Decentralization and Urban Environment: A Case of Industrial Air Pollution in Chinese Cities

Economic reform has resulted in considerable decentralization and exceptional economic growth in China. It has however posed a serious contradiction for China’s environmental protection efforts. This study empirically investigated the environmental effects of market and power decentralization using data on industrial SO2 emission and dusts at the city level. It is found that China’s industrial production has been cleaner, with decreasing pollution intensity during last decade. Industrial pollution is clustered in some Chinese cities. The Yangtze River Delta, the Shandong Peninsula, the Capital region, the Central-Northern China, Northeastern China, the Sichuan Basin, and the Pearl River Delta are the hotpots. The coastal region is much less pollution intensive compared with the inland regions. Statistical results indicate that SOEs have significantly contributed to the environmental degradation in Chinese cities. Market decentralization has been harmful to urban environment, especially in the central and western regions and in the small and medium cities. Power and fiscal decentralization has induced the race to the bottom competition by lowering environmental regulations to attract taxable and high value added pollution intensive industries, which is more remarkable in the coastal and central regions and in the medium and small cities. Evidently, there is a tradeoff between environmental degradation and economic growth associated with decentralization in China. The policy shall minimize the environmental impacts of decentralization using economic leverages.