Microsoft Word EcRefChina Oct06. doc

quality 
of individuals’ lives than on the length of life, which may largely be determined 
by the earlier mentioned examples of preventive health services. 
With China’s rapidly ageing population, the need for institutionalized 
old-age care
is also 
bound to increase. Some state-owned enterprises still finance and organize such services 
for their previous employees – including housing, health care, recreational activities, and 
even funeral arrangements. However, as in the case of other human services, these 
responsibilities have gradually been shifted to municipalities, in particular in urban areas 
(Hussain, 2000b, pp. 67-68).
151
Nevertheless, as in most other countries, family members 
perform the bulk of old-age care. Naturally, this will become increasingly problematic 
when both spouses work in the open market.
The future health situation is, of course, also an issue of environmental problems such as 
air and water pollution. Indeed, not only research but also casual observation indicate that 
150
The payroll tax that finances health insurance is currently 8 percent of the wage rate (OECD, 2005, 
Table 4:3). Social Policy Research Centre (2002, p. 9) estimates that it would have to be considerably 
higher than 10 percent in the future to avoid deficits.
151
There are also some developments in this direction in the countryside. An example is the attempt to 
follow up the traditional “five guarantees” system from the 1950s, designed to help the elderly (as well 
as the disabled and minors) without family support to obtain a certain minimum of food, clothing, 
housing, medical care, and proper burial.

---

76
China’s pollution problems are among the most serious in the world. Although 
environmental degradation does not yet show up drastically in broad health indicators, 
such as life expectancy and child birth, a continuation or even a further deterioration of 
the present situation is bound to have such effects sooner or later – as happened earlier in 
the Soviet Republics and Eastern Europe during the socialist period.
The costs of cleaning up the environment would be considerable, but so would the long-
term benefits, including the gains in terms of improved health (Brajer and Mead, 2004). 
Naturally, the severe environmental problems are partly side effects of China’s one-sided 
emphasis on capital-intensive, raw material-intensive and energy-intensive industry
152
– 
another illustration of the interaction between growth strategy and social developments. 
However, these problems also a result of the limited priority assigned to environmental 
protection as compared with production of goods and services – a historical parallel to 
similar neglect during the early phase of industrialization in today’s developed countries. 
The Chinese authorities have recently tried to deal with the pollution problem by 
quantitative regulations and graduated charges when emissions exceed certain mandated 
ceilings. But many SOEs do not seem to be particularly sensitive to such charges, simply 
because profit considerations do not dominate their objectives. (This resembles the 
insensitivity of state firms to monetary and fiscal incentives in the context of stabilization 
policy.) There have been recent experiments (conducted in cooperation with the World 
Bank) to exert 
social pressure
on firms, rather than simply relying on quantitative 
restrictions and economic incentives.
153
In other words, as a complement to the latter 
types of policy measures, the idea seems to be that firms’ pollution behavior can be 
influenced by social norms, which are supposed to be upheld by the general public’s 
approval or disapproval of firms’ behavior. However, in the future, when most firms in 
China are likely to be profit-oriented, it will be easier to pursue incentive-based 
environmental policies using (Pigouvian) tax/subsidy programs. 
Healthy working conditions are, of course, another important aspect of preventive health 
care. Indeed, it is natural that citizens want to transform some of their rising living 
152
Industry including the building sector accounts for more than 40 percent of GDP.
153
One attempted method is to rank firms (publicly) according to their degree of environmental concern 
– the so-called “Green Watch Program” (Wang et al., 2004). 

---

77
standards into a safer and more pleasant work environment – often with improved health 
conditions as a bonus. On this issue, however, developing countries including China face 
the risk that some developed countries will push for faster improvement in working 
conditions than the developing countries themselves (the authorities and/or citizens) 
would be willing to pay for. I am referring to the demands of some developed countries 
on inaugurating internationally mandated ”social clauses”, including so-called “labor 
standards”, in developing countries – backed by threats of trade sanctions, possibly 
handled by the WTO. 
In comparison, latecomers in economic development among European countries in the 
late 19
th
and early 20
th
centuries (such as Finland and Sweden) did not encounter similar 
threats of intervention when they entered export markets with relatively low wages and 
poor working conditions – perhaps partly because of their small size. The absence of such 
protectionist backlashes certainly helped them take advantage of export-oriented 
economic growth. 
Presumably, the best way for developing countries, including China, to fight the disguised 
protectionism underlying such intervention is to join forces with other developing 
countries in pursuit of an outward-oriented development strategy. However, in doing so, it 
is important to abstain from provoking protectionism in developed countries – not only by 
avoiding considerably undervalued currencies, but also by abstaining from abusive child 
labor and other labor arrangements that may be interpreted as “forced labor”. 

---

78