This study proposes a new conceptual framework for analyzing the environmental regulation of state enterprises in China. It characterizes the regulatory relationship as a complex bargaining process between powerful local governments and relatively autonomous state-owned enterprises. The bargaining involves economic as well as environmental variables and leads to case-by-case solutions rather than the uniform application of anonymous laws. Based on this framework, the study derives a number of hypotheses about the forces that drive the environmental performance of state enterprises and subsequently tests them with econometrical methods. More specifically, the study finds that old and loss-making enterprises receive easier regulatory treatment. In addition, regulators whose budget is tightly constrained tend to apply relatively lax environmental regulations and may exempt many enterprises from regulation altogether.; The study recognizes the obvious shortcomings in China's environmental performance. However, it argues that it is insufficient to focus exclusively on either enforcement problems or the design flaws of individual policies. By contrast, the study identifies some of the macroeconomic and institutional factors that constrain the ability of policy makers to effectively address China's environmental problems. In particular, the study points to the extreme decentralization of the Chinese bureaucracy which has local authorities deal with environmental problems that extend far beyond their own territory. Moreover, the regulation of loss-making state enterprises poses numerous problems. Many local authorities are operating on a tight budget and are unable to sufficiently subsidize such enterprises to ensure their compliance with environmental targets. The fact that loss-making enterprises have private information about their abatement costs aggravates the situation, since it gives the enterprises an opportunity to capture information rents from the regulator. Finally, the application of clean technologies in loss-making enterprises proves difficult because of the great informational asymmetries involved.
展开▼
