The Chinese economy has surpassed Japan and is playing catch up with the United States, outshining all other nations. Yet Jonathan Watts, environment correspondent of British newspaper The Guardian, puts a damper on the China craze. The Chinese economy is not that astounding, he argues, noting that if the cost of pollution is subtracted from the equation, China's actual growth rate stands only at four to five percent.

Watts, an award-winning journalist, has observed environmental issues in Asia for many years. His strength is the analysis of environmental problems from a broad sociopolitical and socioeconomic perspective. Watts has also put forth a number of innovative ideas such as establishing an environmental court under the United Nations to deal with the worst cases of environmental destruction or developing a universal eco currency.

In his new book When a Billion Chinese Jump, Watts looks at the impact China's huge and ever accelerating economic engine is having on the global environment. Whether China will move toward a greener economy will affect the sunshine, air and water of the whole world.

But China's green development has never been just a simple environmental issue. In an exclusive interview with the CommonWealth Magazine, Watts recently analyzed how China' s leadership succession, its international power, and multinational companies will influence China's designs for a green economy in its upcoming five-year plan.

Following are highlights from the interview:

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Q: What are your observations about the direction of China's upcoming five-year plan with regard to building a cleaner, greener economy?

A: What I think is that this next five year plan will give us a real indication of how serious the Chinese government is about moving to a low-carbon economy. And I think that will be the focus. We don't know yet the contents, of course, but two things that will be closely looked for will be how much of a target will they set for improving carbon intensity.

China has never set a carbon intensity target in a five-year plan before. But they will have to do it this time, because at Copenhagen and even before that Hu Jintao said they were going for this 40, 45 percent carbon intensity reduction target between 2005 and 2020.

The current target for this five-year plan is the 20 percent energy efficiency target, and the government is even struggling to meet that target, though I think the negotiations are still taking place now about what target they will set next time. And this will be a really interesting kind of a battle, I suppose, between the big state-owned industries, who are likely to be resisting calls for a strong target, and sort of more progressive forces saying China must move more quickly toward a low-carbon economy.

And it may even become tied up with the political succession issue. Essentially, there's two more five-year periods before 2020, of course. And at the start Hu Jintao will be there, and later on, of course, it is likely to be the next generation, probably Xu Jinping. And they will be negotiating with each other, I think, the two generations, who carries the bigger burden. Do they put the bigger burden at the front, in these next five years? Or will they leave the bigger burden until the end, the last five years, the next five years from 2015 onwards? That will be fascinating.

I think the general expectation is that the target will probably be 15 to 20 percent for the carbon intensity reduction, that's what people have been talking about. The other thing is, will the government make a system to achieve its carbon target that's not just a top-down establishing of targets for state-owned industry?

Will they establish a carbon trading scheme? At the moment China doesn't have a carbon trading scheme. It has voluntary carbon trading schemes, but they almost do nothing. They've been there for a year or two. There's one in Tianjin, maybe one in Shanghai. That was pointless, but there is an expectation that in the next five-year plan there will be some kind of pilot project that will make mandatory carbon trading – maybe not the whole country yet, but possibly for one region or for one sector like the cement industry. We don't know yet. It'll be interesting to see how that is put in place, how ambitious it is. That'll be a key question.

It will be interesting, because the United States' efforts to start their own carbon trading scheme, the legislation has collapsed. So there is a possibility that China will actually start this market-based effort to deal with the carbon problem more quickly than the U.S.

Q: So China will set a target to show to the world that they are ambitious and that they are able to achieve that target?

A: Yes, I think so. The Chinese government's argument, I think, I've heard it before, is, "It's fine that the countries in Europe set nice sounding, big targets, but then they don't achieve their target, whereas we might be criticized for having a less ambitious target, but we will actually achieve it." They will try to sell this to the world to show that they are serious and that they are genuine and that they are actually doing their fair share. Compared to Europe, probably not quite as much, but certainly I would say they are making a bigger effort than the United States.

Q: Do you see any chance that the Chinese change their current consumption ?

A: I would say not yet. Mostly, I think there's still a desire naturally amongst most Chinese people to have a better lifestyle and that most people judge that as an ability to consume more. Those values are very much coming over from the West and they are being promoted very strongly by international firms that come to China to try to sell their brands, to try to tap into this growing market, one of the last areas in the world with fast growth, and to sell more things in China to promote consumption in China.

How far you go – that's the question. Clearly, the vast majority of the Chinese population wants to have a better lifestyle than the one that they are carrying out now. It's still below the global average, I think, for most people. But how far do you go? If you consider that many people aspire to sort of the American lifestyle, and, according to a WWF report, if everyone in the world had the same lifestyle as the average American, we would need four and a half planets. But China just cannot do this, not least because the population density of China is fifteen times higher than in the U.S. So the pressure on resources is already very apparent – their water resources and existing modes of economic activity and consumption. I think so far the government's response has mostly been more supply-side engineering solutions and also finding new forms of energy so there's room to consume more.

I think in the future there will be more focus on – maybe some people's pie is already too large and that it actually becomes unhealthy when you consume too much. Normal growth is good. Some growth means getting fatter, getting obese, or getting cancerous. These are all different. These are all unhealthy growth, and I think we should be more focused on that.

Mostly, there is still a desire to live more of an American style of life, or if not American, then perhaps a Japanese one or a German one, which would be slightly better.

The positive story, I suppose, is you do start to see a few small buds of hope. There are more green lifestyle magazines like Lohas. It's not mainstream yet. There are a few things like this. There are more green NGOs trying to encourage people to rethink the way they consume. There are bigger efforts to protect biodiversity, particularly by NGOs, which is, you know, an effort to reduce the human impact on the natural world.

Q: What are the challenges and opportunities of a greener lifestyle in China?

A: Talking about a green lifestyle covers many different areas. I guess if you look at challenges and opportunities in terms of energy use, that's what most people focus on, isn't it? I think in that regard, the challenge is moving toward a lower-carbon economy. Everyone knows that. And no country before has ever tried to do this even before it's finished industrializing. China is trying to do this at a really difficult time. It hasn't really got a service sector economy at all. It's not yet moved up the value chain. And yet because it is so big and its emissions are so huge, there is a lot of pressure on it to start transforming into a low-carbon economy very quickly. That's very difficult.

No country has ever achieved that, not even an advanced country. Denmark and Sweden and Germany have made great progress, but you still couldn't call them a completely low-carbon economy. So China's challenge is the timing of what it is trying to do and the scale of what it is trying to do.

The opportunity is that if China can be the leader in the new technologies of solar, wind, electric cars, hybrid cars, eco-city development and all these other things that are part of a new more sustainable energy economy, then it will have enormous potential, both for its export sector and also for its own domestic energy security.

It won't have to rely so much on Middle Eastern oil which is from an unstable region. And in theory it should be less reliant on coal and all the problems that that brings to health and the environment. But there are huge opportunities if you can do it. But it's another question completely, if you can do it.

But that's sort of more at the government engineering level. At the individual level, how people live and what their values are, I think the challenge and the difficulty is when people in China, who for the most part thirty or forty years ago were very poor and maybe fifty years ago they lived in starvation, they naturally feel, "Don't stop me from improving my life further. I haven't had a long period of time where I have enjoyed a rich lifestyle. It's only in the last twenty years that I can eat meat every day."

It's a very natural instinct to want to consume more and just spoil your children. Very natural. But then I think the other challenge is of course that everybody wants the Chinese people to consume more. Foreign companies want China to consume more. The Chinese government wants consumers to consume more. Big foreign countries, the U.S. and Europe, want Chinese consumers to consume more so that they can reduce the trade deficit. And economists want the Chinese to consume more. There is this real desire, this hope, actually, that Chinese consumption can save the world economy.

I think the absolute key, then, is what kind of consumption is this? Is it more sustainable, modest, service sector, low-impact consumption, or is it following the throw-away, wasteful lifestyle of other countries at a lower stage of development – maybe twenty, thirty years ago, the way people lived in Europe, and many still do? But the opportunity I think is that if you change the values now rather than leave it until people have gone through the worst phase of wastefulness, you might avoid some of the negative effects of growth.

Q: Given that China lacks patents and core technologies, will it be able to take a leading role in certain green technologies or energies?

A: There are areas where China is investing a lot of money. Certainly, a massive expansion of R&D spending by the government is already under way. Spending money does not always result in success, but it certainly helps. In some areas, I think, they are making real gains. I don't think it's in solar or wind, but for example in coal technology, how to use coal more efficiently and cleanly. China has invested very heavily in this area, and so one of the most advanced plants under research at the moment is IGCC plants – integrated gasification combined cycle. It is a way of basically gasifying coal, and there are fewer emissions. You can capture the emissions, and you get more efficient power generation.

There were projects in the U.S. to do this. There are still, in theory, projects in the U.S. to do that, but it has been kind of frozen for some time.

But China has really moved ahead. They are building a very big IGCC plant in Shandong for that, and there are three others that have been planned, but not yet received approval.

The willingness to experiment is very strong in China, this willingness to do things on a big scale is very strong in China.

Q: What advantages might China have in greening its economy?

A: One is that the kind of government they have, the one-party government, is very good at allocating huge amounts of resources very quickly to chosen projects. This isn't always efficient, of course. That's why the market is supposed to work better. But if you want to change directions, maybe this is a more effective way to build low-carbon industry. There's a downside too to one-party government when it comes to the environment. But in supply-side engineering terms, I think it probably is an asset.

There are two other areas where China might have an advantage and could be a source of hope. One is the motivation. I think China's environmental crisis is so bad, they can't ignore it. People breathe the problem, they drink the problem, they see the problem. It's a business cliche, that crisis is an opportunity, but a crisis is certainly a motivation to do something.

Things are changing quite quickly in terms of perception. I think when I first arrived, even then the environment was not talked about that much at all, not really, by most ordinary people that I spoke to, certainly not in Beijing. For example, you get in a taxi, and I would say to the driver, "Why's the sky so grey all the time?" and the drivers back then most of the time would answer, "Oh, it's fog." But I think there is much more discussion of pollution and its impact in the media and online. And so now mostly if you ask drivers in Beijing, "Why's the sky gray again?" they will say, "Wuran," that it's pollution.

I think that's one perception change. the other is in many local areas there is this real concern about the health implications of dirty industry. In China you have a lot of so-called cancer villages where there are very high rates of cancer. And these concerns lead to protests as well as people saying, we don't want this chemical plant in our backyard.

They start to realize, Yes, we have an economic benefit for ten, twenty years, but maybe ten years from now, the cancer rate in the village has gone up five times or six times or whatever. I think that kind of knowledge is becoming more widespread, that people are more concerned about what's in their own backyard.

And as people become more middle-class in the cities, you do get more awareness of environmental issues. It's a kind of selfish concern, a very natural selfish concern. It's the NIMBY protest, the "Not In My Backyard" protest, against waste incinerators or high-speed rails going through their area that create noise pollution. So that's increasing too. But then in terms of climate, the world's problems, and the issue of how we are over-consuming resources as a species, I think that's still fairly low. More than before, I mean there's more discussion of climate issues in the media than before, but I've never heard any of my Chinese friends worry about their carbon footprint.

Q: What are your suggestions to business leaders as China tries to transform into a greener economy?

A: Well, I guess there's got to be two things. One would be plans for potential risks in the future. The supply-side risks, the pressure on resources, is going to grow very quickly as more and more big countries are consuming more and more resources. Will we be able to secure stable resources? That's going to be a very important, a key issue of international relations. That's going to be more and more important and create more and more stress and conflict.

I think the dynamic is toward China becoming more concerned about the environment in various different areas. If you are a business person, how do you turn that into an opportunity, how do you get involved in high-speed rails, or eco-cities? Or something Taiwan is very strong at is intelligent infrastructure. So semiconductors, switching systems, monitoring systems, all these sorts of things will be really important. I think that's still going to be the focus. Keep your eyes on what the central government plans. The dynamic force is the government.

Transcribed by Susanne Ganz