The Chinese central government has vowed to take stronger steps in ensuring its policy of environmental protection is carried out. During the Fifth Plenary Session of the 18th Communist Party of China (CPC) Central Committee in October 2015, top priority was given to domestic green development projects. For the first time, the CPC has pledged to update the current system of governance among the many levels of environmental protection authorities, and will attempt to install a new vertical management system to be put into effect under China’s 13th Five-Year Plan, from 2016 to 2020.

Vertical management is a system whereby an agency works via an internal hierarchical structure, with lower departments reporting directly to upper ones instead of to outside local governments.

The purpose of instigating this vertical management reform in environmental agencies is to fix the problems raised by administrative inefficiency in the bureaucratic system. Currently, the different departments of local governments shoulder the responsibility of carrying out environmental protection, and each department of the environmental agencies reports individually to the government. It is the local government offices that appoint the heads of the agencies and provide financial support. This is known as the “parallel management system.”

Parallel management is the system through which environmental reform has been carried out over the past 35 years in China, and a complete overhaul will be a huge endeavor. Vertical management will also serve to give provincial governments more power, since they will work directly with the leaders of the environmental agencies instead of relying on local governments.

In 1978, when Deng Xiaoping first launched his economic reforms, China was badly in need of economic growth. The central government delegated the responsibilities of environmental protection to local government, while also placing pressure to increase local economic performance. In fact, much more importance was placed on the economic performance evaluations than on environmental protection. This assessment system causes problem since it is much more economically viable to rely on polluted industries than on environmentally friendly ones.

Vertical management is a system whereby an agency works via an internal hierarchical structure, with lower departments reporting directly to upper ones instead of to outside local governments. - Li Zhiqing, environmental researcher

Although ultimately ineffective, the reasoning behind the parallel management was sound. Under the tax division system, each locality would pay tax to the central government. Part of this tax was returned to local governments to finance the execution of policies. From there, money set aside for environmental reform was then distributed to the separate agencies. There was a lot of bureaucracy to go through since each agency would individually have to report to its parallel local government branch when applying for funds. One of the intentions of vertical management is to make the funneling of capital more direct.

Under the parallel management system, the environmental agencies are normally only offered financial support by local governments if the agencies can prove that their projects will increase economic growth. They can almost never compete economically with the industries that cause pollution, and this emphasis on economics over environment has been one of the main instigators of China’s pollution problems over the last 30 years.

Now that China has firmly established itself economically, it is time to take action with environmental reform. Several provinces are eager to adopt this new system because they believe that a focus on environment will help set them ahead of other provinces. The implementation of this system comes at a time when the Chinese public is becoming increasingly aware of the importance of environmental reform. One of the main reasons to pursue vertical management is that it will help improve policy efficiency.

The Kuznets curve dictates that a country’s environmental quality will worsen in the beginning stages of industrialization before getting better after the economy surpasses a “tipping point” at which GDP reaches around $6,000 to $8,000 per capita, according to economists Gene Grossman and Alan Krueger. The issue is how to get to this point as quickly as possible, thus better balancing economic growth with environmental sustainability. Good governance plays the crucial role over all other factors in achieving environmental reform, having three main effects.

First, good governance will help clarify work delegated among the different sectors, such as between government and market, and between upper-level and lower-level governmental departments. A healthy and clearly outlined division of labor will increase efficiency and economic output.

Second, each policy implementation has an expenditure which must be taken on by either the government or the market. After the introduction of vertical management, the new governance structure will reduce transaction and management costs.

Finally, good governance promotes free thinking and discussion on what steps should be taken to best achieve environmental protection. A strong consensus among those carrying out a policy is very important for smooth implementation.

The environmental practices of many developed countries have all followed a similar pattern. Endless money can be pumped into an agency, but if there is an “illness” in the system, such as corruption or an inefficient bureaucracy, there won’t be results. Therefore, it is important for governments to not only set investments targets, but also quotas for results. Vertical management has been put into play in many of these countries and has so far proven to be very effective in increasing environmental protection.

(Header image: A man (right) and a woman (left) wear masks as they walk in Tiananmen Square during heavy pollution in Beijing, Dec. 1, 2015. VCG)