSC in the SSP-II by the World Bank contrasts with that of the Shanghai Sewerage Company in the SSP-I. It is sensible to assume that the Shanghai government and the World Bank both adjusted to the new institutional circumstances and began to adapt to them by changing their strategies to achieve the project goals. In particular, the Shanghai government recognized the need to adjust some public policies, including sewage tariffs, and to elaborate its negotiation strategies to invite more financial and technical assistance from the World Bank. The experiences of cooperation with the Shanghai government drove the World Bank to acclimatize to the new conditions of political economy in Shanghai by making lengthy negotiations rather than by enforcing a radical reform package. In the course of implementing the SSP-II, the political economy landscape of Shanghai had to accommodate new social actors in the Shanghai water sector. The new actors were the development agencies of various donor countries. Since the early 1980s, Australia contributed to water projects in Shanghai, for instance, the SSP-II Technical Review Project in 1995.25 The Canadian government supported the SSP-II by providing water experts in the development of wastewater connection options and strategies. Consultants from Denmark was requested to evaluate modelling and studies committed by Shanghai research institutes for the SSP-II.26 The entry of new actors in the SSP-II made the Shanghai water sector more complicated and catalyzed new interactions between actors with different socio-political and economic interests and backgrounds. These developments enlivened negotiations and exchange between actors and served as an engine to promote the co-evolutionary process 24

World Bank, 'China- Shanghai Urban Environment Project', World Bank Website Project Report, 2001. Available Online: http://www.worldbank.orga/pics/pid/ cn70191.txt. 25 Turner, Jennifer, China Environment Series, Issue 3 (Washington D.C.: Woodrow Wilson Center, 2000), p. 109. Available Online: http://wwics.si.edu/index. cfm?topic_id=1421&fuseaction=topics.publications. 26 World Bank, Staff Appraisal Report: Second Shanghai Sewerage Project, p. 15.

Impacts of International Development Agencies 249

in the public sphere and in the private sphere where the international development agencies promoted the entry of foreign private companies into the Shanghai water market.

Shanghai Environment Project The Shanghai Environment Project (SEP) aimed to secure more freshwater by avoiding water pollution in the main urban water intake point along the Huangpu River. It is noteworthy that prior to the launch of the SEP, the Shanghai government had been implementing its own water supply project, 'the Water Intake Move Project'.27 The Water Intake Move project consisted of two phases. The second phase of the project overlapped with the SEP and became identical with the SEP. The main objective of the Water Intake Move Project Phase I was to provide cleaner drinking water for the urban areas of Shanghai by moving the main urban water intake point from the city centre to Linjiang, further up along the Huangpu River.28 The Water Intake Move Project had turned out to be unsuccessful according to assessment of its performance in the period from the late 1980s to the early 1990s. The major drawback of the Project was that the Project was unable to satisfy the water quality requirements for drinking water supply because of pollution risks to Linjiang caused by the worsening of pollution in Tai Lake.29 This 27

The project name in Chinese is 'Shangyou Yinshui Gongcheng'. Shanghai Social Infrastructure Project Annals Publication Council (ed.), Shanghai Gongyong Shiye (Shanghai Social Infrastructure Project Annals) (Shanghai: Shanghai Academy of Social Sciences, 2000), pp. 169-170. 28 Gu, 'Shanghai Jianshe Lianghao Shuihuanjingde Duicesilu (Thought of countermeasures for the construction of the better environment in Shanghai)', p. 104. 29 For instance, the water quality of Linjiang in 1988 declined due to a remarkable reduction of the usual water flow from Tai Lake by approximately 15% compared with the average flow in a normal year. The sewage that did not flow downstream continued to pose a chronic treat to the water quality of Linjiang. The rapid expansion of animal husbandry farms and the rise of Township and Village Enterprises (TVEs) in the outskirts of Shanghai also made the Linjiang water intake point vulnerable to the random disposal of animal excrement and untreated industrial wastewater.

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challenge caused the Shanghai government to move the water intake point further upstream of the Huangpu River, and the Shanghai Environment Project (the second phase of the Water Intake Move Project) was launched in 1995.

Shanghai

Environment

Project

{1995—2002)

Confronted with the challenges of the Water Intake Move Project, the SEP (the second phase of the Water Intake Move Project) had gained approval among policy-makers and academics as 'the only viable long-term solution' to secure good quality water in the early 1990s.30 The primary goal of the SEP was to assure the provision of clean drinking water and to ameliorate the degeneration of the water quality in the Shanghai region. The SEP was launched in 1995 and completed in late 2002.31 The total project cost was estimated US$ 460 million, and the loan from the World Bank accounted for US$ 160 million.32 The SEP consisted of six major components, and one of the primary components was to move the water supply intake point from Linjiang to Songpu Daqiao upstream of the Huangpu River.33 This component was also linked to 'the Yangtze River Diversion to the Huangpu River Project' initiated by the Shanghai government,

30

Zhang, 'Case Study II, Shanghai Huangpu River, China', p. 329. Professor Gu Youzhi, who is a senior engineer involved in the project for many years, confirmed this through interview. Interview-060602. 32 The World Bank, Staff Appraisal Report: Shanghai Environment Project, pp. 16-18. The funding also partly came from the UK government via the Overseas Development Administration (ODA — now DFID), amounting to US$ 4.5 million during the period between 1992 and 1995. UNDP, China Environment and Sustainable Development Resource Book: A Compendium of Donor Activities, Beijing: UNDP, April 1994, p. 154. 33 The other five components were: 1) upper Huangpu catchment pollution control; 2) Songjiang wastewater pollution control; 3) pollution sources and water quality monitoring; 4) solid waste and nightsoil management; and 5) institutional capacity building through technical assistance. 31

Impacts of International Development Agencies 251

and its purpose was to provide better quality water to Shanghai citizens by delivering water from the Yangtze River to the upper Huangpu River34 (see Figure 7.2). The capacity of the pumping station at the new water intake point, Songpu Daqiao, is about 5.4 million m 3 /d. 35 The new water intake point in Songpu Daqiao began to operate from 2000.36 The technical assistance programs included three environmental studies: the Shanghai Water Master Plan (funded by ODA, UK)37; the Shanghai Environment Master Plan (funded by Ausaid, Australia); and the Hazardous Waste Management Study (funded by the Norwegian government). 38 One of the conditions subject to loans for the SEP was that the water prices of Shanghai in the mid-1990s should be raised. The water prices for households and industrial users from 1990 to 2003 show a pattern of rapid increase although the growth rate in the period from 1998 to 2006 looks more sluggish than that in the period from 1990 to 1994 (see Table 7.3). The World Bank pushed the Shanghai government to adopt a policy strategy of reliance on adequate user charges, including a cost-recovery mechanism and a measure to prevent the 'waste of water.39 In spite of the fast increase of water prices in Shanghai, the influence of increasing water tariffs during the SEP period was negligible, because water in Shanghai was underpriced. It is too early to assess whether the SEP has been successful in securing cleaner ter and abating water pollution upstream of the 34

The project name in Chinese is ' Changjiang Yinshui Gongcheng. Gu, 'Shanghai Jianshe Lianghao Shuihuanjingde Duicesilu (Thought of countermeasures for the construction of the better environment in Shanghai),'p. 104. 36 Smithson, John, Personal Communication by email, 4 May 2001. 37 Lu, Shuping and Samiullah, Yusaf, How the ODA Support Program for the Urban Rehabilitation of Shanghai (SPURS) was Developed and is Beijing Implemented, Overseas Development Administration (ODA) and Shanghai Environmental Protection Bureau, Working Group No. 3, Paper No. 2 (November 1996), unpublished project report. 38 Ouyang, Christine, Environmental Protection in Shanghai 1999 (Shanghai: Consulate General of Sweden in Shanghai, 1999), p. 9. 39 World Bank, Staff Appraisal Report: Second Shanghai Sewerage Project, p. 12. 35

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Water Treatment Plants (WTP) Existing | Proposed [""]

Conveyor Existing Proposed

Figure 7.2 Water Intake Move Project, Shanghai Environment Project, and Yangtze River Diversion to Huangpu River Project Source: Reproduced by author based on the two sources: Mott MacDonald and INTERCONSULT, Second Shanghai Sewerage Project Design Review and Advisory Services Appraisal Report (1995), and Zhang, 'Case Study II Shanghai Huangpu River, China', p. 331.

Impacts of International Development Agencies 253 Table 7.3 Tap Water Tariff Comparison in the Selected Years in Shanghai US$/m3 (US$1 = RMB 8) Users

1990

1994

1998

2000

2006

Household Industry

0.02 0.03

0.06 0.08

0.10 0.15

0.12 0.16

0.12 0.18

Source: Shanghai Price Annals Publication Board, Shanghai Jiagezhi {Shanghai Price Annals) (Shanghai: Shanghai Academy of Social Sciences, 1998), p. 556, Luo Yujia and Zhang Kunmin, Kechixufazhan Zhong de Chengshi Shuijia Gaige {Municipal Water Price Reform in Sustainable Development) (Beijing: Chinese Environmental Science Press, 2000), p. 54, and 'Jinri Shuijia (Today's Water Prices),' Shanghai Water AuthorityWebsite.

Huangpu River. There have been negative factors as well as positive ones that have determined the effectiveness of the SEP. The chronic pollution threat continues because of the growth of untreated sewage discharge from animal husbandry farms and Township and Village Enterprises (TVEs) around the water source protection area upstream of the Huangpu River. In addition, thousands of small rivers in the Shanghai municipality have also served as a major source of pollution causing the deterioration of the water quality of the Huangpu River. The Shanghai government has managed to keep the water quality Class II near the water intake point, Da Qiao. However, many of the water quality monitoring sections along the Huangpu River report that the water quality in most of the city centre and the outskirts of the city is assessed in Class IV, V, and even worse than V 40 The water pricing reform in the SEP continued to be a primary agenda in policy dialogs between the Shanghai government and the World Bank. As seen above, the World Bank advocated the increase of water prices pointing out that reasonably affordable user charge for water should be imposed. There was a rapid increase in water prices per annum in the 1990s including the project implementation 40

Shanghaishi Huanjing Zhuangkuang Environmental Bulletin 1996-2002).

Gongbao

1996-2002

{Shanghai

254

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period of the SEP. Although it is difficult to envisage how the price negotiations between the two parties had been going on, it is plausible to assume that the Shanghai government would continue to resist the sudden increase of water prices against the advice of the World Bank. The idea that water is priced according to how much water is used has not been socially acceptable in China. As a result, the Shanghai government was reluctant to implement a sudden increase of water prices. The World Bank continuously pressured the government to increase water prices to an economically sustainable level. Since the institutional reform related to water pricing was part of the requirements of the loan of the World Bank, the Shanghai government had no other option but to follow the advice. However, the pace of the reform of water pricing in Shanghai was slow. The Shanghai government succeeded in persuading the World Bank to agree with the slow pace of reform. The trajectory of the change of water prices in Shanghai in the 1990s shows how the different actors became adaptive to the new environment by adjusting their own goals as well as by enhancing their capabilities to take a lead in negotiations. Similarly with the SSP-II, the SEP attracted various development agencies from different countries, including the Support Programme for the Urban Rehabilitation in Shanghai (SPURS), UK, and the Shanghai Environmental Master Plan supported by the Australian government. Based on the SPURS, the UK government encouraged British companies to join the project by providing British companies with more business opportunities, such as the Mott MacDonald involvement in the SSP-II and the SEP. These bilateral development agencies began to influence Shanghai water policy, and the Shanghai government became familiar, for example, with Australian and British ways of dealing with project management. Although their influence was minimal in Shanghai water policy by the mid-1990s, their involvement in the development projects, the SSP and the SEP, provided a springboard for foreign private companies to begin to take part in privatization in the Shanghai water sector from the late 1990s. Consequently, the beginning of the co-evolutionary process between the Shanghai government and

Impacts of International Development Agencies

255

various development agencies precipitated more active interaction between actors in private sector participation in the Shanghai water sector. ASIAN DEVELOPMENT BANK AND OTHER DEVELOPMENT AGENCIES IN SHANGHAI Since the World Bank entered the Shanghai water sector in the early 1980s, most of the water projects had been funded by the World Bank, such as the Shanghai Sewerage Project and the Shanghai Environment Project. There were the two influential actors (the Shanghai government and the World Bank) in the public sector. The nature of water policy in Shanghai was simple until the mid-1990s. The simple picture began to change when a number of bilateral development agencies became involved in the Shanghai Sewerage Project Phase II and the Shanghai Environment Project from 1995. Alongside these bilateral development agencies, the Asian Development Bank (ADB) also started to have an impact on Shanghai water policy by providing technical and financial assistance on water projects, such as the Suzhou Creek Rehabilitation Project (SCRP). The entry of these new actors to the Shanghai water sector made the political economy landscape in Shanghai even more complicated. Although bilateral agencies participated in the World Bank funded projects, their additional technical advice and managerial know-how began to have an influence on Shanghai water policy. This new trend provided the Shanghai government with a new experience of utilizing advanced technologies and managerial skills from diverse countries with unique political, economic, and social backgrounds. On the other hand, some other reasons bilateral development agencies began to support water projects in Shanghai from the mid-1990s should be considered. The open door policy since 1978 attracted foreign companies to the Chinese market, and Shanghai was considered as one of the most promising places for investment. Foreign governments, particularly from Europe, America, and

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Australia, started to provide support to the Shanghai government through their development agencies seeking future business opportunities for their private companies. One of the major beneficiaries in this process was Mott MacDonald from UK, which contributed to the Support Program for the Urban Rehabilitation of Shanghai (SPURS) and the Shanghai Water Master Plan. These political and economic mechanisms, not always visible, stemmed from the interactions of different actors in Shanghai from the mid-1990s. The influence of the international development agencies to Shanghai water policy in the mid-1990s was not conspicuous. However, their initiatives through development projects became a foundation for foreign companies including water TNCs to take an active part in privatization in the Shanghai water sector in the late 1990s. In other words, the international development agencies facilitated the adaptive co-evolutionary processes in private sector participation in the Shanghai water sector between the Shanghai government and foreign companies.

Asian D e v e l o p m e n t Bank: S u z h o u Creek Rehabilitation Project (SCRP) Since the Suzhou Creek flows through the central part of Shanghai, the creek has been important for the daily lives of Shanghainese for more than a century. The vicinity of the creek to residential areas and commercial activities, however, have caused the creek to become a dumping ground because of untreated sewage from households, light industry factories, commercial shops, and inland boats. The Shanghai government had implemented a number of environment projects to clean the Suzhou Creek, such as the Suzhou Creek Integrated Wastewater Management Project and the Nine Project Schemes in the Suzhou Creek Integrated Management, to name a few.41 The Suzhou Creek Rehabilitation Project (SCRP) was part of the overall management blueprint for the Suzhou Creek. The importance of the SCRP lies in the political will that its existence 41

Yuan Mingqing, 'Rang Suzhouhe Bianqing Bianmei (Making the Suzhou Creek Become Clean and Beautiful)', Jinri Shanghai (Shanghai Today) (August 2001), p. 12.

Impacts of International Development Agencies 257

reflects to remove the black color and unpleasant odor from the creek. The government had continued to present the discourse that the blackened and smelly creek would be restored by the end of 2000. This political determination also came from the fact that the government wanted to attract more foreign direct investment. The Shanghai government realized that suitable living and business conditions, including clean water, were one of the prerequisites for bringing in investment. Such political incentives pushed the Shanghai government to resort to the loan of the ADB and its advanced managerial and technical know-how and skills. The primary goal of the project was to reduce pollution and rehabilitate the water quality in the Suzhou Creek and its tributaries.42 In addition, the overall enhancement of the environment, living conditions, and public health in the residential areas near the creek was also planned as part of the project.43 The project has two separate phases: the first from 1998 to 2004; and the second from 2004 to 2010.44 The ADB loan was approved for the first phase, and the total cost of the first phase is estimated at US$ 876 million. 42

The detailed project objectives were: 1) to eradicate discolored and smelly water and shift nightsoil and solid waste collection wharves from the banks of the lower 5 km of the Creek by 2000; 2) to improve the water quality for Class V in the upper 29 km and construct green areas along the banks of the lower 5 km of the Creek by 2004; and 3) to accomplish Class IV water quality level in the lower 24 km area, Class III level in the upper 29 km area, and to establish green areas along a 14 km of both banks by 2010. Asian Development Bank, Report and Recommendation of the President to the Board of Directors on a Proposed Loan and Technical Assistant Grant to the PRCfor the Suzhou Creek Rehabilitation Project (May 1999), unpublished project document, p. 343

Asian Development Bank, Summary Environmental Impact Assessment: Suzhou Creek Rehabilitation Project in the PRC (February 1999), unpublished project document. Available Online: http://www.adb.org/Documents/Environment/prc/ prc-suzhou-creek.pdf. 44 Shuiwu Xinwen {Shanghai Water Authority News) reported that the Suzhou Creek Rehabilitation Project Phase II kicked off on 11 April 2003- 'Suzhouhe Huanjing Zhonghe Zhengzhi Erqi Gongcheng Jin Kaigong (Second Phase of the Suzhou Creek Rehabilitation Project Began Today)', 11 April 2003, Shuiwu Xinwen (Shanghai Water Authority News). Available Online: http://www.shanghaiwater. gov.cn/newnews/detail.asp?id=6397.

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One of the focal points in the SCRP was that the project was designed to benefit the three million residents along the creek with insufficient income and living in poor environmental and sanitary conditions. The reduction of flooding, cleaning of waterways, and provision of green space along the embankments were planned to enhance their living and sanitary conditions (see Figure 7.3). An innovative way to implement these goals, the ADB adopted an unusual approach as part of the resettlement plan, the household surveys. It had been commonplace for the Shanghai government to compensate the affected residents and work units by water projects such as the Shanghai Sewerage Project and the Shanghai Environment Project. However, there had almost been no direct household surveys conducted for a water project in Shanghai's water project history. The adoption of the public household survey reflected that the ADB project management strategies had been incorporated into Shanghai government procedures including public participation. It implies that the Shanghai government came to adopt the innovative way of listening to the voice of the masses. This collaborative approach recommended by the ADB since the late 1990s aimed to provide the Shanghai government with a new way to improve its institutional capacity based on lessons derived from the ADB project. These proactive interactions between actors reflect the continuous co-evolutionary process characteristics in the 1990s when the Shanghai government engaged with international development agencies.

Other Development Agencies United

Kingdom

The Support Program for the Urban Rehabilitation of Shanghai (SPURS) provided the Shanghai government with the UK expertise related to various water projects. The SPURS mirrored the policy shift from the end-of-pipe management to the preventive method of ameliorating water pollution in Shanghai. The Overseas Development

Impacts of International Development Agencies 259

Figure 7.3 Suzhou Creek Rehabilitation Project Source: Reproduced by author based on the Suzhou Creek Rehabilitation Project in the PRC Location Map 1 in ADB, Summary Environmental Impact Assessment: Suzhou Creek Rehabilitation Project in the PRC, 1999.

Administration (ODA — now Department For International Development, DFID), UK, funded the SPURS estimated at GBP 2.5 million (US$ 4 million) from 1995 to 1997.45 The major purpose of the project was to support the environmental regulatory framework 45

Lu, Shuping and Samiullah, Yusaf, How the ODA Support Program for the Urban Rehabilitation of Shanghai (SPURS) was Developed and is being Implemented, p. 1.

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including environmental auditing and to improve sewage minimization and industrial pollution control measures with technical assistance.46 An interesting feature embodied in the SPURS was that the ODA played a pivotal role in helping UK private water and engineering companies to enter the Shanghai water market.47 Among other companies, Mott MacDonald deserves attention, because it had also been involved in the Shanghai Sewerage Project Phase II and the Shanghai Environment Project as the main foreign contractor. The ODA's financial and technical assistance to the Shanghai government also included its support of the Shanghai Water Master Plan project.48 The UK involvement in the Shanghai water sector since the mid-1990s was characterized by British government's support of UK companies in the Shanghai water sector. The purpose of this involvement was on the reform of Shanghai water policy by helping them to seek more business opportunities in the long term.

Norway The Norwegian government has supported a number of small- and medium-sized projects related to ecological reconstruction and environmental protection across China.49 In the Shanghai water sector, the Norwegian Institute for Water Research (NIVA) involved the Suzhou Creek Rehabilitation Project by conducting a feasibility study from 1998 to 1999. The total budget of the project was estimated at US$ 520,000 (NOK 3.5 million).50 The major goal of the 46

Ibid., p. 6. See also Institution of Chemical Engineers, 'Cleaner Production in Shanghai', Technical Papers, 1997, unpublished web paper. 47 The participants were Mott MacDonald, Acer Environmental, AEA Technology, and Environmental Resources Management (ERM). 48 Lu and Yusaf, How the ODA Support Programme for the Urban Rehabilitation of Shanghai (SPURS) was Developed and is Beijing implemented, p. 6 and Mott MacDonald, Shanghai Water Master Plan: Phase III, Master Plan Presentation, September 1999 for the Department for International Development (DFID), UK, unpublished project report. 49 For detailed information, please see the inventory of Environmental Work in China in China Environment Series Issue 3-5, published by the Woodrow Wilson Center. 50 NOK means Norway Kroner. NOK 1 equals US$ 0.148568 on 2 June 2003.

Impacts of International Development Agencies 261

study was to address the causes of the failure of sewage diversion schemes and to evaluate the level of pollution in the Suzhou Creek, focusing on domestic and industrial sewage. 51 As seen in the SPURS, the Norwegian government advocated the entry of Norwegian private companies to the Shanghai water market. The private consulting company that involved the study was Interconsult International, which had already participated in the Shanghai Sewerage Project Phase II in collaboration with Mott MacDonald as key consulting company. 52 The Norwegian influence does not seem to have been far-reaching as that of the World Bank and the ADB. However, Norwegian experience and know-how has been introduced, for instance, the Norwegian Discharge Permit and Effluent Control System.53

Australia Australia was one of the first foreign governments to provide technical and consulting assistance to the Shanghai government related to water projects in the early 1980s when the World Bank entered the Shanghai water sector. In the 1990s, the Australian government expanded its development assistance in Shanghai through Ausaid, the Australian development agency. 54 Exemplary projects were the Shanghai Environmental Master Plan Study in 1992 and the Shanghai Sewerage Project Phase II Technical Review in 1995. The Shanghai Environmental Master Plan Study aimed to provide 51

Norwegian Institute of Water Research (NIVA), Rehabilitation Plan for Suzhou Creek: NIVA Projects in China, NIVA Website. Available Online: http://www.niva .no/engelsk/intprosj/land.asp? China. See also Ou, Yang Christine, Environmental Protection in Shanghai 1999, p. 11. 52 Mott MacDonald and INTERCONSULT (1995), Second Shanghai Sewerage Project Design Review and Advisory Services Appraisal Report for the World Bank, unpublished project report. 53 Interconsult News Website: Suzhou Creek Rehabilitation Shanghai, China PR, Second Shanghai Sewerage Project (SSPII), China PR, and Shanghai Hazardous Waste Management Study, China PR. Available Online: http://ici.interconsult.com/ 34 Ausaid -website: http://www.ausaid.gov.au.

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technical suggestions and project management for the SEP with a focus on urban planning, management, and institutional strengthening. The project lasted from 1992 to 1996 with the total grant US$ 844,000. The Shanghai Sewerage Project Phase II (SSP-II) Technical Review was to provide the evaluation work to assure the effective and safe implementation of the Shanghai Sewerage Project Phase II. The total funding from the Ausaid was US$ 115,000, and the project was carried out from December 1995 to March 1996.55 The Australian government has had a long-term development and policy interest in contemporary China, particularly since the open door policy began in the late 1970s. As observed in Australian contribution to the SSP-II and the SEP, Australians have endeavored to have an influence on Shanghai water policy. Similarly with European and American development agencies, the Ausaid continues to expand its development assistance to the Shanghai government in the water field by promoting the involvement of Australian private engineering and consulting companies.

Other

Countries

In addition to UK, Norway, and Australia, a number of different countries have contributed to water projects in Shanghai until the early 2000s. The Danish government provided the Shanghai government with environmental experts in evaluating modelling studies conducted by two Shanghai research institutions with regard to the assimilative capacity of an outfall at Bailonggang in the implementation of the Shanghai Sewerage Project Phase II (SSP-II). In the SSP-II, the development of wastewater connection options and strategies was consulted by environmental specialists supported by the Canadian government.56 55

Turner, Jennifer (ed.), China Environment Series, Issue 3 (Washington D.C.: Woodrow Wilson Center, 2000), p. 109. 56 World Bank, Staff Appraisal Report: Second Shanghai Sewerage Project, p. 15.

Impacts of International Development Agencies 263

The Sino-New Zealand cooperation was exemplified in the Huangpu Upper Catchment Water Quality Improvement Project. The goal of the project was to protect and improve the water quality of small rivers connected to the upper reaches of the Huangpu River and to enhance the living conditions for the residents living in the project area. The project was commenced in 2001 and was underway as of 2002. The total funding from the New Zealand government 57 amounted to around NZ$ 500,000 (US$ 290,000).58 The US government has contributed to many environmental projects across China since the 1980s, and Shanghai has been one of the focal regions for its development assistance. The US Trade and Development Agency (TDA) has led development assistance projects, and the recent example was the Shanghai Environmental Monitoring Project. The project focused on monitoring air and water quality and enhancing laboratory capacities and began to be implemented from 2001. In addition to an independent development assistance project in Shanghai, one example of the engagement of the TDA in various environment projects in China was the Water Projects Definitional Mission that covers Beijing, Shanghai, and Guangzhou for water treatment.59 It is noteworthy that most of the foreign development agencies have brought in their private companies in Shanghai and have striven to provide them with new business opportunities through development projects. This trend demonstrates that foreign governments have been committed to promoting private sector involvement in the Shanghai water market. Such a coalition between the Shanghai government (the Hierarchists) and companies (the Entrepreneurs) from foreign countries has taken place in Shanghai and has served to have an influence on Shanghai water policy. This 57

The development loans for Asia in New Zealand are dealt with by the Asia Development Assistance Facility in the New Zealand Government. Turner, Jennifer (ed.), China Environment Series, Issue 5 (Washington D.C.: Woodrow Wilson Center, 2002), p. 227. 58 US$ 1 = NZ$ 1.73191 on 2 June 2003. 59 Turner (ed.), China Environment Series, Issue 5, p. 162.

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development implies that the political landscape in Shanghai water policy since the mid-1990s has begun to be influenced not only by tensions between the Shanghai government and international development agencies but also by the relationship between the Shanghai government and foreign companies. The following section will explore the ramifications of the water projects associated with development finance in Shanghai and the challenges and achievements. The processes of negotiations and policy dialogs between the Shanghai government and international development agencies have addressed the fluctuating relationships reflecting each actor's effort to achieve its strategic goals in the Shanghai water sector. The institutional environment will be shown to have been associated with protracted debates and negotiations, such as the rationalization of drinking water and sewage tariffs and the restructuring of project companies. Then there will be a discussion associated with the technical limitations of the Shanghai Sewerage Project, the Shanghai Environment Project, and the Suzhou Creek Rehabilitation Project. Also the Chinese customary practice will be discussed based on the experience from the UK SPURS. In contrast to the challenges, the various water projects funded through development loans have brought in limited but significant achievements for Shanghai's water bodies. The achievement of institutional change includes the reform of organizations, such as the amalgamation of the Shanghai Sewerage Company and the Shanghai Sewerage Project Construction Company into the Shanghai Municipal Sewerage Company, the rational pricing of water, and financial stability. In the area of technical enhancement, the improvement of technology and engineering will be discussed. Innovative approaches to public participation, such as the household surveys in the EIA report for the Suzhou Creek Rehabilitation Project, will be evaluated. It is argued that these challenges and achievements have driven the Shanghai government and international agencies to continue to co-evolve in adapting to the new political economy environments.

Impacts of International Development Agencies 265

RAMIFICATIONS OF INVOLVEMENT FROM INTERNATIONAL DEVELOPMENT AGENCIES Challenges Although there have been a number of water projects supported by international development agencies in the Shanghai water sector, the effectiveness of the projects have been questioned, because these water bodies in Shanghai are still severely polluted, nearly meeting Class IV and V close to the city centre in the early 2000s. The World Bank has also conducted its own appraisal on the Shanghai Sewerage Project (SSP) and the Shanghai Environment Project (SEP). The assessment of each project has addressed chronic water pollution problems and has identified institutional and organizational conflicts and challenges during the implementation of the SSP and the SEP.

Reluctance to Institutional

Reforms

The preference to large-scale water projects, such as the SSP and the SEP, reflects that the Shanghai government has preferred to seek engineering solutions rather than institutional change for more efficient water supply and sewage management. And the government has been reluctant to bring in institutional reform issues during the negotiations with international development agencies. The de-emphasis of institutional reforms has continued to prevent the SSP and the SEP from being fully implemented and to deter the Shanghai government from taking full advantage of recommendations from the World Bank for rationalization of water supply and sewage management policies.60 The SSP-I exemplified the dilemma of the Shanghai government in undertaking the rationalization of water tariffs for the cost-recovery

60

World Bank, 'China-Shanghai Urban Environment Project', World Bank Website Project Report, 2001.

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mechanism. During the process of the SSP-I (1988-1993), the Shanghai government attempted to increase sewage fees in order to secure financial stability for the Shanghai Sewerage Company. However, this attempt was nullified because there was the strong political resistance from other governmental bureaus. Even though new increased sewage tariffs were agreed in a few years, this case illustrates how difficult it was for the Shanghai government to bring in a new idea of water service pricing into its political and administrative system.61 The World Bank pointed out a potential risk on the introduction of new water tariffs through the SEP before launching the project in 1994.62 Another institutional setback was linked to the effectiveness of project local construction and management companies. An example was the management of the Shanghai Sewerage Company in the SSP-I. Initially the company was established as a new form of project organization to introduce the financial and institutional independence without governmental subsidy and interference. This attempt, however, turned out to be unsuccessful. The examination of the performance of the company afterwards revealed that the company delayed the introduction of sewage charges to households and continued to operate following the inefficient management style of state-owned enterprises.63 The poor performance of the company resulted in the setting up of a new project construction and management company in the SSP-II, the Shanghai Municipal Sewerage Company. The Shanghai government was resistant in introducing the reform of its institutional and organizational framework against the World Bank's advice but eventually accepted the recommendation. This case also indicates the difficulty of changing the organizational behavior and the characteristic incremental co-evolutionary change within the Shanghai government. Based on the continuous communications with the World Bank from the SSP-I to the SSP-II, the 61

World Bank, Staff Appraisal -Report: Second Shanghai Sewerage Project , p. 12. World Bank , Staff Appraisal Report: Shanghai Environment Project, p. 2. 63 World Bank, 'China-Shanghai Urban Environment Project', World Bank Website Project Report, 2001. 62

Impacts of International Development Agencies 267

Shanghai government became aware of how to adjust itself to the policy guidelines of the World Bank.

Technical

Limitations

There have been a myriad of technical constraints discussed in the SSP and the Suzhou Creek Rehabilitation Project (SCRP). A technical goal in the second phase of the SSP was to divert sewage from the city center to Bailonggang at the Yangtze River Estuary. Combined with the SSP-I, the plan was to reduce pollution loads in the Suzhou Creek and the Huangpu River and discharge sewage to the Yangtze River, which has much greater assimilative capacity than the other rivers. However, some Chinese engineers cast doubt about this arrangement and pointed out that water near Bailonggang was not deep but relatively shallow, estimated at 15-30 m.64 This meant that the massive assimilative capacity of the Yangtze River might not function well in diluting sewage. In addition, some unpredictable future impacts may even reduce the actual volume of water around Bailonggang, such as the South North Water Transfer Project and the Three Gorges Dam, which may cause the reduction of the Yangtze River flow volume. 65 With regard to the SCRP, the effectiveness of dredging riverbeds along the Suzhou Creek and its tributaries has been widely debated among Chinese engineers. A Chinese engineer interviewed in the summer of 2002 questioned the effectiveness of the current dredging work carried out as part of the SCRP. He asserted that dredging might cause secondary pollution, because dredging chemical contaminants from the riverbeds of the creek and its tributaries may trigger chemical reaction -when the chemical contaminants 64

The normal depth of water in sewage discharge points in UK and US is around 70 m deep. Chen Zu-yun, Qian Da-ren and Wei He-ping, 'Shanghaishi Wushui Waipai Gongcheng Guihua yu Fangan Sikao (Study of Planning and Scheme for Wastewater Disposition of Shanghai into Ocean)', Chengshi Huanjing yu Chengshi Shengtai (Urban Environment and Urban Ecology), Vol. 14, No. 1 (February 2001), p. 41. 65 Ibid., p. 40.

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encounter oxygen.66 Despite the criticism, the dredging work was carried out in the creek and its tributaries, and it was easy to spot dredging work sites in a number of small rivers and canals in the northern part of Shanghai during the summer of 2002.

The Chinese Customary

Practice

The UK experience with the Shanghai government through the SPURS records a series of challenging factors for international development agencies working in China. The report emphasized a prerequisite of the agreements with the central government to lead to favorable negotiations with local governments.67 This implies the local government's deference to the central government, which is hierarchically higher than local governments. Devolution since the late 1970s has provided the Shanghai government with more financial and administrative mandate than before. Often, however, development projects funded by international donor agencies have to be implemented through endorsement by certain central bureaus such as the Ministry of Foreign Affairs and the Ministry of Finance. In the SPURS' case, the Ministry of Foreign Affairs intervened in the negotiations between the UK ODA and the Shanghai government, which caused a delay of the implementation of the SPURS.68 The SPURS report also emphasized that the importance of keeping the continuous and favorable relationship with previous institutions and associations.69 This notion mirrors the difficulty that international development agencies have encountered in implementing projects in collaboration with the Chinese authorities. The lengthy and complicated traditional values embedded in several thousand years' history and culture defines society in traditional China as an extended form of family. Although that perception 66

Interview with Professor Gu Youzhi, Engineer-in-Chief, World Bank ChinaShanghai Environment Project Office on 6 June 2002. Interview-060602. 67 Lu and Samiullah (1996), How the ODA Support Programme for the Urban Rehabilitation of Shanghai (SPURS) was Developed and is Beijing Implemented, p. 9. 68 Ibid., p. 5. 69 Ibid., p. 9.

Impacts of International Development Agencies

269

has been impacted by Communism since 1949, the Chinese still tend to define the relationship with other people based on the degree of acquaintance, which relates to how much and how long they have known each other. This custom is often applied to the relationship with foreigners. The UK and other countries' development agencies have become aware of this Chinese customary practice and have adapted to the Chinese way through a series of water projects. These challenges related to political-culture reflect how the Shanghai government and international development agencies have responded when faced with fast changing political economy environments. The challenges to institutional reform reflect the way the Shanghai government has been reluctant to adopt new institutional settings advised by the World Bank. The protracted negotiations throughout various water projects in the 1980s and the 1990s unavoidably culminated in the attenuation of policy reform in the Shanghai government and the lowering of expectations in the international development agencies. These co-evolutionary processes between the local Shanghai Hierarchists and the Hierarchists in the international agencies in the public sphere in Shanghai have led to a more dynamic and a more proactive institutional environment.

Achievements Institutional

Dimensions

From a policy perspective, various water projects have also brought about a new wave of change in the institutional settings that the Shanghai government has been forced to adopt by international development agencies and provided sound infrastructure to implement sustainable environmental goals for the government. 70 Although limited, such institutional reforms in Shanghai water policy have been regarded as a success reflecting the incremental transformation of the governmental policy. The reform direction has shifted World Bank, 'China-Shanghai Urban Environment Project'.

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from engineering projects for water supply and primary sewage collection to integrated planning and management including sewage treatment systems, solid waste management and rational water pricing.71 A good example is how the Shanghai Municipal Sewerage Company (SMSC) overcame the previous failure of the Shanghai Sewerage Company in charging sewage fees to households. The SMSC was fully supported by the Shanghai government to set up and charge sewage fees adequately and achieved financial stability during the SSP-II period. 72 Another example is found in the Suzhou Creek Rehabilitation Project (SCRP), where the Asian Development Bank (ADB) also pushed forward the reform of water pricing including sewage charges in Shanghai. For instance, through a number of policy dialogs, the ADB and the Shanghai government agreed to increase the sewage charge from RMB 0.14 to 0.24/m3, which is by 71% for domestic users, and from RMB 0.34 to 0.37/m3, which is by 8.8% for non-domestic users in October 1998 prior to the launch of the project.73 These new tariffs were aimed to provide financial stability in sewage treatment management and in generating more investment in sewage treatment facilities.

Technical

Improvement

The Shanghai government has benefited from the introduction of advanced technology and managerial skills through internationally funded water projects. One of the most conspicuous technical achievements was to offset the failure of the Southern Interceptor and the Western Interceptor in sewage management. Although the interceptors played a pivotal role in draining sewage from the Suzhou Creek and the Huangpu River from the 1970s, the interceptors 71

Ibid. Ibid. 73 Asian Development Bank, Report and Recommendation of the President to the Board of Directors on a Proposed Loan and Technical Assistant Grant to the PRCfor the Suzhou Creek Rehabilitation Project, p. 12. 72

Impacts of International Development Agencies 271

did not have any facilities to dilute sewage pollution in water, which resulted in secondary pollution near the Yangtze River Estuary. This situation lasted until the mid-1990s but the situation improved through the installation of new basic sewage treatment facilities at the discharge points. The SSP-I adopted basic treatment before discharging sewage to Zhuyuan, which prevented secondary pollution in the seashore near the Yangtze River Estuary. For the SSP-II, the facilities for providing basic treatment to sewage were installed in the discharging point at Bailonggang.74 (see Table 7.4). In order to restore water environments in the Suzhou Creek, the Suzhou Creek Rehabilitation Project (SCRP) adopted a series of new scientific methods, such as reaeration to improve the level of dissolved oxygen in the creek. This method was designed to enhance Table 7.4 Effects of the Shanghai Sewerage Project Phase I and Phase II Compared with the Southern Interceptor (mg/liter) SSP-I (Zhuyuan)

BOD5 CODcr NH3-N

37.4 190.0 22.3

SSP-II (Bailonggang)

80.1 266.0 29.8

Southern Interceptor (Bailonggang) 102.3 347.6 29.8

BOD5: Biological Oxygen Demand (tested for 5 days) CODcr: Chemical Oxygen Demand (dichromate used) NH3-N: Ammonia Nitrogen Remarks: The -water quality of the Southern Interceptor was measured in late 1999, and the water quality for the SSP-I and the SSP-II was measured in early 2000. Sewage at Bailonggang began to be treated through the Bailonggang sewage treatment plant from 2000. Source: Lu Lili and Wang Zhida, 'Pudong Xinqu Chengshi Shenghua Wushui Chuli Xianzhuang ji Duice Tantao (Approach on the Status Quo and Countermeasure of Domestic Sewage Treatment in Pudong New Area)', Shanghai Huanjing Kexue {Shanghai Environmental Sciences), Vol. 20, No. 8, 2001, p. 398. 74

Gu, 'Shanghai Jianshe Lianghao Shuihuanjingde Duicesilu (Thought of countermeasures for the construction of the better environment in Shanghai),' p. 103 and Gu Youzhi, Several Means Taken in Shanghai for Improving Aquatic Environment, 1999, unpublished report.

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water quality to meet the Class V -water quality standard. The improvements were achieved on a 35 km stretch of the suburban and urban areas along the Suzhou Creek through installing nine stations.75 In addition, the SCRP aimed to construct a sewage treatment plant at Shidongkou where the discharge point of the Western Interceptor is located. The main purpose of this construction was to prevent further water pollution and protect the current and planned water supply intakes in the Yangtze River Estuary.76

Participatory

Approach

The SCRP also stimulated the Shanghai government to listen to the voice of the public. In the household surveys, the participants from about six hundred households presented their concerns and opinions on the issues of sewage and solid waste management, water pollution, and living conditions along the Suzhou Creek. This way of reflecting public opinions was almost unprecedented in the implementation of water projects in Shanghai.77 The SCRP included an array of consultation processes in the preliminary feasibility study and tried to accommodate different opinions and expectations from the public through questionnaires, workshops, and interviews. 78 It can be argued that the surveys in the SCRP would become a first step to institutionalize the voice of affected citizens in water projects in Shanghai in future. These achievements are the outcome of the co-evolutionary processes between the Shanghai government and the international development agencies. The Shanghai government has been slowly adapting to the new circumstances and adjusting its organizational and institutional framework by digesting recommendations in 75

Asian Development Bank, Summary Environmental Impact Assessment: Suzhou Creek Rehabilitation Project in the PRC, p. 3. 76 Ibid., p. 2. 77 Asian Development Bank, Report and Recommendation of the President to the Board of Directors on a Proposed loan and Technical Assistant Grant to the PRC for the Suzhou Creek Rehabilitation Project, p. 57. 78 Ibid, p. 65.

Impacts of International Development Agencies 273

its own way. International development agencies, such as the World Bank and the ADB, have been partly successful in achieving some institutional reforms, such as the establishment of the concept of cost-recovery principle in the Shanghai water sector, and the promotion of public participation via EIA procedures in the ADB's SCRP. Unceasing dialogs and positive mutual feedback between the actors reflect co-evolutionary processes and will continue to reshape the political economy landscape in the Shanghai water sector. CONCLUSION This chapter analyzed the extent to which international development agencies have had an impact on Shanghai water policy. It has been shown that they have contributed to water projects through financing, through the inclusion of advanced technology and managerial skills in the projects, and through innovation in the area of institutional reforms. The Shanghai government and the international development agencies have interacted and have brought about changes in the political economy landscape in the Shanghai water sector. The grid/group theory of Douglas has been useful in identifying the different actors interact and highlighting how they influence each other in the local context (city/country), particularly in Shanghai. This analytical approach has been shown to be relevant in the international arena to evaluate how international actors have an influence on each other and what mechanism drives their interactions. According to the framework of grid/group theory, international development agencies are identified as the international Hierarchists and include the World Bank, the Asian Development Bank, and other development agencies. These international Hierarchists have begun to enter the Shanghai water sector since the early 1980s, and their contributions have made the Shanghai water sector complex and non-linear in its operation. The interactions between the Shanghai government and international development agencies have also been evaluated and examined via a co-evolutionary approach. A number of development agencies

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and the Shanghai government have interacted with each other via various projects, including the Shanghai Sewerage Project (SSP) and the Shanghai Environment Project (SEP). In the process of negotiations, the Shanghai government and development agencies encountered misunderstandings of their customary practice, socio-political differences, historically determined policy-making environment, for the implementation of water projects from the early 1980s. However, as time went on, mutual understanding improved, and each actor started to set up its own adapted strategies and modes of negotiation. For instance, the World Bank and the Shanghai government were in tension negotiating on the increase of domestic water prices and sewage fees. Whereas the World Bank tried to impose its full cost-recovery principle on the Shanghai's water pricing structure, the Shanghai government was reluctant to adopt the innovation due to the political pressure and the lack of recognition of water as an economic good. However, the two parties have evolved a new political economy landscape and have reached a consensus in which they could compromise their approaches. In addition, the establishment of the Shanghai Municipal Sewerage Company illustrates that the government adopted the recommendation from the World Bank to guarantee the financial and managerial independence of the company. The co-evolutionary processes in Shanghai water policy accelerated through the entry of new international development agencies from different countries, mainly from the mid-1990s. The Asian Development Bank (ADB) began to establish its strong stance in Shanghai by funding the Suzhou Creek Rehabilitation Project (SCRP) in 1998. Countries like UK, Norway, and Australia participated in the SSP and SEP in cooperation with the World Bank. Denmark, New Zealand, and USA also contributed to various water projects on small- and large-scales in Shanghai. These development agencies have brought their own policy strategies and interests in the Shanghai water market. The ADB has continued to push the Shanghai government to adopt the full cost recovery mechanism in water pricing and has introduced participatory approaches at the early stage of the feasibility study in the SCRP. Other development

Impacts of International Development Agencies 275

agencies have primarily devoted themselves to technical and managerial services. These development agencies contributed to the development of private sector participation through the promotion of the entry of their private companies to the Shanghai water market that became a major trend in Shanghai from the late 1990s. In order to do so, they had to learn some Chinese customary practices, such as the subtle relationship with governmental bureaus, and local governments' deference to hierarchy. Multi-faceted interactions with diverse actors have driven the Shanghai government to enhance its capacities to maximize its returns from negotiations by restructuring its institutions and organizations at a pace, which fits what is politically feasible for users and communist principles. In the public sphere, the Shanghai government is no longer the most powerful single social actor that dominates all sectors of society. The involvement of international development agencies, international Hierarchists, to the Shanghai water sector has minimized the political influence of the Shanghai government and made the political economy of Shanghai more complicated and multi-faceted. International development agencies also brought with them water TNCs which have had an indirect influence on Shanghai water policy. The complex international system reflected in the interactions of donor agencies and countries and water TNCs has had an impact on the political economy landscape in Shanghai. This trend has gradually created new circumstances in which local and international social actors operate together and exchange feedback and experience. The way the Shanghai government and international development agencies have incorporated institutional and technical reforms into Shanghai water policy is an example of the co-evolutionary processes. These have brought about a new political economy in which policy drivers from the local and international domains have been compromised to bring about a new political and institutional context for water policy-making.

Chapter

8 Conclusion The book has explored how the Shanghai water sector has been transformed from the polarized state-society duality to a multi-faceted institutional system since the 1990s through the contributions of new social actors faced with water quality challenge to freshwater supply. The interactions between different social actors in Shanghai have brought about a complex system in which no single cause can produce a possible result. The evolution of socio-political and economic systems in contemporary China since the reform policy was launched in 1978 has had a significant impact on Shanghai water policy. The Shanghai government, the only major actor in the sector providing full services before the transition, has faced challenges from newly emergent social actors that took advantage of the transition period in the reform era. The new social actors are environmental NGOs, private companies, Shanghai citizens with environmental awareness, and some international development agencies. Grid/group theory has been useful in identifying the relevant social actors, such as the Hierarchists (Shanghai government and international development agencies), the Egalitarians (environmental NGOs), the Entrepreneurs (private companies), and the Fatalists (Shanghai citizens). The theory has proven to be particularly useful in demonstrating the way the state-society duality in contemporary 277

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Water and Development in China

China has been transformed into the complicated society of China in the reform era. Until the 1980s, Shanghai society had been dichotomized by the duality between the government and the masses. The reform policy ignited the new processes of social change. But in the 1990s, the public services sector in Shanghai began to evolve influenced through the vibrant activities of new social actors. The rapidly transforming society in Shanghai was evident during fieldwork in 2002. A number of local environmental NGOs became active in environmental protection from the late 1990s and their activities were associated with emergent public participation. Private sector participation in the Shanghai water sector also became conspicuous from the late 1990s, and water trans-national corporations (TNCs) and Chinese companies were expanding rapidly during the period of fieldwork. Such developments influenced Shanghai water policy. The private sector could satisfy the needs of the government: finance; advanced technology; and managerial skills. At the same time, international development agencies played dual roles in Shanghai water policy, first, assisting the Shanghai government to implement numerous water engineering projects through development loans, and second, advocating the entry of water TNCs and other foreign firms to the Shanghai water market. The political ecology theory of Hajer has provided a useful analytical framework to examine the way the Shanghai government has undertaken an array of institutional reforms faced with water pollution. Discourse analysis, as deployed by Hajer, comprises three major components: discourse; story lines; and discourse coalitions. Water quality control on which the main discourse focused has been emphasized by the government through story lines that consist of a number of different cases and practices in the implementation of regulatory programmes in water quality control. Constant governmental efforts to prioritize water quality control in the central politics have driven non-environmental bureaux to participate in the main discourse. These elements, namely, story lines, different actors, and the practices on which these discursive activities are based, have come to form discourse coalitions in the Shanghai government.

Conclusion 279

The evidence of discourse coalitions was given expression in a myriad of policy outcomes. The government has exerted political will to prevent further water pollution through the enactment of new environmental laws, such as the PRC EIA Law in 2002, the establishment of the Shanghai Water Authority, and the stringent law enforcement to protect the Huangpu River water source area. The Shanghai government was able to achieve such progress through encouraging coalitions between environmental agencies, such as the Shanghai Environmental Protection Bureau and the Shanghai Water Authority, and pro-growth bureaus, such as the Shanghai Foreign Investment Commission, and the Shanghai Administration of Industry and Commerce, within the governmental administrative systems. In addition, the collaboration with environmental NGOs and recognition of the need to facilitate public participation in environmental protection are another evidence of discourse coalitions. Complexity theory has also been helpful in conceptualizing the reform process. Complexity theory analyses complex systems where there are numerous independent components, and all of the components interact with internal and external environments. The coevolutionary approach of complexity theory helps address the adaptation of actors in a complex system. This approach has been useful in illuminating the development of private sector participation in the Shanghai water sector since the late 1990s. The government has been pressured by private companies to undertake institutional reforms in order to take on a new role as regulator rather than the service provider of water services. Such rapidly changing political economic landscape in the process of privatization in the water sector has also begun to reflect the participation of other actors, such as environmental NGOs and Shanghai citizens. The coevolutionary process energized through privatization processes has brought about a new political economic landscape in the Shanghai water sector. The co-evolutionary approach also helps address the way the Shanghai government and international development agencies have interacted to promote institutional reform in association with development projects over the past two decades. The different visions and

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perspectives between the Shanghai government and international development agencies such as the World Bank in water pricing and some Chinese customary practices often brought about confrontations at the early years of cooperation. But both of them, the two hierarchists players, one at the local and the other at the international level, have adapted remarkably quickly to the new political economic landscape in Shanghai by adopting more flexible strategies. The dual development goals of economic gain and environmental protection in Shanghai have not been satisfactorily achieved. Economic development has been unambiguously prioritized. It is the Shanghai government that has been reforming its institutions and has reinforced regulatory regimes over the past two decades. The governmental monopoly over water services in Shanghai has faced a grave challenge, water pollution, particularly since the 1980s soon after the reform policy was launched in the late 1970s. Water bodies in Shanghai degenerated seriously through the anarchic discharge of industrial and domestic sewage caused by the decades of pro-growth policies and plans. By the 1990s, it became necessary to institutionalize the intergovernmental cooperation and the balance of achieving both economic development and environmental protection for effective water quality control. In order to achieve this goal in water policy reform, the Shanghai government has realized the need to embrace the involvement of other social actors in civil society, environmental NGOs and Shanghai citizens. These processes began to be especially noticeable from the late 1990s. One of the most significant findings of the field research in Shanghai was the identification of local environmental NGOs in Shanghai. These environmental NGOs were invisible until the late 1990s. Although they are small and loosely organized, the environmental NGOs in Shanghai have developed quickly with a self-capacity to redress environmentally unfriendly policies that prevailed in the pre-reform era. These environmental groups commit themselves to various environmental issues coupled with the promotion of public participation even though there is no particular NGO dedicated to freshwater issues in Shanghai. Another interesting feature is that although the demise of work units (danweO has diminished the role

Conclusion 281

of the government in social works, the government has invented quasi-governmental organizations, such as GONGOs, together with maintaining its influence on the media and local communities (shequ). The blurry demarcation in the public sphere between the government and ethical communities in environmental protection indicates a Chinese mode in the civil realm. A cooperation of various environmental social groups in Shanghai has led to the formatioij of a civil force that has started to influence Shanghai's environmental policy-making. The governmental reluctance to allow public initiatives in environmental issues and the resistant atmosphere on environmental priorities in Shanghai have been, and will be likely to slow down the growth of a possible innovation in Shanghai civil realm in water issues. The processes of privatization in the Shanghai water sector since the late 1990s have highlighted another distinct dimension of the transformation of society in Shanghai. The launch of economic reforms since the late 1970s has stimulated the resurgence of the private sector. The wave of privatization in the Shanghai water sector occurred later than it did in other industrial sectors. Private sector participation in the Shanghai water sector initially materialized because of the governmental need for investment, advanced technologies, and better managerial skills. In order to take advantage of this potentially lucrative market, water TNCs and some Chinese companies have scrambled in Shanghai to take a slice of the big pie of the Shanghai water market. These companies, however, have faced diverse risks, such as socio-political, legal and regulatory, and revenue risks. The Shanghai government has been committed to continuing privatization in the water sector but is required to convince private companies that risks will be manageable through reforms of the institutional and legal frameworks. In addition, the governmental role has to be redefined as a regulator rather than the service provider. The analysis of the Shanghai water sector has provided insights into the nature of the Chinese mode of privatization. Negotiation and deference to hierarchy are two distinctive features of Chinese

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political culture, and they often influence policy and business. Although a contract is negotiated at the central governmental level, it often turns out differently at the lower regional level of government. A mix of negotiation and deference seems to play an important role in the evolution of privatization in China. The lack of finance in the water sector has caused the Shanghai government to invite private companies to participate and to introduce financial methods, such as BOT schemes, joint ventures, and equity sales. The current privatization processes dominated by the interaction between government and private water companies can become more complicated when environmental NGOs and Shanghai citizens are actively participating in water projects in which private enterprises and the Shanghai government have already been engaged. The privatization process in the Shanghai water sector is an exemplary case of how the actors in this complex system co-evolve and adapt to new political, economic, social landscapes by improving their capabilities. The experience of the Shanghai government's involvement with international development agencies has been marked by some significant achievements, for instance, in securing finance and the import of advanced technology and management expertise. Sociopolitical tensions have been generated between the two actors because of the different visions and perspectives on water policymaking. International development agencies, such as the World Bank and the Asian Development Bank, have had an influence on institutional change in Shanghai water policy, such as in the reform of water pricing and the restructuring of project organizations. But the Shanghai government has not been fully committed to implementing institutional reforms recommended by the international development agencies because of socio-political challenges. An example of this is the effort of the government to raise water prices. International development agencies have faced some predictable Chinese customary practices in the process of development projects such as deference to hierarchy between the central government and local governments, and the establishment of favorable relationship with the Chinese authorities. But the two hierarchist players, the Shanghai government (insider) and international development

Conclusion 283

agencies (outsider), have eventually incorporated innovative ideas and institutional and technical reforms into Shanghai water policy. This development shows a co-evolutionary example that the new political economic landscape has resulted from the complex relations between the two actors. The transformation of the Shanghai water sector since 1990 has demonstrated that policy reforms within the government in the public sphere are no longer the only possible ameliorating pressures addressing water pollution in Shanghai. Some civil movements in the public sphere, including environmental NGOs and citizens, have gradually played a pivotal role in environmental protection policy. On the other side of society, the private sphere, there has been the resurgence of private companies that were practically non-existent prior to the reform era. Although privatization in the water sector was initiated by the government, the process of private sector involvement has shown that cooperation is the key element to maintaining the pace of privatization between different actors, such as the government, private companies, and international development agencies. International development agencies have contributed to institutional change and the introduction of advanced technologies and investment. Since the 1990s, levels of cooperation between various actors achieved have facilitated the early stages of a regulatory regime to guarantee the provision of high-quality water for Shanghai. In addition, the mutual collaboration between actors has been, and will be key to the achievement of such goal in the Shanghai water sector.

Index

1997 Catalogue for Guiding Foreign Investment in Industry, 185, 219 acid rain, 44, 57-60, 74 agricultural run-off, 10, 41 Anglian Water, 194, 197 Anglian Water Group (AWG), 197 animal excretion, 33-38 animal husbandry farms, 27, 31, 34, 38, 95 annual average flow, 26-27 Asian Development Bank, 69, 211, 222, 233, 235, 238, 255-257, 270, 272-274, 282 Asian Development Bank: Suzhou Creek Rehabilitation Project (SCRP), 256 Ausaid the Australian development, 26l Ausaid, Australia, 251 Australian consultants, 237 availability of water resources per capita, 2

Bailonggang sewage, 39, 271 Bailonggang, 39, 236, 246, 262, 267, 271 beicai zhangjiang, 16 Beijing Sound Environment Industry Group, 206 Beijing Sound Environmental Industry Group (Sound Group), 198 Beijing Sound Environmental Industry Group, Shanghai Lianqiao Tap Water Corporation, Shanghai Municipal Raw Water, 197 Beijing water treatment BOT project in 2001, 197 Beijing, 2, 5, 11, 22, 27, 54, 95, 107, 110, 113, 115, 125, 127, 129-130, 132-134, 136-138, 140-141, 151, 156-160, 167-168, 172-175, 179, 190, 192, 196-198, 206-207, 212, 216, 250-251, 253, 260, 263, 268

285

286 Index BOD5: Biological Oxygen Demand, 88, 243, 271 Bouygues (SAUR), 194, 196 Build-Operate-Transfer (BOT), 188, 192 Bureau of Cultural Affairs in, 133 bureaux, 4, 61-62, 64, 278 canals, 21, 36, 268 Caojing Creek, 147 catastrophe theory, 64 China Environment News (CEN), 135-136, 167, 184, 203, 210, 212 Center for Environmental Education and Communication (CEEC), 172-173 Center for International Migration and Development (CIM), 139 chaos theory, 64 chemical fertilizers, 33 Chengdu BOT Water Supply Project, 196 Chengdu, 192, 196 China Central Television (CCTV), 136 China Environment Fund, 132 China Environment Protection Industry Association, 132 China Environment Science Association (CESA), 132 China Environmental Protection Fund (CEPF), 163 China Green Student Forum, 129-130, 134, 137, 141-142, 147, 151, 164, 174-175, 177 China Society for Sustainable Development (CSSD), 163 China Wildlife Conservation Association (CWCA), 163 China's Environmental Protection Foundation, 106 Chongming, 20, 144, 149 civil movement groups, 54 civil realm, 7, 126-127, 174, 178, 180, 281

civil society, 6, 50, 56, 75, 77, 111, 117, 125-127, 129, 131, 145, 163, 171-172, 174, 223, 280 co-evolution, 4, 6-7, 43, 45-46, 65-68, 70, 181-182, 211, 215, 224, 229, 245, 249 co-evolutionary approach of complexity theory, 6-7, 43, 45, 70, 232 co-evolutionary approach, 4, 6-7, 43, 45-46, 64, 66,-67, 69-70, 182, 226, 232, 273, 279 CODcr: Chemical Oxygen Demand (dichromate), 243, 271 commercialization, 12 communism, 52, 269 complex adaptive theory, 4 complex systems, 45, 64-66, 70, 182, 190, 229, 232, 245, 277, 279, 282 complexity theory, 6-7, 43, 45, 64, 70, 181-182, 226, 232, 279 complexity, 1, 3, 6, 7, 43, 45, 64, 67, 70, 181-182, 226, 232, 279 congnitive dilemma, 102 consensus building, 97-98 Corporation, Shenyang Public Utilities, 198 corporatist state, 125 cost-recovery pricing, 69, 233, 247 cultural theorists, 47 Cultural theory, 46-50, 118 Da Chang Project, 192, 197, 201 Da Chang, 191-192, 197, 201, 207 DA Qiao water intake point, 33 Dajia Salon, 129 decentralization, 18, 79, 82, 84, 125, 187, 191, 215 Department For International Development, DFID, 259 Department of the Industry and Commerce, 133 development loans to, 231

Index 287 Dianshan Lake, 25, 27, 61, 77 Discharge Permit System, 91-92, 112 Discourse analysis, 6, 44-45, 57, 62-63, 70, 74, 119, 278 discourse coalitions, 44-45, 59, 61-64, 74-76, 82, 89, 96, 108-109, 113, 118-119, 278-279 discourse, 4, 6, 44-45, 57-64, 70-71, 74-78, 82-83, 89, 95-96, 101, 108-109, 113, 118-119, 126, 257, 278-279 dissolved oxygen, 32, 88, 243, 271 domestic sewage, 6, 9, 11, 31-34, 41, 244, 271, 280 Donghua University, 142, 148, 160 downstream, 34, 243, 249 Drainage Management Regulations, 89-90 drainage system, 38-40 Drainage, 26, 37-40, 89-90, 210, 212, 241 Drinking Water Protection Area Pollution Prevention Management Rules (1989), 85 drought, 2, 44 Earth Summit at Rio in 1992, 57 East China Science and Engineering University Environmental Protection Association, 147 ecological degradation, 4 ecological disasters, 57 economic development, 4, 6, 9-12, 14-15, 17, 33, 35, 40-41, 49, 56, 60, 63-64, 71, 77, 84, 87, 96, 98, 100-104, 113, 116, 119-120, 138, 156, 186, 214, 237, 244, 280 economic powerhouse, 11, 237 Economic restructuring and diversification, 18 Egalitarians, 43-44, 4 7 ^ 9 , 52, 54, 70, 108, 124, 178, 277

EIA procedures, 273 Eighth Five Year plan, 18 emblematic events, 44, 61, 63, 74 emblematic, 44, 58-59, 61, 63, 74, 76-77, 91 end-of-pipe management, 41, 61, 236, 258 Entrepreneurs, 43-44, 48-50, 52, 55, 70, 96, 124, 198, 222, 228, 239, 263, 277 Environment Impact Assessment (EIA) programme, 92 Environment Impact Assessment Law of 2002, 61 Environmental Action Plan of China 1991-2000, 32 environmental challenges, 2 environmental discourses, 56-57, 60-61, 96 Environmental Education Interaction, 142 environmental NGO, 1, 3-8, 44-45, 48, 51-56, 62, 64, 68, 70-71, 74-76, 91, 106, 108-109, 111, 116-118, 121, 123-124, 126-127, 129-131, 133, 137, 140, 141, 144-146, 162, 164, 171, 173-175, 178-181, 183, 185-186, 209, 220, 223-229, 277-280, 282-283 environmental politics, 7, 45, 57-59, 61 Environmental Protection Bureaus (EPBs), 79, 81, 84, 107 environmental protection, 3-4, 6, 9-10, 12, 31-32, 34, 36, 41, 51, 55-56, 61-64, 70, 71, 74, 76-86, 89-92, 95-97, 99-104, 106-113, 115-117, 119-120, 127-128, 130-132, 134-137, 141-144, 147-149, 151-157, 163-168, 170, 173, 175-179, 190, 201, 218, 223, 228, 239, 251, 260-261, 278-279, 280-281, 283

288 Index Environmental Quality Standards for Surface Water and the Integrated Wastewater Discharge Standards, 85 Environmental regulatory programmes, 63, 70, 73, 75, 78, 82, 84, 91 environmentally unfriendly policies, 7, 123, 280 eutrophication, 27, 33, 61, 63 Expedition to the Huangpu River, 149, 175 externalities, 10, 57 famine, 44 Fatalists, 43, 44, 48, 52, 56, 70, 124, 179, 277 fertilizers, 11, 33, 38, 41 Fieldwork, 5, 7, 43, 45—46, 54-55, 73, 102-103, 117-118, 123, 127-128, 130, 132, 138, 141, 173, 180-181, 203, 207-208, 278 First NGO Forum on US-China Environmental Cooperation in 1999, 172 fixed return, 202 flood control, 2 floods, 2 Foucault, 57-58 Foucaultian, 57 four different ways of life, 43, 47-48, 199 fragmented authoritarianism, 97-98 freshwater, 1, 4, 7, 27, 29-30, 40-41, 69, 124, 179-180, 193, 249, 277, 280 Friends of Nature (FON), 54, 106, 127-128, 133, 167, 173, 175 Friends of the Earth (FOE), Hong Kong, 137, 142 Fudan University, 89, 129

German environmental consultants, 5 Global Greengrants Fund, 143-144, 164, 175 Global Village Beijing (GVB), 54, 127, 133, 173, 175 golden age the Chinese bourgeoisie, 13 Government Organized NGOs (GONGOs), 52, 54, 123-124, 126-128, 130-133, 137-139, 145-146, 151, 161-163, 171-174, 179, 281 Government Support Letter/Comfort Letter, 215 Grassroots Community, 55, 106, 134, 141, 145-146, 165, 174 Green Bookshelves, 142 Green Corridor, 143 Green Earth Volunteers (GEV), 134 Green Industry and Technology Promotion Center (GITPC), 132, 138, 162 grid, 4, 6-7, 43, 45-50, 52, 70, 73-74, 123-124, 126, 178, 181, 231, 273, 277 grid/group theory, 4, 6-7, 43, 45-47, 49, 50, 52, 70, 73-74, 123-124, 126, 178, 181, 273, 277 groundwater, 11, 23, 25, 27-28 group, 4-7, 18, 43, 45-50, 52, 54, 57, 65, 70, 73, 74, 111, 123-124, 126-131, 133-139, 141, 143, 145-148, 159, 161-162, 170-171, 173, 175-176, 178, 181, 185, 190, 192-198, 201-203, 205-207, 223, 226, 228, 231, 239, 251, 273, 277, 280-281 Guangzhou, 12, 99, 101, 105-108, 157, 170, 177, 263

German Development Agency, 140 German Economic Cooperation and Development Agency, 139

Hajer, 4, 6, 43-45, 57-60, 70, 74, 119, 278 Hangzhou Bay sewage drainage system, 40

Index 289 Hangzhou Bay, 40 Harbin municipality, 196 The Hazardous Waste Management Study, 251, 261 Hexian Anhui Province, 197 hierarchists, 7-8, 4 3 ^ 4 , 47-49, 51-52, 54-55, 70, 96, 108, 124, 221, 231, 233, 239, 263, 269, 273, 275, 277, 280 hierarchy, 47, 50, 51, 56, 70, 79, 91, 98, 190-191, 227-228, 240, 275, 281-282 hinterlands, 12, 21 Hjellum, Torstein, 50 Huajin Information Industry Investment Company, 205 Huangpu River Waste Water Integrated Prevention and Control Plan in 1985, 238 Huangpu Upper Catchment Water Quality Improvement Project, 263 hyper-cycle, 45, 49, 55 Illustrative Surface Water Quality Standards, 85 industrial and domestic sewage, 6, 9, 244, 280 industrial modernity, 56-57 industrial sewage, 10, 11, 30-32, 41, 78, 202, 207, 241, 261 industrial structure of Shanghai, 20 industrialization, 2, 9, 12, 21, 35 informal politics, 76, 96, 100, 111, 120 institutional change, 3, 44, 54, 60-63, 67, 76, 84, 96, 108-109, 118-119, 209, 232-233, 240, 264-265, 282-283 institutional evolution, 3 institutional reorganization, 6 Integrated Wastewater Discharge Standards, 85, 87, 91 Integrated Water Quality Standards, 85

interception systems, 11 Interceptor, 38, 236, 245, 270-271 international development agencies, 1, 3, 4, 6-8, 44-46, 54, 69-70, 181, 186, 211, 222, 228-229, 231-235, 237, 239, 249, 256, 258, 264-265, 268-269, 272-275, 277- 280, 282-283 international NGOs, 123-124, 127, 130-131, 133-134, 136-138, 142, 149, 151-152, 161, 164, 168, 171-172, 174, 178 Jianglong Chemical Company, 78 Jinshan District, 206 Jiangsu Province, 12 land reform, 15 Liang Congjie, 133 Liao Xiaoyi, 133 Liberation News, 149, 167-168 Linjiang, 61, 63, 78, 248-250 local communities (shequ), 52, 123, 126-127, 129, 131, 134-135, 145-146, 148-149, 154, 165-166, 175, 179, 281 Lucian Pye, 50 main discourse, 4, 44, 59-63, 74-75, 77-78, 89, 95, 101, 108-109, 113, 119, 278 Mandarin and the Cadre, 50 Manhattan of Shanghai, 16 Marubeni, 196 Mary Douglas, 4, 6, 43, 46, 47, 70, 73, 118, 123, 178, 181, 231 media, 52, 123, 127, 129-131, 136-137, 149, 151, 166-169, 175, 178-179, 205, 243, 281 megalopolis The Treaty Port System, 12 Michael Thompson, 47 Minhang District, 209-210, 246

290 Index Minhang, 37, 209-210, 245-246 Mott MacDonald, 26, 188, 199-200, 242, 252, 254-256, 260-261 multi-faceted institutional system, 3, 8, 70, 277 Municipal Engineering and Management Bureau, 62, 114 Municipal Water Supply Regulation (1994), 85-86 Nanshi and Yangshupu drinking, 202 National Environmental Quality Standards of Surface Water, 242 National People's Congress (NPC) 79-80, 110 natural disasters, 2, 176 navigation, 25-27 negotiation, 48, 183, 191-192, 199, 204, 214, 216-220, 225-228, 240, 245, 247-248, 254, 264-265, 268-269, 274-275, 281-282 neo-liberal European and American cases, 49 neo-liberal Western, 125 new PRC Cleaner Production Law in 2002, 110 New World Development Co., 192, 195 NH3-N: Ammonia Nitrogen, 243, 271 night soil, 26 Nine Project Schemes in the Suzhou Creek Integrated Management, 256 Ninth Five Year Plan, 18, 178, 184, 194 non-linear, 64-66, 182, 229, 235, 273 non-linearity, 65-66 non-point source, 10-12, 33-34, 41, 95 non-registered NGOs, 134 northern Districts, 210 Norwegian government, 239, 251, 260-261 Norwegian Institute for Water Research (NIVA), 260

ODA, UK, 251 Ondeo, 195, 202-203, 207 open door policy, 10, 13-15, 17, 41, 237, 255, 262 organic substance, 32 "the other China", 12 other organic sewage, 33 OTV, 196 Our Common Future, 56 Overseas Development Administration, 239, 250-251 pesticides, 33-34, 38 point source pollution, 11-12, 33, 95 point source, 10-12, 33-34, 95 policy reform, 6, 77, 119-120, 269, 280, 283 political ecology, 4, 6, 43-45, 56-58, 60, 62, 70, 74, 119, 278 political economy landscape, 1, 4, 8, 45, 66-69, 71, 225, 234-235, 248, 255, 273-275 political uncertainty, 215 Pollution Discharge Fee System, 94-95, 112 pollution-driven water scarcity, 2 Power, 12-13, 18, 58-59, 81, 83, 90, 99, 110, 151, 196, 212, 220, 240 PRC 1982 Constitution, 84 PRC Environmental Impact Assessment Law of 2002, 8, 65, 92 PRC Environmental Protection Law (1979 and 1989), 84, 86, 95, 101, 170, 177 PRC Municipal Residential Council Organization Law, 135 PRC Solid Waste Pollution Prevention and Control Law, 85 PRC Water and Soil Conservation Law, 85 PRC Water Law (1998 and amended in 2002), 85-86, 89-90, 110, 189

Index 291 PRC Water Pollution Prevention Law (1984 and amended in 1996), 189 PRC Water Pollution Prevention Law Implementation Measures (2000), 85-86, 189 PRC Water Pollution Protection Law, 85 pre-modernity, 60 primary and secondary treatment, 30 primary industry, 20 private and the public spheres, 123, 126 private sector participation, 1, 4, 7, 45-46, 52, 67-68, 180-181, 183-187, 189-190, 192-193, 199, 201, 208-209, 211, 213-216, 220-223, 225-229, 255-256, 275, 278-279, 281 private sphere, 48, 51-52, 55, 173, 124, 166, 178, 180-181, 214, 227, 231-232, 239, 249, 283 privatization, 44, 48, 51, 55, 67-68, 125-126, 181-188, 191-192, 197, 199-200, 204, 208-209, 214, 220-229, 232, 239, 254, 256, 279, 281-283 public sphere, 48, 51-52, 73, 96, 108-109, 118, 121, 123-124, 126, 151, 173, 178-180, 231, 233, 240, 249, 269, 275, 281, 283 public, 1, 3, 13, 29-30, 48, 51-52, 56-57, 61-62, 73-77, 84, 91, 94, 96-97, 100-101, 103, 105-109, 111, 113-114, 116-121, 123-126, 128-129, 131-136, 141, 146, 148, 151-152, 155-161, 164-171, 173-181, 183, 186-187, 192-194, 198, 200, 205, 208-209, 212-214, 216, 222, 224-225, 227-228, 231, 233-234, 238-240, 248-249, 255, 257-258, 264, 269, 272-273, 275, 278-281, 283

Pudong District, 209 Pudong New Development Policy, 3, 15, 20, 60, 244 Pudong New Development Zone, 11, 16, 100, 195, 227, 245-246, 259 Qingnian Chahui (Tea Meeting for Students), 145 quasi-governmental apparatuses, 127 reflexive mode of modernization, 57 reform era, 1-2, 4, 15, 43, 50-51, 53-54, 98, 124, 126, 178, 199, 213, 232, 237, 277-278, 280, 283 regulations, 47, 58, 76, 78, 81-86, 89-91, 97-100, 103, 109-110, 112, 114, 117, 125, 130, 132, 136, 152, 169, 186, 189, 204, 209, 216, 217-218, 221, 225-226, 228, 244 regulatory regimes, 6, 73, 280 revenue sharing reform, 15 risk, 25, 55, 60, 67, 137, 183, 185, 191, 192-193, 195, 201, 209, 213, 215-220, 225-226, 249, 266, 281 river bed, 31 Roots & Shoots, 150, 168 rugged landscape, 66, 68 RWE Group, 196-197 seasonal variability of rainfall, 2 secondary industry, 20 sewage collection, 11, 222, 270 sewage discharge, 25, 32-33 sewage treatment capacity, 31, 205 sewage treatment plants, 11, 31, 35, 37,40 Shanghai (EPB), 82, 91, 99-101, 105, 107, 109, 111-113, 115-118, 120 Shanghai Academy of Environmental Sciences (SAES), 105 Shanghai Construction and Management Commission, 81

292 Index Shanghai Economic Commission, 62, 109, 115, 119, 138 Shanghai Environment Master Plan, 251 Shanghai Environment Project (SEP), 35, 54, 69, 78, 115, 199-200, 233-234, 238-240, 245, 249-250, 252, 255, 258, 260, 264-266, 268, 274 Shanghai Environmental Bulletin, 31, 32, 82-83, 93, 95, 103, 107-108, 116-117, 247, 253 Shanghai Environmental Education Specialty School, 155 Shanghai Environmental Master Plan Study in 1992, 261 Shanghai Environmental Protection Bureu, 31-32, 34, 62, 74, 78, 81-83, 86, 90, 136, 153, 173, 177, 179, 190, 218, 223, 238-239, 251, 279 Shanghai Environmental Protection Promotion and Education Center, 148, 151, 153 Shanghai Foreign Investment Commission, 62, 101, 109, 115, 119, 279 Shanghai government, 1, 3-8, 15, 19-20, 22, 44-46, 48, 52-55, 59-62, 64, 67-71, 73-77, 81, 84, 87, 89-91, 95, 97, 100, 108-109, H I , 113-114, 116-120, 123-124, 127, 130, 137-138, 142, 144, 149, 151, 153, 158, 160, 162-163, 166-171, 173, 177-178, 180-181, 183, 185-191, 197, 200-202, 204-205, 208-209, 211, 214, 218-223, 226-229, 231-241, 244-245, 247-251, 253-258, 260-270, 272-275, 277-282 Shanghai Green Union, 106, 134, 141, 143, 145, 147, 150, 164-165, 174-175

Shanghai Hazardous Waste Management Regulation, 112 Shanghai Municipal Huangpu River Upstream Water Source Area Protection Regulations, 89 Shanghai Municipal Sewerage Company (SMSC), 246-247, 264, 266, 270, 274 Shanghai municipality, 17, 26, 155, 204, 206, 235-236, 244-246, 253 Shanghai Normal University Urban Group, 146-147 Shanghai Oriental TV, 149 Shanghai Pudong Spark Industrial Zone over, 202 Shanghai Pudong Veotia water Supply Corporation Joint-Venture Project, 55, 181 Shanghai Pudong Water Supply Corporation, 185, 191, 196, 203, 211 Shanghai Satellite TV, 149 Shanghai Sewerage Project Construction Company, 241, 246, 264 Shanghai Sewerage Project Phase II, 39, 199, 222, 245, 255, 260-262 Shanghai Sewerage Project, 26, 35, 38-39, 54, 69, 85, 88, 115, 199-200, 222, 233-234, 238-242, 244-246, 248, 251-252, 255, 258, 260-262, 264-266, 271, 274 Shanghai Shibei (Northern City) Water Treatment Corporation, 201 Shanghai Urban Studies Project, 237 Shanghai Water Assets Operation and Development Corporation, 210 Shanghai Water Authority (SWA), 3, 22, 28-29, 44, 61, 74-77, 81, 90, 109, 113-114, 119, 190, 203-205, 210, 213-214, 222-223, 253, 257, 279 Shanghai Water Master Plan, 251, 256, 260

Index 293 Shanghai Youth Environmental Society, 147 Shanghai Zhuyuan No. 1 Sewage Tratment project, 198, 205, 211 Shanghai, 1-41, 43-46, 48, 51-56, 58-64, 67-71, 73-79, 81-91, 93-97, 99-103, 105-109, 111-121, 123-138, 140-179, 181-193, 195-229, 231-275, 277-283 Shanghainese, 18, 41, 256 Shenyang, Shaoxing, Taixing and Changchun, 197 shequ, 52, 123, 126, 131, 135, 148, 154, 165-166, 281 Shidongkou sewage drainage system {XiganXian), 38-39 six major industries, 19 social actors, 1, 3-4, 6, 8, 43, 45, 49, 52, 54, 64, 70, 74-77, 96, 108-109, 118, 120-121, 178-180, 220, 224-226, 228, 248, 275, 277-278, 280 social theory, 4, 6, 41, 43, 46, 70 socio-political and legal uncertainty, 183 Songpu Daqiao, 250-251 southern districts, 210 Southern Interceptor, 38, 236, 270-271 Special Economic Zones (SEZs), 14 SSP-I, 241-248, 254, 262, 265-267, 270-271 State Council, 201 State Development and Reform Commission (SDRC), 190 State Environmental Protection Administration (SEPA), 61, 79-80, 91, 109, 111, 132, 136, 172, 190 state-led civil society, 127 State-Owned Enterprises (SOEs), 19, 96, 131, 266 state-society duality, 3, 8, 43, 51-52, 91, 125, 180, 183, 277

story lines, 44-45, 59-61, 63, 74-78, 82, 96-97, 108-109, 113, 118-119, 278 Suez, 7, 184, 187, 191-192, 194-196, 199, 201-203, 207, 209, 214, 216, 218, 220 Support Program for the Urban Rehabilitation of Shanghai (SPURS), 238, 251, 256, 258-259 surface water, 2, 10-11, 23-25, 28-29, 40, 85-88, 242-244 Suzhou Creek Integrated Wastewater Management Project, 256 systems theory, nonlinear dynamical systems theory, 64 Tai Lake Basin, 11, 20, 27, 28, 33 technical assistance, 137, 231, 248, 250, 251, 260 Tenth Five Year Plan (2001-2005), 116, 184, 222 tertiary industry, 20 Thames Water, 7, 184, 187, 191-192, 194, 196-197, 201-202, 219-220, 225 theoretical framework, 6, 41, 43, 124, 232 The 1987 Brundtland Report, 56 The 21st Century Urban Water Management Pilot Scheme in 1997, 221 The Geology and Mining Bureau, the Public Utilities Management Bureau, 114 Three Synchronizations, 78, 91-93, 96 Tianjin, 2, 11, 22 Tiazhou, 197 tidal flow, 26, 34 Township and Village Enterprises (TVE), 27, 95-96, 249, 253

294 Index trade-off between economic development and environmental protection, 100 Trans-National Corporations (TNCs), 3, 55, 67, 180, 183, 187, 278 transformation, 1, 11, 13-15, 17, 51-52, 71, 118, 126, 135, 149, 173, 176, 180, 269, 281, 283 uniform supervisory legal system, 216 urban infrastructure, 10 urbanization, 2, 114 US Trade and Development Agency (TDA), 263 Veolia Environment, 195 Veolia, 7, 55, 181, 184-185, 187, 191, 193-196, 199, 203-205, 207, 211, 214, 219-220, 226-227 Veolia, Suez, and Thames Water, 184, 187 Waigaoqiao-Gaoqiao, QingningsiJinqiao, Lujiazui-Huamu, Zhoujiadu-liuli, 16 Water and Soil Protection Law Implementation Regulations (1993), 85 water engineering projects, 2, 278 Water Intake Move project, 249-250, 252 Water Intake Permit System Implementation Rules, 89-90 water policy, 1, 3-9, 43-44, 52-54, 63-64, 69-71, 73, 75-76, 108, 120, 123, 181, 208, 220, 227-229, 231-233, 235, 238, 240, 245, 254-256, 260, 262-264, 269, 273-275, 277-278, 280, 282-283 Water policy-making, 1, 3, 70, 235, 240, 275

water politics, 6, 40, 43 Water Pollution Discharge Permit Management Measure (1988), 85 water pricing, 62, 182, 191, 198, 209, 214, 219, 224, 233, 253, 254, 270, 274, 280, 282 Water Projects Definitional Mission, 263 water quality control, 1, 2, 4-6, 9, 11, 30-31, 44, 60-62, 70-71, 73-79, 81, 83, 85, 87, 89-91, 95-96, 108-109, 112-113, 115, 119, 162, 233, 278, 280 water scarcity, 2, 10, 40, 232 water shortage, 2 Water Supply Management Regulations, 89-90 water supply, 2, 5, 9, 10-11, 25, 28-29, 40, 55, 82, 85-87, 89-90, 109, 114-115, 125, 181, 183-185, 187, 190-194, 196, 199-201, 203-204, 207, 209-214, 219, 222-223, 227, 229, 233, 237, 249-250, 265, 270, 272, 277 water tariffs, 189-190, 221, 226, 232-233, 251, 265-266 water treatment plants, 34, 36, 104, 202, 207, 252 Waterway Cleaning and Management Preliminary Rules in new Areas, 89-90 Waterway Management Regulations (1997), 89 waterways, 11-12, 21, 23-25, 32-33, 144, 160, 258 Wenhui News, Xinmin Evening News, 149 Western Interceptor, 38, 236, 270, 272 Wildlife Conservation Society (WCS), 111, 131, 137, 150, 168, 171 work units (danwei), 135, 148, 280

Index 295 World Bank, 18, 34, 54, 69, 85, 88, 102, 106, 115, 172, 187-188, 199-200, 207, 211, 222, 225, 233-234, 237-241, 244-248, 250-251, 253- 255, 261-262, 265-269, 273-274, 280-282 World Earth Day, 152 World Environment Day, 56, 116, 148, 152, 154, 176, 180 World Trade Organization (WTO), 211, 220 World Water Day, 56, 116, 152, 154, 180 World Wildlife Fund (WWF), 137, 150-151, 168 World Wildlife Fund (WWF), Greenpeace, Roots and Shoots, 137 Wuhan Shanzheng Industry Holding, 198 Wujing Coke works, 6l Wujing, 61, 78, 245 Wusong Kou, 25

Xinhua News Agency, 136 Xuhui and Luwan Districts, 246 Xuhui Luwan, 39 Yangtze River Delta, 10-11, 20 the Yangtze River Diversion to the Huangpu River Project, 250 Yangtze River Estuary, 38, 111, 236 Yangtze River, Tai Lake, the Huangpu River the Suzhou Greek, 11 Youlian Consortium's, 55, 188, 206, 211 Youlian Enterprise Development Company, 198, 205-206 Youlian Enterprise Development Company, 205 Zhejiang Province, 12 Zhuyuan No. 1 Sewage Treatment Plant, 39, 55, 185, 188, 193, 206 Zhuyuan sewage drainage NanganXian, the Southern Interceptor, 38-39

WATER AND DEVELOPMENT IN CHINA The Political Economy of Shanghai Water Policy

There is widespread recognition — among policy-makers, business communities, and scholars — of the importance of improving environmental policy and management in China. Environmental concerns in China have triggered the publication of a number of books on the subject. However, very few books offer an in-depth case study of the environmental challenges in Shanghai. This book aims to explore the extent to which Shanghai has managed to cope with water supply as well as water quality control challenges in terms of its sociopolitical and economic development since 1990, with a special reference to the impact of social actors on water policy. The book focuses on the contributions from each actor in water policy — the most influential actor being the Shanghai government, private companies, environmental N G O s , Shanghai citizens, and international development agencies. The Shanghai water sector, in the recent few years, has been diversified through interactions between the Shanghai government and the newly emergent social actors. Consequently, water policy in Shanghai is influenced by multilateral interactions between these actors with their diverse interests and goals. The book will demonstrate the ways in which these actors in the Shanghai water sector have co-evolvcd through interactions to formulate a new mode of water policy reflecting the diverse interests of the social actors.

World Scientific www.worldscientific.com 6119 he

ISBN-13 978-981-256-819-91 ISBN-10 981-256-819-0