China Needs to Invest in a Better Environment

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DeTao Group
Participants at the February 2015 conference hosted by the DeTao Group.

China is waking up to the environmental challenge its rapid growth is creating. Development has come at the expense of our natural capital, an unsustainable relationship that’s now threatening to damage the Chinese economy. The good news is that there’s a growing awareness of the problem and how we must go about fixing it.

An international conference titled ‘The Future New Economy— a Sustainable Model towards an Ecological Economy,’ was recently held in Shanghai, China. The event, sponsored by the DeTao Institute of Green Investment, concluded that “investment into natural capital could and should be a new driver for economic prosperity” in China, and that “the natural ecosystem that human society needs for its survival is still lacking in a metric that matches the current national economic statistics and accounting, and that could be accepted by all countries.” Following the workshop, the ‘DeTao Natural Capital Future New Economy Shanghai Declaration’ was published.1 This declaration is a call for the establishment of a metric and the subsequent transformation of investment patterns. DeTao is now working with international parties to develop such a metric and investment mechanism.

The Chinese government has been heeding this and other calls for change. In a government report delivered in March 2014, Premier of the State Council Li Keqiang noted that “China’s economic development has entered a new normal, meaning we must adopt a new attitude.” Premier Li’s speech identified the contours of what a ‘new normal’ means: economic growth that makes more judicious use of limited resources, and protecting the country’s vast natural capital from degradation while reducing negative impacts on the environment. The National People’s Congress (NPC) and Political Consultancy meetings have also produced important messages on environmental policy in China. The groups identified the following initiatives: intensifying financial, social, and political reforms to encourage creativity and social vitality, involving private capital in investment in infrastructure and environmental-related projects, and accelerating the establishment of an ecological civilization, including “exploring and compiling a natural capital balance sheet.” Recently, the idea of an ecological civilization and the ‘new normal’ have gained unprecedented importance in the central government’s development guidelines. They are seen as so important that they will be the basis of the Party’s upcoming 13th Five-year Plan, the official guideline for China’s national economic development. This prioritization shows China’s determination to move towards sustainability.

There is a long way from intention to practice. In the past ten years, gross domestic product and labor costs have risen while natural capital has remained stable. We need to cast away the old growth model and develop a new economy that promotes a synergistic relationship between growing and nurturing and the regional economy. Investing in natural capital can generate as much as a 100:1 return rate to society.2 We must now analyze what types of natural capital in a given area are suitable for private investment, and build a commonly recognized metric to evaluate the results of such investments.

China is facing great environmental challenges that threaten economic development and social prosperity. To reverse this trend, we need private capital, government investment, and public participation. The government must take the lead by providing funding, integrated planning, policy guidance, and regulations. Professional natural capital investment companies will play a supporting role, as the logic of natural capital is very different from the logic of built capital, and our ecosystem must be dealt with carefully.

The dangers of not doing so are clear from vast environmental challenges the country now faces. Tackling issues such as pollution involve multiple stakeholders and provide little to no return over a long investment period. Yet China’s fledgling environmental industry has shown there are mechanisms that can allow for sensitive and ecologically friendly development.

The DeTao Institute is devoted to establishing a private think tank on green and natural capital investment in China. Moving forward, we hope to develop a platform on which local government actors, the financial sector, natural capital investment companies, and numerous third parties can work together to formulate regulations and create a standard for green investment. We also plan to initiate a green business school to cultivate cross-disciplinary talents to continue developing this field. We must be willing to pioneer an experiment into natural capital investment, educating people on what natural capital is, why we must invest in it, and how to do so, thus building a new economy in which nature and humans can both prosper in harmony.