Relative Scarcity, Institutions and China's Environment:
Special Reference to Forest Sector
ZHANG Yaoqi
Faculty of Forestry
University of Toronto
33 Willcocks Street, Toronto, ON, M5S 3B3
Canada
Tel: 1 416 9786196, Fax: 1 416 9783834
[email protected]
Relative Scarcity, Institutions and China's Environment:
Special Reference to Forest Sector
By Yaoqi Zhang
Abstract
The objectives of this paper, mainly by using forests as an example, are to analyze the relationships
between economic development, institutional changes and resources and environment, and attempt to
propose some policy recommendation at the period of economic transition. In the context of forest
sector, China’s major environmental issues are briefly described. Forest development is analyzed with
the change of relative scarcity of forests and institutional revolutions. Hainan Island is used to
empirically examine their relationship. The case of forest in Hainan as well as the whole country
explain how the man-made resources replace natural resources and suggest to some extent that China
is not an exception to the rule of environmental Kuznets curves. Future forest and environment will be
largely determined by the economic growth and institutional development, not vice versa.
Introduction
After having a centrally planned economy for three decades, China began its economic reform in
1978. Today, China is one of the most dynamic areas in the world economy with an average annual
economic growth rate close to 10% for two decades. Market liberalisation, decentralisation and
privatisation of property rights, and technology transfer are key elements contributing to economic
growth.
China’s experience provides an example of economic development for countries in
economic transition. However, environmental problems are getting increasingly concerned and
often argued as consequence of economic development and market liberalization and viewed as a
threat for future sustainable development. This is an important question need to be addressed.
In order to inquire this question, the forest development provides a typical example. Forest is a
renewable resource, but also very much closed related to the current environmental issues. To
surprise many people, the fast economic growth together with transition from a centralised
management regime to a free market-oriented one did not accelerate the decline of forests, but
change the forest from shrinking to expansions. From this aspect, China’s forest development
provides a unique opportunity to examine the impacts of economic growth and institutional changes
on environmental issues in general, and forest sector in particular.
1
We analyse the forest transition from two aspects, the relative scarcity of forests and the institutions.
Relative scarcity refers to relative prices in general rather than just abundance of the physical stock.
It reflects the stock, economic accessibility and socio-economic circumstances. Economic
development, affecting the structural change of the economy, changes the demand for and supply of
forest products and environmental services, human preferences, and consequently the relative
scarcity of forests. Institutions, reflected in constrains in our society, play a special role in forest
because of the nature of forest management (see Zhang 2001)
The objectives of this paper, mainly by using forest as an example, are to further understand the
relationships between economic development, institutional changes and resources and
environments, and propose some policy recommendation on forest as well as environment at the
period of economic transition
Forests, Environment and Poverty
Forest and environment
Environmental problems will be among the most challenging issues for China in the 21st century
(Niu and Harries 1996, Zhang et al. 1999, Hu 2000). The major environmental problems include
air and water pollutions, water shortage, floods, land degradation, deforestation, loss of biodiversity
and greenhouse gases emission, etc. As in most other countries, forests play a critical role in
shaping and maintaining China’s environment. Deforestation in China is also an important
environmental issue and many environmental problems in China are related to deforestation
(Murphey 1983; Smil 1983 and 1992; Ross 1988).
Desertification is a serious problem. Deserts and semi-desert land currently cover an estimated 150
mill. ha, while another 140 mill. ha of pastoral and croplands are subject to threat by desertification.
These areas are currently expanding at an estimated rate of 156 000 ha annually, mainly because of
human activities such as deforestation and overgrazing (Fullen and Mitchell 1994). More than 170
mill. people suffer from this process and the annual economic loss is assessed to be USD 2–3 bill.
(SPC 1994). One third of the desertification is attributed to the over-harvesting of forests (Liu
1993). The over harvesting is largely due to the pressure from shortage of fuel and foods.
2
The area subject to soil erosion covers 180 mill. ha, accounting for nearly 20% of the total area of
China. The most serious place is located in Loess Plateau area where 43 mill. ha are affected. In
addition, 99 mill. ha of land is subject to salinization and alkalization (MOF 1995b). Soil erosion
also results in heavy sediment loads and deposition on river beds. For instance, with higher erosion
on the Loess Plateau, the rivers’ silt loads have increased by at least 25% since the early 1950’s. It
is generally agreed that the increasing flood damage is partly caused by the soil erosion that clog
drainage channels and reduce the holding capacity of many reservoirs.
Flooding damage is getting increasingly concerned. Several of the principal rivers, such as the
Yangtze and Yellow Rivers, are facing reduced flow, prolonged drought and the perils of recurrent
fluctuations between droughts and floods. In rural areas, annual water shortfalls amount to 30 bill.
m3. Over 80 mill. rural people have insufficient drinking water, and 20 mill. ha of farmland suffer
from inadequate water, resulting on crop losses of 2.5 mill. tonnes each year (Zhang and Zhang
1994). Water supply is particularly critical in the large northern cities, including Beijing and
Tianjin. More than half of China’s 200 large cities have difficulties with water supply and in about
50 of the these shortages are serious.
China is a vast country covering many climatic zones, and possesses a rich flora and fauna, mostly
in forests. It is estimated that there are about 2 400 species of vertebrates living on land – mammals,
birds, reptiles, and amphibians, accounting for more than 10% of the world’s species. China ranks
third in the world, only after Brazil and Indonesia, in terms of richness of plants species. Many
species are on the verge of extinction. According to recent data, there are about 301 endangered
vertebrate species, which account for 12.5% of the world total for this group. World Bank (1994)
reported that about 200 species of plants have recently become extinct in China.
Generally, it is difficult to combat several environmental problems without the support of
afforestation programs (Wang 1994; Liu 1995). The status of forest and its change to some extent
reflect the environmental issues of the country. Most recently implemented massive afforestation
programs were initiated specifically to combat environmental problems. These programs have
helped in preventing further environmental deterioration and improving the quality of environment.
Environment and Poverty
3
Environmental problems are generally viewed as a threat to economic growth, but the impact of
poverty on environment is often overlooked. However, except air pollution from car, poverty
probably is the cause of most environmental problems, rather than vice versa. Just give some
examples here. No matter how water shortage is reported in the major cities, water, especially
clean water access in rural area and especially in poverty region, is a much bigger problem. One of
the major water pollutions comes from small pulp and paper mills in China. China has the biggest
non-wood paper industry in the world. Its capacity for non-wood fiber pulp and paper production
accounts for about 62% of the total capacity of world. Currently, about 60% of the raw material for
China’s paper industry is non-wood fiber. The production scale of the paper mills is very small. As
these small factories generally are not equipped for alkali and wastewater treatment, they are large
sources of water pollution.
The total wastewater discharge from the paper industry was 3 bill. tonnes and represented 12% of
total industrial wastewater in 1992. In recent years, the central government has made efforts to
improve and renovate these factories and decided to close down all pulp and paper factories whose
capacity was lower than 5 000 tonnes per year from 1 September 1996. However, according to
some media reports, it seems that they have not been closed down completely. Not only small pulp
and paper mills, other small township enterprises are also important sources of pollution. The
fundamental reason for the survival of such small mills is the poor economy that demand for low
quality paper and relatively strong competitiveness at the general backward technology in the whole
country. The future will be greatly dependent on upgrading the facilities and change the economic
structure. All these depend on the economic growth.
Another example is air pollution that is among the largest threats to public health in China, ranking
with smoking as the most frequent cause of death. According to Florig (1997), air pollution is
responsible for more than 1 million deaths per year in China, or one in every seven deaths
nationwide. The largest sources of population risk are indoor heating and cooking stoves fueled by
biomass or coal. It is estimated that there are about four times as many air pollution deaths in
China's rural areas than in China's cities. Poverty or poor economy makes it unaffordable to have
cleaner energy, such as electricity. Thus, China’s environmental decay again largely due to the rural
stagnation of the economy.
China is getting increasingly alarmed for the environment by international agencies, government
reports, scholars as well as public (e.g., National Environment Protection Agency 1995, Murray,
4
1993, Smil 1993, Zhang, 1999, Hu 2000), one problem for such warning is not to analyze the issues
relatively. For instance, air pollution is complained by residents of most major cities, however, this
problem still does not slow down the people moving into cities. That means to some extent
economic goods still are scarcer than the environmental goods. It is also not relevant to compare
China with other developed world (see Hu 2000). It should be analyzed with similar income level.
According to reviews by Taylor (1998), either the health or environmental quality is much higher
than similar level of economy and in fact are improving in the past two decades.
“Who can feed China?” has been debated for quite a few years. The question probably is not “Who
can feed China?” but “ Can China afford?” since not only both the domestic and international grain
and foodstuff production is much more determined by the price in the short term and the technology
in the long term. This answer clearly is applicable to wood issue. China uses a lot of non-wood
fiber made papers. The only reason is unaffordable. Japan is a good example.
Therefore, poverty should be the most fundamental cause for environment. Amsden et al. (1996)
also pointed out that “In the absence of economic growth, the chances are remote for ecological
balance in China.” Relative advantage is our most basic and important principle in economics,
relative scarcity should be another important principle. Human preference changes along with the
change of the economic level. All resources, if they become, are scarce, but only relative scarcity
makes sense.
Changes in Relative Scarcity and Forest Development
Forestry development generally evolves through the following three periods. At the initial period,
forestry is only limited to logging from unmanaged natural forests, gradually from nearby to more
remote sites. At the second stage, forest resources become scarcer and the prices justify plantation
forest, e.g., the man-made capital starts to replace natural resources. At the third stage, owing to
population growth, economic development and the decline of forests, environmental goods from
forests gradually become scarcer and worth investing in.
Relative scarcity of timber
Agricultural land use and timber extraction are the primary causes of loss in forest area and stocks.
In the five millennia of Chinese history, forest development to a great extent has been in the stage of
5
exploiting natural forests, starting from the Loess Plateau Area, moving eastward along the Yellow
River, then spreading northward to the current Beijing region and southward to the southern part of
China, and finally moving beyond the Great Wall to northeast China and southwest to Yunnan and
Tibet (see Menzies 1994; Zhang 2000a). In general, plains and locations along the major rivers were
usually occupied and cultivated first. Then development progressed to low hilly regions and finally
towards mountainous ranges.
In spite of the loss of forest physical stock, the timber production has never been reduced. That
means production follow the economy more than the physical stock. China had suffered from
shortage of timber supply since centuries ago (at least in the populated regions) (Shaw 1914, Teng
1927, Murphey 1983). However, shortage (or scarcity) is not equal to relative scarcity. Food was
relatively scarcer because of high population density and human preference at the low-income
levels. China suffered such frequent famines that agriculture was emphasized throughout its entire
history and the food supply was viewed as the most fundamental factor for economic development,
population growth and political stability (even during the Mao’s regime, and in the economic
reforms prior to the mid-1990, agriculture was still the first priority).
Over these millennia, the timber supply was still mostly from natural forests. Even during the 1950s
and 1960s, the Ministry of Forestry in China still put priority on the exploitation of natural forests
located in northeast and southwest China. The strategy has clearly changed since the 1970s.
Scarcity is the most fundamental driving force. While classical literature and modern historical
books deal with timber shortage, more quantitative measures of relative scarcity in history proved to
be very difficult.
Figure 3 shows the scarcity of timber as measured by deflated timber prices, and silviculture
development since the 1950s. Prior to the late 1970s, since timber prices, which were tightly
controlled by the government, did not rise much, the real relative scarcity should be bigger than the
relative price shown, the slope of the silvicultural development curve is steeper than the price curve.
After deregulation of the timber market, timber prices rose rapidly. Since the 1990s, the timber price
has decreased because of a growing timber supply from plantation forests, timber imports, and some
changes in economic structure.
6
700
600
t i m b e r ( b a m b o o ) p r ic e
500
t h e v a lu e o f s ilv ic u l t u r a l o u t p u t s
( m illio n Y u a n )
400
300
200
100
1995
1993
1991
1989
1987
1985
1983
1981
1979
1977
1975
1973
1971
1969
1967
1965
1963
1961
1959
1957
1955
1953
1951
0
Figure 3 The scarcity of timber and the forestry development (silviculture)
Sources: (MOF 1996; China’s Statistical Bureau 1989, 1996 )
Notes: 1) The price and the value of silvicultural outputs have been deflated by the retail price index.
Southwest
7000
S o u th-So utheast
N o rth e a s t
6000
N o rth -no r t h w e s t
1000 m3
5000
4000
3000
2000
1000
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1983
1982
1981
1980
1979
1978
1977
1976
1975
1974
1970
0
Figure 4 Timber productions by regions in China (1970–1996)
Source: (MOF, 1987-1997)
Figure 4 further shows the transition of timber supply from natural forests to plantation forests.
Northwest and northern China have seen the greater increase in timber supply from plantation
forests, followed by south and southeast China, where plantation forests are important. Northeast
China, with rich natural forests, shows a relative decline in timber supply. The transition clearly
reflects the replacement of mining type forestry with silviculture-based forestry.
Relative Scarcity of Environmental Goods
Figure 3 clearly indicates some divergence between the scarcity of timber (by price) and the output
value in silviculture. The reason is that since the late 1980s the timber price has become a poor
indicator for scarcity of forests. If we view the economy as open, timber can be imported from other
7
regions or other countries, or substituted by other materials, so the scarcity of forests, if we use
timber price as measurement, can hardly go beyond a certain level. But most environmental goods
are supplied on-site and cannot be imported; therefore, local supply is often necessary. The relative
scarcity of timber cannot fully reflect the scarcity of forests.
An increasing share of forestation is clearly not for timber production, but for the supply of
environmental goods. During the 1970s and 1980s, the priority of forestry development set by the
World Bank as well as China’s government (in a planned economy, the government was only
decision maker in resource allocation) was the planting of fast-growing species primarily for timber
supply. Since the 1990s timber scarcity has been eased to some extent owing to massive fastgrowing tree plantations and timber imports. However, the demand for environmental goods is
growing fast because of population growth and economic development. As a result, the priority is
shifting to forest plantation and natural protection that is important for environmental goods supply.
Needless to say, a large area of forests that aimed for joint production of both environmental goods
and timber, more than 16 mill. ha, which account for 14% of the total forested area, is either solely
preserved or planted for environmental purposes. They are mainly located in the north, northwest,
northeast, the upper and middle-reach of the Yangtze River, the coastal area and the plains region,
where there is the greatest shortage of the environmental goods (Zhang, 2000a).
Deforestation disrupts stream flows and may cause them dry up, while sediment from eroded
hillsides clogs canals and reservoirs and causes flooding. The Yellow River, the second longest in
China, was named for its water, yellowed by soil eroded from forest destruction upstream. The
Yangtze River, the longest river in China, is on its way to becoming the second Yellow River owing
to deforestation upstream. Increasingly frequent flooding and the consequent damage deteriorate the
environment, retarding the sustainable economic development in China.
Deforestation was claimed as the most fundamental reason for flood damages and many other
environmental problems. Chinese government recently launched a natural forest protection program
that is intended to ban logging of remaining natural forest and preserve them for the purposes of
soil, water, and biodiversity (the remaining natural forests are often located at the upper reaches of
big rivers). Losses resulting from giving up cultivation and grazing land and the cost for planting
more trees and grassland will be compensated financially, including grain subsidies provided by the
central government. The reduced revenue and sign-off labor by the ban on logging will be
compensated as well. The proposed project covers more than half of China’s territory and 10
8
provinces. About 10 billion Chinese Yuan (1.3 billion USD) will be invested in this ten-year project
to undertake afforestation at the upper reaches of the Yangtze and Yellow Rivers.
Ecotourism for demand for environmental goods has already become another important aspect
driven by the scarcity, resulted from partly the decline in supply in some regions: such as less fresh
air and smaller green spaces in crowded cities and partly from the demands, including from
international markets. However, the demand comes from the growing standard of living that
promotes individual and aggregate demand for such environmental goods. The elasticity of demand
for environmental goods is becoming bigger than the elasticity of demand for timber and foods
because of changes in human preference as the income level rises. Ecotourism in China has a short
history, but has developed rapidly. Since 1994, forests have attracted between 50 and 60 mill.
person visits annually and have brought a direct income of between USD 30 to 50 mill. (MOF,
1996). By 2010, it is expected that the number of forest parks in China will reach 2 000, covering 20
mill. ha. The total annual visits are expected to reach 200 mill. person visits, of which 2 mill. will be
by foreign tourists. It is very clear that such demand will be largely determined by the economic
growth.
The Institutional Changes and Forests
The institutional revolution against forestry development
Not only formal institutions, generally referring to the stated or written law, regulations, but also
informal institutions, such as the norms, convention, belief, religions, ethics, govern forest
management. Since the People's Republic of China founded in 1949, forest greatly suffered from
the some institutional changes (see Table 1). The land reform from 1949–1952 and the follow-up
socialist transformation destroyed the most basic institutions (property rights) that had already been
developed for millennia or centuries.
In the short term, the land reform did have some positive effects on rural development and equal
income distribution, but the long-term negative impact is significant and far-reaching. Landless
farmers no doubt were happy to obtain the free land, and did promote to combination of subsistence
framers with their lands. However, the reforms also broke the rules governing private property
rights. The private land and trees had been confiscated and distributed to the public. The once clear
9
land boundary between different communities became ambiguous. Forests greatly suffered such
changes.
Table 1. Forest-related Policy changes in China
Period
Institution
changes
Before
1949
Tenure system
Landlords, bureaucrats,
merchants, selfsufficiency farmer,
common and open access
Government confiscated
all forest lands owned by
landlords and bureaucrats
and evenly distributed to
the farmer within the
community, or as stateowned land
transition to collectiveowned,
state-owned
Stumpage & Timber
Market
Free market, but some
degree of monopoly
Notes
Free market
1949–1952: land reform and
economic recovery
1955–1956: Primary
collectivisation-stage 1: Mutual Aid
Teams, Elementary Agricultural
Production Co-operatives
From free market to
central distribution system
1957–1958: advanced
collectivisation-stage 2: Advanced
Agricultural Production Cooperatives and People's Commune;
1958: Great Leap Forward
1961–63: Economic adjustment due
to the food crisis in 1959 and 1960
1966–76: Cultural revolution
1978: Economic reform launched
1979: Provisional Forest Law
adopted
1981: some important forest policy
changes enacted
1950–56
land reform
and economic
recovery
1956–58
Towards
socialistic
regime
1958–81
People's
commune
system
Collective-owned,
state-owned
Centrally set prices,
production and
distribution
1981–84
stabilisation
and
consolidation
of ownership
early
privatisation
and
decentralisatio
n
Contracted timberland;
Collective timberland
(Shareholding system),
state-owned
Private timberland;
contracted timberland;
collective timberland
(including Shareholding
system),
state-owned
Dual system: compulsory
delivery and free market
Towards
market
economy
Longer term contract for
forest and forest land,
auction of the non-forest
land for long term (up to
100 years) holding,
state-owned
Price controls lifted and
free competition in
collective forest area;
bigger share of timer
traded by market (90%)
for state-owned forest.
1985–92
1993–98
Price controls lifted in the
part of free market, but
tax and fees increased,
government retained
monopoly on
procurement
The P.R. of China was founded on
first of October 1949, The
Communist Party came to power
1985: Timber markets opened and
central government pricing
abolished in the South
1986: Forest Law enacted; Timber
markets in the South under
government temporary control.
1991: Four large State-Owned
Forestry Corporations were
established in the northeast China
and Inner-Mongolia.
1998: The Ministry of Forestry was
degraded into the State Forestry
Bureau.
Sources: Zhang et al. (1999)
The Cultural Revolution from 1966 to 1976 to some extent further deteriorated the institutions. It
was during this time that the informal institutions, such as norms and conventions and religions like
Buddhist and Taoist temples together with the forests had been destroyed. Some exclusive
forestland became open access.
10
If we say the poor status of forest before the People’s Republic of China is largely because of the
wars, the deteriorated status of forest under the planning economy regime is because the most
fundamental institutions, not only formal but also informal, were destroyed. It should be noted
property right institution does not necessary advocate private property right, but respect both private
and public property rights and respect the voluntary exchange of property rights. Without these
institutions, the society cannot run. The transaction costs become extremely high, so property rights
become extremely low, even zero.
Adjusting institutions right for forestry development
A series of economic reforms have been launched in forestry since the early-1980 (see e.g. Zhang et
al. 1999). Current on-going economic reforms clearly are intended to make the institutions right.
The reforms can be summarized in following aspects:
• First, the property rights of labor are liberated and privatized from the forced team-work in
People’s Communes to family or voluntary cooperation in agriculture and forestry. This change
greatly reduces the monitoring cost and moral hazard.
• Second, property rights in trees and land are clarified through ownership titlement, e.g. by
granting certificate. Private land property rights have not been recognized, but economic rights of
trees and private land-use rights are legally granted for a significant long period of time. The stateowned forestland has been decentralized through dissolution of the management authority and
budget regime. Auction and other methods have been adopted as means of property right
transaction. Land and trees were de-collectivized and reorganized through the Household
Responsibility System, the Share-holding System and other types of joint or co-operative
management. Local institutions resume its role in community and private forest management.
• Third, sales of timber and even some pre-mature trees are allowed by free trade. In the southern
provinces, timber selling licenses, quotas, and prices imposed by the timber procurement agencies
were abolished only in 1985, then re-imposed in 1986 and abolished again in 1993 in the southern
provinces. The trade of timber produced from the state-owned has also been liberalized.
11
• Fourth, formal institutions, such as forest law, contracting law and regulation, are widely applied
in forest management. The governmental policing forces and courts have gradually replaced the
informal institutions. The Forest Law was firstly issued in 1985 and lately revised in 1998.
The institutions, which have shown great improvement recently, could be still poorer than the precommunist regime even after decade’s efforts. More formal institutions, such as forest law
introduced by overnight still need long time to well functioning. Informal institutions, which once
well established but destroyed previous to the 1980s, are still poor. Some convention and belief, one
destroyed, need long time to re-establish.
An Empirical Study: Hainan Island1
In the above section, we have generally analyzed the relative scarcity and institutional changes on
forest development. Now let us closely examine the case of Hainan Island. Probably it provides a
good example of the economic development and institutional change on forest sector.
Hainan has a typical tropical monsoon climate. Originally, it was covered mostly by rainforests, but
the effect of long-term human activities has caused serious deforestation and degradation of
forestland. The rainforest still covered 50% of the island in the early of 1930s, but only about 30%
and the remaining forests were mostly located in the center of mountain ranges at the beginning of
the 1950s (HAZC 1980). In the late 1970s, forest cover further declined to only 15%, even including
plantation forests. Consequently, Hainan changed from being a net timber exporter in the 1950s1970s to an importer in the 1980s.
However, the economic reforms since the late 1970s, both the economy and population have
dramatically changed. Especially since 1988 when the island was upgraded into provincial level and
given a status of Special Economic Zone, the economic growth rate, averaging 20% annually from
1988 to 1995, has been the fastest at provincial level in China. The population is also growing
dramatically, from 5 million in the mid-1980s to 8 million at present (the actual population could
be over 10 million).
1
This section largely cites from Zhang et al (2000b).
12
The economic reforms also promote the international timber trade, especially the wood-chip export.
A total of 130 000 ha of eucalyptus and some other fast growing species of trees had been planted
between 1982 and 1995, accounting for more than one third of plantation forests during this period,
and contributed to a 4% increase in total forest cover. From 1989 to 2000, about 1 million tones of
wood-chip have been exported, which is larger than the tropical timber flow to outside of the Island
in the past several decades. Since 1990, income from wood-chip exports has become an important
source of foreign currency earnings and an important part of rural economy.
100 %
Nat ural forest
80 %
Degraded land
P lantation
60 %
T ropical crops
Cult ivat ion land
40 %
Others
20 %
0%
1957 1961 1966 1973 1980 1985 1990 1995
Figure 5 Land use/cover classifications and their changes (1950s to 1990s)
The fast economic growth creates effective demand for environmental goods and makes it
affordable for the restrictions on rainforest harvesting. Restrictions have gradually been imposed on
rainforests, and beginning with a quota of allowable felling in 1984 and ban of rainforest harvesting
since 1993 and 1994. During the last two decades the decreasing trend in forestland area has been
reversed and this area in Hainan is presently expanding (see Figures 5).
The economic reform has been following the rest of the countries. To examine the impacts of
impacts of demographical and socio-economic factors on forest, an econometric analysis has been
conducted in the following section to partly support our analysis and conclusions.
Econometric Analysis and Econometric specification
We use forest land use change as a major indicator to study the impacts on forestry. Theoretically,
the land allocation to forest is determined by the relative prices across the output prices if we use an
aggregated input factor:
(1)
Ai* = (p, c, A),
13
where Ai* is the land allocated to land use i, p is the vector of product prices, c is the composite
input cost. A is the total area. The optimal land allocation functions, the Ai*(p, c, A), are
nondecreasing in pj (i = j). As we argue, besides markets and prices, institutional factors play a key
role in rural land allocation in Hainan. Therefore, we include in the forest land allocation model
variables describing the economic development and one for population, as well as two variables
describing the land property rights policies in China. The first two variables are gross output value
(GOP) and population density (PD) in each of the Hainan counties. 2
The land reform variables are the percentage share of land under the household-responsibility
system (H), and the percentage of forestry land under state ownership (SF). These variables thus
measure the effects of land-tenure shift and decentralization of forestland management in Hainan.
Accounting for the market-driven and the institutional factors, the implicit model for forestland
allocation within the counties in Hainan can be written as:
(2)
Forestland Allocation = F (p, c, A; GOP, PD; SF, H)
In Hainan, the institutional changes from socialist transformation to current economic reforms have
been less endogenous with the socio-economic development, but greatly determined by political
ideology. Therefore, they can be treated as exogenous variables (Besley 1995).
Based on equation (2) and considering individual constant terms for counties, contemporaneous
correlation of cross-section units and strong autocorrelation in the data, the econometric
specification is
(3) FCit=α1+
13
∑
i =2
αiDi+β1PDit+β2 GOPit+
3
∑
n =1
β(2+n)Pnit+β6SFit+β7Hit+β8DUt+β9HitDUt+εit ,
where subscripts i and t indicate the counties and years, respectively; Di are the regional dummy
variables; FC denotes the forest cover (%); PD is population density (in persons per ha), and GOP is
2
Generally population pressure affects land allocation, but the effect on managed and natural forests may differ.
Population density may also, among other things, be related to the distance of forestry land to markets. In addition, both
economic prosperity (GOP) and population density (PD) may affect forestland allocation through directly unobservable
nontimber values of forests.
14
deflated per capita output value (Yuan per capita); Pn (n=1,2,3) are the real price indexes of
agricultural products, tropical crops and timber, respectively, i.e., they are divided by the index for
rural industrial materials, following Yin and Newman (1997)3; SF denotes the ratio of land owned
by state forestry firms to total forestry land and H is the ratio of the household responsibility forestry
land to total forestry land. All variables except SF and H are in natural logarithms. To examine the
difference between managed (mainly plantations) and natural forests (mainly rainforests), a
behavioral model is estimated for both categories.
Estimated results and analysis
The estimated is listed in Table 2. As expected, higher timber prices promote forestry investment in
managed forest as measured by plantation forest cover. However, the rainforest land area decreases
as timber price increases, implying that the increasing hardwood price has, at least in the past,
increased mining-type harvesting of rainforests. The agricultural product price has a positive impact
on both managed and natural forest cover. This runs counter to the theoretical hypothesis, and
suggests that rising agricultural product prices do not lead to encroachment on forestland in Hainan.
In a developing subsistence economy, this result may be due to the fact that farmers can meet their
income needs with less harvest income when agricultural prices increase. Also there does not seem
to be any serious conflict between agriculture and forestry. A similar result was obtained for
mainland China by Yin and Newman (1997).
Plantation forests respond negatively to the tropical crop product price, implying that tropical crops
compete for land with plantation. However, the rainforest and tropical crops may even be
complementary as indicated by the positive coefficient of tropical crop price in the rainforest
equation. As noted above, tropical crops were mainly conducted by the state reclamation bureau,
which certainly has transferred a significant rainforest to tropical crops.
Like many other studies, our estimated results indicate that population has a negative effect on
rainforest coverage. This suggests that growing population generally causes some rainforest to be
converted into agricultural, industrial and residential land, and probably into wasteland after
logging. However, the managed forest area in Hainan has increased with population. Thus, rising
3
This specification provided the best statistical performance. Together with the logarithmic transformation the
specification implies that the impacts of output prices and composite input price are assumed to be equal in absolute
terms but to differ in sign.
15
population has speeded up the exploitation of natural forest, but may have promoted plantation in
Hainan.
Table 2. GLS estimation results for managed and rainforest cover in Hainan, 1957-1994*
(The t-values are in parentheses below these estimates)
Variable description
α1
Constant**
Pa
Agricultural products price
Pc
Pt
Tropical crop
Product price
Timber price
PD
Population density
GOP
Per capita gross output value
SF
H
Percentage of SF land to total
(%)
Ratio of HRS to total
DU
Dummy for uncertainty
H•DU
Joint effect of HRS
uncertainty
Autocorrelation coeff.
Log-likelihood
and
Managed forest cover
(%)
-3.74
(7.03)
0.11
(1.16)
-0.40
(4.22)
0.61
(5.81)
2.21
(42.57)
0.59
(22.48)
0.42
(7.17)
0.79
(8.56)
-0.09
(2.73)
-1.55
(15.49)
0.64
134.7
Rainforest cover
(%)
2.98
(3.40)
0.33
(6.55)
1.29
(7.68)
-1.52
(4.80)
-0.61
(21.51)
-0.31
(18.33)
-0.77
(7.80)
-0.54
(16.06)
-0.76
(0.88)
0.66
(17.07)
0.53
144.6
ρ***
Log-L
Notes:
* Data for managed forests is from 1957 to 1994 across 13 units; data for rainforest is from 1957 to 1985 across 8 units.
Therefore, we exclude the 5 cross-section units where rainforests make up less than 2% of the total area of the county (in
the late 1970s) and the period after 1985 in the regression model explaining the area of rainforests
**The regional dummy variables are excluded in the Table.
*** A single autocorrelation coefficient is adopted because we found that different autocorrelation coefficients did not
change the estimated results or standard errors markedly.
The effect of economic development (or welfare), measured by per capita output value, also has a
positive effect on managed forest cover. One explanation for this may be that economic
development reduces e.g., transportation costs and costs of protecting property rights as
infrastructure and law implementation are improved. The economic development may also have
demand side effects. Strengthening demand for timber is reflected in timber prices. However, a
wealthier society may also appreciate the in situ benefits of forests causing a positive correlation
between plantation forest and GOP. For example in Hainan, about 20% of plantation forest is
intended for environmental purposes. The positive effect of GOP on managed forests does not
contradict the negative sign of GOP in the rainforest equation. Natural forests are examined over the
16
period 1957-1985. Since then harvesting in rainforest has been fully regulated, indicating increased
environmental concerns and a change in preferences towards protection of natural forests. The
expansion of managed forest accelerated in the 1990s in line with the economic growth.
The share of forestry land controlled by state-owned enterprises seems to have a positive effect on
plantation forest cover, but the effect is significantly negative for rainforest before 1985. This can be
explained by the fact that state-owned forestry bureaus (or farms) were set up for two purposes: to
afforest public wasteland and to exploit public natural forest. Our results also show that decollectivization (H) promoted the loss of natural forest in the early part of the explored period (the
negative sign of H in the second column of Table 2.), but may have worked the other direction in
the 1980s (the positive sign of H*DU in the second column of Table 2).
Final Remarks
As shown, economic development and population growth are not necessarily serious problems for
forests. When the natural forests decline and economic growth that change the demand and supply,
timber and environmental services from forests are increasingly valued, investment in plantation
forests and protecting the remained natural forest is encouraged. The limitation of natural resources
is often overestimated. Take as example, the existing potentially forest able land area, which is as
large as the currently forested land in Hainan as well in the entire China, is neither due to the
agricultural occupation or intended other land uses, but wasted. This principle can be applied to not
only forest sector, but also the other resources and environmental issues, such as energy and water.
Institutions play a special role in forest management and supply of environmental goods or
abatement of environmental bads. The wasted land is due to less well-defined land tenure; un-secure
property rights resulted from poor economy and uncertain society. Much land does not lack a
defined owner, but the owner is unable or unwilling to enforce property rights, making these areas
in effect open access. Therefore, the biggest challenge in China's forestry is not the poor and limited
land, but the institutions that make forest management too costly. The institutions, which are
important in reducing transaction costs, will be even more important than the price incentives for its
transition of non-active management into active management.
It is often in question whether economic reform in forestry is successful or why not as successful as
in agriculture sector (Yin and Newman 1997, Zhang et al. 2000a and Zhang 2000b). This is because
17
the different supply of and demand for institutions from the society between different sectors. The
costs associated with defining, protecting and transferring property rights in trees, forestland and
forest products are much higher in forestry than in agriculture. The agricultural land was (is) also
never well defined, however, farmers have little doubt about harvesting their annual crops.
Therefore, the privatization of agricultural land immediately promoted agricultural development,
while privatization of forestland promote the early harvesting of the existing trees. The rural market
institutions are also general sufficient for agriculture, but not for forestry. The culture, concepts and
convention all favor agriculture to forestry. All of these are beyond forestry sector, but determined
by the total economy.
Institutional revolutions are largely affected by economic growth, but not necessarily endogenous,
especially in the short term. Because of the path dependence, time and costs for institutional change,
institutions play an important role in the long term as well. China's land tenure and some institutions
had already been developed to a level similar to the early period of capitalistic countries in the
beginning of last century (particularly the early time of Republic of China), even at a much earlier
time. China used to be a country with long-term land security. Almost all agricultural land and a
large part of forestry land had already been owned by landlords (mountain lords) and some rich
peasants for centuries. About 80% of forestland were owned by landloards and rich peasants, about
5% were owned by poor subsistence farmers prior to the People’s Republic of China (Liao 1986).
Some institutions and land market mechanism for such private ownership was also accordingly well
developed. Those institutions are the most fundamental basis for the socio-economic development,
including forestry. Unfortunately, the three decades of the centrally planned economy greatly
undermined those institutions in spite of the economic growth.
It is often argued natural resources and environmental issues should be not relied on market or
private sectors. The evidence of forestry proves that is not necessarily true. The large scale of
government-run afforestation programs and the direct state-owned forest management prove not
effective. The control of timber trade makes forest and timber become scarcer, while the process of
market liberalization in recent decades make timber more available. Timber is becoming more
abundant and its price in real terms has been declining. Both demand and supply have contributed to
the changes: higher timber prices have guided consumers to seek substitute materials, and producers
to manage timber-oriented forest more intensively. The negative environmental impacts by the
centrally planned agriculture are also obvious. Lin (1998) pointed out the local self-sufficiency food
policy led to mis-allocation of resources, and accelerated the land degradation.
18
Finally, we would like to cite Jerry Taylor (1998) as my final conclusion: “The most important step
China can take to protect human health and the environment is to protect private property rights,
ensure that markets remains as free from government intervention as possible, and protect the
resulting engine of economic growth. Since poverty is also a major cause of environmental
destruction, economic growth serves both a social and ecological function. ” (p. 398).
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