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By Hu Shaowei

"The cost of growth", the technical term for the imbalance between tapping resources and environmental protection, necessarily occurs in the course of all countries' modernization drive.

Some nations have managed to surmount this stumbling block to embark on the road of sustainable development. Others have fallen into failure.

China now stands at the crossroads. Shall we get over the obstacle or be baffled by it?

The experience of other countries indicates that the only effective formula for surmounting the obstacle is the transformation of the economic structure. This means that the growth mode marked by high energy consumption and pollution be turned into a clean one.

Currently, a new industrial policy of saving energy and reducing waste discharge is taking shape in the country.

China did not have an industrial policy in the real sense of the word until 1989. That was the year the State Council promulgated the Decisions on the Key Points of the Current Industrial Policy.

With this as the starting point, the country worked out a package of industrial policies in the 1990s. They involved optimizing the industrial structure, addressing the defects in market mechanisms and raising the quality of economic growth.

In the late 1990s, the government adopted policies to enforce the closing of enterprises in sunset sectors while taking forceful steps to ensure the development of newly emerging industries such as machinery, electronics, information, chemicals and construction.

As a result, these industries have kept expanding, becoming pillar industries that support the country's rapid economic development. At the same time, the portion of the service sector throughout the economy has grown considerably.

All this has helped bring about the China miracle - an annual growth rate as high as 9.8 percent over the last 28 years.

Problems exist, however. The most prominent one is that energy saving and environmental protection failed to be taken into consideration in the formulation of industrial policies.

The country's Outlines of the Country's Industrial Policy in the 1990s, for example, listed machinery, electronics, petrochemical, auto making and construction as the industries that were expected to power the Chinese economy. The policy failed to recognize that these industries are both energy consuming and polluting.

As a result, in the absence of restrictions imposed by energy-saving and discharge-reduction quotas, the rapid development of these pillar industries has heightened the imbalances between economic growth, resources and the environment.

Official statistics show that the energy consumed by producing a given amount of GDP rose 4.9 percent, 5.5 percent and 0.2 percent in 2003, 2004 and 2005, respectively. Although energy consumption dropped 1.2 percent in 2006 thanks to the government's enforcement of energy-saving policies, the drop still fell short of the original target of 4 percent. With respect to resource consumption, the country used 388 million tons of oil and 1.24 billion tons of cement in 2006. This accounted for 30 percent of the world's total oil use and 54 percent of its cement that year, to produce a GDP that was merely 5.5 percent of the world's total.

High resource consumption directly results in worsening environmental conditions.

In the 1980s and 90s, China's industrial policies were largely dictated by short-term supply-and-demand relationships. When supply of certain goods fell short of demand, the industry or sector that produced them enjoyed development priority.

Upon entering the new century, the industrial policy became disoriented, with all kinds of goods in full supply. The situation did not change until the central government put forward the new strategy of sustainable development in October 2003.

The new strategy calls for a high content of advanced technology, low resource consumption and much less environmental pollution. The industrial policy's new focus is energy saving and waste-discharge reduction.

Although a number of energy- and resource-saving policies had been mapped out starting in the mid-1980s, they were not effective. This is because saving energy and protecting the environment were regarded as elements merely at the service of upgrading economic growth rather than prerequisites to it.

Now it has become crystal clear that energy saving and environmental protection must be the preconditions for economic growth. In fact, land, water and air resources have become so valuable that they must also be husbanded.

Concern for saving energy and reducing discharge is now on the fast track since the State Council promulgated the Decisions on Strengthening Energy-Saving Work last July. On this basis, a string of industrial policies has been worked out.

In the future, all industrial projects must pass energy-consumption and environment evaluations before getting the go-ahead. Existing polluting or high energy-consuming enterprises must be shut down if they fail to meet energy-saving and environmental-protection standards after undergoing upgrades.

Note: the author is a senior economist with the State Information Center

(China Daily May 18, 2007)