Foreign Firms, Investment, and Environmental Regulation in the People’s Republic of China by Phillip Stalley (review)

The World Bank publication Clear Water, Blue Skies: China’s Environment in the New Century (World Bank, 1997) found in the mid–1990s that air and water pollution damages to health and agriculture alone could be valued at almost 8 percent of China’s GDP. No like publication has since attempted to quantify or develop the combined environmental costs and linkages of recent decades of rapid economic growth, environmental enforcement (or lack thereof), and the role of various political, social, and economic entities in either combating or adding to China’s substantial environmental issues. In Foreign Firms, Investment, and Environmental Regulation in the People’s Republic of China, Philip Stalley begins to address this hole in the policy–international economy–environmental literature. While the late 1990s and past decade saw the publication of a number of useful and interesting analyses of China’s environmental regulation, few really addressed linked international–domestic components in China’s environmental regulation beyond a nod toward Rio (1992) or Kyoto (1997), much less multinational or other foreign firms active in the Chinese market. At its best, this book is an interesting and readable analysis of multinational corporations’ influence on environmental regulation in China and should be necessary reading for those interested in environmental policy in general. In this more general sense, this book is also a cautionary for those that see (or misread) the power of market economics as a global force for environmental regulation.

Just as domestic development and firms are important, there are few forces more important in China’s tremendous economic growth than foreign investment. As Stalley notes, by 2002 approximately one–third of China’s industrial output came from foreign invested enterprises. This raises the question, in a country expanding its economy at breakneck speed and beset by regular and serious environmental problems with hazardous by–products, air and water quality issues, as well as questionable environmental regulation and often factionalized environmental management: have foreign investments in the economy aided or hindered attempts to grapple with China’s environmental issues? Stalley provocatively demonstrates that the environmental impact of foreign investment is not simply a race to the bottom, but that foreign firms have and are effectively helping to raise standards and practices. This is, perhaps, the central strength of this book, as foreign, especially American and Asian, firms are regularly perceived as or blamed for adding to the environmental toll in China.

After a blessedly concise and clear introduction to his argument and the theories underpinning the analysis, Stalley provides a useful analysis of the politics of China’s environmental regime with the important caveat that China’s greatest environmental regulation challenge is the problem of consistent enforcement. This caveat reappears in most subsequent chapters as a key theme of the problem of environmental regulation in China. Following a discussion of the decentralization of enforcement procedures and standards, the second, third, and fourth chapters examine the development of Chinese laws that regulate foreign firms and try to control environmental impacts. These policies specifically target the behavior of foreign firms and reiterate the introductory comments about the power of and lack of enforcement at the local level—while Beijing can “trot out” a wealth of initiatives to foster positive economic and environmental development, companies still operate in a permissively regulatory setting that begins and ends at the local level (pp. 50–53). Nonetheless, China has actually developed such a national legal and administrative framework, from scratch, in a relatively short period of time. Compared to many other developing nations, China seems to take its environmental regulation relatively seriously. Based on this environmental legal framework, Stalley shows how the Chinese national government has transformed from functionally laissez–faire to a concerned and more proactive force in environmental and pollution control—at least as this regulation relates to foreign firms and investment.

These chapters, in the tradition...