By Liu Shijin, Development Research Center of the State Council

Research Report No 185, 2010

I. Basic Ideas and Main Principles

At present and for some time to come, solving resource and environmental problems will become a major step to pursue a substantial change of the mode of development. The tasks are pressing and there are both opportunities and challenges. But favorable conditions overweigh unfavorable ones. The basic ideas are to form longstanding mechanisms in favor of green development, which emphasizes the implementation of the scientific approach to development, the faster substantial change of the mode of economic development, the deepening of reform and opening up and the innovation of systems and mechanisms, and highlights well-defined responsibilities, effective prices, legal support and policy guidance. Meanwhile, it is imperative to transform and upgrade traditional industries, develop emerging industries and streamline major economic relations, such as those between domestic demand and foreign demand and between savings and consumption, so as to lay an important foundation for boosting the quality and efficiency of China’s economic development and pursuing steady, fast and sustained economic development for a longer time. The goals are that the price, fiscal and tax relations are basically streamlined, the frameworks and standards of policies, laws and regulations are preliminarily established, the responsibilitiess and performance evaluation systems are improved, major progress has been made in technological innovation and popularization and in industrial restructuring, and a green consumer culture is gradually formed.

In this process, the following main principles should be upheld.

1. Development is a cardinal task and should emphasize both green development and efficient development. Development is a primary task. The development we pursue is a better, faster and sustainable development that emphasizes the implementation of the scientific approach to development, the compatibility of growth with resources and the environment, and the harmony between man and nature. In changing the mode of development, an important content is to pursue development that emphasizes “resource conservation, higher efficiency, and economic and environmental protection”. In the long run, green development and efficient development are inherently united, have a causal relationship and complement each other. But in the short run or in some spheres, they may be contradictory to each other and hence must be harmonized from the overall and strategic perspectives. On the one hand, economic growth should not be pursued at the cost of the environment and resources. On the other, achievable economic growth should not be contained simply in order to pursue excessively high targets in energy conservation and environmental protection. Development should be pursued in the course of transition, and vice versa. The problems appearing in the course of development should be solved in light of China’s current conditions and through scientific development so as to achieve both green development and efficient development.

2. Diverse tools should be employed on the basis of market mechanism and in a unified way. Resource and environmental problems have wide-ranging implications and involve complex interests. Therefore, economic, legal and necessary administrative tools should be employed in a unified way and moral restraints should be emphasized in solving these problems. Prices should be reformed so that they can fully and timely reflect supply-demand relationship, resource scarcity and environmental cost and market mechanism can play basic roles in promoting conservation, output growth and innovation. Currently when other tools are still unsound, administrative tools can play special roles and should be used correctly and rationally. In employing diverse tools in a unified way, moral constraints should receive growing attention and resource conservation and environmental protection should become a social code of conduct. This will greatly reduce the cost of building a resource-saving and environment-friendly society and become an important mark of high-level sustainable economic and social development.

3. Relations should be streamlined and environment be created to fully tap the leading roles of enterprises. Enterprises, which have to bear resource and environmental pressures, constitute the basis for sustainable development. In promoting energy conservation and environmental protection, government priority is to solve external problems. By improving legal systems and standards, streamlining relations and strengthening control, the government should create a market environment that features price effectiveness and fair competition so that enterprises can have sufficient pressure and motivation to select the energy-saving and environment-friendly technologies, processes, protection methods, management mechanisms and commercial models. While emphasizing the sustainable development of resources and the environment, enterprises can pursue their own long-term development and in turn promote social restructuring and the change of the mode of development.

4. Encouraging the advanced should be combined with eliminating the outdated. Keeping the superior and eliminating the inferior is an inherent request of restructuring. In effectively promoting restructuring, reward and punishment mechanisms should be established to encourage the advanced and eliminate the outdated and to guide corporate behaviors in energy conservation and environmental protection from both positive and negative angles. By fully expressing resource and environmental costs, by strictly enforcing relevant laws, regulations and standards, by rewarding the superior and punishing the inferior with fiscal and tax tools and by guiding public opinions, the enterprises that perform well in resource conservation and environmental protection should benefit and develop better and faster and the enterprises that perform poorly in resource consumption and environmental pollution should suffer and find it difficult to survive. Only when the reward and punishment mechanisms fully play their roles can the economic structure be optimized in the course of adjustment and be gradually upgraded in the course of optimization.

5. Emphasize systematic design, overall planning, and breakthroughs in priority spheres. Resources and the environment have overall, basic and strategic implications. In promoting restructuring in these areas, China should properly handly the overall and partial relations, the long-term and short-term relations, the international and domestic relations, the urgent and complex relations and a host of other important relations. In the first place, it should focus time and efforts on some basic, key and urgent sectors so as to make breakthroughs, help solve other problems and create conditions for further reforms and adjustments.

II. Priority Spheres and Main Tasks

1. Fully Tap Basic Roles of Market Mechanisms

In effectively tapping the basic roles of market mechanisms in the spheres of resources and the environment, priority should be given to solving the long-standing problems, such as price distortion, administrative access restriction and the absence of market trading institutions.

-- Improve the price-forming mechanisms for coal, power, natural gas and water resources. The reform of water resource prices should be deepened so as to form a price-forming mechanism that can reflect the scarcity of water resources. The reform of natural gas prices should be pushed forward so as to narrow the gap between domestic and import prices step by step. The power prices should be reformed in an integrated way so as to establish a price-forming mechanism that will allow market competitition to determine the prices of power generation and sale and allow the government to control the prices of power transimission and distribution. Government intervention in the coal market should be reduced so as to improve a market-based price-forming mechanism for coal. The relations between coal and power should be streamlined and the railway transport should be reformed so as to form a trading relationship in which key enterprises mainly operate on long and medium-term contracts.

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