Every year in China, the number of people who die in ‘public accidents’ is roughly the equivalent of the population of a medium-sized North American city, such as Saskatoon:

5 million “public accidents” occurred in 2004 alone, causing the death of 210,000 people, injuring another 1.75 million, and resulting in the immediate economic loss of over USD $57 billion (455 billion Chinese yuan). It is estimated that the direct annual cost of such disasters for China is more than USD $81 billion (650 billion yuan) on average, equal to six percent of the country’s annual GDP. To state the obvious: most of China’s economic growth each year is simply cancelled out by the immediate sacrifice of human lives and long-term damage to the environment.

(Via CSR Asia)

In related reading, Morgan Stanley’s Andy Xie argues that China should switch from Gross Domestic Product to Net GDP (net meaning GDP after deducting environmental and other costs). You know things are bad when the investment banks start calling for green GDP measures.

Recent environmental disasters suggest that China needs to find a better balance between growth and environmental protection. The obsession with GDP has led to a neglect of growth quality issues. I believe China should change how it calculates its economic output to reflect all the costs and so give the appropriate incentives to local governments.

China should include three costs to measure its economic output. First, free economic inputs, such as oil, cost, and land, should be deducted from GDP. Second, the costs of work-related deaths and injuries should also be deducted from GDP. Third, China’s EPA should assign environment cost to each province every year to be deducted from its GDP. The measure after subtracting these three items is net domestic product or NDP. Using NDP to measure local government performance will, in our view, improve China’s efficiency.

China’s economic output could be 6-7% less if the costs of natural resources and land are deducted (for example, 2 bn tons of coal/year, 3.5 mn bbl/day of crude, and 30% of property sales as land value). Another 6-7% could be deducted due to environmental and worker injuries (for example, 50 times annual wage per death). In additional, economic activities that generate bad debts should also be deducted. The bad debts peaked at 40% of the total in the previous business cycle. It is still too early to estimate the bad debts in this business.

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