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China's environmental reform: ecological modernization, regulatory compliance, and institutional change

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China's environmental reform: ecological modernization, regulatory compliance, and institutional change

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Content CHINA’S ENVIRONMENTAL REFORM:
ECOLOGICAL MODERNIZATION, REGULATORY COMPLIANCE, AND
INSTITUTIONAL CHANGE

by

Wai-Hang Yee

A Dissertation Presented to the
FACULTY OF THE USC GRADUATE SCHOOL
UNIVERSITY OF SOUTHERN CALIFORNIA
In Partial Fulfillment of the
Requirements for the Degree
DOCTOR OF PHILOSOPHY
(PUBLIC POLICY, PLANNING AND DEVELOPMENT)

August 2012

Copyright 2012
Wai-Hang Yee

ii
Dedication

For my family

iii
Acknowledgments

I am deeply grateful to Shui Yan Tang for his encouragement and advice in the last
five years. His supervision and support are indispensable to the completion of the
dissertation and my intellectual growth. I cannot thank him enough. I am also very
thankful to Daniel Mazmanian and Peer Fiss for their insightful comments and
guidance throughout the writing of the dissertation, as well as Carlos Wing Hung Lo
at Hong Kong Polytechnic University for his very generous support during the data-
collection process. I greatly appreciate their help and immense patience with me.

My special thanks go to Terry Cooper, Eric Heikkila, Carlos Wing Hung Lo, Anthony
B. L. Cheung at the Hong Kong Institute of Education, and, most importantly, Martin
Painter at the City University of Hong Kong, who have given me invaluable
opportunities to work with them and gain a deeper understanding of the history,
culture, and politics of China. I am also grateful to Wai Fung Lam at the University of
Hong Kong for his continuous guidance.

I would like to acknowledge the financial support of the US-China Institute at the
University of Southern California, and the Department of Management and Marketing
at Hong Kong Polytechnic University during the data-collection stage. Also, the
Dissertation Completion Fellowship from the USC Graduate School has allowed me
to focus on finishing my dissertation during the final year.

iv
I am very fortunate to have been surrounded by a great number of people who have
made this long intellectual journey a very joyful one. My warm thanks to my friends
and colleagues from the PhD discussion group at USC, Room 642 at HKU, King’s
College, G7416 at CityU, YMCA@Royal, and CBMC. Particularly, I have benefited
a lot from sharing my problems and ideas with Hyangwon Kwon, Jia Lu, Cheongsin
Kim, Weijie Wang, Benson Wong, Terrence Yuen, Benny To, Vic Li, Oi Yu Lo, Eric
Lee, Jiaming Miao, James Lee, Raabia Budhwani, Chi Yung Lee, Preston Lai, Wilson
Yuen, Eric Chow, and Jennifer Tsoi.

Personally, I am indebted to Cheuk Ying Wong for her unending emotional support,
especially during the final stage of the writing process. Lastly, I would like to
dedicate the dissertation to my parents and my brother, for giving me a wonderful
family and teaching me about the great value of life.

v
Table of Contents

Dedication ...................................................................................................................... i
Acknowledgments ...................................................................................................... iii
List of Tables .............................................................................................................. vii
Abstract .................................................................................................................... viii

Chapter 1: Introduction .............................................................................................. 1
State of China’s Environment .................................................................................... 1
The Recent Environmental Reform ............................................................................ 3
Plan of Study .............................................................................................................. 7
Ecological Modernization .......................................................................................... 9
Regulatory Compliance ............................................................................................ 12
Institutional Change ................................................................................................. 15
Data for the Dissertation .......................................................................................... 19
Chapter Plan ............................................................................................................. 21

Chapter 2: Assessing the Progress of Ecological Modernization:
Stakeholder Demands and Corporate Environmental
Management Practices ......... ........................ ........................ ....................... ............... 24
Ecological Modernization, Stakeholder Pressures, and Corporate Responses ........ 26
China’s Environmental Reform .............................................................................. 29
Research Methods ................................................................................................... 34
Extent of Environmental Demands from Different Stakeholders ........................... 36
Perceived Pressures from Stakeholders and the Adoption of
Environmental Management Programs .................................................................... 37
Firms’ Responses to Pressures from Different Stakeholder Groups ....................... 39
Discussion ................................................................................................................ 58
Conclusion ................................................................................................................ 64

Chapter 3: Regulatory Compliance:
Regulator, Regulation, and the Rule of Law .......................................................... 77

vi
China’s Regulatory Situation .................................................................................. 79
Compliance and the Rule of Law ............................................................................ 82
Law, Regulatory Situation, Compliance ................................................................. 88
Data and Methods .................................................................................................... 94
Findings ................................................................................................................. 101
Discussions ............................................................................................................ 108
Conclusion ............................................................................................................. 112

Chapter 4: Transforming Rules-in-Form into Rules-in-Use:
Voluntary Program, Exemplars, and Regulatory Governance .......................... 121
The Governing Context ......................................................................................... 125
From Rules-in-Form to Rules-in-Use ................................................................... 127
Data and Findings .................................................................................................. 140
Discussion: Voluntary Programs from a Broader Institutional Perspective ......... 151
Conclusion ............................................................................................................. 157

Chapter 5: Conclusion ............................................................................................ 161
Summary of Empirical Findings ........................................................................... 161
Limitations and Further Research: Environmental Commitment and
Informal Institutions for Environmental Protection .............................................. 168
Final Remarks ....................................................................................................... 176

References ................................................................................................................ 178

Appendix A .............................................................................................................. 191
Appendix B ............................................................................................................... 193

vii
List of Tables

Table 1.1 Environmental Pollution and Destruction Accidents .................................. 23
Table 1.2 Major Industrial Environmental Regulatory
Instrument/Program in China ...................................................................................... 23
Table 2.1 Characteristics of the Interviewed Firms ..................................................... 67
Table 2.2 Variables and Measures ............................................................................... 69
Table 2.3 Descriptive Statistics .................................................................................... 70
Table 2.4 Graphical Representation of Perceived Stakeholder Demands .................. 70
Table 2.5 Regression Model on EMP Adoption ......................................................... 71
Table 2.6 Pearson Correlation Coefficient .................................................................. 72
Table 2.7 Environmental Demands from Market and Civil Society Actors ............... 73
Table 2.8 Summary: Changing Roles of Government, Market,
and Civil Society Actors ............................................................................................. 75
Table 3.1 Variables and Measures ............................................................................ 114
Table 3.2 Descriptive Statistics and Pearson Correlation Coefficients .................... 116
Table 3.3 Dimensions of Compliance Practices ....................................................... 117
Table 3.4 Dimensions of Compliance Challenges ..................................................... 118
Table 3.5a Regression Models on Compliance Behavior ......................................... 119
Table 3.5b Regression Models on Compliance Behavior ......................................... 120
Table 4.1 The Regulatory Dilemma .......................................................................... 128
Table 4.2 The Earlier Regulatory Situation in China ............................................... 130
Table 4.3 The Current Regulatory Dilemma in China .............................................. 132
Table 4.4 The Collective Inaction Problem among Firms ........................................ 134

viii
Abstract

China’s rapid economic growth in the past three decades has created devastating
consequences for its environment. Recently, however, there have been many signs of
positive change. This dissertation examines the recent environmental reform in China
by analyzing data collected from senior executives of Hong Kong-owned firms with
manufacturing operations in the Pearl River Delta region, Guangdong. It adopts three
theoretical perspectives for understanding three distinct but interrelated aspects of the
reform.

The first study of the dissertation examines, through an ecological modernization
perspective, the progress and effectiveness of various reform measures in fostering
behavioral changes among firms. It finds that economic rationality is no longer the
only organizing principle in the Chinese economy. Government, market, and to a
lesser extent civil society actors are exerting stronger environmental pressures on
business enterprises, which in some circumstances has led these enterprises to adopt
more progressive environmental behaviors.

The second study examines from a regulatory compliance perspective what motivates
firms’ compliance behaviors with governmental regulatory demands. It proposes an
analytical framework for systematically mapping firms’ compliance motivations in
China’s regulatory situation, in which the rule of law cannot be assumed. The study
found that firms’ environmental behaviors were driven less by their intentions to
better comply with environmental laws and regulations than by their motivations to

ix
avoid the punishment they may receive for violating the regulator’s demands, and,
notably, to prevent the potential arbitrary interference from the regulator’s use of his
enforcement power. Their environmental behaviors also varied negatively with the
number of challenges they found in trying to understand the de facto regulation that
represents the regulator’s self-restraint in using his enforcement power. These
findings suggest that environmental laws and regulations in China cannot yet be relied
upon as a useful objective reference for regulatees’ compliance decisions. This poses
significant challenges for regulatees in judging whether the regulator is regulating
arbitrarily for his personal interests, as well as on local regulators in demonstrating
their commitments to the regulatory goals.

The third study analyzed the recent surge of government-sponsored voluntary
environmental programs from a broader perspective of institutional change. Three
practical challenges were identified in the local governments’ efforts to transform
centrally devised environmental plans and rules into actual local policy practices:
namely, the regulatees’ concerns about the potential arbitrary enforcement of the
regulator, the regulatees’ concerns about the collective inaction problem among them,
and the regulator’s concern about standard setting for achieving effective regulatory
governance. The study finds that voluntary programs help local officials identify
among the policy population a set of exemplars whose performances represent the de
facto regulations guiding the regulatory enforcement of local regulators. This
demonstrates the plausibility of the administratively set standards, as well as assuring
individual regulatees that there are others in the regulated population who are also
working toward the regulatory goal. Most importantly, these programs help local

x
officials demonstrate their commitment to not engaging in arbitrary enforcement.
Overall, these programs complement the more open, legalistic regulatory approach
that is under construction.

Analyzing the environmental reform from a firm’s perspective, this dissertation finds
that China has been steering a unique path to ecological modernization. Given the
current stage of economic development of China, as well as its existing sociopolitical
institutional context, the Chinese government shall continue to adopt a formalized and
impartial regulatory approach in improving its environmental governance, which
helps foster a stable and more open business environment, and thus a more
constructive reciprocal relationship between the government and the firms.

1
Chapter 1
Introduction

China’s rapid economic growth in the past three decades has created devastating
consequences for its environment (e.g., Stockholm Environment Institute (SEI) &
United Nations Development Program (UNDP) China, 2002; Economy, 2004;
Economy & Lieberthal, 2007). Recently, however, there have been many signs of
positive change (People’s Republic of China (PRC), 2006, 2007, 2008, 2009; UNDP
China & Renmin University of China (RUC), 2010; Economy, 2006; Mol, 2006; Lo
& Tang, 2006). In the aspect of environmental management, especially, more and
more businesses have begun adopting various environmental practices in their
operations, whereas the Chinese government, in particular, has been showing stronger
commitment to reforming its environmental governance (Lo & Tang, 2006; Lo,
Fryxell, & van Rooij, 2009). This dissertation, through analyzing data collected from
senior executives of firms with manufacturing operations in Guangdong, looks into
this recent environmental reform in China.

State of China’s Environment

Thanks to Deng Xiaoping’s Gaige Kaifang (Reform and Open) Policy in the early
1980s, China has achieved remarkable economic growth in the last three decades. Its
planned economy has been gradually turning into one with more and more market
characteristics. However, such a change has also had a devastating impact on its
environment (e.g., SEI & UNDP China, 2002; Economy, 2004; Economy &

2
Lieberthal, 2007). For example, in terms of air quality, of the world’s top 20 most
polluted cities, China has 13, including such major cities as Beijing, Wuhan,
Chongqing and Chengdu (The Economist, 2010)
1
. In fact, the environmental cost of
China’s miraculous economic performance is huge. From 2002 to 2007, China’s real
Gross Domestic Product (GDP) grew at an average annual rate of 13.7 percent (The
Economist, 2010). Yet the corresponding costs to its environment, as estimated in
2006 by the State Environmental Protection Administration (SEPA), then the highest
executive authority on environmental affairs, would be equivalent to 10 percent of the
country’s annual GDP (Economy & Lieberthal, 2007). Taking into account also the
average annual inflation rate of 3.6 percent from 2003 to 2008 (The Economist,
2010), if SEPA’s estimate is true, China’s enviable economic growth in the last
decade will be rendered negligible.

The year 2006, however, marked an important milestone for China’s environmental
governance. The Chinese central government, according to The Outline of the 11
th

Five-Year Plan for National Economic and Social Development
2
, decided to carry out
its first national census on pollution sources. Also, concrete work plans were created
to control and prevent the country’s air and water pollution (PRC, 2006). In the
subsequent year (2007), we saw the first significant drop in both COD (chemical
oxygen demand) and SO
2
(sulfur dioxide) emissions in recent years: COD emissions
decreased from 14.28 to 13.82 million tons, a decrease of 3.2 percent, whereas SO
2

1
Measured by particulate matter concentration per cubic meter, 2006 figure.
2
Retrieved March 26, 2012, from the webpage of The Central People’s Government of the People’s
Republic of China, http://www.gov.cn/gongbao/content/2006/content_268766.htm.

3
emissions decreased from 25.90 to 24.68 million tons, a decrease of 4.7 percent.
During the period, the total number of pollution and destruction accidents dropped
significantly as well from 842 to 462, a 45.1 percent decrease (see Table 1.1).

It is this turnaround in China’s environmental performance that motivates the writing
of this dissertation. How did the Chinese government change course after its
prolonged negligence toward the environment? How effective is its effort? Can China
maintain such a course of sustainable development in the future?

The Recent Environmental Reform

Administrative Context
A brief review of the literature shows that China’s environmental reform has been
mainly a state-led process (Lo & Tang, 2006; Martens, 2006; Shi & Zhang, 2006). In
the past three decades, there has been a gradual development of environmental
governing bodies in the central government of China (SEI & UNDP China, 2002).
The country’s first Environmental Protection Office was established in 1974, after the
Stockholm United Nations Conference in 1972. In 1984, a few years after the
country’s major economic reform in the late 1970s, the State Commission for
Environmental Protection was founded to coordinate the governing of environmental
affairs among ministries. The commission was dissolved and upgraded in 1998 to
become a semi-ministry-level government agency, the State Environmental Protection
Administration (SEPA). In 2008, SEPA finally became a full-fledged ministry, the
Ministry of Environmental Protection (MEP).

4

In terms of policy reform, although a great variety of environmental programs had
been introduced since the 1980s (Shi & Zhang, 2006; see Table 1.2), their overall
effectiveness was unclear (see, e.g., Ma & Ortolano, 2000; SEI & UNDP China,
2002). Since the 10
th
National People’s Congress in 2006, the central government has
been demonstrating stronger commitment to mitigating the country’s increasingly
serious environmental problems. The State Council has introduced through its
environmental executive branch a number of major national reforms in the country’s
environmental governance, including, for instance, using and managing coal-fuel
more efficiently (particularly on desulphurization), as well as more effectively
treating and preventing pollution in major drinking-water sources (PRC, 2006).

Recently, we have also observed some measures in the area of administrative reform.
A new budget arrangement has been introduced to require local Environmental
Protection Bureaus to transfer all the collected pollution fees and fines to local
governments’ central budgets (Lo & Tang, 2006). An “environmental quality
administrative leadership responsible system” has also been established to evaluate
the success of a city, and hence its leadership, based on both its economic and
environmental development (Lo & Tang, 2006; Li & Lang, 2010).

Specifically related to enterprises in China, much emphasis has been placed on
energy-saving and emissions reduction (PRC, 2007; 2008; Lo, Fryxell, & van Rooij,
2009). Centralized sewage treatment facilities are built in urban areas; stronger
supervision and regulation are applied to require enterprises in major sectors to install

5
tertiary effluent-treatment facilities; a number of pollution-discharge and clean-
production standards are derived for various major polluting industries; enterprises
causing serious pollution (e.g., paper mills, chemical plants, textiles, printing and
dyeing enterprises, small thermal power units, outdated cement, steel, iron, and plate-
glass-making units) are phased out or shut down (PRC, 2007). Meanwhile, some
environment-friendly economic policies are also under development, including such
schemes as Environmental Pollution Liability Insurance and green credit policies
(PRC, 2007). Lately, various local governments have been urged to actively cut
emissions and energy consumption by providing enterprises with financial incentives
(PRC, 2008). From interviews conducted with small and medium-sized enterprises in
Guangdong (see below), we found a series of newly launched environmental
programs, such as Upgrading Enterprise Structures (產業結構升級), Saving-Energy-
Lowering-Emission (節能減排), Clean Production (清潔生產), and most recently,
Capital Rebate (資金返還).

In view of all these changes in such a short period of time, one could not help but ask:
How far are these various reform measures actually implemented? As we know from
experience, it is indeed very difficult, administratively or even intellectually
3
, for
local leaders to balance both economic and environmental performance (see UNDP
China & RUC, 2010). Great political obstacles, for example, are found in the central
government’s effort to hold local officials responsible for managing their cities’
environment (Li & Lang, 2010). This is especially the case in China, with the huge

3
See a separate project of the author on the urban transformation of the Foshan City, Guangdong (Yee,
2010).

6
bureaucratic resistance of its government machinery: as local governments often
possess information that gives them the advantage over the central government in
local affairs, local officials often respond to top-down instructions and supervision by
developing “alliances” with one another to sabotage the monitoring from the top
(Zhou, 2009, p. 47). As a result, the original intentions of state policies are often
compromised; “significant and persistent deviations and goal displacement in policy
implementation” are observed (p. 47).

Also, “political hurdles” (Economy & Lieberthal, 2007) are found in local provinces.
Despite the liberalization of the country’s economy, many of its formerly state-owned
enterprises are continuously owned by party members and/or local officials. As
Economy and Lieberthal (2007) reported in the Harvard Business Review, local
officials were found to be occupying important positions in local enterprises (p. 92),
giving rise to collusion between local governments and businesses. Furthermore, local
officials may
require that enterprises in their jurisdictions ignore [environmental]
laws and regulations in their quest for ongoing GDP growth. … [T]o
offset any fines the companies may have to pay for environmental
transgressions, officials cover up the resulting problems in their reports
to higher levels, interfere in local courts to prevent adverse rulings, and
bestow tax breaks, bank loans, and other financial support on affected
enterprises. (p. 92)

Although further empirical research is warranted to verify these observations, one
could cautiously discern how the country’s bureaucracy may delay and derail the
implementation of environmental policies stipulated by the central government.

7
Taking all these obstacles into account, how effective are various reform measures in
fostering behavioral changes in society, particularly among enterprises, a major
source of pollution emission and energy consumption in the country? How is the
progress of China’s environmental reform? How can we make sense of all these
changes? Will these changes be sustainable?

Plan of Study

A Firm’s Angle
The dissertation proposes to adopt a firm’s point of view to understand from the
bottom up the nature and effect of China’s recent environmental reform. Given the
various kinds of political and administrative obstacles such as those discussed above,
one might expect significant variations in the stringency of environmental
requirements in different industries, at different times and different locations. Also,
the extent of programs’ implementation may vary according to the political sensitivity
of the time, such as the case of the Olympic Games in 2008, around which tighter
enforcement of environmental laws and regulations was observed. Meanwhile, the
great variety of environmental programs introduced in such a short period of time is
indeed dazzling. As a matter of practical research constraint, one may be tempted to
trace the details of all the programs, while missing out the larger picture as well as the
long-term implications of the overall reform. Finally, and most importantly, many
studies in the literature have already designed inquires and evaluated some aspects of
the reform from a government’s perspective—analyzing, for example, government
enforcement strategies, regulatory styles and their effectiveness in various

8
environmental programs (e.g., Lo & Tang, 2006; Lo, Fryxell, & van Rooij, 2009;
Economy, 2006; Li, Miao & Lang, 2011; see next chapter). Thus, this dissertation
proposes to analyze the reform from a firm’s angle so as to better understand the
actual implementation process of various newly introduced laws, regulations and
policies, and hence their overall effectiveness.

Three Theoretical Perspectives
The dissertation proposes to adopt three theoretical perspectives to make sense of
three distinct but related aspects of the reform. Through an ecological modernization
perspective (see Mol, Sonnenfeld, & Spaargaren, 2009), the first study of the
dissertation places China’s environmental reform in the context of the larger global
trend of integrating ecological concerns into economic production. It examines
specifically from a firm’s angle the strength and nature of environmental demands
from various state, market, and civil-society actors in the country. This perspective
allows us to assess the social aspects of the country’s overall progress in greening its
economy. With this broader picture, the second study then moves on to look closely at
what actually motivates the environmental behavior of the enterprises operating in the
country. Building on the first study’s major finding that the state is playing a highly
important role in the reform, this study adopts a regulatory compliance perspective
(see Winter & May, 2001) to examine how government regulators affect these
enterprises’ compliance decisions in the existing developmental context. The third
study focuses on the interaction between government officials and enterprise at the
local level. As found in the second study, a major governing problem in China lies in
the discrepancy between policy plans and rules derived centrally on the one hand, and

9
their local implementation on the other. The study analyzes further from the
perspective of institutional change (see Kingston & Caballero, 2009) the implications
of this problem on the environmental reform overall.

Ecological Modernization

The first study of the dissertation seeks to provide a comprehensive overview of the
current state of China’s environmental reform. By adopting the perspective of
ecological modernization theory (EMT) (see Mol, Sonnenfeld, & Spaargaren, 2009),
the study seeks to place the reform within the global trend of integrating ecological
concerns into economic production, beginning in the latter half of the last century. In
comparing the reform process with international experiences, the study also hopes to
facilitate policy learning for reformers in China and other less developed countries.

EMT generalizes experiences of environmental reform from around the world,
including countries in Western and Eastern Europe and in North America, as well as
Southeast Asia (e.g., Sonnenfeld, 2000; Schlosberg & Rinfret, 2008; Frijins, Phuong,
& Mol, 2000). Originating in continental Europe, EMT stresses the “self-healing”
ability of the capitalistic economy and civil society in liberal democratic regimes
(Buttel, 2000; Mol, 2006). Among research efforts on China’s environmental reform
(see Wu, 2009 for an extensive review), EMT has also gained some currency among
both domestic and international scholars and researchers (Zhang, Mol, & Sonnenfeld,
2007; Mol, 2006).

10
EMT has broad coverage, describing the changing roles of the state, market, and civil
society in environmental development. Fundamentally, it argues for a practical
approach to reform, integrating progressively ecological concerns into existing social
structures and institutions within the general framework of modernization (Mol,
Spaargaren, & Sonnenfeld, 2009). An independent “ecological rationality” is to be
emancipated (Mol et al., 2009, p. 7, see also Giddens, 1990) through a less centralized
state with a more “negotiated” policy-making style (Jänicke, 2009), a more
environmentally conscious market with new industrial standards, greener lifestyles
and consumption patterns, as well as a more vibrant civil society that actively
monitors pollution problems and advocates for environmental protection (Buttel,
2000).

This comprehensive perspective helps us locate, measure and evaluate the progress of
environmental reform in China. The first study, as an overview, looks into the new
roles of political, economic, and civil-society actors in the reform process (see also
Mol, 2006). Accordingly, it extensively and systematically reviews the empirical
literature on the subject, which helps operationalize the conceptual language of the
theory and identify the gap between the theory and our empirical context.

Furthermore, the study proposes to gauge the overall reform progress by investigating
from a firm’s point of view. Since firms are the key agents in the field who actively
reconcile and integrate ecological claims into the economic system, collecting
evidence from this angle lets us measure more accurately the realized effect of the
changing roles of various social actors. Measuring environmental demands made on

11
the firms, as perceived by those firms, allows us to bridge the gap between
government policy claims and societal normative discourse on the one hand, and the
concrete changes actualized on the other.

As Oliver (1991) suggests, firms may react to external demands in different ways,
ranging from “passive conformity to proactive manipulation” (p. 145). Thus, in the
assessment, the study not only measured the firms’ perceptions of various
environmental demands, but also quantitatively matched them with their
environmental behaviors, as well as qualitatively describing the strategies they
employed in dealing with these pressures. The results of the empirical investigation
were then compared with the theoretical model of EMT.

The key finding of the study is that, similar to Mol’s (2006) conjecture, China has
begun to integrate environmental considerations into its economy. Yet the specific
dynamics and relevant actors in the reform process are different from what the theory
finds in Western Europe. Specifically, local governments are assuming a more formal
relationship with firms in policy implementation. Among market actors,
organizational buyers along the supply chain have exerted more noticeable pressure
on manufacturing firms than have industrial associations and individual consumers.
Civil society, while remaining less of an institutionalized actor in the environmental-
policy process, appears to pose a perceptible threat to at least some firms. Overall, the
analysis provides a comprehensive overview of the progress of various social aspects
of China’s environmental reform.

12
Regulatory Compliance

As found in the last study, among various social actors, local government actors in
China have been exerting the strongest pressure on firms for their environmental
behavior. The second study focuses on this important government-firm relationship,
and tries to further understand the nature of this influence.

China’s environmental reform takes place in the context of the country’s market
reform. Since the advent of Deng Xiaoping’s Gaige Kaifang (改革開放, Reform and
Open) Policy in the early 1980s, China’s economy has been gradually attaining more
and more market characteristics, successfully attracting hundreds of billions in foreign
direct investment from around the world. Even the country’s constitution has been
changed to secure the status of businessmen, various forms of business, and, more
recently, individual property rights. Despite these national and many other regional
and local reform measures, the state has meanwhile remained active and dominant in
coordinating, if not directing, various economic activities in the country (Clarke,
2007). Given this important historical context, how then are business firms operating
in the country affected by the central government’s latest commitment to reforming
its environmental governance (Lo & Tang, 2006; Lo, Fryxell, & van Rooij, 2009)?

This question set the stage for the second study of the dissertation. In furthering the
inquiry, this study draws on the regulatory compliance literature to understand what
usually motivates firms’ decisions in complying with governmental regulatory
demands. The literature has come to many important conclusions in the past four

13
decades. In brief, regulatees comply with the regulator’s demands because of their
self-interests to avoid potential legal sanctions (Becker, 1968), their own sense of
duty to obey the law, and the peer sanctions that may follow when they break the law
or the law’s underlying social norms (Scholz & Pinney, 1995; Grasmick & Bursik,
1990; Winter & May, 2001; May, 2004). Regulatees may as well comply proactively
and voluntarily if the government regulator pursues a flexible, cooperative regulatory
approach to develop a reciprocal relationship with the regulatees (Scholz, 1984a,
1984b; Potoski & Prakash, 2004; May, 2005).

With respect to our inquiry, the strength of the regulatory-compliance literature lies in
its theoretical comprehensiveness and its vigorously researched empirical findings. It
allows us to map and interpret accordingly the motivations that drive various local
Chinese firms’ compliance decisions. This is especially important for developing a
systematic account of China’s evolving environmental regulatory governance. A main
weakness of the literature, nevertheless, lies in its assumption that there exists the
mutual respect for the rule of law among the regulator and the regulatees in the
concerned regulatory situation. This implies in the regulatory situation, following
heuristically the “rule of law” definition of A. V. Dicey (1982), that (1) the
regulator’s use of power is guided and dictated by regulations; (2) regulations are
enforced consistently; and (3) the enforced regulations are reasonable and legitimate,
derived from common social practices and expectations.

Admittedly, the Chinese government has enacted extensive environmental laws and
regulations along the reform process (e.g., Beyer, 2006), and has been gradually

14
replacing its relatively ad hoc “campaign and administrative measure” approach with
a more formalized “legislation and regulation” approach to regulatory enforcement
(SEI & UNDP China, 2002; UNDP China & RUC, 2010; PRC, 2006, 2007, 2008,
2009). Yet the effectiveness of these legislations in actually guiding enforcement in
practice is often questioned (see above). In fact, the National People’s Congress only
in 1997 confirmed the rule of law as a main principle for the country’s governance
(Yu, 2010, p. 14). Also, the independence of the courts, essential as a check on state
interference in the private sector in many developed countries, remains largely a
political convention to be established (see Liebman, 2007). How then do all these
elements affect firms’ motivations in complying with the environmental demands of
the Chinese government?

To answer this question, the second study of the dissertation proposes an analytical
framework which distinguishes conceptually between reguation-stated and
regulation-enforced (see Ostrom, 2005b). This distinction seeks to capture the
regulatee’s perception of what, if anything, guides the regulator’s use of power in a
regulatory situation where the law does not predominantly rule. Based on this
distinction, and the existing literature, the study develops theoretical hypotheses to
further explore the corresponding implications for compliance motivations. The
framework is then applied to understand what motivates firms’ compliance decisions
in the environmental regulatory situations in China.

Some of the major findings in this analysis are that, in China’s current sitution, firms’
decisions to adopt environmental management practices are not significantly

15
associated with motivations related to formal environmental laws and regulations, nor
with the general environmental expectations in the society. Instead, they are positively
associated with the perceived punishment that firms expect they may receive in times
of non-compliance, negatively associated with the challenges they find in
understanding the regulation-enforced, and, notably, positively with the sense of
arbitrariness they perceive in regulatory enforcement. These results not only help us
understand what motivate firms’ responses to the state-led environmental reform, but
also provides important guidance on how the Chinese government may further its
effort to sustainably mitigate the environemntal impact of its fast-growing economy.
This leads to the next inquiry of the dissertation.

Institutional Change

As suggested in the beginning, decades of rapid economic growth have presented
China with many environmental problems. A major task in resolving this governance
problem, the third study proposes, is the establishment of a new rule of
“environmental protection”, which guides the economic activities of the huge
population of business firms operating in the country. The central government has
indeed successfully introduced a “surprisingly comprehensive” set of environmental
legislation in a fairly short period of time. These laws and regulations cover such
important aspects of environment protection as pollution controls over air, water,
solid waste, and noise, as well as the conservation of natural resources (Beyer, 2006).
However, no matter how “comprehensive” they are, these legislations remain, like
any other top-down national reform efforts, plans on paper, or “rules-in-form”, before

16
they are abided by in practice and thus become “rules-in-use” (Ostrom, 2005a;
2005b). In fact, for any successful reform, one cannot simply prescribe some rules
without addressing the practical challenges in the actual process of institutional
development. How can the Chinese government transform these new environmental
rules-in-form into rules-in-use?

To answer this question, the study suggests that there are three major practical
challenges in the rule-transformation process. The first stems from the large
administrative power given to the local government officials who are responsible for
carrying out policy plans and enforcing various legal requirements. Given the
country’s governing context, there is often a large discrepancy between various plans
and requirements derived centrally and their actualization locally. This
“implementation gap” has rendered many of the country’s formal environmental rules
unreliable for predicting the government’s use of its regulatory power. As the
literature tells us, a country’s regulatory effectiveness depends very much on whether
there exist some formal and/or informal institutional mechanisms restraining the
regulator’s “potential arbitrary administrative action” (Levi & Spiller, 1994; see also
North, 1990). How might local Chinese officials assure their policy targets—business
firms in this case—that their use of power will be reasonable? This question becomes
theses officials’ first and foremost governing challenge.

The second challenge concerns the collective inaction problem among the regulated
firms (Ostrom & Ostrom, 1971; Olson, 1965). A firm’s proactive engagement in
producing social benefits, or shouldering the cost of environmental protection, often

17
requires its investment of further resources and equipment. When the return on such
an investment is uncertain and may take a long time to materialize, it is likely that the
firm will free-ride on other firms’ efforts, lowering its own cost of production
(Potoski & Prakash, 2009b). Thus, when local government officials try to exercise
their regulatory power reasonably, they will also have to carefully consider strategic
calculation among the firms, resolving the coordination problem in the firms’
interactions.

The third major practical challenge involves the setting of standards in the rule-
implementation process. In transforming rules-in-form into rules-in-use, how can the
enforcer decide and justify the pace and extent of enforcement, and thus continuously
set the right standards over such a long period of implementation? Supposedly, the
governing flexibility given to lower level officials as a result of the country’s rather
centralized policy-making process allows room for dealing with variations in the local
policy and political environment. This implies, however, that in effect the various
standards written into policy plans and the larger body of laws and regulations are not
meant to be adopted directly in the field. How can local governments decide on the
exact standards they will uphold at different points in time, such that they will not be
too harsh, appearing to be abusing their policy power to the regulatees, or too lenient,
compromising the effectiveness of regulatory governance overall? This question
describes the third major challenge.

In the most recent government effort to promote environmental protection,
interestingly, we observed a surge of voluntary programs established at various levels

18
of government. They include programs derived for cities—for example, “Ecological
Garden City”, (Zhao, 2011) and “National Model City of Environmental Protection”
(Economy, 2006; Li, Miao & Lang, 2011; Zhao, 2011), as well as programs
specifically for enterprises such as “Cleaner Production”
4
. These government-
sponsored voluntary programs have been enjoying much popularity among various
local governments and their participants, and have identified a great number of
exemplars in environmental protection of various kinds all over the country. Why do
these programs receive such an enthusiastic endorsement? How do these programs
resolve the various challenges in the rule-transformation process described above, and
contribute to the overall reformation of environmental governance?

The third study of the dissertation seeks to provide preliminary answers to these
questions. To do so, it first models the strategic interaction among government
officials and business firms at the local level using game-theoretical techniques. It
then reports and analyzes the operation and reception of the voluntary programs in
Guangdong Province from an institutional perspective (Ostrom, 2005b, Greif, 2006,
Searle, 2010). This theoretical analysis of the empirical findings shows that the
identification of exemplars through voluntary programs allows local regulators to
utilize the natural heterogeneity among the policy targets, and the industrial
information originally owned privately by the exemplars, to convey the viability of
the enforced standards in actualizing various laws and work plans. It also confers
reputation benefits to program participants as well as signals to the policy’s target

4
People’s Republic of China Cleaner Production Promotion Law. (2002). Retrieved March 23, 2012,
from the webpage of the Ministry of Environmental Protection of the People’s Republic of China,
http://zfs.mep.gov.cn/fl/200206/t20020629_84834.htm.

19
population that many others are contributing to the regulatory goal, resolving the
collective-inaction problem among the regulated firms. Finally, with the performance
of exemplars as the upper boundary of their maximal enforcement, the regulator
demonstrates to the regulatees that he is not regulating arbitrarily. The exemplars
serve as a living but objective reference for the regulatees to judge the regulator’s
enforcement. Overall, this flexible and relatively low-cost regulatory enforcement
strategy complements the more open, legalistic regulatory approach that is under
construction in China.

Data for the Dissertation

The dissertation employs data collected from a large-scale questionnaire survey and a
series of semi-structured interviews with senior executives of Hong Kong-owned
small and medium enterprises that maintain manufacturing operations in the Pearl
River Delta region of Guangdong.

The aim of the survey was “to gain an understanding of the realities of corporate
environmental management as well as to solicit [their] views and opinions on the
corporate environmental management in [their] company”. The survey questions were
designed and administered in 2007 by Professor Shui Yan Tang at the University of
Southern California and Professor Carlos Wing-Hung Lo at the Hong Kong
Polytechnic University (see Appendix B). The questionnaire, endorsed by the
Federation of Hong Kong Industry (FHKI), the Business Environmental Council, and
the Department of Management and Marketing at The Hong Kong Polytechnic

20
University, was sent by mail to the most senior executive of each company listed in
the FHKI’s 2007 Members’ Directory. A total of 1,800 questionnaires were sent and
377 responses were received, a response rate of 21 percent.

The aim of the semi-structured interview, meanwhile, was to understand why and
how environmental management practices were adopted in the operations of these
companies. The interviews were conducted on the premises from January to June
2010 with a selected sample from the same group of firms above. Interview questions
were designed and sent to the interviewees in advance by the author. The interviews
were conducted together with Professor Carlos Wing-Hung Lo, with follow-up
questions raised based on interviewees’ responses during the interviews. We
interviewed representatives, mostly senior executives, of a total of 17 companies with
outstanding environmental performance, recognized publicly by various
environmental awards they received (see Appendix A). Each of the interviews lasted
for about an hour.

Business firms with manufacturing operations in the Pearl River Delta (PRD) of
Guangdong were targeted as the subject of investigation because they are likely to be
the most sensitive to various firm-level environmental reform measures in the
country. The region has been one of the most important manufacturing centers in
China. Home to tens of thousands of manufacturing plants, it has been dubbed the
“World’s Factory” for over two decades. Since its establishment as a Special
Economic Zone in the early 1980s as a result of the Gaige Kaifang (Reform and
Open) policy, the area pioneers various modern industrial and capitalistic

21
management practices. This historical background has allowed the region to become a
leader among other provinces in terms of its reform progress and environmental
performance (see UNDP China & RUC, 2010) (much as the State of California
became a leader of national environmental reform in the U.S. in the 1970s and 1980s;
see Mazmanian & Kraft, 2009). The region thus serves as an important “extreme
case” (Flyvbjerg, 2006), allowing us to examine the frontier of the reform.

Hong Kong-based enterprises, in particular, are chosen for the studies because of their
intimate knowledge of the Chinese culture and their long historical presence in the
region since the early establishment of the Special Economic Zone. Compared with
multinational corporations, companies owned by Hong Kong investors are more
rooted in the local community, as their owners and executives are Chinese and most
of them have spent a substantial amount of time residing in the mainland. Compared
with their mainland counterparts, enterprise owners and executives from Hong Kong
are likely to be more exposed to international environmental trends and ideas; their
opinions and practices represent arguably the most active and advanced response to
various reform measures. As the Chinese economy becomes increasingly integrated
with the rest of the world, these people help us foresee the future trajectory of the
country’s reforms of environmental governance.

Chapter Plan

The dissertation consists of five chapters. This first chapter introduces China’s recent
environmental reform effort and its context, explains the rationale of the dissertation,

22
and provides an overview for the three proposed studies. Chapters 2, 3 and 4 are
respectively made up of the three studies as described above. Chapter 5 summarizes
the findings, suggests possible lines of future research, and concludes.

23
Table 1.1 Environmental Pollution and Destruction Accidents
Item
Year
COD emission
(million tons)
SO
2
emission
(million tons)
Total number of Pollution &
Destruction Accidents (time)
2005 14.14 25.49 1406
2006 14.28 (+0.9%) 25.90 (+1.6%) 842 (-67.0%)
2007 13.82 (-3.2%) 24.68 (-4.7%) 462 (-45.1%)
2008 13.21 (-4.4%) 23.21 (-5.9%) 474 (+2.6%)
2009 12.78 (-3.3%) 22.14 (-4.6%) - -
Sources: PRC (2006, 2007, 2008, 2009); UNDP China & RUC (2010).

Table 1.2 Major Industrial Environmental Regulatory Instrument/Program in China
Year Title of program/instrument C&C EI VI ID
Before 1990s
1979 Concentration-based pollution discharge limits X
Environmental Impact Assessment X
Three Synchronizations policy X
Pollution Levy System X
1988 Total pollutant mass load control X
1989 Ecological damage compensation system X
Centralized pollution control X
Pollution control within deadlines X
After 1990s
1991 Environmental labeling X
1992 Sulfur dioxide emissions fee (pilot program) X
1993 Cleaner Production X
1996 Two Compliance Policy X
1997 ISO 14001 X
1999 Commercialized industrial pollution treatment X
2003 Emissions trading X
Environmental information disclosure of selected
enterprises
X X
Award for national environmentally friendly
enterprises
X
Environmental performance verification of
applications for public listing or refinancing in the
stock market
X
Eco-industrial park pilot program X
Adopted from Shi & Zhang (2006). C&C = command and control; EI = economic instrument; VI =
voluntary instrument; ID = information disclosure.

24
Chapter 2
Assessing the Progress of Ecological Modernization:
Stakeholder Demands and Corporate Environmental Management Practices
5

During the past three decades of rapid economic growth, China has suffered from
devastating environmental degradation. Throughout this period, most scholarly and
popular publications have painted a rather pessimistic picture of the trends and the
likelihood of their reversal in the near future (e.g., Economy, 2004). Yet somewhat
more optimistic views on the prospects for reversal have emerged in the past few
years given the Chinese government’s increased commitment to fighting pollution and
promoting renewable energy, the public’s increased concerns regarding the adverse
consequences of pollution, and domestic and international civil society’s increased
involvement in promoting environmental protection in China (see Economy, 2006;
Ho, 2006).

Among various perspectives for assessing these changing environmental-governance
landscapes in China (see Wu, 2009 for review), ecological modernization theory
(EMT) has gained some currency both internationally and domestically (Mol, 2006).
European scholars, for example, have organized scholarly forums to examine the
theory’s applicability to China (e.g., Environmental Politics, 15(2)). Within China

5
The chapter is a modified version of a paper I co-authored with Lo and Tang. The paper is accepted
for publication in The China Quarterly. See Yee, W. H., Lo, C. W. H., & Tang, S. Y. (Forthcoming).
Assessing ecological modernization in China: Stakeholder demands and corporate environmental
management practices in Guangdong Province. The China Quarterly.

25
itself, researchers at the prestigious Chinese Academy of Sciences have also utilized
EMT to assess environmental reform in China (Zhang, Mol, & Sonnenfeld, 2007).

This chapter compares key EMT arguments against the reality of recent
environmental reform in China. In particular, it examines the changing roles of
government, market, and civil society actors in the reform process, focusing on the
various types of pressure they exert on business enterprises. The assessment is based
on data collected through a questionnaire survey and a series of semi-structured
interviews, conducted in 2007 and 2010 respectively, with executives of Hong Kong-
owned firms with manufacturing plants in the Pearl River Delta in Guangdong
Province. The data cover their perceptions of environmental demands made by
various stakeholders, their strategic responses to these demands, and the
environmental management practices they have adopted.

The chapter found that while continuing to focus on the bottom line, some firms have
begun gradually to integrate environmental considerations into their business
decisions and management processes. Yet, similar to what Mol conjectured (2006, p.
35), the specific dynamics and relevant actors in China differ somehow from what
EMT suggests to be the case in Western Europe. Specifically, local governments are
assuming a more formalized relationship with firms in regulatory enforcement.
Among market actors, organizational buyers along the supply chain have exerted
more noticeable pressures on manufacturing firms than industrial associations and
individual consumers. Civil society, while remaining less of an institutionalized actor

26
in the environmental policy process, appears to pose a perceptible threat to at least
some firms.

This chapter first reviews the EMT and related literature on environmental
governance in China. It then reports on the findings from the survey and interviews
linking corporate executives’ perceptions of stakeholder environmental demands and
the adoption of corporate environmental management practices. Finally, it compares
the findings with the theoretical model of EMT.

Ecological Modernization, Stakeholder Pressures, and Corporate Responses

Originally developed to assess the prospects for enhanced environmental governance
in continental Europe, EMT stresses the self-healing ability of the capitalist economy
and civil society in liberal, democratic settings (Buttel, 2000). It argues for a practical
approach to integrating ecological concerns into existing social, economic, and
political institutions, while retaining the general framework of modernity (Mol,
Spaargaren, & Sonnenfeld, 2009). Presumably, this approach will lead to the
“emancipation” of an “ecological rationality” from the dominating economic
rationality in capitalism (2009, p. 7; also Dryzek, 1987). Against other, more critical
theories, such as neo-Marxism and deep ecology, which doubt the possibility of an
environmentally sound capitalism, EMT maintains a moderate reformist approach,
suggesting a scenario of “reflexive modernization” (Spaargaren, Mol, & Sonnenfeld,
2009, pp. 501-520, esp. pp. 509-511; Mol & Jänicke, 2009), in which various social
actors adjust their roles within the mode and relations of capitalist production

27
(Spaargaren & Mol, 2009). This scenario is not characterized as a “top-down,
centralized, hierarchical, command-and-control” process, but one moving towards
“decentralized, flexible, and consensual styles” (Mol, 2006, p. 34; also Jänicke,
2009). This trajectory of development corresponds to the governmental reform reality
of continental Europe in the last few decades.

This reform-from-within model also calls for more environmentally conscious
markets through the adoption of new industrial standards. It suggests that such market
actors as “producers, customers, consumers, credit institutions, insurance companies,
the utility sector, and business associations” are becoming “social carriers of
ecological restructuring, innovation and reform”, utilizing “market, monetary and
economic logics in pushing for environmental goals” (Mol, 2006, p. 35).
Technological advancement will presumably be able to gradually convert a remedial
approach to environmental challenges (e.g., “end-of-pipe” pollution mitigation) to a
more proactive one (e.g., use of preventive, cleaner production techniques), ultimately
transforming businesses’ means of production on the supply side (Mol & Jänicke,
2009, p. 21). On the demand side, meanwhile, EMT envisions greener living styles
and consumption patterns from consumers (Buttel, 2000; also Spaargaren & Cohen,
2009).

Drawing on the experiences in Western Europe, EMT scholars identify a growing
array of non-state actors, and an institutionalization of their participation in
environmental decision making (Fisher, Fritsch, & Andersen, 2009). From being
purely confrontational, new civil society actors have evolved to monitoring and even

28
collaborating with state and market actors. These deepening interactions led to the
spillover of environment concerns across industries (van Tatenhove & Leroy, 2009),
the creation of a vibrant civil society engaging in green advocacy (Buttel, 2000;
Jänicke & Jörgens, 2009), and hence the “societalization” of environmental politics
(van Tatenhove & Leroy, 2009, pp. 200-201), in which environmentally related norms
and discourse spread beyond the “professionals and core supporters of environmental
NGOs” (Mol, 2006, p. 35).

Given its broad coverage, EMT has been criticized from multiple angles, leading
some proponents to acknowledge the “Eurocentric” origin of their claims, and to
search for variations across cultural and national settings (e.g., Sonnenfeld, 2000;
Schlosberg & Rinfret, 2008). Based on an extensive literature review, for example,
Mol (2006) found that China’s reform path differs in style from that of Europe. While
highlighting the overall patterns of the process, Mol’s analysis does not explore in
detail the important theoretical-empirical linkage of how and to what extent firms,
supposedly core “social carriers” (Mol, 2006, p. 35) of ecological modernization, are
able and willing to integrate ecological concerns into its economic operations and
embedded institutional contexts.
6

To build on Mol’s analysis, this chapter seeks to assess the progression of ecological
modernization in China by examining how executives perceive green pressures from a
variety of stakeholders—government, market, and civil society actors. Firms may

6
Notably, Stalley (2010) adopts a similar angle to see if the theoretical argument of “racing to the
bottom” stands in China by tracing carefully the environmental influence of FDI and multinational
corporations. The book also provides a good overview on China’s latest environmental development.

29
adopt different strategies, ranging from acquiescence and compromise to avoidance,
defiance, and manipulation, in response to institutional demands generated from
external stakeholders (Oliver, 1991). Based on various internal and external factors,
firms may respond to environmental demands from some stakeholders by improving
their environmental management capacities to meet their expectations, but they may
also respond to others by evasive or resistant strategies. Thus this study asks
specifically (1) to what extent Chinese firms have adopted strategically effective
environmental programs in their production and business models in response to
different arrays of stakeholder pressures, and (2) how Chinese firms with outstanding
environmental performance managed to integrate ecological values into their
economic operations. Answers to these firm-level questions provide a useful angle for
assessing the possible progression of ecological modernization in China. Before
presenting the findings on corporate responses, the chapter first reviews briefly the
recent empirical literature on China’s environmental reform process and how it
informs our expectations on firm-level practices.

China’s Environmental Reform

Overall, China has been relatively successful in developing a market economy with
Chinese characteristics, a success further consolidated by recent constitutional change
(Clarke, 2007). Along with the development of a comprehensive set of environmental
laws and regulations (see Beyer, 2006), the country has also experienced a gradual but
steady institutionalization of its environmental administration, particularly in the last
two decades (see Chapter 1).

30

Government Actors
The current literature, nevertheless, protrays a mixed picture on the patterns of
interactions between government actors and business enterprises. On the one hand,
some studies documented a lack of strong incentives for local governments to monitor
industrial pollution and enforce environmental regulations, given their vested interests
in the local economy (Economy & Lieberthal, 2007), severe coordination problems
among agencies (Ohshita & Ortolano, 2006), and the pervasive effects of guanxi (關
係, personal informal relationships) on government-business relations (Ma &
Ortolano, 2000). Especially in less economically developed areas, officials have often
“disregarded” environmental standards while trying to attract external capital (Stalley,
2010, p. 15). The persistent gap in the implementation of national laws and policies at
the local level (Zhou, 2009) has led some scholars to recommend more flexible
approaches like national campaigns as possible means for promoting corporate
environmental management (van Rooij, 2006).

On the other hand, more current literature has begun to identify areas of progress. As
noted by Stalley, despite China’s ongoing effort to attract foreign direct investment, it
has resulted in neither “a widespread race to the bottom nor a systemic regulatory
chill” (2010, p. 13). Instead, the Chinese government has legislated a comprehensive
set of environmental laws and regulations (Beyer, 2006), and created more
institutional incentives for local governments to promote environmental protection—
for example, the “environmental quality administrative leadership responsible
system” (Lo & Tang, 2006), the “two separate lines for revenues and expenses”

31
budgeting system that discouraged local environmental protection bureaus (EPBs)
from focusing on revenue generation at the expense of genuine efforts in pollution
reduction (Lo & Tang, 2006),

and more recently, Green GDP, an appraisal/accounting
system measuring the performance of local governments against various
environmental indicators (Li & Lang, 2010). While still strongly motivated to support
economic growth, local government officials (mayors and vice-mayors) now have
increased incentives to pursue economic growth in a more ecologically sustainable
way, pushing firms, especially those in more developed areas, to assume more
responsibility for pollution prevention and mitigation. In some more economically
developed provinces, such as Guangdong, local EPBs are reported to be adhering
more rigidly to formal legal requirements (Lo, Fryxell, & van Rooij, 2009). But
independent confirmation is yet to be found in the current literature, particularly from
the perspective of the regulated enterprises, on this change in enforcement styles.

Thus it is evident from the current literature that enterprises, especially those in more
economically developed areas, are likely to experience substantial pressures from
local government entities to improve their environmental management practices. Yet
precisely how these pressures are transmitted between the government entities and
the enterprises remain to be explored.

Market Actors
Earlier research showed that enterprises in China had begun to go beyond remedial
pollution treatment (Ortolano, Cushing, & Warren, 1999) and some may feel
pressured to follow suit as their competitors go green (Zhao & Ortolano, 1999). Some

32
studies noted the potential impact of international buyers (Mol, 2006) and the
emerging “consumer class” (Martens, 2006; Davis, 2005) on corporate environmental
and supply chain management (Zhu, Sarkis, & Geng, 2005; Zhu, Sarkis, & Lai,
2007). Others also indicated that multinational corporations in China are more likely
to adopt higher environmental standards and to push firms in their supply chain to do
the same, though the extent of such influence on their local partnering firms is
unknown (Stalley, 2010, esp. Chapter 4 & 5).

Yet many enterprises lack knowledge on how “cleaner production can be used as a
factory-wide management strategy for cutting costs and increasing profits” (Warren,
Ortolano, & Rozelle, 1999). As many widely publicized enterprise-level
environmental programs, such as Upgrading Industrial Structures (chanye jiegou
shengji, 產業結構升級), Saving-Energy-Lowering-Emission (jieneng jianpai, 節能減
排), and Cleaner Production (qingjie shengchan, 清結生產), were initiated by the
central government (Shi & Zhang, 2006, esp. 282, 285), it is unclear whether many
enterprises know how to implement them. While featured prominently in the western
literature, the role of other market actors, such as industrial associations, competitors,
shareholders, and employees, in shaping corporate environmental management has
seldom been a focus of scholarly studies on China.

Thus it is evident from the current literature that some market actors, such as
international buyers, are likely to have an influence on corporate environmental
practices in China, but the relative influences of different actors and their specific
patterns of interactions remain to be explored.

33

Civil Society Actors
In China, the number of environmental NGOs has grown dramatically in recent years
(Tang & Zhan, 2008; Yang, 2005), but the vast majority of them have remained non-
adversarial and non-confrontational, staying as “expert or awareness-raising
organizations” (Mol, 2006). While the Chinese media have been paying more
attention to pollution problems in recent years (Shi & Zhang, 2006), they are often
seen as cautiously self-censoring (Martens, 2006; Lin, 2010). Local residents have
increasingly utilized legal channels for complaints against polluting sources (Lo &
Tang, 2006; also Tilt, 2007) and protested collectively against environmental
degradations (e.g., O’Brien, 2008; Stalley & Yang, 2006). Recent analyses, however,
cast doubts on the complaint system (Warwick & Ortolano, 2007), and suggest that in
China’s “semiauthoritarian context a form of ‘embedded social activism’ which
emphasizes the use of diffuse and informal networks to gain legitimacy and promote
‘graduate change’ is more likely to grow the Chinese civil society” (Ho & Edmonds,
2007).

Thus it is evident from the current literature that enterprises are likely to face
increasing pressures from civil society actors to improve their environmental
management practices, but whether and how these pressures are translated into
actual corporate practices remain to be explored.

34
Research Methods

As detailed in Chapter 1, the analysis of this chapter draws on data from a large-scale
questionnaire survey and a series of semi-structured interviews conducted in 2007 and
2010 respectively with small and medium-sized manufacturing firms operating in the
Pearl River Delta (PRD) in Guangdong Province. Dubbed the “World’s Factory” for
over two decades, the PRD is home to tens of thousands of manufacturing plants,
which differ widely in their environmental performance. The region also leads the
nation in regard to environmental reform, in much the same way as the State of
California in the United States was the frontier of national environmental reform in
the 1970s and 1980s (Mazmanian & Kraft, 2009). The region thus serves as a useful
“extreme case” (Flyvbjerg, 2006, p. 230) for identifying the frontier of environmental
modernization in China. Given the vastness and geographical diversity of China,
experiences in Guangdong Province are not necessarily representative of those across
the country. Yet Guangdong’s experiences provide useful clues for assessing the
developmental trajectory of the rest of China.

Hong Kong-based enterprises are particularly suitable for the study because of their
intimate knowledge of Chinese culture and their long historical presence since the
establishment of Special Economic Zones (SEZs) in the late 1980s. Compared with
multinational corporations, companies owned by Hong Kong investors are more
rooted in the local community, as their owners and executives are Chinese and most
have spent substantial time residing in the mainland. Compared with their mainland
counterparts, enterprise owners and executives from Hong Kong are likely to be more

35
exposed to western ideas; their opinions and practices arguably represent the frontier
of ecological modernization in China as the Chinese economy becomes increasingly
integrated with the rest of the world.

The survey was conducted in 2007 in cooperation with the Federation of Hong Kong
Industry (FHKI). The survey questionnaire was sent by mail to the most senior
corporate executive of each company listed in the FHKI’s 2007 Members’ Directory.
Among the selected 1,800 Hong Kong-owned firms with manufacturing operations in
the region, 377 firms responded, representing a response rate of 21 percent.
Meanwhile, a semi-structured interview method was employed to investigate the
strategies firms adopted in reaction to various environmental demands. From the same
population above, a total of 17 firms with outstanding environmental performance, as
indicated by the environmental awards they received, were chosen for interview
because this group of firms arguably represents the frontier of ecological
modernization in China (see Table 2.1 for a list of the key characteristics of the
interviewed firms). In the majority of the interviews, more than one senior executive
or manager was present. Senior executives were interviewed because they are likely
to be involved in their company’s overall strategic decision making. All the
interviewees were knowledgeable about or directly in charge of their companies’
environmental management. When the most senior executive was not sure about how
to answer specific technical questions, other company officials present in the
interviews were able to answer them directly. The firms that participated in the survey
and interviews were diverse in terms of size and the industries they represent (see
Table 2.1 and Table 2.3).

36

Extent of Environmental Demands from Different Stakeholders

In the survey conducted in 2007, business firms were given a list of 11 stakeholder
groups in three major categories—government, market, and civil society. Firms were
asked to assess the extent to which they agreed or disagreed that these stakeholder
groups had “made demands” on them to “develop better environmental protection
measures”. Perceived demands were measured on a 7-point Likert scale ranging from
“strongly disagree” to “strongly agree”. The answers were originally labeled from 1 to
7 and are now transformed correspondingly into -3 to +3 for intuitive presentation.

As shown in Table 2.4, from the perspective of the surveyed firms, the two
stakeholder groups from the government category (the “local EPB” in particular and
“the local government” in general) are perceived to have exerted the greatest
environmental demand on the firms. This is followed by the three key groups from
the market category (“customers”, “shareholders”, and “industry associations”).
Three key groups from the civil society category (“community via legal actions”,
“media organizations”, and “community via other means”) rank the lowest. More
tellingly, the average scores for all the civil society groups are below “0”, indicating
that the surveyed firms generally disagreed with the statement that these groups had
made demands on them to develop better environmental protection measures.

37
Perceived Pressures from Stakeholders
and the Adoption of Environmental Management Programs

Perceived pressures may not automatically translate into actual environmental
management practices. It is important to understand the relationships between
perceived stakeholder pressures and firms’ incorporation of environmental
management programs. Thus, the surveyed firms were given a list of 16
environmental management practices (EMP) (see Table 2.2) and asked to determine
to what extent these practices have been integrated within their business model. A
seven-point scale was used (1=Never considered; 2=Considered, but no action taken;
3=Experimented with, but did not adopt; 4=Have adopted, but does not seem to be a
priority; 5=Adopted and emphasized; 6=Fully integrated into all functions of the
company; 7=A way of life). By adding the reported scores of these practices together,
we developed the composite index EMP adoption (Alpha = .949) that measures the
extent to which a firm has integrated environmental protection into their operation.

In the regression model, various stakeholders’ environmental demands (as discussed
above) were regressed toward the dependent variable EMP adoption using the
Ordinary Least Square method. In addition, three control variables were introduced:
top management attitude, export-orientation and financial status (see Table 2.2).
Given the decision-making authority of a firm’s top management members, their
attitude toward environmental protection is likely to influence the firm’s decision to
go green. Also, since international environmental standards, such as those from
Western Europe and North America, tend to be higher than the corresponding

38
standards in China, it is suspected that an export-oriented firm is more likely to follow
international standards and adopt various EMPs. Finally, as returns on environmental
investments usually take a long time to materialize, firms with a healthier financial
status are likely to be more willing to invest in EMPs. Thus, the effect of financial
status was also controlled for in the model (see Table 2.6).

Table 2.5 presents the regression models on EMP adoption. Model 1 includes only the
control variables. Model 2 also includes the various variables of stakeholder demands.
The fit of the resultant model increased (adjusted R-Square changed from .395
to .472). The model showed reasonable explanatory power (F = 18.123 and adjusted
R-Square = .472). The problem of multicollinearity was suspected a priori. The
variation inflation factors (VIF) were checked for each independent variable, and all
of them were less than 5, indicating that the model is acceptable (see Studenmund,
2006).

Significant associations were found between EMP adoption and local Environmental
Protection Bureau, community via other means, as well as the control variables top
management attitude and financial status. The positive coefficient of local
Environmental Protection Bureau indicates its effective demands on a firm’s decision
to adopt EMPs, a finding that echoes what was reported by the interviewees. The
negative coefficient of community via other means indicates a negative relationship
between demands from such sources and EMP adoption. Seemingly, firms adopting
fewer environmental management practices tend to worry more about pressures from
the community. This particular finding is compatible with what was learned from the

39
interviews, namely that the community was more reactive than proactive in
advocating for environmental protection. Notably, customer and shareholders were
found marginally insignificant (p < .15 for both variables), indicating limited, but
perhaps growing, influences from both of these market actors.

Firms’ Responses to Pressures from Different Stakeholder Groups

Executives from a group of environmentally progressive firms were interviewed, and
a range of strategies can be identified among their responses to different types of
stakeholder pressures.

Government Actors
Local government and local environmental protection bureaus. Government
actors may apply pressure on firms in different ways, which in turn may trigger
different types of responses. One type of pressure relates to actions by government
officials that have less to do with promoting environmental protection than with
promoting the officials’ own interests and agendas. As mentioned by one interviewee,
this type of action has become less frequent in Guangdong Province, but is still
common in other regions. His company’s factory in a large northeastern city was
often visited by local government officials, who would raise with them various
operational issues such as suggesting the adoption of a certain ventilation system, but
without explaining how these issues related to specific laws or regulations. Then they
would ask his company to hire their affiliated consulting firms to address the issues,
presumably as a way for them to make money on the side.

40
[What about the influence of the recent saving-energy-lowering-
emission policy?] Large. Weizhou [in Guangdong] is already quite
good. The officials will not come specially to visit you. But in the
Dalian factory, local municipal government officials came and
visited us to ask us, ‘your company … ICP, ventilation … though
you have done it, we want you to do it better.’ But they would not
bring up a law to talk to you. … ‘We have a number of consultancy
companies. Try one of them’. … Actually they would like to make
money.
7

When asked about how his company handled such situations, he said that they would
just use various delaying tactics to fend off such unreasonable demands, and they
would say that they already had many programs such as ISO9001 and ISO14001 in
place and would develop new programs, such as OSHA18001, in the near future.
According to this interviewee, his company was not the only one that had received
such visits; many other companies in that jurisdiction had faced similar situations.
8

The other type of pressure relates to regularized (legitimate) enforcement by EPB
officials. Several of the interviewees reported an increasingly impersonal and
formalistic approach to enforcement by local EPBs in Guangdong. In the past it was
possible to avoid compliance by paying relatively small bribes to officials (e.g.,
“serving a meal” or “giving a gift”)
9
. More recently, enforcement in Guangdong
Province (but not necessarily in other provinces) has become more rigid and
standardized. Two interviewees mentioned that compared with those in other
provinces in which they had manufacturing plants, the local EPBs in Guangdong had
been stricter and more businesslike. EPB officials usually would not visit factories

7
Interview with A.
8
Interview with A.
9
Interview with K.

41
unless specific regulatory issues arose. But that was not necessarily the case in other
jurisdictions.
10
Another interviewee mentioned that environmental requirements in
Guangdong Province are more stringent than those in eastern China, where his
company has manufacturing plants. His factories in that part of the country have
lower environmental management standards, but he plans to transfer the technology
developed in the Guangdong plants to the plants there in the future.
“[Will there be a different demand from local governments of other
jurisdictions in which you have manufacturing plants?] Yes,
certainly. For example, Guangdong province will be stricter and
more stringent. … For example, for some plants in East China, not
that we have not done it, but there is less pressure. … We will
transfer the technology to other plants from South China to East
China. The [environmental] benefit will be transferred. Although the
government does not require that much, the technology is there.
11

More stringent enforcement has created, in some cases, substantial economic burdens
on the firm in terms of the sizable investments needed to meet the requirements. Some
were reportedly required, but not assisted, by government officials to “increase
productivity without increasing pollution”; firms that failed to meet the requirements
would be punished by being refused further pollution-emission permits. According to
the interviewee, this

“has eliminated a lot of small and medium-sized factories”.
They require us to increase productivity without increasing pollution.
They just issue executive orders and they will not teach you. Otherwise,
they will not assign you the permit [for pollution emission]. This has
eliminated a lot of small and medium factories. … Thirty years ago, no
one cared about you. Twenty years ago, one might serve a meal or give
a gift. They [the government officials] would pretend to be not seeing
anything.
12

10
Interview with A.
11
Interview with B.
12
Interview with K.

42
Among firms that are more established and have a reputation for being more
environmentally proactive, some have been selected by their local EPBs as “models”
for showcasing to other firms and external constituencies.
13
As local governments
have been subject to increasing pressure from their political/administrative superiors
to show off their work in environmental protection, local EPBs have put more
pressure on some companies to partner with them in being such models, while other
firms are often invited to visit and learn from these “exemplar” firms.

Interviewees from two firms, one from the electronics industry and one from the
garment industry, mentioned that they had worked closely with local EPB officials in
developing industry standards. One involved the development of a Chinese version of
the RoHS (the Restriction of Hazardous Substances Directive)
14
that was originally
developed in Europe; the other involved the dispatch of employees to the
development of water and energy consumption standards for a specific type of
weaving.
15

Some firms also reported being “invited” by the EPB to participate in the Clean
Production (qingjie shengchan, 清潔生產) Program,
16
in which the EPB works
closely with participating firms to develop environmental management programs
together. As one interviewee reported, at times when the local government “launched

13
Interviews with B, C, D, E, F, H & K.
14
Interview with C.
15
Interview with K.
16
Interview with K.

43
some new regulations or really wanted to enforce some existing ones”, his company
was identified as the “dragonhead” (longtou, 龍頭) enterprise and asked to be a model
factory; in these situations, the EPB officials “participated”, “gave advice”, and
“supported” the company.
Provincial or municipal government identified us as the dragonhead
(longtou, 龍頭) enterprise. Very often when they launch some new
regulations, or really want to implement some regulations, they find us
as the model factory…Very often, the regulations from the government
will give us pressure. … Very often it is in the format of cooperation. …
She [the government] participates, and sends experts to give us advice.
She does not just let you finish it all by yourself; she participates and
supports. [What if you cannot achieve it?] We work out some solutions
together. In some situations we figure out solutions together, rather than
just asking us to figure it out ourselves.
17

Not all firms would enthusiastically welcome such opportunities, as they create extra
burdens for firms, but some interviewees mentioned that such programs may help
them cultivate good personal relationships (guanxi, 關係) with the local government.
One interviewee, for example, mentioned that they had less difficulty than other
companies in obtaining a continuous supply of electricity after they had cultivated
good guanxi with the government.
18
In another case, the relationship had actually
become formalized, with the company using money from the Capital Rebate (zijin
fanhuan, 資金返還) program to set up a fund to help the district government to
process domestic wastewater. An interviewee explained:
We may have polluted the neighborhood but we also help them to
improve it. This is a virtuous circle. And the government welcomes this
very much. We hope that in return we will easily gain approval for more

17
Interview with B.
18
Interview with A.

44
quotas and have the leaders’ support. … It’s a strategic plan so that we
can increase our emission quotas and production amounts in the future.
19

Market Actors

Customers. Customer demands do have a major influence on a firm’s decision to go
green, but there is a subtle but important distinction between demands from
organizational buyers and from individual consumers.

Compared with individual consumers, organizational buyers have a much stronger
influence on firms. Several interviewees mentioned being pressured by organizational
buyers to “imitate” overseas firms that have adopted more advanced environmental
management standards. One company, for example, mentioned that what initially
drove it to go green in the early 2000s was the WEEE (The Waste Electrical and
Electronic Equipment Directive) and RoHS requirement of the European Union—
together with the potential penalty for not meeting the requirements and demands
from its organizational clients. Yet, as the company began to adopt more advanced
green production technologies, it gradually discovered various economic benefits
associated with lower emissions and energy use, leading the company to become an
environmentally outstanding company.
It was a coincidence that [the company] started to go onto the path
of green. In the very beginning, it was the WEEE and RoHS
requirement of the EU that drove [the company] to go green. The
punishment associated with the requirement, the subsequent demand
from clients, and the development of a global trend generated [our]
decision in around 2001-2003. With growing environmental
awareness, more benefits were discovered over lower energy use

19
Int erview wit h K.

45
and emission. All these laid the path for [the company] to become
an environmentally outstanding company.
20

Another interviewee mentioned that some of their EU clients had their own brand
names and were committed to “social responsibility”. As a result, his company has for
years strived to achieve international standards, including ISO9001 and ISO14001.
Hence, because of its environmental reputation, even though his company is not big,
it compares favorably with large-scale contract manufacturers. Although price and
quality remain important, the company’s environmental reputation helps it attract
businesses from other brand-name companies and lower the barriers for entering new
markets.
A few reasons: a number of our clients have their brand. They have
their “social responsibility”. … Along the years, our company
strives to adhere to the standard, and is actively trying to achieve
international standards. For example, ISO 9000 or ISO 14000, …
we are doing as good as all those larger-scale contract
manufacturers. Other brands come to select us. We have a
comparative advantage. Not absolute, but relative. For sure, we still
have to look at price and quality. But the first step, … the entry
barrier becomes smaller, [it becomes] easier to obtain an entry
ticket.
21

An interviewee reported that his company’s Japanese buyers have been demanding
higher environmental standards through annual audits. Since it has invested in green
production, including supply chain management and other energy-saving measures,
the company is prepared to meet these higher standards.
22
Three other interviewees
also mentioned that going green could show their buyers that their products and

20
Interview with J.
21
Interview with C.
22
Interview with Q.

46
production were “reliable”, creating better client relationships and new business
opportunities.
23

Some other firms reported that their decisions to go green were not because of
specific pressure from organizational buyers, but a result of anticipating increasing
demand from overseas buyers. Thus they developed environmental strategies at a very
early stage when compared to their peers.
24
One interviewee reported that his
company decided to go green in as early as 1998, and commented that other
companies in Hong Kong and the mainland were “slow” in this regard.

In 1998, the company was aware that clients and society would be
demanding more and more in environmental protection. While
others were asking, “Why we do environmental protection so
early?” … Our company had already been making large investments
on it. In Japan, even a steel company tried to link itself to the
protection of the natural environment … NEC put flowers and fruits
in its product catalogue… Then I realized all our clients, no matter
whether they are Japanese or European, had treated environmental
protection as very important. Firms in Hong Kong and the mainland
were relatively slow in this regard.
25

Another company was eager to go green at a quicker pace than others, in order to
“capture the first wave of business”, even when the corresponding legal requirement
was not yet in place.
Since 1996, we have been doing it step-by-step. We have our R and D
team, and material exploration. … We are China’s first group of
factories to obtain ISO 14000. All our management systems … are
beyond requirement. The company is eager to go green faster [than
others], and the result is good… We would like to capture the first
wave of business. We do not want to be slow; our clients need this,

23
Interviews with F, G, & N.
24
Interview with C & H.
25
Interview with H.

47
asking us “How fast can you do it? 6 months? Or, can you do it in 3
months?” …Even when the law was not yet in place, within 3 months,
we were already doing it.
26

It is the business acumen of the company’s management rather than demands from
specific stakeholders that drives its initial environmental strategy.

Meanwhile, environmental demand from overseas organizational buyers has also
prompted firms to manage their local supply chains to ensure compliance with
international standards.
27
One company, for example, mentioned the huge challenge
of disciplining its local suppliers to provide materials that meet the European standard
of RoHS and HSPM (Hazardous Substances Process Management). The company
spent a “non-trivial” amount of resources requesting that its suppliers attend their
seminars, teaching them the standards, testing thousands of materials, monitoring
more than 200 suppliers, and finally obtaining the necessary certification.
“HSPM … 194 materials. Many elements. Implementation was quite
difficult, since we have to implement RoHS at the same time. Very
hard… Let's skip the detail. It has spent us a long time. The main
difficulty was at managing the suppliers. … We managed the suppliers
by teaching them. We asked them to come to our seminars, pushed
them forward. … Even for testing we have already around 5000
materials. We needed to eliminate non-compliance material, and
monitor more than 200 suppliers. Finally, we obtained the certification.
We spent non-trivial resources on it. … When people ask what our
biggest challenge is? It is supplier.
28

Another company also reported that some of its suppliers felt compelled to meet
international standards. In response, the company set up “regular vendor qualification

26
Interview with A.
27
Interviews with C, E, G, & Q.
28
Interview with E.

48
requirement meetings” with them, and threatened them with potential legal action if
they failed to meet the agreed-upon environmental standards.

In the past we did not emphasize very much on incoming materials.
We had been using reputable suppliers. … But once EU began to
require us to run RoHS, we have organized vendors briefing meetings.
Some mainland suppliers said, “Oh, we do local business only”, as we
are in Zhuhai, “China to China, why do we need EU standards?” So
we had to deal with these suppliers. We want them to meet the ultimate
demands of our customers… There will be regular vendor qualification
requirements to make sure they know and will work on it—not just
declaration, but legal responsibility. We know what you are doing, but
if you deliberately violate it, we will sue.
29

When asked if they have perceived increasing demand from individual consumers in
China for eco-friendly products, most interviewees indicated that the trend has just
barely begun. One, for example, commented that his company competes with others
in terms of many product features—costs, beauty, appearance, etc.—and
environmental protection, in his words, is still “virgin territory”. Yet he did anticipate
that as society gets richer, people will consider others’ interests more, and
environmental protection will become more important.
From a commercial point of view, in the market, we have many [areas
of] competition: cost, product, beauty, appearance. … Only
environmental protection is still a virgin ground. Not many people pay
much attention to it. … As China develops its economy, people in the
village become richer. … They will consider more other people’s
interests. And environmental protection will then be more and more
emphasized…
30

29
Interview with C.
30
Interview with I.

49
Another example concerns a bedding company, which had just designed its first eco-
product line. However, due to uncertainty about the potential consumer response, the
company had decided to launch the product without using its own brand name.
31

No matter whether it comes from organizational buyers or individual consumers,
customer demand acts as a major structural boundary that determines the extent of
corporate commitment to environmental protection. As explained by an interviewee
from a firm with a strong reputation for environmental management, even though his
firm treats green technologies as a key element that can help to differentiate its
products, when they have to choose between the environment and market share, the
choice depends, in his words, on “how much room the market allows us to engage in
environmental protection. After all, we are still a business operation. When there is
room, we try our best to do it”.
32
Another interviewee at a company with high
environmental commitment said his company has been proactively promoting
environment-friendly products to its buyers, despite their limited interests.
“[How about pressures from buyers? Since when?] It is continuous.
Since when we [started to] do environment protection, we push them
too, we offer this [paper product], say, … less material… thin and light
and also have the protective ability … not increase weight in
transportation. … [All these means that] The world is saving! … A lot
of differences are in here, the chain effect, this is a supply chain,
[consumer pressure] depends on how you see it. … Sometimes, it is
passive; sometimes it is active. We try our best to push them [the
buyers].
33

31
Interview with L.
32
Interview with C.
33
Interview with F.

50
In sum, although customer demand can motivate firms to go green, it also sets the
limit on how far firms are willing to go.

Industrial associations. From the perspective of our interviewees, industrial
associations are not a source of pressure for environmental protection per se, but they
may serve as an information source, through various award and information-sharing
programs for outstanding environmental performance.
34
High-performing firms may
use industrial associations as a forum to show other firms their practices and
experiences in dealing with international environmental standards, and to send a
strong message on the importance of these standards.
35
Hence, industrial associations
seem to have served as knowledge-sharing platforms among some firms.

Major competitors. The perceived influence of competitors was noted by some of
the interviewees. One, for example, noted in a circumscribed tone that his company
believed its newly developed green technologies gave it an edge against its
competitors.
36
An interviewee at another company stated explicitly that its self-
developed technologies were a “business secret” and that he would not share it with
others.
37
Another interviewee mentioned that they discovered that many “byproducts”
in the production process can be reused, and that this had saved them lots of money.
He also anticipated that his company’s green technologies would put it steps ahead of

34
Interview with P.
35
Interview with J.
36
Interview with J.
37
Interview with K.

51
its competitors as environmental protection becomes a bigger and bigger societal
concern.
38

Employees. Environmental concerns related to employees were often linked to issues
of turnover, and in some cases broadened to include health, work conditions, and
employees’ general wellbeing. One interviewee opined that employees nowadays
“care about happiness first and wages second”. Thus, the company has built “a better
culture”, and has provided the staff a “more colorful life” and “better work and living
environments”, which give the company an edge in attracting new staff, even when
turnover rates in general are quite high.
The turnover of our employees is quite large. Most of them are only
children in their respective families. We have a better culture. They
have a more colorful life here. And we provide them a better living and
work environment. In terms of employing new staff we have an edge
here. It is much easier for us to hire staff. And we have examinations
and test the staff when they come in. They prefer happiness first and
wages second.
39

Another company mentioned that as training costs money, his company has been
more willing to invest in developing better working conditions in its chemical
laboratory as a way to retain employees, thus indirectly reducing the environmental
impact of production.
Staffs in our factory change their job very quickly… In our chemical
lab… girls do not want to stay in the chemical lab. And they have that
[health] concern. … We spent a lot of money to find agents to do
[improvements]… Now we, in 2006, added to it… those ventilations at
the lab bench. Every factory spent $300,000. To retain them [the
female technicians], we teach them so many things. … We do not want

38
Interview with I.
39
Int erview wit h D.

52
the employees to leave. Hope going green can give a safe feeling and
encourage colleagues to stay in the company. It is a benefit.
40

Shareholders. The interviewees did not mention specifically how shareholders have
influenced their environmental management decisions. Yet two interviewees
mentioned the role of boards of directors. One mentioned that board members in
many companies are not highly committed to environmental protection, making it
difficult for the executives to make it a top priority.
When people ask what is our biggest challenge? It is suppliers. But this
does not apply to other companies. For most other companies, it is
management commitment. Board members may not like it. It is a
complicated dynamic to make the board commit to it.
41

Another reported that other directors on the board had rejected his proposal to
increase investment in green technology, questioning whether his proposal reflects his
personal interest rather than that of the company.
[Quoting other board directors] ‘You [referring to the interviewee
himself] are just doing it for yourself… You have all these
appointments from the government… Doing this is just for your
personal interests. This does not help our company in making profit…’
And the decision to [pursue] further investment got rejected. It is hard
to deal with it.
42

Finally, all interviewees from these progressive firms mentioned that through
adopting environmental management practices, their companies were able to save on
production costs to some extent by lowering the use of resources and energy,
including water, electricity, coal, chemicals, raw metals and fabric, as well as

40
Int erview wit h A.
41
Interviews with D, E, & N.
42
Interview with M.

53
manpower. To their surprise, some discovered this benefit during the process of going
green;
43
some saw it more as a justification or simply a fringe benefit of their
commitment to environmental protection;
44
some have even incorporated energy-
saving as the company’s core business strategy.
45
Many interviewees mentioned the
importance of innovation in developing various cost-saving measures,
46
and some
were proud to share these measures with the interviewers.
47
Yet, even among these
progressive firms, some complained about the relatively long time it takes for
economic benefits to materialize, and saw that as an obstacle to further investment in
green technologies.
48

Civil Society Actors
Environmental interest groups. Asked about reasons for going green, none of the
interviewees mentioned environmental interest groups. But two did briefly mention
their participation in educational/awareness-promotion activities organized by
environmental NGOs as a way to show their commitment to environmental
protection.
49
Apparently, since the interviewees were from firms with outstanding

43
Interviews with D, I, & L.
44
Interviews with A, C, E, F, G, L, N, & P.
45
Interviews with J, K, & O.
46
Interviews with A, B, C, D, E, F, G, H, I, J, K, L, N, P & Q.
47
Interviews with C, E, H, I, J, K, N, & P.
48
Interviews with G, & K.
49
Interviews with C & F.

54
environmental performance, they did not perceive as much demand from
environmental interest groups as from government and market actors.
50

Media organizations. The growing importance of media organizations as
environmental watchdogs was noted by some of the interviewees. One commented
that media organizations are quite eager to report on pollution incidents, often referred
to them by residents in the local community. Reporters are increasingly motivated to
report pollution incidents as their stories are likely to be picked up by other press and
media outlets.
51

Firms differ in their concern over potential media exposure: specifically, firms that do
not have their own brands appear to worry much less about environmental pressure
from the media as interviewees from these companies never mentioned media
pressure as a concern. But firms that sell their own branded products directly to
consumers, i.e., original design manufacturing (ODM) firms, tend to be more
concerned about negative exposure. An interviewee from such a company, for
example, mentioned the recent drug-poisoning event of Po Cha Pills (保濟丸), an old
Chinese medicine for easing abdominal pains, indicating that his company is very
careful about anything that may tarnish the reputation of its products.

50
Nonetheless, we note the growing influence of some prominent environmental interest groups.
Greenpeace in China, for example, recently published in its annual report a list of the most polluting
firms in the Pearl River Delta. Subsequently, three out of the five identified firms “were blacklisted by
the local Environmental Protection Bureau” (Greenpeace, 2009, p. 13). Further research is needed to
determine the influence of environmental interest groups, especially on firms with relatively poor
environmental performance.
51
Interview with K.

55
“How much is 100 minus 1? … It is 0! It is because nowadays the
ripple effect is very strong. You see for some older companies, [hinted
the recent food-poisoning event of a well-known local pharmaceutical
company, Po Cha Pills (保濟丸). … Therefore we are very careful to
ensure the safety of our products.
52

The community through legal and other means. The site visits found that not all
manufacturing firms are equally susceptible to community pressure, because many
have been relocated to industrial areas equipped with centralized treatment plants, far
away from residential areas. Those that stay close to residential areas
53
are more
likely to be subject to tight government monitoring.

When asked about pressure from the community, some of the interviewees mentioned
the increased numbers of formal complaints (through government hotlines) by local
residents against individual firms. Although formal citizen complaints have increased
dramatically in recent years (Lo & Tang, 2006), interviewees tended to dismiss them
as efforts by residents to gain monetary compensation. In the words of one
interviewee:
Citizens will complain, and the rewards can be quite high. The
monitoring from the community … is good. After reporting an accident,
they will further report it to the press, and every paper will cover it.
54

While acknowledging the monitoring role of citizens, many firms tend to see citizen
complaints as opportunistic in nature, and less as the legitimate expression of societal
concerns.

52
Interview with I.
53
Interview with O.
54
Interview with K.

56

Overall, when the corporate interviewees mentioned “community” or “society”
(shehui 社會), they tended to consider themselves, in line with traditional Confucian
logic, as leaders of their respective communities. As such, they felt obliged to “pay
back to society” (huikui shehui 回饋社會) and “be responsible” (you zeren 有責任)
to the next generation (c.f. “intergenerational solidarity”, Mol & Sonnenfeld, 2000),
and to improve the living standards of their own employees and the local
community.
55
These linkages seem to reflect the influence of the emerging national
discourse on Confucianism.

A Brief Summary of Stakeholder Environmental Demands
Table 2.7 presents a convenient overview of the interviewees’ comments with respect
to environmental demands from market and civil society actors.
56
About half of the
respondents (8 out of 17) reported that major environmental requirements were made
by their organizational buyers, while a few of them (3) said that their environmental
efforts were partly to avoid potential threats on their businesses. About half of the
respondents (7) reported that engaging in environmental production increased
business opportunities, and around the same amount (8) reported that going green
could enhance their corporate image or the confidence of their customers. Yet, there
were suggestions that direct tangible benefit from their environmental efforts had yet

55
Interviews with A, C, D, F, G, H, I, K, M, N, & P.
56
Detailed analyses of interviewees’ comments with respect to environmental demands from
government actors are presented in Chapter 3 and Chapter 4.

57
to materialize (3), while others had encountered structural limitations in the market
for their further environmental efforts (3).

Concerning the environmental demands they made through their supply chain, three
of the interviewees reported that they managed their supply chains through green
procurement; six mentioned that they managed through education and legal means;
while six mentioned prioritization and considering the needs of suppliers. Among
them, four employed more than one of these methods.

With respect to employees, three of the respondents suggested that there were major
environmental education programs derived in their companies. Also, three of them
perceived emerging environmental demands among new hires. Less than half (6) of
the interviewed companies actively involved employees in environmental
management.

With respect to the influence of their competitors, three interviewees reported that
going green could help them stay ahead of their competitors, while three of them
admitted explicitly that it could help them become leaders in their industries. Two
interviewees suggested that they avoided sharing environmental technological know-
how with others in the industry.

As to their concerns over the interests of their shareholders and board members, a
great majority of the interviewees (15) reported that environmental management
practices helped lower their production costs, whereas less than half of the

58
interviewees (6) acknowledged the need to balance environmental investment with
conflicting shareholder interests.

Meanwhile, seven interviewees considered industry associations as platforms for
sharing regulatory-compliance information and environmental-management
experience with the industry, while five of them saw industrial associations as
platforms for uniting the industry and potentially effective channels for promoting
environmental management practices to the industry.

With respect to civil society actors, only two mentioned that they participated in
educational/awareness-promotion activities organized by environmental interest
groups. One of them saw the media as a platform for sharing environmental
management experience, whereas two of them considered it a forum that is
increasingly interested in reporting environmental malpractices, and can have
important potentially damaging effects on the company’s reputation. Finally, only two
suggested that there were emerging environmental demands from the community.
Yet, a great majority of respondents felt that their environmental efforts could fulfill
their responsibility to the community and society (12), as well as to the next
generation (3).

Discussion

To assess the applicability of EMT to China, this chapter has examined how the
changing roles of government, market, and civil society actors have affected corporate

59
environmental management practices in Guangdong Province. Consistent largely with
the core thesis of EMT, economic rationality is no longer the only organizing
principle in the Chinese economy. Government, market, and, to a lesser extent, civil
society actors have made more environmental demands on business enterprises and in
some circumstances led the latter to adopt more progressive environmental
management practices.

Compatible with EMT, the environmental governance system in China has become
highly decentralized. As the regression result shows, the perceived demand from the
municipal EPB, rather than that from the local government, is more strongly
correlated with a firm’s decision to adopt better environmental management practices.
The interviews show similar results: municipal EPBs have become the key
government actors that interact with enterprises on a regular basis.

Yet regulatory enforcement has become more formalistic and impersonal.
Requirements, punishments and even rewards for regulatory compliance are
formalized through new standards such as China RoHS, the control of pollution-
permit issuance, threats of closure, as well as innovative programs such as Capital
Rebate. This emergent pattern of regulatory enforcement in China diverges greatly
from the more flexible style in Western Europe.

Some new programs have also helped EPBs impose more stringent environmental
standards on the private sector. Even for a seemingly rewarding scheme such as Clean
Production, leading firms in an industry could be asked to join and to work with

60
government experts to develop operational solutions together. These interactions
represent less a partnership than a cooperation-cum-supervision relationship, in which
government officials also solicit industry-specific expertise for setting higher but
more operable standards for individual industries. Such a new regulatory style, at least
at the Guangdong frontier, does not seem to be following a consensual, negotiated
policy making style as described in EMT.

There were reportedly considerable regional disparities in the progress of regulatory
reforms. In many places outside Guangdong, officials’ personal interests have
continued to drive regulatory enforcement. If there is a frontier of ecological
modernization among Chinese government actors, it is probably in terms of making
enforcement stricter and more rigorous.

From an EMT perspective, the internal dynamics of capitalism could drive various
market actors to become key “social carriers” of ecological modernization. Strong
evidence was found to be supporting EMT’s claim that firms, at least among most of
the environmentally progressive firms interviewed, are the key innovators in
ecological modernization. They not only invested substantially in environmental
management, but also managed to balance such efforts pragmatically with their
company’s business interest by introducing various innovative and cost-saving
measures in the production process, or by incorporating green production as a major
corporate straegy. This, however, is not a prevalent phenomenon in China, because as
shown in the regression analysis, a firm’s decision to develop environmental
management practices is closely related to the firm’s strong management commitment

61
to environmental protection (instead of pressures from various market actors). Thus
individual firms’ entrepreneurial spirit, business accumen, and independent resolution
play a key role in China’s ecological modernization process.

In the survey, the perceived demand from market actors ranked below that from
government actors, but above that from civil society actors. Although the overall
effects of market actor demand may have been mild, the findings from interviews
revealed some emerging trends. Supply chains, for example, appear to be a major
channel through which ecological rationality may spread in China. International
organizational buyers from the West, prompted by laws, regulations, and consumer
sentiments in their own countries, have begun to apply stricter environmental
standards on their manufacturers in China, who in turn find it necessary to push their
local suppliers to adopt stricter standards. These findings contribute to the existing
literature by detailing the difficulties and the specific solutions undertaken by
individual firms to meet the immerse challenge presented to them. Largely consistent
with what EMT suggests, capitalist forces are helping to advance, though very slowly
and not without challenges, a tide of “ecological rationality” from international buyers
to other smaller producers down the supply chain.

Yet some fundamental dynamics of capitalism may potentially hinder the process of
environmental modernization in China. For instance, pressure from competitors and
the skeptical attitude of a firm’s board of directors can slow down the adoption and
diffusion of green production practices. Although industrial associations can
potentially serve as platforms for sharing best environmental practices, they are not

62
perceived, at least at China’s current stage of development, as exerting direct pressure
on individual firms to go green. It will probably take some time for an ecological
rationality to be widely shared among market actors in China.

More importantly, basic economic logic, rather than any truly transformational
ecological rationality, remains the key driver for the adoption of environmental
programs of most companies in China. Even among executives of some “exemplar”
firms, their environmental actions are often justified by such economic factors as
saving costs, lowering transaction risks, enhancing competitive advantages, and
increasing market share. Creating a healthy work and living environment for
employees was framed as a means for reducing employee turnover; going green was
conceived as market strategy; green production techniques were carefully guarded as
business secrets; customer demand remained the structural boundary of a firm’s
commitment to environmental protection
57
. Instead of “[using] market, monetary and
economic logics in pushing for environmental goals” (Mol, 2006, p. 35) as in EMT’s
European model, the trend in China has mostly involved the use of environmental
means to achieve economic ends.

In the European model, civil society actors contributed proactively to ecological
modernization. Firms in China perceived much fewer direct environmental demands
from civil society groups than from government and market actors. None of the
interviewees mentioned demands from NGOs, media organizations, or the community
as the main reason for their companies’ decision to go green. Contrary to many recent

57
See Vogel (2005) for similar observations.

63
speculations about its increasing importance, civil society has remained an
insignificant source of environmental pressure on firms.

Although enterprises may not have developed better environmental management
practices primarily because of perceived pressure from civil society groups, some of
the interviewees did mention their awareness of increasing media reports and citizen
complaints against pollution. The survey shows a negative association between
perceived demands from the community (through non-legal means) and EMP
adoption. It is unlikely that perceived demand from the community leads to lower
effort in corporate environmental management; rather it is likely that better-managed
firms have rather low chances of being a target of direct citizen protests and, as a
result, perceive less direct pressure from the community. Yet if a firm has poor
environmental management practices, it may become an object of citizen complaints
and protests.

In the interviews with EPB officials in Guangdong Province in another research
project, regulatory enforcement officials said that they had been spending more and
more time responding to citizen complaints in recent years (see Yee, Lo, & Tang,
forthcoming).
58
Although citizen complaints against pollution may not be a direct
motivating force for enterprises to improve their environmental practices, such
complaints may motivate local EPBs to pressure enterprises to improve. In addition,
recent large-scale demonstrations against the spread of unsafe consumer food (e.g. the

58
To maintain anonymity, references will be provided upon request.

64
“poisonous powdered milk” incident
59
) have also prompted the central government to
intervene on behalf of the consumer public and crack down on regulatory violations.
All these signs point to the increasing importance of community engagement as part
of ecological modernization in China.

Consistent with traditional Confucian ideas and their recent revival in national
discourse, many of the interviewees see themselves as leaders of their respective
communities. For them, civil society is not an independent force to be reckoned with,
but a recipient of their benevolence in the Confucian sense. Adding a new dimension
to the existing civil society literature, these findings show that the cultural contexts of
China’s ecological modernization are fertile grounds for future research

Conclusion

Table 2.8 provides a summary of the main arguments from EMT regarding the roles
of government, market, and civil society actors in ecological modernization, and the
extent to which these arguments apply to recent environmental reform in China. The
table shows that, compatible with Mol’s (2006) conjectures, ecological concerns have
gradually gained a foothold in existing political, economic, and to a lesser extent
social institutions. Yet the relevant actors and their patterns of interactions differ from
what EMT generalizes from Western European experiences.

59
See, e.g., J. Zhang (2008).

65
In terms of government reform, China has adopted a decentralized approach, parallel
to the suggestions of EMT, by which regulatory enforcement responsibilities are
vested with local EPBs. Considerable disparities exist across different regions in
China, with Guangdong Province progressing faster towards higher environmental
standards. Yet unlike the EMT prescription for more negotiated, flexible, and
consensual styles of regulatory enforcement, interactions between governments and
enterprises in China have become stricter and more formalized, related more to
transferring industry-specific expertise to governments.

On the market front, most surveyed firms decided to go green out of their own
commitment to the environment, while evidence for the institutionalization of
ecological values into China’s economic structures remains weak. Organizational
buyers along the supply chain have exerted more noticeable pressure on
manufacturing firms than industrial associations and individual consumers.
International buyers have influenced the environmental practices of not just their
direct manufacturers, but also smaller producers down the supply chain. Yet it is still
basic economic logic, rather than any truly transformational ecological rationality,
that seems to drive most companies’ environmental programs.

In contrast to EMT and many recent speculations, civil society actors have remained
less of an institutionalized actor in the environmental policy process in China.
Although there have been increasing numbers of media reports and citizen complaints
on pollution, enterprise executives seldom see these societal pressures as the main
reason for adopting better environmental practices. Instead, they seem to follow

66
Confucian logic and see their environmental protection measures as a sign of their
benevolence to society.

67
Table 2.1 Characteristics of the Interviewed Firms
Name Date of interview Year of
est.
Number of
employees
(approx.)
Size (HKD,
approx.)
Nature / Industry Interviewee
A February 22, 2010 1981 2,500 n/a Wire and cable products Assistant Manager, Environment, Health
and Safety
B February 24, 2010 1969 15,700 Sales (2008)
= 6.1B
Textiles and garments Project Manager; Corporate
Communications and Investor Relations
Manager
C March 4, 2010 Early
1980s
> 4800 n/a After-market printer
consumables
Chief Operations Officers
D March 12, 2010 1992 > 1,200 Capital (2003)
= 156M
Printed circuit board services
and products
CEO, Chairman; Quality Systems
Assistant Manager; Financial Controller
E March 23, 2010 1963 n/a Confidential Home, medical and health
care electronic products
Managing Director
F March 29, 2010 1982 18,000 Confidential Printing and paper products Director, Environment, Facilities and
Outsourcing Management
G March 29, 2010 1974 6,000 n/a Lingerie materials and
accessories suppliers
Technical Director
H March 29, 2010
(by FHKI)
1987 > 2,000 n/a Precision metal-stamping
products
Chairman
I March 30, 2010 1888 n/a Sales (2009)
= a few billions
Sauce products Director of Engineering and
Manufacturing Services; Engineering
Manager; Corporate Communication
Manager
J April 7, 2010 1986 > 8,000 Sales (2008)
= 3B
Electronics manufacturing
services
Chairman & Senior Managing Director
K April 9, 2010 1997 > 6,500 Sales (2010)
= 5.8B
Customized knitted fabric in
textile industry
Chairman
L April 12, 2010 1974 n/a n/a Home textiles Chairman; Deputy Managing Director;
contracted environmental consultant

68

M April 12, 2010 1985 > 16,000 Sales (2009)
= 24B
Products in home
improvement and
construction industries
Group Vice Chairman, Executive
Director
N April 19, 2010 1953 n/a n/a Fabric and yarn production Director
O April 21, 2010 1969 n/a n/a Plastic and metal stationery
supply
Director
P May 14, 2010 1964 9,800 Sales (2009) =
4.7B
Batteries and battery-related
products
Director; environmental manager A &
B*
Q May 17, 2010 1975 8,000 n/a Metal stamping, tooling
fabrication and product
assembly
President; environmental manager*
* Exact title missing.

Table 2.1 Continued

69
Table 2.2 Variables and Measures
Variables Measures
EMP adoption
(Alpha = .949)
Respondents were given a list of corporate environmental management practices and
asked: “How well integrated are the following activities into your company’s business
model?” The response scale for these questions ranged from 1, “never considered”,
through the midpoint “have adopted, but does not seem to be a priority” to 7, “a way
of life”. The items are:

- Sponsorship of events about environmental protection
- Company displays about environmental programs
- Incorporating ecological themes when marketing some of our products
- Routine environmental audits
- Recycling of waste streams
- Environmental training for managers
- Environmental training for operatives
- Using filters and other emission controls in our production processes
- Participation in government-sponsored environmental programs
- Setting environmental performance objectives as part of our annual business plans
- Including environmental performance measures in our management evaluations
- Preparation and release of environmental reports
- Developing a certifiable environmental management system (e.g., ISO 14001)
- Measuring key aspects of the environmental performance of our business
- Scientifically assessing the life-cycle impact of our products
- Making investments in clean production technologies
Top management
attitude
(Alpha = .746)
Respondents were asked to rate, from 1, “strongly disagree” to 7, “strongly agree”
with the following statements. The score is aggregated by summation to indicate the
top management commitment to environmental protection.

- We recognize that the company has an ethical responsibility to adopt better
environmental protection measures.
- We are personally interested in developing and implementing environmental
protection measures within the company.
- We want to be viewed as leaders in environmental protection in our industry sector.
- Many top-level managers in my company are personally and actively involved in
developing environmental policies and monitoring their implementation.
- In my company, business success is defined predominantly in terms of profits, sales
growth, and market share (reverse).
- In asking ourselves if we have been a successful as a company, we usually think
about whether we’ve made a positive contribution to society and to people’s quality
of life.
- Environmental protection is mainly the responsibility of the government – it is not
really a business responsibility (reverse).
Export-orientation

Firms were asked to indicate “the percentage of [their] product sold to overseas
markets”. Whether a firm is export-oriented was coded as a dummy variable, with 1
denoting firms than export more 50% of their product, and 0 otherwise.
Financial status

Firms were asked about their yearly profit in 2006. Choices were given ranging from
“making a serious loss” (denoted as -2) to “making a substantial profit” (denoted as
2). The higher the score, the more profit a firm made in 2006.

70
Table 2.3 Descriptive Statistics
Variable Mean S.D. Min Max N
EMP adoption 57.19 21.72 57.19 111.00 290
Local government .43 1.38 -3.00 3.00 308
Local Environmental Protection
Bureau
.58 1.41 -3.00 3.00 310
Customers .21 1.61 -3.00 3.00 308
Industry associations -.08 1.51 -3.00 3.00 306
Major competitors -.41 1.49 -3.00 3.00 307
Shareholders .00 1.53 -3.00 3.00 307
Employees -.41 1.38 -3.00 3.00 308
Environmental interest groups -.24 1.40 -3.00 3.00 305
Media organizations -.78 1.44 -3.00 3.00 306
Community via legal action -.65 1.47 -3.00 3.00 305
Community via other means -.99 1.40 -3.00 3.00 305
Top management attitude 14.45 3.89 1.00 27.00 306
Export-orientation .71 .45 .00 1.00 310
Financial status .30 1.20 -2.00 2.00 305
Firm size (employees): <100 = 13.5%; 100-999 = 46.5%; 1000-4999 = 30.1%; >5000 = 9.9%.
Industry: Plastics: 17.3%; Electronics: 18.9%; Textiles & Dyeing: 12.5%; Chemical, Paper,
Electroplating, Cement: 7.1%; Others: 44.2%

Table 2.4 Graphical Representation of Perceived Stakeholder Demands (Mean)

71
Table 2.5 Regression Models on EMP Adoption

EMP adoption
Model 1 Model 2
Stan. Beta T Sig. Stan. Beta t Sig.
(Constant) 1.325 .186 1.857 .065
Top management attitude .588*** 12.369 .000 .513*** .000
Export-orientation .117** 2.506 .013 .060 .196
Financial status .122** 2.556 .011 .088* .056
Stakeholder demands
Local government -.044 -.452 .651
Local Environmental
Protection Bureau
.225** 2.285 .023
Customers .096 1.513 .132
Industrial associations .077 1.084 .280
Major competitors .019 .263 .793
Shareholders .105 1.520 .130
Employees -.043 -.603 .547
Environmental interest groups -.061 -.818 .414
Media organizations -.068 -.918 .359
Community via legal action .034 .388 .698
Community via other means -.171** -2.041 .042
R-Square .402 .500
Adj. R-Square .395 .472
F 61.358*** 18.123***
* significant at .1 level; ** significant at .05 level; *** significant at .01 level

72
Table 2.6 Pearson Correlation Coefficient

EMP
adoption
2 3 4 5 6 7 8 9 10 11 12 13 14
2. Local government .245
3. Local Environmental
Protection Bureau
.302 .871
4. Customers .294 .399 .430
5. Industry associations .309 .495 .493 .551
6. Major competitors .154 .463 .403 .599 .629
7. Shareholders .352 .464 .417 .551 .647 .593
8. Employees .194 .447 .417 .577 .612 .675 .649
9. Environmental interest
groups
.142 .542 .548 .341 .548 .530 .480 .610
10. Media organizations -.016 .372 .363 .415 .537 .513 .373 .495 .564
11. Community via legal action .036 .520 .485 .346 .505 .572 .400 .561 .733 .673
12. Community via other means -.112 .340 .302 .304 .409 .572 .322 .484 .588 .732 .778
13. Top management attitude .604 .128 .135 .199 .310 .128 .350 .197 .195 .062 .065 -.002
14. Export-orientation .135 .181 .202 .157 .144 .118 .099 .107 .135 .017 .083 .065 -.003
15. Financial status .216 -.015 .009 .096 .055 -.019 .062 .035 .018 -.007 -.027 -.078 .182 -.018

EMP
adoption
2 3 4 5 6 7 8 9 10 11 12 13 14
2. Local government .245
3. Local Environmental
Protection Bureau
.302 .871
4. Customers .294 .399 .430
5. Industry associations .309 .495 .493 .551
6. Major competitors .154 .463 .403 .599 .629
7. Shareholders .352 .464 .417 .551 .647 .593
8. Employees .194 .447 .417 .577 .612 .675 .649
9. Environmental interest
groups
.142 .542 .548 .341 .548 .530 .480 .610
10. Media organizations -.016 .372 .363 .415 .537 .513 .373 .495 .564
11. Community via legal action .036 .520 .485 .346 .505 .572 .400 .561 .733 .673
12. Community via other means -.112 .340 .302 .304 .409 .572 .322 .484 .588 .732 .778
13. Top management attitude .604 .128 .135 .199 .310 .128 .350 .197 .195 .062 .065 -.002
14. Export-orientation .135 .181 .202 .157 .144 .118 .099 .107 .135 .017 .083 .065 -.003
15. Financial status .216 -.015 .009 .096 .055 -.019 .062 .035 .018 -.007 -.027 -.078 .182 -.018

73
Table 2.7 Environmental Demands from Market and Civil Society Actors*

Stakeholder Demands Findings
Market Actors
 Customers
Organizational buyers’ environmental requirement reported (e.g., international regulations; buyer’s internal audit;
certification requirements)
A, B, G, J, M, O, P, Q
Environmental production effort increased business opportunities (e.g., sales increased, early demand captured, new
customers attracted)
A, C, D, H, I, M, P
Direct tangible benefit from environmental effort yet to materialize (e.g., competitive advantage, new business
opportunities)
K, N, L
Limitations encountered in the market for further environmental efforts (e.g., further investment, new products) C, F, O
Intangible benefits reported, environmental production effort enhances corporate image, customer confidence B, D, F, G, P, H, M, Q
To avoid potential threats to the business (e.g., alerted by incidents of hazard materials found in products of other
companies)
A, C, I
 Supply chain management
Managing through green procurement (e.g., sourcing; buying from known brands) B, I, K
Reported difficulties in supply chain management; achieved through education and legal means (e.g., creating supply chain
organizations, vendor briefings, demanding formal declarations, regular audits)
C, E, F, H, N, Q
Reported difficulties in supply chain management; achieved through prioritization and considering also the needs of
suppliers (e.g., distinguishing key suppliers; considering the risk involved, incremental demands; providing incentives)
F, H, I, O, P, Q
 Employees
Derived major environmental education programs in the company D, G, H
Actively involved employees in environmental management (e.g., empowerment; information sharing among factories;
strong initiatives found beyond top management)
C, D, I, O, P, Q
Perceived emerging environmental demands among new hires (e.g., concerns about health and environmental impact in the
production process, conditions of staff living environment)
A, D, P
 Major competitors
Staying ahead of their competitors through environmental initiatives H, I, K
Being a leader in the industry E, F, N
Avoiding sharing of environmental technological know-how G, K

74
Table 2.7 (Continued)

See Chapter 3 and 4 for elaboration on environmental influence from government actors.

 Shareholders
Environmental management practices lower production cost (e.g., resources, energy) A, B, C, D, E, F, G, H, I, J,
K, L, N, P, Q
Acknowledged the need to balance environmental investment with conflicting shareholder interests (obstacles in obtaining
broad approval, boundary for further investment)
G, H, K, M, O, P
 Industrial associations
Platforms for sharing regulatory-compliance information and environmental management experience with the industry A, B, D, E, J, N, P
Platforms for uniting the industry and potentially effective channels for promoting environmental management practices to
the industry
B, C, E, J, N
Civil Society Actors
 Environmental interest groups
Participated in educational/awareness-promotion activities organized by environmental interest groups C, F
 Media organizations
A platform for sharing environmental management experience D
A medium that is increasingly interested in reporting environmental malpractices, and has important potential damaging
effect to the company’s reputation
I, K
 Community
Suggested that environmental demands from the community is only emerging I, K
Felt responsible to the community and society A, C, D, F, G, H, I, K, M,
N, O, P
Felt responsible to the next generation D, N, O

75
Table 2.8 Summary: Changing Roles of Government, Market, and Civil Society Actors
EMT literature Literature on China Findings from Guangdong
 Ecological concerns will be
integrated into existing social,
economic, and political
institutions within the framework
of modernity.

 Development of a Chinese market
economy, consolidated with recent
constitutional change
 Comprehenvie development of
environmnetal governing bodies and legal
regimes

 Economic rationality is no longer the only organizing principle.
 Government, market, and to a lesser extent civil society actors have made
more environmental demands on firms.
 These demands, in some circumstances, led to firms’ adoption of more
progressive environmental management programs

 Emancipation of an independent
ecological rationality is to be
achieved through a decentralized
political system, with more
flexible and consensual policy
making styles.
 Enterprises, especially those in more
economically developed areas, are likely to
experience substantial pressures from local
government entities to improve their
environmental management practices.
 Yet precisely how these pressures are
transmitted between government entities
and enterprises remains to be explored.

 Regional disparities have emerged in the environmental reform process.
 Local EPBs are developing a stricter and more rigorous regulatory
enforcement mechanism, which is also more formalistic and impersonal.
 Its interactions with firms represent less a discussion process between
partners than a process for transferring industry-specific expertise to the
government for setting higher, but more operable, standards for various
industries.
 A more environmentally
conscious market will emerge
through the adoption of new
industrial standards, a proactive
approach to environmental
challenges, and greener living
styles and consumption patterns.
 Market actors are becoming
“social carriers” of ecological
modernization, utilizing “market,
monetary and economic logics in
pushing for environmental goals”.
 Some market actors, such as international
buyers, are likely to have an influence on
corporate environmental practices in China.
 The relative influence of different actors
and their specific patterns of interactions
remains to be explored.
 A firm decision to develop environmental management practices is closely
related to the firm’s strong management commitment to environmental
protection (instead of pressures from various market actors).
 Individual firms’ entrepreneurial spirit, business accumen, and
independent resolution play a key role in China’s ecological
modernization process.
 Noticeable pressures from organizational buyers are observed, but firms
face immense challenges in greening their supply chains.
 Pressure from competitors and the skeptical attitude of a firm’s board of
directors can slow down the adoption and diffusion of green production
practices. Industrial associations may serve as platforms for sharing
environmental practices.
 Basic economic logic still drives the environmental programs of most
companies.

76

 A growing array of civil society
actors emerges; their participation
is institutionalized; they evolve
from being purely confrontational,
to monitoring and even
collaborating with state and
market actors.
 With the “societalization” of
environmental politics,
environmental norms are diffused
into other industries and sectors.
 Enterprises are likely to face increasing
pressures from civil society actors to
improve their environmental management
practices
 Whether and how these pressures are
translated into actual corporate practices
remains to be explored.
 Civil society actors remain less of an institutionalized actor in the
environmental policy process.
 Heightened awareness of increasing media reports and citizen complaints
on pollution.
 Consistent with traditional Confucian ideas and their recent revival in
national discourse; leaders of environmentally progressive firms see
themselves as leaders of their respective communities.
 Society is considered a recipient of firms’ benevolence.
Table 2.8 (Continued)

77
Chapter 3
Regulatory Compliance:
Regulator, Regulation, and the Rule of Law

In mitigating the adverse impacts of the country’s fast-growing economy, the Chinese
government has been showing much stronger commitment in reforming its environmental
governance (Lo & Tang, 2006; Lo, Fryxell, & van Rooij, 2009). Multiple measures have
been applied, such as “campaign and administrative measures”, market and financial
incentives, as well as legislation and regulations (SEI & UNDP China, 2002; UNDP
China & RUC, 2010; PRC, 2006, 2007, 2008), while the latter remains the dominant
solution in the government’s policy repertoire (UNDP China & RUC, 2010).

While achieving some positive results (see e.g., PRC, 2006, 2007, 2008; UNDP China &
RUC, 2010), the reform has unavoidably pushed various actors in its economy to adapt to
this changing role of government. As shown in Chapter 2, the extent to which firms adopt
environmental management practices is chiefly related to the environmental pressure they
perceive from the local Environmental Protection Bureaus. This chapter looks more
closely into the nature of this influence and asks: How are firms affected by the latest
regulatory role of the Chinese government?

To answer this question, the chapter reviews the regulatory compliance literature, with
special attention paid to its applicability to China’s environmental regulatory situation.

78
The review shows that although the literature is informative for helping us identify what
potentially motivate firms’ compliance behaviors, its findings had been largely derived
from an important premise that both the regulator and regulatees pay high respect to the
rule of law, an empirical condition that is not well-established in China.

To identify the set of prevailing compliance motivations in China’s environmental
regulatory situation, this chapter proposes an analytical framework that distinguishes
conceptually between reguation-stated and regulation-enforced (see Ostrom, 2005b). The
distinction aims to capture the regulatee’s perception on what, if anything, guides the
regulator’s use of power in a regulatory situation where the law does not predominantly
rule. Based on this, and the existing literature, the chapter then derives theoretical
hypotheses to explore the implications of the rule of law on the regulatee’s compliance
motivations.

In applying the framework to the above empirical context, the chapter finds that two
major conclusions in the literature do not hold. Firms’ decisions to adopt environmental
management practices are (1) not significantly associated with legal motivations related
to China’s environmental laws and regulations, and (2) not significantly associated with
the expectations of environmental protection from members in the society. Instead, they
are positively associated with the perceived punishment firms may receive in times of
non-compliance, negatively associated with the challenges they find in understanding the

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regulation-enforced, and, notably, positively with the sense of arbitrariness they perceive
in regulatory enforcement.

These findings highlight firms’ concerns in the regulatory situation in China. They
caution us about the application of a widely regarded flexible, cooperative regulatory
approach to China’s currently existing institutional context. The study also highlights the
need to enlarge the scope of existing research on regulatory compliance, especially when
the evolving nature of various developing countries’ socio-political institutions is taken
into account.

China’s Regulatory Situation

During the past two decades, the Chinese government has been gradually replacing its
campaign approach to environmental governance with a legislative and regulatory
approach (SEI & UNDP China, 2002; UNDP China & RUC, 2010). Since the enactment
of its first Environmental Protection Law in 1979, this latter approach has resulted in an
extensive set of environmental laws and regulations, covering such important aspects of
environmental protection as pollution controls over air, water, solid waste, and noise, as
well as the conservation of natural resources (see Beyer, 2006 for review).

This change of approach takes place when China’s national legal system has also been
undergoing steady reform since the end of the Cultural Revolution. Tanner (2003), for

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example, found toward the end of the last century that the country’s lawmaking process
had already become a “politically sophisticated” one, involving a much larger basis of
participation, including the “State Council, the Communist Party Central apparatus, and
the National People’s Congress (NPC) and its Standing Committee” (p. 39). More
recently, Liebman (2007) observed a “restricted reform” in the legal system: the court is
gradually playing a bigger role in resolving “rights-based grievances”; judges are
becoming more qualified, increasingly looking into one another’s judgments for
reference. The country’s constitution has also been changed with the market reform of its
socialist economy. For instance, the Property Law was adopted in 2007
60
(Clarke, 2007).

Despite these developments, it is evident that the independence of China’s legal system
and its courts remains to be fully established. In fact, not until 1997 did the National
People’s Congress formally recognize the rule of law as a main principle of the country’s
governance (Yu, 2010, p. 14). Other than this relatively short history, entrenched local
political networks, or “local protectionisms”, have also presented major obstacles for
local courts seeking to implement their rulings (Pei, 2001, 2006; Diamant, Lubman, &
O’Brien, 2005). Nationally, similar to what they have done to the country’s economy, the
leaders of China seem to be interested in developing a kind of legal system that bears
Chinese characteristics. In a recent campaign led by the Party’s Central Political-Legal
Committee, legal practitioners were reminded of their loyalty to the leadership of the

60
Property Law of the People’s Republic of China. Retrieved March 26, 2012, from the webpage of the
Central People’s Government of the People’s Republic of China, http://www.gov.cn/flfg/2007-
03/19/content_554452.htm.

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party, their function to serve “the overall situation”, and their role to establish the
“socialist rule of law” (Liebman, 2007, p. 627). Probably as a result of this campaign, the
law-enforcement forces in many provinces, according to the media, initiated a series of
“movement-like law enforcement” activities, in which, in contrast to following strictly
legal procedures, laws are enforced to follow closely the Party’s governing focus of the
time (J. Zhang, 2010).

With specific regard to the recent environmental reform, there are many reasons to doubt
that environmental laws and regulations in China are relevant and consistently enforced
in practice. “Contradictions” were observed in the assignment of implementation
authorities among different branches and levels of government; much of the wording
used in environmental legislations was found to be “vague”, which has left a
“considerable scope for interpretation” (SEI & UNDP China, 2002, p. 82; Beyer, 2006,
pp. 205-206). Meanwhile, “impossibly high” standards and weak local enforcement
capability were identified as impeding the implementation of these legislations (SEI &
UNDP China, 2002, p. 80; also Beyer, 2006). Furthermore, as Economy and Lieberthal
(2007) reported in the Harvard Business Review, local officials were said to be colluding
with local enterprises, requesting that the latter “ignore [environmental] laws and
regulations in their quest for ongoing GDP growth” (p. 92). Overall, these laws and
regulations, newly made for the reform, seem largely a result of a top-down legislative
effort, in which the social foundation supporting this legislation remains firmly

82
established. Clearly, inquiries about what motivates firms’ environmental compliance
behaviors in China have to take into account this important legal-political context.

Compliance and the Rule of Law

What motivates regulatory compliance? Research in the past few decades has come to
many important conclusions. Overall, compliance behaviors are driven instrumentally by
the compliers’ self-interest to avoid potential legal sanctions (Becker, 1968), normatively
by their sense of duty to obey the law (Scholz & Pinney, 1995), as well as socially by the
sanctions that the compliers’ peers may invoke when they break the law or violate the
social norm that is foundational to the law concerned (Grasmick & Bursik, 1990; Winter
& May, 2001; May, 2004).

In cases when regulatory enforcement is considered to be too stringent, or unreasonable,
a more flexible, cooperative approach is often recommended to foster between the
regulator and the regulatee a reciprocal relationship, which is conducive to genuine and
sustained compliance behaviors (Bardach & Kagan, 1982; Hawkins, 1984; Scholz,
1984a, 1984b; Shapiro & Rabinowitz, 1997; May, 2005; see also Hutter, 1997), as well
as voluntary compliance behaviors in the long run (Potoski & Prakash, 2004; May, 2005;
Koski & May, 2006; Berkhout & Rowlands, 2007; Moon & deLeon, 2007; Press &
Mazmanian, 2010).

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This chapter suspects, however, that these findings may not be immediately applicable to
jurisdictions like China, as they are derived from a common feature among developed
countries—that there exists among regulators and regulatees a general expectation of the
rule of law. It is in fact well-known that many countries in Western Europe and North
America, especially the U.K. and the U.S., pay high respect to the law and its rule. The
establishment of such a governing tradition involves a long history of struggle. From
England’s Magna Carta and its rule of habeas corpus to the American Constitution and
the French Declaration of the Rights of Man and the Citizens (Bingham, 2010, pp. 10-
33), the governed have striven hard to restrict the otherwise unconstrained power of those
who govern. Inevitably, as we acknowledge this difficult (though highly celebrated)
history of development, we should also be cautious when we generalize the findings from
the existing regulatory compliance literature to many other, mostly developing, countries
around the world.

The multifaceted impacts of the rule of law on the relationship between the state and the
society are well-documented in contemporary literature. Scholars in development studies,
for example, regard the rule of law as an important government mechanism that
facilitates economic growth, as it protects property rights, guarantees individual security
and liberty, checks other branches of government, and prevents corruption (e.g., Haggard
& Tiede, 2011; Murrell, 2001). Political scientists, on the other hand, are interested in its
role in the process of state-building in democratic countries (e.g., Olson, 1993; Weingast,
1997). Public administration scholars, meanwhile, are concerned about the practical

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challenge of balancing legal and managerial values, and the subsequent implication on
holding government officials accountable (Christensen, Goerdel, & Nicholson-Crotty,
2011; Kettl, 2009; see also Rosenbloom, O’Leary, & Chanin, 2010). Kettl (2009), for
example, reminds us that the rule-of-law convention had been cited as a guarantee of
individual rights as the Progressives advocated for a larger government regulatory power
to counteract the rise of big corporations (Wilson, 1887, cited in Kettl, 2009, p. 12).

How does the (non-) existence of the rule of law affect compliance behaviors? What are
the fundamental characteristics of the rule of law after all? To answer these questions,
this chapter heuristically follows the definition of A. V. Dicey, who coined the term “rule
of law” in his seminal work, An Introduction to the Study of the Law of the Constitution
(1982). Dicey holds that the “rule of law” consists of three core elements: first, men are
ruled by law and by law alone; second, no one is above the law; and third, the law is the
result of “the rights of individuals” and “the ordinary law of the land”.
61
If these legal
principles are to be applied to any typical regulatory settings, one should expect that,
first, the regulator’s use of his enforcement power is guided and dictated by regulations;
second, regulations are enforced consistently; and third, the regulations enforced are
reasonable and legitimate, derived from common social practices and expectations.

61
“[The rule of law] means, in the first place, the absolute supremacy or predominance of regular law as
opposed to the influence of arbitrary power, and excludes the existence of arbitrariness, of prerogative, or
even of wide discretionary authority on the part of the government. … It means, again, equality before the
law, or the equal subjection of all classes to the ordinary law of the land administered by the ordinary Law
Courts. … The ‘rule of law,’ lastly, may be used as a formula for expressing the fact that with us the law of
the constitution … are not the source but the consequence of the rights of individuals, … thus the
constitution is the result of the ordinary law of the land” (Dicey, 1982: Part II: IV).

85

In light of the above expectations, we may find traces of the rule of law premise behind
the compliance motivations commonly identified in the literature. Regulations will be
criticized as too stringent (see, for example, “regulatory unreasonableness,” Bardach &
Kagan, 1982; “suffocating America,” Howard, 1994, cited in Shapiro & Rabinowitz,
1997) only if the regulations are relevant in guiding enforcement, and if the regulatees
expect the enforced requirements to be largely reasonable, falling within the capability of
most if not all regulatees. Similarly, a flexible regulatory approach will be conducive to
genuine and sustained compliance and voluntary compliance behaviors only if the
regulatees do not see this as an arbitrary enforcement when the regulator applies
regulations consistently to other regulatees in the population.

Further, violating certain regulations will not be considered as socially “shameful” unless
the regulations are largely reasonable and legitimate, derived from some common
practices and moral expectations that are already accepted to some extent in the society.
Hence, a duty heuristic for obeying regulations in general can be developed gradually as
the body of regulations consists of largely reasonable and legitimate regulations. Finally,
regulatees will not be able to make compliance decisions instrumentally based on the
expected punishments of violating certain regulations unless they are able to observe that
the regulations are enforced to some consistent extent in the first place. In the most
extreme case, if the regulatee does not know how certain regulations are enforced on the
population of regulatees, and how these regulatees respond correspondingly in practice,

86
then to him essentially the regulator is enforcing arbitrarily with unpredictable
punishment, and he will have no choice but to comply when forced, or find ways to stay
away from the regulator’s potential arbitrary enforcement.

A few important works in the regulatory and compliance literature do demonstrate more
directly the relationship between compliance behaviors and various dimensions of the
rule of law. In studying the pollution problem in Britain from a regulator’s perspective,
Hawkins (1984) argues that, as the work of regulatory agencies often involves fostering
new behavioral standards among the regulatees, it would be most effective if the formal
application of law “rest(s) upon the secure foundation of a perceived moral consensus (p.
207)”. Essentially, what he is suggesting is that compliance behaviors are most
effectively induced if the regulator upholds the third principle of the rule of law. Levi
(1997), in her comparative study on compliance with military drafts among major
democratic countries, found that whether one’s peers comply, or the level of “ethical
reciprocity,” affects one’s decision to comply. The study demonstrates the effect of the
consistency principle in the rule of law, which leads us to pay more attention to the social
dimension of compliance motivations. Posner (2000) further advances the relationship
between social norms and the law. He uses game-theoretical modeling to analyze how
(assuming the willingness and ability of the relevant authorities) laws can be enforced to
enhance the development of social norms, or non-legal compliance mechanisms, that
facilitate rather than undermine the desired behavior. In sum, all these studies

87
acknowledge the importance of grounding law enforcement on a solid social foundation
when inducing compliance.

Perhaps the most important empirical contribution to understanding the relationship
between compliance and the rule of law comes from Tyler’s (2006) “Chicago study”.
Developed to challenge the then-dominant perspective that people obey laws through
weighing instrumentally the consequence of their decision, the study found that
compliance behaviors are most strongly determined by the perceived legitimacy of the
law, which is linked to perceived justice in the procedures through which legal decisions
are made. This study highlights an inherent expectation of the compliers that laws should
be applied as consistently and as fairly, or impersonally, as possible.

Although these studies have established and verified the theoretical relationships between
various dimensions of the rule-of-law principle and compliance behaviors (if P, then Q),
they have not provided satisfactory empirical proof of the relationship, as they draw
inferences from sample cases in which the rule of law already exists. Nor have they
derived a more general analytical framework for understanding compliance motivations
when the rule-of-law governing principle is not assumed. What, for example, motivates
compliance behaviors in countries in which the supremacy of the law remains to be
established in practice? What if compliance behaviors can still be found in settings when
the legitimacy of legal authorities is low (If ~P, then Q), or if their legitimacy is high but
it still fails to motivate compliance behaviors (If P, then ~Q)? From the discussion above,

88
we learn that the rule of law is probably an exception rather than the rule, and, despite
this, governments around the world do continue to make laws and regulations, and
attempt to change people’s behavior through regulations. What motivates compliance
decisions under these rather “normal” situations? To answer these questions for our case
of China, and advance in general the regulatory compliance literature, the following
section proposes an analytical framework for analyzing regulatory situations in which the
law does not predominantly rule.

Law, Regulatory Situation, Compliance

What is the effect of the rule of law, and its absence, on a regulatory situation? How does
a regulatory situation differ when the law does not predominantly rule? What should we
expect for the corresponding motivations to compliance behavior?

In the regulatory situation under the rule of law, according to Dicey’s principle,
regulations should play a major role in regulatory enforcement. They should be the
source that grants the regulator his power to regulate. At the same time, they should also
define the scope and the extent to which the regulator is allowed to regulate.

To cater to contingencies in real-world regulatory situations, regulations often grant
discretion to the regulator in their enforcement of the regulations, resulting an important
distinction between the rules-in-form and the rules-in-use (Ostrom, 2005b), or the

89
regulation-stated and the regulation-enforced, as observed and inferred by the regulatees.
Such a discrepancy between the stated and the enforced regulation is not uncommon.
Much of the regulatory literature discusses the importance of how regulations are and
should be interpreted and implemented in the field (e.g., Hawkins, 1984; Lipsky, 1980).

Despite the granted discretion, however, the regulation-stated (i.e., the statement of
regulation itself) should continue to serve as a useful, objective reference for the
regulatees to decide on the scope and extent of their compliance behaviors in this
situation. Even if sometimes the regulations are too stringent (e.g., Bardach & Kagan,
1982), or grant too much discretionary power to the regulator for demanding compliance,
they remain relevant in the regulatory situations. Without the authorization of the
regulations, not only the regulator’s action, but also his status, will be disputed.

Hypothesis 1: A regulatee’s compliance behavior is positively associated
with regulation-related motivations.

Meanwhile, as discussed above, in the regulatory situation under the rule of law,
regulations should be a result rather than the cause of common practices and expectations
from members in the society (Dicey, 1982). Empirical studies have also found that a
strong social foundation enhances the legitimacy of the regulations and hence the level of
compliance (Posner, 2000; Levi, 1997; Hawkins, 1984).

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Hypothesis 2: A regulatee’s compliance behavior is positively associated
with expectations from the members of the society.

In the regulatory situation in which the law does not predominantly rule, however,
regulatees are not necessarily regulated by regulations and regulations alone. Without
such an absolute respect for the regulations, the important role that regulations play above
can no longer be assumed. The statement of regulation may continue to serve as an
indication of the regulator’s goal, but it may no longer be relied upon as the only
objective reference for regulatees to decide on the scope and the extent of their
compliance behaviors. Accordingly, researchers should not assume that compliance
behaviors will be significantly associated with motivations derived from the regulations,
such as following normatively the stated regulations as a duty, obeying it instrumentally
to avoid the court’s potential punishment, or complying strategically to avoid the
legislation of stricter regulations in the future. Empirically, there may not be statistically
significant support for Hypothesis 1.

Also, without the rule of law, there is no guarantee that the regulatees will be regulated in
accordance with what is generally accepted and expected in the society. It is not
necessary that the regulatory demands from the regulator be associated with a strong
moral basis. Empirically, researchers shall also not assume that there will be statistically
significant support for Hypothesis 2.

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In this new regulatory situation, the distinction between regulation-stated and regulation-
enforced now becomes highly important. The regulatees cannot expect what is to be
enforced as simply some minor deviations from the stated regulation. As the regulation-
stated fails to be a reliable, objective reference in this situation, the regulator plays a
crucial role in determining the regulation-enforced, as perceived by the regulatees.

A major clue that directly informs the regulatees about what behaviors are demanded
comes from the regulator’s exercise of punishment toward individual regulatees. In this
regard, the regulatee’s compliance motivation does not differ much from the
instrumental, self-interested motivation found in the regulatory situation under the rule of
law. One may predict that compliance behaviors will be positively related to perception
of the expected punishment the regulatees may receive from violating the regulator’s
regulatory action. Here, the regulator’s ability to regulate is crucial. If the regulator does
not possess a strong ability to regulate, regulatees may simply evade or ignore the
regulator’s inspections and punishments.

Hypothesis 3: A regulatee’s compliance behavior is positively associated
with his expected punishment.

Since the regulator’s exercise of his power depends very much on his will, even if he
regulates with good intentions, individual regulatees are likely to grow suspicious about
his motivation. They may distrust the regulator, and think that the regulator is regulating

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despotically for his personal interests. Such belief could severely undermine individual
regulatees’ willingness to behave according to the goals of the regulator. Such suspicion
comes from the fact that the regulatees do not acknowledge the regulation-enforced
abided by the regulator in effect, as explained below.

Originally, the absence of the rule of law (or the fact that the regulatory enforcement is
not dictated by regulations) did not necessarily imply that the regulator regulates for
personal interests. The stated regulations may be irrelevant in this situation, but as far as
the regulator restrains himself such that he exercises his power somewhat consistently
over time, the regulatees may still be able to observe the enforced regulation. Thus, this
regulation-enforced, if any, is a result of the regulator’s consistent use of his power, as
displayed in his regulatory actions, observed and inferred by the regulatees as a regularity
over time. The existence of this regulation-enforced, made possible by the regulator’s
self-restraint, serves as the regulator’s commitment to stick with certain rules in the eyes
of the regulatees.
62

However, even if the regulator regulates consistently, it is likely to be difficult for the
regulatees to obtain such knowledge about the regulation-enforced. This is because the
task of regulatory enforcement often involves the exercise of the regulator’s judgment

62
In the language of institutional analysis (Ostrom, 2005b), this regulation-enforced is an institution (a
rule) that affects not only the payoff structure of the game (commonly known to both the regulator and the
regulatees), but also the type of regulator perceived by the regulatees, and thus the possible strategies
available to the regulator perceived by the regulatees. Essentially, the action of the regulator determines the
payoff and the strategy structure of the game in which the regulator interacts with the regulatees. See
Chapter 4 for details.

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about the circumstances (e.g., the ability of the regulatees, the dynamics of negotiation
with them, the embedded power relationship among them). Without the assistance of a
useful, objective statement of reference, the logic behind these judgments could be
difficult to explicate. This poses enormous challenges to individual regulatees as they
struggle to observe and infer what is supposed to be enforcing consistently by the
regulator. Not to mention the high probability that the regulator may dictate his
regulatory action, rendering the regulatees unable to identify any regulation-enforced but
that the regulator rules.

Whether individual regulatees are able to recognize and understand the regulation-
enforced depends very much on their ability to infer from their observations, and the
regulator’s effort to communicate his intention to the regulatees. Overall, the more
challenges a regulatee finds in understanding the regulation-enforced, the more likely he
will grow suspicious about the regulator’s intention, and hence the less likely he will
engage in compliance behaviors.

Hypothesis 4: A regulatee’s compliance behavior is negatively associated
with his perceived challenges in understanding the regulation-enforced.

Following from above, a very important concern for the regulatees here is the regulator’s
abuse of his power. In response to the potential influence of the regulator’s arbitrary
regulation, the existing regulatees are likely to try their best to stay away from the

94
regulator’s interference, so as to foster a more stable environment for their operations. In
this situation, the regulatees may comply as told, or, in some cases, given their vested
interests, even go further to anticipate the regulator’s potential demands. Despite their
suspicions against the regulator’s intentions, such responses are chiefly to avoid out of
fear of random demands, or threats, from the regulator. If for some reason, for example,
due to a regulatee’s background, his substantial contribution to the local economy, or his
close connection with senior government officials, he does not perceive this threat, his
compliance behaviors may be expected to decrease accordingly. Thus, the more a
regulatee perceives the regulator’s enforcement to be arbitrary, the more likely he is to
engage in compliance behaviors.

Hypothesis 5: A regulatee’s compliance behavior is positively associated
with his perceived arbitrariness in enforcement.

Data and Methods

To understand what motivates firms’ compliance behaviors in China’s environmental
reform under its special regulatory context, the chapter once again draws on data
collected through a large-scale questionnaire and a series of in-depth semi-structured
interviews from business firms with manufacturing operations in the Pearl River Delta
(PRD) region of Guangdong (see Chapter 1). As discussed earlier, the region represents
the frontier of the reform toward the use of a legislative and regulatory approach (see

95
UNDP China & RUC, 2010). It thus serves as an important “extreme case” (Flyvberg,
2006) for our research question. On the one hand, if the motivations identified in the
literature are not found in this region, which is supposed to be a regulatory situation most
similar to those investigated in the literature, they shall not be expected to exist in other,
less-reformed provinces. On the other hand, if the compliance motivations derived above
are found in this region, the effect of these motivations will be even more significant in
those other provinces.

Hong Kong-owned enterprises are particularly suitable for the analysis because of their
international exposure and their intimate acquaintance with the Chinese culture. These
enterprises, compared with multinational corporations, are deeply rooted in the local
Chinese community, with most of their owners and executives having spent a substantial
amount of time residing in the region. This bestows on them an intimate and highly
important knowledge about the Chinese way of doing business. Leaders of these
enterprises, meanwhile, are likely to be more exposed to, and thus more experienced in
dealing with, the international legal environment. Hong Kong, a former British colony,
operates one of the world’s freest capitalistic economies
63
. After its handover to the
Chinese government in 1997, the Special Administrative Region continues to be
governed under a common-law system based on the principle of One-Country-Two-
Systems. It is thus likely that enterprise owners and executives from Hong Kong hold

63
The Economist magazine ranks Hong Kong as the world’s freest economy in its Economic Freedom
Index, 2009 (The Economist, 2010).

96
laws and regulations in high regard, and are more sensitive to the distinctive features in
the Chinese legal environment than their mainland counterparts.

The data collected from the survey were analyzed using ordinary least square (OLS)
regression. The results will be presented in the next section with the findings from the
interviews.

Dependent Variables
In the regression model, two dependent variables, basic compliance practices and
proactive practices, are regressed respectively toward a list of compliance motivations
(see Table 3.1). The literature suggests that regulatees, other than engaging in compliance
behaviors, may also voluntarily “go beyond minimum requirements” (May, 2005, p. 31;
Potoski & Prakash, 2004). This chapter thus measured the extent of a firm’s
environmental behavior through a series of survey items asking a corporate executive,
“How well are the following activities integrated into your company’s business model?”
The survey then provided a list of corporate environmental management practices, which
contained items ranging from minimal measures such as “recycling of waste streams” to
proactive practices such as “incorporating ecological themes when marketing some of our
products”. It then asked the executive to “use 1 to 7 to describe the operation situation” of
these various practices in their company (1 = Never considered; 2 = Considered, but no
action taken; 3 = Experimented with, but did not adopt; 4 = Have adopted, but does not

97
seem to be a priority; 5 = Adopted and emphasized; 6 = Fully integrated into all functions
of the company; 7 = A way of life).

To evaluate these measures, the chapter then conducted a principal component factor
analysis (with varimax rotation) of the sixteen surveyed practices. The principal
component factor analysis allows us to explore patterns in the data and group variables
belonging to the same pattern into factors. It is particularly useful for inductively
discovering the actual level of enforced regulatory standard in the field. In keeping with
the literature, a two-factor solution is extracted in the analysis (see Table 3.3); the first
factor is termed “basic compliance practices” and the second “proactive practices”.
64

Independent Variables
The chapter measured the presence of various regulation-related motivations by asking
respondents to rate (1-7) the likelihood of the outcomes that their company can achieve
by adopting better environmental protection measures. As discussed above, the variable
was aggregated from the score of three questions: (1) “better comply with existing
environmental regulations”; (2) “avoid facing stricter environmental regulations in the
future”; and (3) “reduce the risk of lawsuits”.

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Rather than using the term “beyond compliance”, the study uses “proactive” to describe the practices
grouped under this factor to reflect the features of our case: since the (written) standards of environmental
legislations are “impossibly high”, these proactive practices still largely fall within the literally required
scope (see above discussion).

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To gauge how strong the social foundation of laws and regulations is in environmental
reform, the study derived two variables to measure two aspects of such expectations from
the members in the society. The respondents were asked to rate individually various
actors’ demands on the company to adopt environmental management practices. The first
variable, peer influence, consists of demands from actors that frequently interact with the
respondent, i.e., customers, employees, major competitors, shareholders, and industry
associations. The second variable, societal influence, consists of demands from actors in
civil society in general, i.e., environmental interest groups, community via both legal
action and other means, and media organizations.

On the deterrence effect of regulatory punishment, the chapter derived the variable
expected punishment, i.e., multiplying the perceived amount of discharge fines and fees
(for pollution emission) with the perceived likelihood of detection, in order to measure
the penalty a firm may expect to receive from the regulator.

To further explore the compliance motivations hypotheses developed in the framework,
the chapter asked the firms to rate (1-7) their agreement with a list of challenges they face
in complying with environmental regulations (see Table 3.4). It then applied principal
component factor analysis (with varimax rotation) to this list of challenges to identify the
underlying patterns among them. The results indicated a two-factor solution in which the
items are loaded on two variables with very good loadings (.55-.88). The combination of
the items shows that the first variable concerns firms’ perceived challenges in

99
understanding the regulation-enforced, while the second concerns firms’ perceived
arbitrariness in enforcement (see below for elaboration).

The variable challenges in understanding the regulation-enforced consists of items
related to questions on both firms’ difficulty (i.e., “many environmental regulations are
too complicated for us to fully understand”; “the pollution discharges fees system is too
complicated for us to understand”; “in my view most current pollution control standards
are unreasonable”) and inability (i.e., “our relationship with local environmental
protection bureau (EPB) has not been as constructive as it probably should be”; “we have
been unable to get sufficient technical support from local EPB”; “there has been
insufficient direct (face-to-face) communication between our company and the local
EPB”) in understanding the regulation-enforced.

For measuring the regulatees’ perceived arbitrariness in regulatory enforcement, two
major regulatory approaches, or “enforcement styles”, recommended in the literature (see
May & Wood, 2003) were considered: (1) a “formalistic” (May & Wood, 2003) or
“legalistic” style (Kagan, 1994), which involves the regulator demanding compliance
uniformly and consistently, as well as interpreting the rules rather strictly and rigidly,
such that the perceived level of “ethical reciprocity” among the regulatees may be raised,
increasing the compliance rate (Levi, 1997); and (2) a “facilitative” style, which
recommends the regulator be “friendly” and “forgiving” (May & Wood, 2003),
demanding compliance “flexibly” to foster trust between the regulator and the regulatees,

100
and hence the latter’s compliance (Ayres & Braithwaite, 1992; Potoski & Prakash,
2004).
65

Following the logic of the proposed framework, however, both of the above approaches
may as well be perceived as an arbitrary enforcement “style” in the situation of China. On
the one hand, if the regulator regulates flexibly, being lenient to some regulatees in some
circumstances, since there is not likely a useful, objective reference by which the
regulatees can judge the regulator’s action, he may easily be perceived as being partial,
inconsistent, and unclear about his enforced standards. On the other hand, if the regulator
regulates consistently, applying the same standard to all, since there is not likely a strong
social foundation, or support for the enforced regulations, many less capable regulatees
will perceive the regulatory enforcement as too inflexible and too rigid.

Thus, the extent to which regulatees perceived these highlighted items was measured.
The analysis showed, as expected, that the regulatees did not distinguish among these
variables, resulting in a single factor, which was termed perceived arbitrariness in
enforcement. This new aggregate variable now consists of items related to both the
“flexible” approach (i.e., “the local EPB is inconsistent in their enforcement of
environmental regulations”; “the local EPB has been very much picking on us in the
enforcement of environmental regulations”; “we have generally been unable to obtain

65
There are other enforcement styles suggested in the literature, including “coercion” “educational”,
“prioritization” and “accommodation”. See Lo, Fryxell, & van Rooij (2009) for details.

101
good advice from local EPB to help us comply with local environmental regulations”)
and the “formalistic” approach (i.e., “the local EPB does not seem interested in really
trying to understand our difficulties in trying to comply with local environmental
regulations”; “the local EPB is too inflexible in their enforcement of environmental
regulations”).

Control Variables
The chapter also derived the following control variables for the analysis (see Table 3.1
for details). The variable commitment to environmental protection is used to control for
the effect of the firms’ top management on their own commitment to the environmental
cause. Similarly, the study used the variable company benefit to control for the potential
benefit firms may achieve through adopting environmental management practices.
Finally, following the management literature on corporate environmental management,
the study controlled for firm size, as well as financial status, and export-orientation of the
respondents (Bansal, 2005).

Findings

Table 3.1 shows the list of variables and their measurement. Table 3.2 displays the
descriptive statistics and the correlations for all variables. The information of the
interviewees and their company can be found in Appendix A.

102
Table 3.5a and Table 3.5b present the results of ordinary least square (OLS) regressions
that predict the adoption of basic compliance practices and proactive practices
respectively. Model 1 and Model 5 include control variables that are likely to affect a
firm’s adoption decision. Model 2 and Model 6 introduce the set of variables that are
supposed to significantly affect a firm’s compliance decisions in a regulation situation in
which the rule of law is well-established. These variables are, namely, regulation-related
motivations, peer influence, and societal influence. The fits of the resultant models
decreased for Model 2 (adjusted R-Square changed from .455 to .454), but increased for
Model 6 (adjusted R-Square changed from .557 to .564). Model 4 and Model 8 introduce
another set of variables that are supposed to significantly affect a firm’s compliance
decisions in a regulation situation in which the rule of law is not well-established. These
variables are, namely, expected punishment, challenges in understanding the regulation-
enforced, and perceived arbitrariness in enforcement. The model fits increased for both
Model 4 (adjusted R-Square changed from .455 to .484) and Model 8 (adjusted R-Square
changed from .557 to .566). Model 3 and Model 6 include both sets of variables.
Compared with Model 4, the fit of Model 3 decreased (adjusted R-Square changed
from .484 to .480). This shows that the first set of variables does not increase the
explanatory power of the model. Model 6, nevertheless, attains the highest fit (adjusted
R-Square equals .573) among models that predict the adoption of proactive practices.
This is because of the significant influence found from the variable peer influence (see
below for discussion).

103
Overall, analyses of the data showed that, in China’s environmental regulatory situation,
firms’ decisions to adopt environmental management practices were not significantly
associated with regulation-related motivations (H1), nor with the firms’ perceived peer
and societal influences (except for peer influence on proactive practices) (H2). Instead,
the decisions were associated positively with the firms’ perceived expected punishment in
times of violation (only on basic compliance practices) (H3), negatively with their
perceived challenges in understanding the regulation-enforced (H4), and, notably,
positively with perceived arbitrariness in the regulatory enforcement (H5). These
findings are further elaborated below.

Regulation-Related Motivations (H1)
In both regression models for basic compliance and proactive practices, the relationship
between the regulatees’ compliance behaviors and regulation-related motivations were
not statistically significant, as expected. The interview data agreed with this finding. As
described vividly by one of our interviewees, the environmental rules in China were
“relatively vague” and “there [was] not much can be relied on as reference”. To him,
decisions of regulatory enforcement depended very much on the will of the government
regulator.

For enterprises investing in the mainland [China], the largest difficulty is
that the [environmental] rules (制度, zhidu) are relatively vague. There is
not much that can be relied on as reference (依據, yiju). It is purely “man-
made” (人為, renwei). For every generation of [Party] secretary, when he
came to this town to assume office … if it so happened that a certain

104
[political/policy] wind was blowing, he would then bring his “flyswatter”
(蒼蠅拍, cangyinpai) and squash continuously.
66

Peer and Societal Influences (H2)
The relationships between the regulatees’ compliance behaviors and environmental
expectations from various members in the society were also not statistically significant,
except for the one between peer influence and the adoption of proactive environmental
practices. As found in Chapter 2, the promotion of environmental protection in China has
remained largely a state-led effort, which echoes the finding here that there was only
limited environmental influence from various civil society actors. Also, the interviewees
reported that the most prominent social environmental expectations came from their
organizational buyers, both local and international, in the supply chain. These top-down
influences aimed at meeting various international standards, and thus are likely to focus
on fostering proactive environmental practices, such as adopting certifiable
environmental management systems and conducting product life-cycle impact
assessments. Given this focus, nevertheless, their corresponding influences on basic
compliance practices, such as recycling and controlling emissions, are likely to be
negligible when compared to the influence from government regulators.

66
Interview with O.

105
Expected Punishment (H3)
The analyses found statistically significant support for the predicted positive relationship
between the regulatees’ perceived expected punishment, and their basic compliance
behaviors. Interestingly, this relationship was not significant for proactive practices. This
distinction can perhaps be illustrated by a comment from one of our interviewees, who
ran an environmentally progressive company. Compared to others in the industry, he
assessed, he protected the environment “actively and voluntarily”, without being urged;
others did it passively, and resembled “children” who were forced by their parents.
Apparently, governmental punishment was still required to push the majority of the
survey respondents to adopt basic environmental practices in their company.

Comparatively, our company is moving faster than others. I estimate that
some companies in the industry are not doing it actively and voluntarily
[主動, zhudong]. Since in the mainland the standard is getting stricter and
stricter… for example, some methods reported in newspapers in the past
are no longer allowed nowadays. You could not refrain from doing it, or
there will not be licenses issued. Therefore, if you do it passively [被動,
beidong], just like children who study only when the parents beat and
scold them [打罵, dama]. Just like Henry [the author], he does not need
the urge of his parents. He studies because he thinks that it enhances his
knowledge. He is doing it actively and voluntarily. Here, we have two
different attitudes. If you do it actively and voluntarily, you will self-
consciously find things to do. Since our factory has a very large scale, it is
actually “thousands of strands and loose ends” [千頭萬緒, qiantouwanxu]
– there is much room for improvement, and it is not finished when you
have just done some. Why [should we] wait till the government presses us?
We should do it actively and voluntarily.
67

67
I nterview wi th K .

106
Challenges in Understanding the Regulation-enforced (H4)
As predicted, both regression models showed statistically significant support for the
negative relationship between the regulatees’ compliance behaviors and their perceived
challenges in understanding the regulation-enforced. These regulatees’ suspicion of the
regulator’s intentions can be illustrated by the response of one of our interviewees. As
reported, a factory of his company was often visited by some local government officials,
who, without making reference to any specific laws or regulations, requested that his
factory “do better” on various environmental measures which had already been adopted.
This incident happened in a large northeastern city. In response, the interviewee said that
he met with the general manager of the factory and sought to find out whether this
demand had been applied to all other firms in the same area (“Did they [the government
officials] only interfere [our company]?”). As the answer was positive, he then ordered
the manager to “try his best to please [the government officials] when they visit again,
but at same time [the company] will have to do something as well”. It appears that his
limited knowledge of the regulation-enforced had made him reluctant to comply with the
regulator’s demand.
… But in the Dalian factory, local municipal government officials came
and visited us to ask us, “your company … ICP, ventilation … though you
have done it, we want you to do it better”. But they would not bring up a
law to talk to you. … “We have a number of consultancy companies. Try
one of them”. … Actually they would like to make money. … [If you do
well, will there be less interference?] Actually, I had discussed with the
GM [general manager] there, [asking] “Did they only interfere [the
company’s name]? [He replied], “No”. He said in the past few months
these officials visit every [company] one by one.
68

68
Interview with A.

107

Such a sentiment was also implied in the comment of an interviewee from another
company. He reported that the environmental laws in China were very “comprehensive”
and at the same time “vague”, so much so that the regulator could charge the company
with anything it did.
We always tell them [global customers], China’s [environmental] laws are
more comprehensive than the sum total of all that of the U.S. and Europe.
It is a matter of enforcement. It is not a matter of […], because the laws
[China’s environmental laws] are very vague. If it wants to charge you,
everything of you can be charged. Therefore, it is not a matter of the law.
69

Perceived Arbitrariness in Enforcement (H5)
Finally, statistically significant support was also found in both models for the predicted
positive relationship between the regulatees’ compliance behaviors and their perceived
arbitrariness in enforcement. One interviewee explained the cautious logic underlying
this relationship. As he reported, the government authority had often come to monitor the
company, “give [its] opinion”, and introduce to the company some “[environmental]
consulting companies”, which charged a “very, very high price” for improving some
specified production items at his company. To avoid this, he found himself a licensed
environmental [consulting] company, with whom he has now been partnering for more
than a decade. Very often, he would still introduce this consulting company to other
enterprises in the same industry or in the same town. In the words of the interviewee, he

69
Interview with P.

108
had been doing this for his “self-protection,” “in order to avoid … [the government’s]
harsh demand for correction”.
We are actually self-protecting (自保, zibao). Truly speaking, in two
words, it is “self-protection” for our enterprise, in order to avoid from the
so-called government functional department their rather harsh demand for
correction in our enterprise. For her demand for correction, there is
completely no need [for the officials] to consider our problems. All they
care is how he [they] may report to the supervisor (交差, jiaocha) only.
70

In fact, for the set of more environmentally progressive companies interviewed, there was
wide agreement about the importance of fostering a good relationship with the local
government. Many of the interviewees reported that they communicated very often with
local officials. One of them even stated explicitly that there had been in every one of his
factories at least one management team member who was quite close to the officials.
71

For these companies, this kind of compliance approach seems to be essential for
anticipating the local regulators’ demands, and correspondingly keeping them away from
their potential arbitrary enforcement.

Discussions

The above analysis provides important empirical support for our conjectures that, in the
current regulatory situation of China, there exists an important distinction between the
stated and the enforced regulations among firms, and such a distinction correspondingly

70
Interview with O.
71
Interview with A.

109
affects what motivates environmental compliance behaviors. As found in the regression
analysis, in such a regulatory situation, firms’ decisions to adopt environmental behaviors
was not associated significantly with their motivations to better comply with the laws
(H1), or with their perceptions of environmental pressures from various members of
society (H2), but was associated directly with the top-down influence of the perceived
punishment the firms might receive from government regulators (for basic environmental
practices) (H3), as well as the top-down influence of the pressure they perceived from
their peers (for proactive environmental practices) (H2).

As reported in the interviews, the government’s regulatory enforcement varied
substantially from the requirements written in environmental laws and regulations (i.e.,
regulation-stated); a major concern that guided the firms’ environmental decisions was
the regulator’s potentially self-serving arbitrary regulation. This suspicion of the
regulator’s motivations is, the study argued, affected by whether the regulatee was able to
observe some de facto regulations (i.e., regulation-enforced) guarding the regulator’s use
of his power, a result of the latter’s consistent self-restraint. The regression analysis
supported this reasoning, showing a significant negative relationship between the firms’
perceived challenges in understanding the regulation-enforced and their decisions about
environmental behaviors (H4). Despite this suspicion of the regulators, the regression
analysis showed also a significant positive relationship between the firms’ environmental
behaviors and their perceived arbitrariness in regulatory enforcement (H5). This finding,
as well as the responses from our interviewees, supported the conjecture that, as least as

110
far as the surveyed sample is concerned, a firm may adopt basic compliance out of fear,
or even adopt proactive environmental practices, so as to avoid potential arbitrary
interference from the regulator.

These empirical findings have important implications for future environmental reform
effort. Some studies in the literature recommend a reciprocal regulatory approach, which
punishes non-cooperative regulatees while rewarding those who cooperate but
occasionally have minor violations, or those who credibly signal their intention to
achieve the regulator’s regulatory goal. This approach is supposed to facilitate the
development of trust between the regulator and the regulatees, and thus foster a higher
level of compliance (Scholz, 1984a, 1984b; Potoski & Prakash, 2004). However, the
above analysis indicates that this approach may not (yet) be suitable for China. As the
independence of the legal system, or the rule of the law, has not been well-established,
the fact that the regulation-stated cannot be relied upon as a useful, objective reference
has already created great difficulties for the regulatees to observe and infer from the
regulator’s regulatory action what the regulation-enforced, if any, is. Moreover, this fact
will also pose significant challenges to local regulators in communicating their
potentially good intentions to the regulatees. Regulating flexibly at a stage when there is
immense uncertainty about the regulation-enforced will probably deepen the distrust
among the interacting parties, lowering the regulatees’ willingness to act in accordance
with various regulatory goals of the environmental reform.

111
The literature also suggests that the Chinese government shall regulate more actively with
a political-campaign style (van Rooij, 2006), which would, as argued, balance local
interests and “their relation with the legal system” in the short run (p. 57), and thus
potentially enhance the effectiveness of its regulatory enforcement.
72
The above analysis
suggests, however, that this approach may undermine the growing but still very fragile
trust between local regulators and the regulatees that supports the development of a more
open legislative and regulatory approach in the long run. A recent change in the
regulatory approach of the Guangdong government may shed some light on this
disagreement. A longitudinal study comparing two surveys conducted with local
environmental officials in 2000 and 2006 found that their regulatory enforcement has
become increasingly formalized (see also Chapter 2). This change to a more restrained
approach, however, was accompanied only by a roughly similar, if not lower, overall
regulatory effectiveness as perceived by the regulatory officials (Lo, Fryxell, & van
Rooij, 2009). Following the logic of the above analysis, this decline in overall regulatory
effectiveness may be explained by the decreasing use of fear in inducing compliance,
while the benefits of a more open, legalistic approach have yet to materialize. If the
Chinese government is committed to this new legalistic regulatory approach as reported
(UNDP China & RUC, 2010), this temporary setback in the transition seems
unavoidable.

72
“The use of political campaigns to enhance enforcement in China shows that the flexibility of political
short-term policy instruments can offer incremental improvements to enhance the balance between the
conflicting interests themselves and their relation with the legal system”. (van Rooij, 2006, p. 57)

112
Conclusion

It is indeed quite interesting that despite China’s legal reform effort in the last two
decades, many major compliance motivations found in empirical situations characterized
by the rule of law (e.g., Winter & May, 2001; May, 2004) are still not significantly
affecting regulatees’ compliance decisions in the country’s regulatory setting. To be sure,
this urges policymakers to examine carefully their countries’ respective institutional
conditions (see Levi & Spiller, 1994) before applying any recommended regulatory
approaches, but more importantly, this reminds researchers to consider these compliance
motivations as only some possible ones that may drive compliance decisions. Whether
any individual motivation prevails in a certain regulatory situation depends very much on
whether it has been allowed or activated by the embedded institutional context. The rule
of law, or for that matter the rule of regulation, is certainly one important governing
institution, the ontological status of which may or may not be “recognized or accepted”
by the concerned regulatees (see Searle 2010; also Chapter 4). Our findings highlight the
need to enlarge the scope of investigation of the existing literature.

The above analysis also highlights the importance of distinguishing between the
regulation-stated and the regulation-enforced for understanding the regulator-regulatee
interaction in China’s regulatory situation. In fact, some reform measures recently taken
by the Guangdong government may be seen as addressing the governing problems
brought about by this discrepancy. Consider one of the interviewees, whose company was

113
identified as the “dragonhead” of the industry and was asked to do “more than enough” in
environmental protection; he actually saw this pressure from the local government
officials as a “positive influence” on the industry. As reported, the local authority would
send some “experts specialized in the operation of the industry” to derive environmental
solutions together with the company.
It is both good and bad. Maybe she [government official] has supported us.
But in terms of pressure, for sure there is, no matter [whether] it is about
the pace, or the kind of demand. They [the pressures] are for sure there.
But she would not just let you do it on your own, she had participation,
and support. [Would there be some times you could not achieve it?]
Actually, we would together think of some methods. In some situations,
we would together derive the solution. Rather than [saying], “you are not
right. I [the government regulator] do not care. You fix it on your own!”
73

These acts of the government, it seems, has helped ease the company’s suspicion about
the regulator’s otherwise unreasonable demands and increased the regulatee’s willingness
to cooperate. Meanwhile, as reported by some of the interviewees, the local governments
had been identifying “exemplar” enterprises in various industries
74
and accordingly
organizing arranged visits for them to the surrounding enterprises. This can potentially
make transparent the regulator’s requirements, promoting understanding of the
regulation-enforced among the regulated firms. Further research is required to understand
more about these new measures of the Chinese government.

73
Interview with B.
74
See also Guangdong Cleaner Production. (n.d.). Retrieved March 23, 2012, from
http://www.gdcp.org.cn/

114
Table 3.1 Variables and Measures
Variables Measures
Compliance behavior Respondents were given a list of corporate environmental management
practices and asked: “How well integrated are the following activities
into your company’s business model?” The response scale for these
questions ranged from 1, “never considered”, through the midpoint
“have adopted, but does not seem to be a priority” to 7, “a way of life”.
Basic compliance practices
(Alpha = .845)
Derived from principal component analysis of a list of corporate
environmental management practices (see Table 3.3).
Proactive practices
(Alpha = .943)
Derived from principal component analysis of a list of corporate
environmental management practices (see Table 3.3).
Regulation-related motivations
(Alpha = .746)

Respondents were asked to rate the likelihood of the outcomes that
their company can achieve by adopting better environmental protection
measures. The response scale for these questions ranged from 1,
“strongly disagree”, through the midpoint “neutral” to 7, “strongly
agree”.

- Better comply with existing environmental regulations
- Avoid facing stricter environmental regulations in the future
- Reduce the risk of lawsuits
Expectations from members of
the society
Respondents were given a list of stakeholder groups and asked to rate
their influence on the respondent’s company to develop better
environmental protection measures. The response scale for these
questions ranged from 1, “strongly disagree”, through the midpoint
“neutral” to 7, “strongly agree”.
Peer influence
(Alpha = .884)
- Customers (e.g., via purchasing requirements or other means)
- Employees
- Major competitors (i.e., through fear of losing business to them)
- Shareholders
- Industry associations
Societal influence
(Alpha = .895)

- Environmental interest groups
- The community via legal action
- The community via other means (e.g., internet, bloggers, boycotts, or
demonstrations)
- Media organizations (e.g., officials newspaper and broadcast media)
Expected punishment

Respondents were asked to rate, from 1, “strongly disagree” to 7,
“strongly agree” with the following statements. The score is calculated
by first reversing the ratings, and second multiplying the first item with
the sum of the next two items.

- It is difficult for the EPB to detect regulatory violations by our
company.
- The pollution discharge fees paid by our company are an insignificant
amount in terms of expenses for our company.
- The pollution fines are an insignificant amount in terms of expenses
for our company.

115
Table 3.1 Continued

Challenges in understanding the
regulation-enforced
(Alpha = .854)
Respondents were asked to rate the challenges their company faces in
complying with environmental regulations. The response scale for
these questions ranged from 1, “strongly disagree”, through the
midpoint “neutral” to 7, “strongly agree”.

Derived from principal component analysis of a list of compliance
challenges (see Table 3.4).

Perceived arbitrariness in
enforcement
(Alpha = .902)
Derived from principal component analysis of a list of compliance
challenges (see Table 3.4).

Commitment to environmental
protection
(Alpha = .859)
Respondents were asked to rate, from 1, “strongly disagree” to 7,
“strongly agree” with the following statements. The score is aggregated
by summation to indicate the top management commitment to
environmental protection.

- We recognize that the company has an ethical responsibility to adopt
better environmental protection measures
- We are personally interested in developing and implementing
environmental protection measures within the company
- We want to be viewed as leaders in environmental protection in our
industry sector
- Many top-level managers in my company are personally and actively
involved in developing environmental policies and monitoring their
implementation
Company benefit
(Alpha = .733)

Respondents were asked to rate the likelihood of the outcomes that
their company can achieve by adopting better environmental protection
measures. The response scale for these questions ranged from 1,
“strongly disagree”, through the midpoint “neutral” to 7, “strongly
agree”.

- Lower production costs
- Improve our corporate reputation
- Improve the quality of our products
Firm size

Respondents were asked for the number of employees in their business,
which were coded correspondingly: 1 for <100; 2, 100-499; 3, 500-
599; 4, 1000-4999; 5, >5000.
Financial status

Firms were asked about their yearly profit in 2006. Choices were given
ranging from “making a serious loss” (denoted as -2) to “making a
substantial profit” (denoted as 2). The higher the score, the more profit
a firm made in 2006.
Export-orientation

Firms were asked to indicate “the percentage of [their] product sold to
overseas markets”. Whether a firm is export-oriented was coded as a
dummy variable, with 1 denoting firms than export more 50% of their
product, and 0 otherwise.

116
Table 3.2 Descriptive Statistics and Pearson Correlation Coefficients (n=312)

Mean s.d. 1 2 3 4 5 6 7 8 9 10 11 12
1. Basic compliance practices 16.797 5.461
2. Proactive practices 40.442 17.426 .736
3. Commitment to environmental protection 19.761 3.957 .627 .664
4. Firm size 2.933 1.240 .256 .353 .219
5. Financial status .548 .910 .080 .197 .198 .196
6. Export-orientation .767 .424 .150 .071 .002 .229 -.042
7. Company benefit 14.473 3.111 .411 .487 .468 .170 .151 .040
8. Regulation-related motivations 16.016 2.816 .379 .443 .464 .234 .122 .096 .545
9. Peer influence 19.257 6.233 .270 .321 .350 .160 .020 .146 .272 .223
10. Societal influence 13.301 4.999 .037 .013 .054 -.019 -.055 .124 .032 .025 .641
11. Expected punishment 28.823 10.420 -.254 -.202 -.258 -.052 -.116 .031 -.176 -.206 -.010 .116
12. Challenges in understanding the regulation-
enforced
25.075 4.897 -.312 -.324 -.291 -.217 -.278 -.029 -.206 -.129 -.055 .112 .360
13. Perceived arbitrariness in enforcement 22.766 4.534 -.133 -.153 -.184 -.149 -.212 .054 -.157 .029 -.049 .120 .265 .716

117
Table 3.3 Dimensions of Compliance Practices
Loadings

Proactive practices
Basic compliance
practices
Measuring key aspects of our business’s environmental performance .805 .287
Including environmental performance measures in our management evaluations .800 .378
Scientifically assessing the life-cycle impact of our products .790 .160
Setting environmental performance objectives as part of our annual business plans .789 .368
Preparation and release of environmental reports .765 .248
Company displays about environmental programs .696 .407
Developing a certifiable environmental management systems .675 .249
Making investments in clean production technologies .666 .309
Participation in government-sponsored environmental programs .641 .245
Incorporating ecological themes when marketing our products .633 .459
Sponsorship of events about environmental protection .618 .336
Routine environmental audits .603 .548
Recycling waste streams .091 .816
Environmental training for operatives .448 .773
Environmental training for managers .436 .762
Using filters and other emission controls in our production process .334 .639
Eigenvalue 6.568 3.708
Variance explained 41.052% 23.175%
Dimensions were derived using principal component analysis with varimax rotation; same dimensions were obtained using oblimin
rotation. Kaiser-Meyer-Olkin index = .938; Bartlett’s Test of Sphericity is significant at 0.001 level.

118
Table 3.4 Dimensions of Compliance Challenges
Loadings

Perceived
arbitrariness in
enforcement
Challenges in
understanding the
regulation-enforced
The local environmental protection bureau (EPB) does not seem interested in really trying to understand
our difficulties in trying to comply with local environmental regulations
.880 .246
The local EPB is inconsistent in their enforcement of environmental regulations .852 .192
We have generally been unable to obtain good advice from local EPB to help us comply with local
environmental regulations
.806 .342
The local EPB has been very much ‘picking’ on us in the enforcement of environmental regulations .745 .332
The local EPB is too inflexible in their enforcement of environmental regulations .627 .493
Our relationship with local EPB has not been as constructive as it probably should be .268 .775
In my view most current pollution-control standards are unreasonable .114 .749
We have been unable to get sufficient technical support from local EPB .358 .718
The pollution discharges fee system is too complicated for us to understand .354 .683
Many environmental regulations are too complicated for us to fully understand .278 .676
There has been insufficient direct (face-to-face) communication between our company and the local EPB .507 .547
Eigenvalue 3.772 3.468
Variance explained 34.289% 31.529%
Dimensions were derived using principal component analysis with varimax rotation; same dimensions were obtained using oblimin rotation.
Kaiser-Meyer-Olkin index = .905; Bartlett's Test of Sphericity is significant at 0.001 level.

119
Table 3.5a Regression Models on Compliance Behavior

Basic compliance practices
Model 1 Model 2 Model 3 Model 4
Stan. Beta t Sig. Stan. Beta t Sig. Stan. Beta t Sig. Stan. Beta t Sig.
(Constant) -2.593 .010 -2.686 .008 -1.193 .234 -1.162 .246
Commitment to environmental
protection
.571*** 10.558 .000 .532*** 8.855 .000 .501*** 8.301 .000 .528*** 9.687 .000
Firm size .107** 2.141 .033 .099* 1.956 .052 .088* 1.756 .080 .095* 1.911 .057
Financial status -.081* -1.691 .092 -.078 -1.620 .107 -.111** -2.291 .023 -.114** -2.374 .018
Export-orientation .108** 2.238 .026 .097** 1.971 .050 .090* 1.873 .062 .097** 2.054 .041
Company benefit .140*** 2.623 .009 .099* 1.660 .098 .108* 1.848 .066 .133** 2.543 .012
Regulation-related motivations .087 1.463 .145 .046 .762 .447
Peer influence .051 .759 .448 .050 .758 .449
Societal influence -.032 -.515 .607 -.029 -.473 .637
Expected punishment .119** 2.313 .022 .128** 2.542 .012
Challenges in understanding the
regulation-enforced
-.174** -2.387 .018 -.173** -2.391 .018
Perceived arbitrariness in
enforcement
.138** 2.047.042 .143** 2.200.029
R-Square .466 .472 .503 .501
Adj. R-Square .455 .454 .480 .484
F 43.452 *** 27.435 *** 22.336 *** 30.813 ***
* significant at .1 level; ** significant at .05 level; ***significant at .01 level.

120
Table 3.5b Regression Models on Compliance Behavior

Proactive practices
Model 5 Model 6 Model 6 Model 8
Stan. Beta t Sig. Stan. Beta t Sig. Stan. Beta t Sig. Stan. Beta t Sig.
(Constant) -7.066 .000 -6.470 .000 -3.172 .002 -3.207 .000
Commitment to environmental
protection
.559*** 11.281 .000 .501*** 9.206 .000 .475*** 8.574 .000 .530*** 10.488 .000
Firm size .154*** 3.336 .001 .141*** 3.053 .003 .134*** 2.882 .004 .149*** 3.193 .002
Financial status .033 .743 .458 .041 .932 .352 .016 .364 .716 .008 .173 .863
Export-orientation .026 .597 .551 .009 .191 .848 -.002 -.047 .963 .014 .323 .747
Company benefit .210*** 4.273 .000 .158*** 2.905 .004 .161*** 2.978 .003 .205*** 4.210 .000
Regulation-related motivations .083 1.522 .129 .061 1.086 .279
Peer influence .133** 2.180 .030 .143** 2.353 .019
Societal influence -.061 -1.088 .278 -.067 -1.193 .234
Expected punishment .026 .554 .580 .042 .904 .367
Challenges in understanding the
regulation-enforced
-.175** -2.536 .012 -.163** -2.363 .019
Perceived arbitrariness in
enforcement
.131** 2.055 .041 .130** 2.102 .037
R-Square .566 .578 .592 .580
Adj. R-Square .557 .564 .573 .566
F 63.026 *** 40.878 *** 31.117 *** 41.318 ***
* significant at .1 level; ** significant at .05 level; ***significant at .01 level.

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Chapter 4
Transforming Rules-in-form into Rules-in-use:
Voluntary Program, Exemplars, and Regulatory Governance

As the Chinese government continues to develop a legalistic approach to its
environmental governance (UNDP China & RUC, 2010), one major issue is often
reported—the problem of transforming plans on paper into policy in action. Indeed, with
its well-organized party machinery and rather centralized political power, the Chinese
government could have supposedly enjoyed not only the authority to decide on the
priority and pace of its policies, but also the influence to induce desired behaviors from
the governed. Yet interestingly, in the party’s recent effort to promote environmental
protection, there has been a surge of voluntary programs established at various levels of
the government, and through these programs a great number of exemplars of various
kinds have been identified all over the country (e.g., “Ecological Garden City” (2004);
“Ecological City” (2003); see Zhao, 2011). Take some of the most prominent examples:
the National Model City of Environmental Protection program has been initiated at the
city level since 1997.
75
Since then, over 80 cities have been granted the status of “Model
City”
76
(see also Economy, 2006; Li, Miao & Lang, 2011; Zhao, 2011). In the country’s
most advanced manufacturing center, Guangdong, the local government has launched the

75
Notice concerning the Program of Initiating the Development of National Environmental Protection
Model City. (1997). Retrieved March 24, 2012, from webpage of Ministry of Environmental Protection of
the People’s Republic of China, http://www.mep.gov.cn/gkml/zj/bgt/200910/t20091022_173745.htm
76
Environmental Protection Model City. (n.d.). Retrieved March 24, 2012, from webpage of Ministry of
Environmental Protection of the People’s Republic of China, http://wfs.mep.gov.cn/mfcs/index.htm#

122
Cleaner Production program, inviting the participation of all business enterprises in the
province.
77
Since 2004, as a result, hundreds of enterprises have been identified as
“Cleaner Production Enterprises”.
78
Since 2008, the provincial government has also
collaborated with the Hong Kong government to create the Hong Kong-Guangdong
Cleaner Production Partners Recognition Scheme,
79
in which, again, more than a few
hundred enterprises have been recognized as some form of “Cleaner Production Partner”.
Why are these government-sponsored voluntary programs enjoying so much popularity?
What are their roles in China’s overall environmental reform effort?

The regulatory literature has often considered voluntary programs as a device for
regulatees, usually firms, to signal their intention to cooperate with the regulating
government agencies. Through participating voluntarily in these programs, regulatees
convey their willingness to pursue the government’s regulatory goal. In exchange, the
assured government will be more flexible in its regulatory enforcement, providing some
form of “regulatory relief” to the regulatees (Potoski & Prakash, 2004; also Scholz,
1991). More recently, voluntary programs are understood formally from a Club Theory
perspective (Potoski & Prakash, 2009b). This emerging literature considers voluntary

77
The First Group of Cleaner Production Enterprises (Pilot) of the Guangdong Province. (2002). Retrieved
March 24, 2012, from the webpage of Guangdong Cleaner Production,
http://www.gdcp.org.cn/detail.asp?id=286
78
Public Notice: Cleaner Production Enterprises. (n.d.). Retrieved March 24, 2012, from the webpage of
Guangdong Cleaner Production, http://www.gdcp.org.cn/management.asp?cid=254
79
Hong Kong – Guangdong Cleaner Production Partners Recognition Scheme. (n.d.). Retrieved March 24,
2012, from the Cleaner Production Partnership Programme Website,
http://www.cleanerproduction.hk/en_symbol2.asp

123
programs as club goods to the participating members: The benefits of participation are
“excludable”, as these benefits are available only to those who invest to participate, and
“nonrivalrous”, such that one’s enjoyment of these benefits does not affect, or rival, that
of others. The creation of voluntary programs provides the participants with incentives to
produce positive externalities: it creates a “market for virtue” (Vogel, 2005) in which
participants can distinguish themselves from others and receive the benefits of branding,
or reputation effect, in the eyes of their stakeholders, as they engage in such production
of social benefits (Potoski & Prakash, 2009a).

These understandings on the nature of voluntary programs are important but nevertheless
incomplete. While the existence of these programs is explained based on the potential
benefits received by their participants, much of the benefit and wider implication to the
sponsors of these programs remains to be investigated (Drezner & Lu, 2009; Fiorino,
2009). This is especially the case for our observations in China. Why do these voluntary
programs receive so much attention and enthusiastic endorsement from various local
governments? How does this voluntary approach to regulatory enforcement complement,
or conflict with, the more traditional, legalistic approach that is under construction
nationally (see Chapter 3; Yu, 2010)? How do these voluntary programs contribute to the
reform of environmental governance overall?

This chapter seeks to provide preliminary answers to these questions. It argues that these
government-sponsored voluntary programs should be understood as a policy tool for

124
identifying exemplars. From a broader institutional perspective, these exemplars represent
the de facto regulations enforced by government officials, made known to the regulatees
by the government’s public endorsement. The public acknowledgement of these
exemplars, and thus various standards that the government regulator upheld,
simultaneously help solve three major governing challenges in China. Given the existing
political system, a major task for the Chinese government is to transform written laws
and plans into actual practices. The identification of exemplars of various kinds among
the regulated population helps government regulators gauge and justify the possible
extent of its enforcement at a certain point in time. It also helps the regulators solve the
collective inaction problem among the regulatees of producing positive externalities
essential to the regulatory goal. Most importantly, the existence of these exemplars
demonstrates to the regulatees that local government officials, in their effort to actualize
various environmental policy plans, as well as laws and regulations, are not governing
arbitrarily. It allows them to speed up the introduction of more stringent expectations on
the regulatees, but at the same time contribute to the more open, legalistic regulatory
approach under construction.

The following chapter first reviews critically the regulatory literature, and constructs
game-theoretical models to analyze the interaction among the regulating government and
the regulated firms in the Chinese governing context. Then, with empirical evidence
collected from government policy documents, and interviews with senior executives of
Hong Kong-owned enterprises maintaining manufacturing operations in the Pearl River

125
Delta region, the chapter reports the important features of how voluntary programs had
been implemented in Guangdong Province. Based on these findings, the chapter
concludes with an analysis on the governing implications of government-sponsored
voluntary programs for China’s environmental reform.

The Governing Context

Every five years, the Chinese central government issues a five-year plan to guide its
subsequent national economic and social development. The plan is announced by the
current Premier of the State Council at the National People’s Congress to around 3,000
political representatives from all over the country. This important document highlights
the ruling party’s governing goals, priorities, guiding principles and major tasks for the
next five years. A major advantage of this policy making method is that it gives local
authorities flexibility in implementation. Given China’s huge population, this method
provides room for local government agencies to take into account varieties and
contingencies in local political and administrative situations.

Its major disadvantage, however, is that one can often expect gaps in the implementation
process, which often result in debates over how certain policy goals and guiding
principles should be interpreted and realized in practice. Moreover, the plan does not
guarantee its implementation. In fact, it is commonly observed that immense bureaucratic
inertia, information advantage possessed by local governments, or even collusion and

126
corruption among local governments and business interests, etc. are delaying, if not
derailing, the implementation of these policy goals (see Zhou, 2009; Li & Lang, 2010;
Economy & Lieberthal, 2007).

This problem of the “implementation gap” applies not only to the policy process. As
discussed in Chapter 3, despite legal reforms in the last two decades, the independence of
the country’s judiciary system and its courts against the ruling party’s executive authority
remains to be fully established. Many legal requirements written as formal laws and
regulations remain to be goals to be widely and thoroughly enforced (c.f., “local
protectionism” in Pei, 2001, 2006; “socialist rule of law” in Liebman, 2007).

In the policy area of environmental protection, one of the latest governing priorities of the
current government, a “surprisingly comprehensive” set of environmental laws and
regulations has been introduced, covering almost all major aspects of environmental
challenges (Beyer, 2006, SEI & UNDP China, 2002; UNDP China & RUC, 2010).
Critics, nevertheless, cast considerable doubts on their viability and actualization. Vague
wordings, unattainably high standards, contradictions in the assignment of
implementation authorities, collusion between law enforcers and local enterprises—all
these observations suggest a structural discrepancy between written laws and actual
practices (see Chapter 3 for discussion).

127
From Rules-in-form to Rules-in-use

In view of this, this chapter suggests that one way to address the above governing
problem of the “implementation gap”, or the transformation of plans on paper into policy
in action, is to tackle the specific practical challenges one may face in transforming
“rules-in-form” into “rules-in-use” (Ostrom, 2005b). According to Ostrom (2005a),
“[r]ules-in-use are the set of rules to which participants make reference if
asked to explain and justify their actions to fellow participants. They are
the ‘do’s and don’ts’ that one learns on the ground that may not exist in
any written document. (p. 832)

This insightful distinction suggests to researchers that despite rule-makers’ agreements
on, and the various procedures they follow in, writing certain expectations as plans, laws
and regulations in the formal rule-making process, these resultant rules may not be
immediately observed among the concerned community. In fact, they may be modified,
neglected, or even ignored in the real world. This distinction guides the following
discussion on the types of practical challenges we face, and the corresponding solutions
we need in addressing the problem of “implementation gap” in China’s environmental
reform.

Arbitrary Enforcement
The first practical challenge as a result of this “implementation gap” is that the country’s
very comprehensive environmental rules cannot be relied upon as a useful reference for
predicting the government’s use of its power. As environmental rules are often written far
earlier than they can be actualized, they grant government regulators more than enough

128
power most of the time. This fundamentally changes the interaction dynamic between
regulatory agencies and the regulated population that is typically portrayed in the
regulatory literature.

The regulatory literature models the interaction between the regulator and regulatees
primarily as a game of regulation dilemma (or more appropriately, “regulatory dilemma”)
(Scholz, 1984a, 1984b; Scholz, 1991; Potoski & Prakash, 2004; Press & Mazmanian,
2010). In the game, the government can pursue two regulatory enforcement strategies:
maximal enforcement and flexible enforcement. The maximum standard that can be
enforced, thanks to the rule of law, and other institutional constraints, is by and large the
socially accepted minimum. Meanwhile, the discretionary power granted to the regulator
in enforcement lets him flexibly deal with the particularities of different circumstances.
This thus gives the regulatees two possible compliance strategies: minimal compliance
and flexible compliance. They may now choose between rigidly, but minimally,
following the stated regulation, or proactively behaving better overall than the
requirements, but with occasional minor violations. (See Table 4.1)

Table 4.1 The Regulatory Dilemma
Regulatee’s compliance strategies
Minimal Flexible (Proactive)
Regulator’s
enforcement
strategies
Flexible 0, 5 3, 3
Maximal 2, 2 5, 0
Adopted from Scholz, 1991, p. 118; see also Potoski & Prakash, 2004, p. 155.

129
The payoff structure of the game follows that of a prisoner’s dilemma (Axelrod, 1984):
Mutual cooperation is mutually beneficial (Flexible, Flexible), unilateral defection
always gives one the highest payoff (Maximal, Minimal; or Flexible, Minimal), but—
here comes the dilemma—mutual defection (Maximum, Minimal) yields less than mutual
cooperation. In other words, although the regulatee’s “self-policing” strategy allows room
for the regulator to regulate flexibly and save effort, the regulatee’s temptation to shirk is
also high. But if the regulator always regulates maximally, the regulatees will never
police themselves and comply beyond requirements (Scholz, 1991; Potoski & Prakash,
2004).

This model, however, has important limitations in capturing the regulator-regulatee
interaction in China’s environmental reform. A major assumption of the model is that the
regulator’s exercise of his power is effectively limited by some institutional constraints
(Levi & Spiller, 1994), manifested as the regulations-enforced in the eyes of the
regulatee (see Chapter 3). They enable the regulatee to judge the regulator’s chosen
enforcement strategy. In regulatory situations under the rule of law, the regulatee can
simply achieve this by comparing his perception of the enforcement with the written
regulations. Given the above “implementation gap”, and the resultant more-than-adequate
regulatory power, what is left for the regulatee to rely on to judge the regulator’s
enforcement is his own reasoning, however that is determined (see below). At the same
time, the regulator now can almost always demand a higher level of compliance from the
regulatees. He may easily exercise his power for personal interests, punishing everyone,

130
or a subset of regulatees, at unreasonable standards all the time, but still fall within the
scope of his given power. As the regulator may now easily abuse its power and regulate
arbitrarily, I term the new strategy options available to the regulators arbitrary
enforcement and reasonable (non-arbitrary) enforcement (see Levi & Spiller, 1994) (see
Table 4.2).
Table 4.2 The Earlier Regulatory Situation in China
Regulatee’s compliance strategies

Minimal Flexible (Proactive)
Regulator’s
enforcement
strategies
Reasonable
(non-arbitrary)
0, 5 2, 2
Arbitrary 3, 3 5, 0

Seen from the regulatee’s perspective, the regulator, devoid of supposedly effective
checks on his power, and given the higher payoff he may receive from regulating
arbitrarily for his own interests, is not likely to regulate reasonably. Thus, for the
regulatee, unlike in the above “normal” regulatory dilemma situation, it is not likely that
his proactive compliance effort will return him with a lower likelihood of being charged.
He will be better off by pursuing simply a minimal compliance strategy, or even
extralegal strategies such as bribery, which is often cheaper than compliance, just to
avoid the potential charge from the regulator.
80

80
As reported in Chapter 3, some companies did go on to pursue proactive environmental behaviors in
order to avoid, or stay clearly away from, the government’s realm of interference (i.e., acting out of fear).
To understand how these firms may fit into the model in Table 4.2, we should note that a regulated firm’s
interaction with the regulating government is only one of the factors that affect the firm’s environmental
behavior. These companies may adopt proactive environmental behaviors for other reasons (see below). It
gives them a higher payoff overall, but a lower-than-optimal one in their interaction with the government.
As far as their interaction with the regulator is concerned, doing so will give the regulatees a larger but by
no means absolute buffer against the regulator’s potential arbitrary enforcement.

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Furthermore, in this situation, it is possible that neither of the interacting parties really
prefers the mutual-cooperation outcome as described in the regulatory dilemma. This
corresponds to China’s earlier years of environmental regulatory efforts, in which
concerns about economic development persistently trumped environmental
considerations. In such a situation, local officials, despite the regulatory power given
them by various environmental laws and regulations, did not receive much pressure from
the central government to mitigate the corresponding environmental impacts of
development (Ma & Ortolano, 2000). For the regulated firms, meanwhile, most of them
did not pay much attention to environmental protection (see Chapter 2)
81
. Some of them
had even been reminded by local regulators to ignore such a concern and focus on
contributing to local economic growth, resulting in corruption and collusion commonly
observed between local officials and business interests (Economy & Lieberthal, 2007).
Thus, accordingly, the payoff structure of the game is changed ((3, 3) → (2, 2); (2, 2) →
(3, 3)), and the game no longer maintains a prisoner’s dilemma structure. Analytically,
the equilibrium of the game based on the dominant strategies of both parties became
(Arbitrary, Minimal) (see Table 4.2).

Some recent changes in the administrative system and the business environment,
nevertheless, have restored the situation to a prisoner’s dilemma (Table 4.3), as both the

81
Enterprises which have continued to see environmental protection as not necessary in their operations
may include, for example, those who are market leaders in the industry; those who export to multiple
markets and whose plants in China are only responsible for markets with lower environmental standards;
and those who export only to local buyers who are not concerned about the environmental impacts of their
supply chain.

132
local officials and the regulated firms started to see pursuing environmental protection as
potentially beneficial.

Table 4.3 The Current Regulatory Dilemma in China
Regulatee’s compliance strategies

Minimal Flexible (Proactive)
Regulator’s
enforcement
strategies
Reasonable
(non-arbitrary)
0, 5 3, 3
Arbitrary 2, 2 5, 0

On the one hand, local environmental protection bureaus are now required to transfer all
their collected fees and fines to the local government’s central budget (Lo & Tang, 2006),
which lowers the immediate payoff of the arbitrary-enforcement strategy. Also, the
success of a city, and hence its leadership, is now evaluated based on both its economic
and its environmental development (Lo & Tang, 2006; Li & Lang, 2010). This increases
the relative payoff of the regulator for inducing firms to pursue a more proactive
compliance strategy. On the other hand, at least some firms begin to realize the potential
benefits of going green as some of their buyers urge them to fulfill higher environmental
standards (see Chapter 2). This increases the relative payoff of the more proactive
(flexible) compliance strategy against the government requirements. Overall, all these
recent changes have made mutual cooperation (Reasonable, Flexible) a better potential
outcome than mutual defection (Arbitrary, Minimal).

133
Yet this mutually beneficial equilibrium remains unachievable. The above changes had
not really addressed the problem that had been plaguing their interaction—the structural
problem of the “implementation gap”, a feature so deeply embedded in China’s
governing system that continues to grant excessive power to local regulators, allowing
them the strategic option of arbitrary enforcement. To mitigate this problem, it seems that
we should either develop ways to constrain the regulator’s use of power, restoring the
regulator-regulatee interaction to normal, or introduce at least some alternative
mechanism for the regulator to credibly convey his willingness and his choice of
adopting the reasonable strategy to the regulatee.

Collective Inaction
Attempts to resolve the above dilemma situation draw us to the collective inaction
problem among the regulated firms (Ostrom & Ostrom, 1971; Olson, 1965), the second
practical challenge. Originally, around 20 years ago, few enterprises in China were
concerned about incorporating environmental protection into their operations, except
perhaps for those whose top management had strong environmental commitments or
were able to find private benefits out of doing it (e.g., saving resources)
82
. Not until the
latter stage of the Reform and Open (Gaige Kaifang, 改革開放) policy did some
enterprises and their stakeholders begin to worry about both economic gains and
environment protection (Mol, 2006; see Chapter 2). Nevertheless, the collective inaction

82
To these firms, engaging in proactive environmental behaviors yields them the highest payoff given their
own matrices of compliance motivations.

134
problem among the regulatees continues to inhibit their engagement in producing for the
social benefits of environmental protection.

Table 4.4 The Collective Inaction Problem among Firms
Firm B’s environmental strategies

Minimal Proactive (Flexible)
Firm A’s
environmental
strategies
Proactive
(Flexible)
0, 5 3, 3
Minimal 2, 2 5, 0

Proactive engagement in producing positive externalities, or shouldering the cost of
environmental protection, usually requires the investment of further resources. When the
return on such an investment is uncertain and may take a long time to materialize, a firm
is likely to free-ride on others’ efforts, and thus lower its own cost of production (Potoski
& Prakash, 2009a) (see Table 4.4). Industry-sponsored voluntary programs are designed
to resolve this problem. They provide additional, exclusive and nonrivalrous reputation
benefits to participating firms, allowing them to signal the concerned stakeholders their
production of positive externalities (Potoski & Prakash, 2009a), creating a “market for
virtue” (Vogel, 2005). For a voluntary program to be successful, nonetheless, the
participants’ stakeholders must find these club goods desirable in the first place. If the
participants are not certain about this, or for that matter, about the risk of joining such
clubs, their participation will not be likely.

This brings us back to the regulator-regulatee regulatory dilemma in China under the
influence of “implementation gaps” (Table 4.3).

Recall that the excessive power granted

135
to the regulator makes it difficult for him to show the regulatee that he is not regulating
for personal interests, thus confusing individual regulatees about his commitment to
regulating for environmental protection. The consideration of other regulatees’ strategic
benefits also greatly affects the strategies a regulator may pursue to resolve such a
dilemma, as elaborated below.

As suggested in the last section, to show commitment to the regulatory goal of
environmental protection, the government cannot simply apply uniformly whatever is
stated in the plans or laws, since these goals and plans are beyond the reach of most
regulatees most of the time. Even if the regulator allows concessions for some regulatees
based on their individual ability, past performance, etc., other regulatees in the regulated
population will still cast considerable doubt on the regulator’s judgment and hence
intentions, as there is no objective reference to evaluate whether the regulator is not
asking for personal favors and thus giving preferential treatment. Such (unfortunate)
perceptions only deepen the distrust between the regulator and the regulatees. Assuming
now that the regulator manages to derive and pursue conditionally some strategies that
are considered reasonable in the eyes of the regulatees, the collective inaction problem
the regulatees face will still cause each regulatee to keep to his existing course of
inaction. In other words, unless the regulator’s reasonable strategies also deal with the
coordination problem among the regulatees, these strategies will not be able to
successfully induce cooperation from the regulatees.

136
Standard Setting
The third major practical challenge concerns the setting of standards in the rule-
implementation process. In transforming rules-in-form into rules-in-use, how can the
enforcer decide and justify (or, from above, make the regulatees feel reasonable in) the
pace and extent of its enforcement, and thus continuously setting the right standards over
such a long period of implementation?

Supposedly, the systemic regularity of the “implementation gap” found in China’s rather
centralized policy making process allows room for local variations and improvisations.
Cities and provinces with greatly diverse rates and stages of socio-economic development
can then decide on the pace and the extent to which national plans may be realized. In
effect, however, this implies that the various standards written in policy plans and the
larger body of laws and regulations are not meant to be adopted directly in the field. They
may be treated as general goals, guiding policy action over the years, but they are
practically not very helpful for telling local governments what exact standard they shall
uphold at different points in time. Certainly, upholding a stringent standard for too long is
unsustainable, as the regulatees may see the regulator as abusing its power or demanding
compliance unreasonably, and may eventually choose to leave (Hirschman, 1970). If the
regulator/enforcer discovers later that the standards he introduced were brought in too
soon, and somehow switches back to some lower and easier standards, his credibility will
be severely undermined, now and in the future. A too-lenient standard will be undesirable
as well, if it compromises too much of the regulatory effectiveness, making the regulator

137
fail to achieve policy goals. In general, it seems a good deal of knowledge and wisdom
about the ability and concerns of the governed population is required to utilize this
flexibility granted by the central government.

Granted, this flexibility is often necessary for regulatory governance. Unlike criminal
cases, tax compliance and military drafts, for example, in which there are clear and strict
standards with which everyone must comply, regulatory governance always stands
somewhere in between criminal prosecution (e.g., murder) and developmental policy
(e.g., health campaigns) in practice. There could be absolute minimum requirements in
enforcement, and often “unattainably high” standards resulting from the mismatch
between legislative expectation and administrative viability (Hawkins, 1984; Bardach &
Kagan, 1982), but certainly there should be at least some degree of flexibility for
regulators to take into account the particularities of individual cases and circumstances.
Simultaneously upholding a range of standards, fitting different regulatees’ past records,
capabilities, stages of development, degrees of violation, etc. seems unavoidable.

In the United States, the flexible use of regulatory power has dealt with some of these
difficulties, saving the country from “suffocating” from “adversary legalism” and
overregulation (Kagan, 1991; Shapiro & Rabinowitz, 1997; Bardach & Kagan, 1982). In
China, however, given the current stage of political development at which the executive
branch enjoys much higher authority over its judiciary counterpart, the flexible exercise
of regulatory power will probably further urge the regulatees to ignore formal rules in

138
their compliance decisions (Chapter 3), and arguably has already resulted in a lot of
perceived and actual cases of arbitrary enforcement, abuse of power, collusion and
corruption at the local level (Chapter 1). If regulators in the West provide “regulatory
relief” to those who participate voluntarily in commitment-signaling exercises (Potoski &
Prakash, 2004, Bardach & Kagan, 1982), regulators in China will probably establish firm
and clear boundaries for their use of regulatory power.

How then may the regulators in China justify the flexibility they exercise, including the
standards they set over time and over different regulatees? Prevalent understanding of the
regulatory literature suggests that one is more willing to comply with the established laws
and regulations if one finds procedural justice in the law-making and enforcement
processes (Tyler, 2006), and/or performance effectiveness in the government’s delivering
of public services (Levi & Sacks, 2009). These perceptions increased the regulatees’
“legitimating beliefs”, or “sense of obligation or willingness to obey authorities”, which
was “then translated into actual compliance with governmental regulations and laws”
(Levi & Sacks, 2009).

The remedies these findings pointed to, nevertheless, are difficult to introduce in the
current Chinese context. First, as discussed above, it is difficult for regulatees to judge
whether the regulator is “fair” in its enforcement, given the huge implementation leeway
granted to the regulator, and the information gap among the regulatees about their
respective interaction with the regulator. The absence of a useful objective reference

139
prevents the regulatees from understanding whether the regulator is enforcing reasonably.
Secondly, with the systemic discrepancy between written rules and their actual
implementation, the legitimacy conferred by the legislators through the observation of
legislative procedures in the central rule-making process may help increase the
acceptance of the regulatory goals as national priorities among the regulatees, but it does
not necessarily justify directly the regulator’s self-determined standards, and his flexible
exercise of power, in his implementation of these goals at the local level. Thirdly,
although effectiveness in other policy areas may smooth out the governing of the
concerned policy area, this only pushes the justification question one step backward;
performance of local governments must be demonstrated before they can be used to
justify the regulator’s further action. Most importantly, performance may subside: It is
common for leaders of the ruling party to emphasize the party’s commitment to
continuous reform, and for observers of China’s development to argue that the country
should speed up its various reform processes, before the country fails to maintain a high
rate of economic growth (e.g., World Bank & People’s Republic of China, 2012). To
justify the considerable and continuous variations in his enforced standards, the regulator,
at least at the current stage, needs some alternative paths that are more immediate with
regard to enforcement, and more independent from the government’s own performance.

In brief, in implementing written rules for China’s environmental reform in the existing
governing context, local officials need to not only preserve the flexibility to create and
enforce their moving and varying standards, but also establish clear boundaries, and

140
provide justifications to the regulatees for the exercise of their more-than-sufficient
regulatory power.

Data and Findings

How does the surge of various government-sponsored voluntary programs observed in
the beginning help resolve these challenges? What are their roles in China’s
environmental reform? As an exploratory study, this following section focuses on
identifying and analyzing important features of how voluntary programs have been
implemented in Guangdong Province. Empirical evidence was collected from
government policy documents, as well as from semi-structured interviews with senior
executives of 17 Hong Kong-owned enterprises which had been operating manufacturing
plants in the Pearl River Delta region (see Table 2.1). These enterprises had demonstrated
outstanding performance in their environmental management, signified by various
environmental rewards they received. Many of them had been maintaining close contact
with the local city and provincial governments, and some had been formally recognized
as exemplars for their environmental protection efforts. These empirical data should help
us better understand how various voluntary programs were implemented, how they were
received by the regulated enterprises, and what their wider implications were to the local
governments’ effort to transform new environmental rules on paper to policy in action.

141
Background: Cleaner Production
Following the requirements stated in the Cleaner Production Promotion Law of the
People’s Republic of China
83
(established in 2002, with effect from 2003), as well as the
Cleaner Production Auditing Temporary Method
84
(established in and with effect from
2004), the provincial governemnt has devised the Guangdong Province Cleaner
Production Examinination and Evaluation Method (the “Method”)
85
(established in and
with effect from 2009), elaborating in detail the procedures and evaluation criteria
through which enterprises in the region may voluntarily apply to become a Cleaner
Production Enterprise. The “Method”, revised from the earlier Guangdong Province
Cleaner Production Enterprise Evaluation and Management Method (Temporary)
86

(established in and with effect from 2003), aims to promote “cleaner production” based
on the local sitaution of Guangdong. These documents have been the main basis of
establishing voluntary programs in the province, and since 2004, hundreds of enterprises

83
Retrieved March 24, 2012, from the Gazette of the State Council of the People’s Republic of China, from
http://www.gov.cn/gongbao/content/2002/content_61640.htm. See also Cleaner Production Promotion Law
of the People’s Republic of China. (2002). Retrieved March 24, 2012, from the webpage of the Ministry of
Environmental Protection of the Peopole’s Republic of China,
http://zfs.mep.gov.cn/fl/200206/t20020629_84834.htm.
84
Retrieved March 24, 2012, from the webpage of the Ministry of Environmental Protection of the
People’s Republic of China, http://zfs.mep.gov.cn/gz/bmgz/qtgz/200408/t20040816_70832.htm.
85
Application Notice Documents. (n.d.). Retrieved March 24, 2012, from the webpage of Guangdong
Cleaner Production, http://www.gdcp.org.cn/declare.asp.
86
Notice concerning the publication and distribution of the Guangdong Province Cleaner Production
Enterprise Evaluation and Management Method (Temporary). (2003). Retrieved March 24, 2012, from the
webpage of The Economic and Information Commission of Guangdong Province,
http://www.gdet.gov.cn/zwgk/zcfg/jmwfg/201110/t20111010_105897.html.

142
have been identified as “Cleaner Production Enterprises”.
87
The following section reports
further the findings from the interviews.

Demonstrative Purpose
From the interviewees, we learned that the local government officials in Guangdong
often identified some enterprises in the regulated population as exemplars for the purpose
of demonstration. They often arranged for representatives of other enterprises to visit
these exemplars. One of the interviewees, whose company had been identified as a
“benchmark” or “dragonhead” in the industry because of its scale, reported that local
governments at various levels, as “they launched some new regulations, or really tried to
implement some [existing] regulations”, would ask the company to become a “model
factory”.
When we get to the local town government … in that town we can be
considered a relatively larger enterprise. Thus, we can be considered a
benchmark. So, often, no matter whether it was the provincial government
or the city government, it would identify us as a “dragonhead” in the
industry. When they launched some new regulations, or really tried to
implement some regulations, they found us to become a model factory.
88

Another interviewee, whose company has been “gradually receiving much positive
recognition from local governments and the country” because of its environmental
performance, reported that the company had been invited to share its experience with
enterprises in the same district. As detailed, the new leadership of the newly established

87
Public Notice: Cleaner Production Enterprises. (n.d.). Retrieved March 24, 2012, from the webpage of
Guangdong Cleaner Production, http://www.gdcp.org.cn/management.asp?cid=254.
88
I nterview wi th B.

143
district in Shenzhen had approached the company and asked it to become a “benchmark
enterprise”, “letting other enterprises learn from [it]”. The leadership then selected the
company to organize its first meeting for a campaign for promoting environmental
protection, and “selected 10 to 20 enterprises” in the district to visit [the company’s]
production plant, and to listen to the experience shared by [the company’s] technicians”.
The company thus had organized two open days last year.
… [T]he government would like to have a meeting with us, make us a
benchmark enterprise, letting other enterprises learn from us. Last year,
our organization had two open days, allowing people from outside to visit
our plants. The first time was at the Shenzhen City… Around June last
year … [the] new district … had a group of new leadership. They decided
to have their first meeting on environmental protection organized by our
company…, letting our enterprise share our experience. And then in the
whole new district they selected 10 to 20 enterprises. Every one of these
enterprises sent representatives to visit our production plant, listen to the
report of our technicians, sharing experiences.
89

Limited Benefits for the Exemplars
One might suspect that companies might have agreed to become exemplars because they
might gain something from the government. Interestingly, the government did not
promise much in return. One interviewee reported that his company was selected as one
of the thirteen energy-saving demonstration enterprises in Shenzhen City in 2009. Asked
if there were any benefit from being an exemplar, his answer suggested that there was not
much concrete substantial reward, except perhaps a positive encouragement to the firm’s
employees, and some recognition from government officials as they came and visited the
firm.

89
Interview with D.

144
At the end of last year, 2009, from the whole City of Shenzhen 13
enterprises were identified as the energy-saving demonstration units. We
were one of them. This award might have some money, [it] seemed like
there was a cash prize. I do not remember the amount. … [Any impact to
become an exemplar?] It’s an encouragement to our employees … It is
positive, not bad to have it. It is, after all, recognition after you have done
well. … [Any advantage for your operation? For example, reputation?
Less inspections from government or environmental authorities?] I think
the government always has their standard procedures. They will not
change it. … [Would it be easier for you to cooperate with the
government?] Cooperation? There is not much cooperation. We are not
doing environmental technology. We have nothing to sell to the
government. [Many officials come to visit you?] Yes, that kind …
oftentimes there would be government officials coming to visit our
firms.
90

Another interviewee reported that his company had received many people, including
those from his own industry. He did not consider environmental protection a
“competition” in which showing its technology to others was a loss.
[Will local government arrange visits to your company?] I know there are.
We are arranging site visits. We have received many people, including
those from our own industry. We will take care of whoever comes to visit
us. … We don’t think this is a competition. Doing business is not just
about environmental protection. … Whether there will be businesses for
us … I do not think this is a competition, not this project.
91

Another interviewee even replied that he very much welcomed the sharing of his firm’s
environmental management experiences.
“Our door is open for visitors, no matter what unit you are [from]. We
welcome them. Because today we do a good deed, we have invested our
money… We don’t just give you the fish to eat. We teach you how to fish
(授人以魚，不如授人以漁).
92

90
Interview with E.
91
Interview with F.
92
Interview with H.

145

In other cases, being an exemplar might confer some potential, intangible benefits to the
company, as in advancing its relationship with the government, but that was achieved
only after substantial further investment on the side of the firm. As reported by one of the
interviewees, the chairman of his company had “a dozen public-office titles”. The
company also served as a “model unit”. Hence, when there was a new government
policy, the company would know about it at a very early stage.
Our boss has a dozen public-office titles… The government supports us
very much. We are model units. Sometimes when they have a new policy
(since our company has some scale)…we will know it at a very early
stage.
93

Another interviewee suggested that being an exemplar might help build relationships for
resolving possible future conflicts.
94
He reported that its company had given the
government “a lot of information”, and hence they could potentially have “good
discussions” (有商有量) with the government in times of conflict. There were situations
when the government “listened to some others, and intentionally made some laws that
would cause trouble,” but there remained “hopes” that the company could resolve the
issues with the government through discussion. This, nevertheless, does not imply that
preferential treatment was granted to the company. Government pressures remained on
various aspects, including “food safety”, “all sorts of areas”, and the use of some banned
production equipment.

93
Interview with C.
94
Interview with I and K.

146
Actually, there are pressures from the regulator, no matter whether it is
food safety or…they have pressures on all sorts of areas. Sometimes, there
would be situations, you know, when they listened to some others, and
intentionally made some laws that would cause trouble. But we hope to
discuss with them, and resolve these issues. … We have given them a lot
of information, and so we could have good discussions (有商有量 ,
youshangyouliang). For example, the use of boilers (鍋爐)… As they
think it is not good, we then do not touch it, so as not to make each other
unhappy.
95

This sharing of industrial technology and information, however, could be problematic for
some companies whose competitive advantage depends strongly on environmental
technological knowhow. An interviewee reported that water-pollution treatment
techniques were considered secret in his industry. The company had experienced a lot of
failures and had “paid many months of school fees” before. He was not willing to share
this technological knowhow with others.
In our industry, no matter whether it is Hong Kong or mainland dyeing
enterprises, their water pollution treatment technique is not very good.
Hence, this becomes their technology treasure house. It is unlikely to be
opened to others. … Honestly, we have also experienced a lot of failures.
We did not achieve it at once. We have experienced a lot of failures. We
kept on trying. We have theories and we have our experiments… We have
paid many months of school fees. We don’t really want to share our
technology with others.
96

In fact, there could even be potential pressures that come with being an exemplar. One
interviewee told us that his company did not launch a “huge marketing campaign”
promoting the company’s environmental achievement. He said that the company might
have had received positive recognition from others upon their visits, but it tried to

95
Interview with I.
96
Interview with G.

147
maintain a low profile. This was because he realized that being famous in doing
environmental protection would also give the company “a very large pressure” from
others, who would assume that the company would “have methods to do better” in the
future.
We do not make a huge marketing campaign on this. Why have we later
received positive recognition from other enterprises? It is because they
have visited our enterprises. After they had visited, they then went back
and talked about us. [Is it because you are doing well?] Yes, we are doing
well. But we seldom promote this. … [External communication, make
announcement to the public?] Yes, we have some channels. … [But] after
the government knows this … when one talks about it everyone will know
it. We will also have a very large pressure, and they will say we have
methods to do better. [So you will not label or show it?] Right.

Benefits for the Government
Contrarily, the gain of the government from identifying exemplars among the regulated
population is substantial. The government can collect important industrial information for
developing standards and benchmarks for its regulatory enforcement. Two interviewees
reported they had been invited to participate in the creation of the “China RoHS
(Restriction of Hazardous Substances)” standard.
97
One told us that, as the company had
been actively participating and giving feedback to the government, his company had
become “half an expert” in China RoHS, to the extent that even “clients of the American
Top 50 [companies]” would consult them. This partly shows how much the government
relies on the expertise of the exemplars.
Many people think that RoHS is the same as China RoHS. But they are
different. The requirement for batteries in China RoHS is higher. We have

97
Interview with E and P.

148
participated in China RoHS. We very actively participate, and give
feedback to the authorities. We are now half an expert in China RoHS.
Even for the clients of the American Top 50, if they do not know about it,
they will have to ask us. We cannot say we may give seminars, but
training to some individuals.
98

Another interviewee reported that the authority who was responsible for “textiles” had
invited his company to derive a standard for water consumption and energy consumption
as a benchmark for the industry, as the existing benchmarks for “woven fabric” were not
applicable to “knit fabric”, and so he did. However, note that this act is different from
sharing experience directly with the industry. The interviewee reported further that there
was no communication between companies in the industry. Even when he was asked to
share experience through industrial associations, there would be filtering of information.
Probably for the same reason, he expected more in return, that developing benchmarks
with the government may “facilitate [their] interaction”, such that “in the future when [it]
asks the government for something in return, [they] will cooperate with one another and
work it out”.
Now the authority on textiles wants [our company] to cooperate with them
to derive a standard for water consumption, energy consumption, as a
benchmark. They also have it now, but it is for woven fabric, and not
applicable to knit fabric. They asked us to derive a benchmark. Actually
this facilitates our interaction, in the future when we ask the government
for something in return, we will cooperate with one another and work it
out.
99

In fact, attaining industrial information about the appropriate extent of enforcement
allows the government to apply stronger regulatory pressures to other regulatees in the

98
Interview with P.
99
Interview with K

149
industry. One interviewee, whose company has often been considered as an
“environmental protection enterprise”, said that local government agencies often asked
those companies with relatively better performance in environmental protection and
pollution mitigation to become exemplars for demonstration and improving the
operations of the surrounding plants. The standards government officials learned from
exemplars were used to justify their enforcement of these standards on other companies.
They always say that we are environmental protection enterprise. … Some
[government] departments at the local…ask those enterprises which
perform relatively better in environmental protection projects or pollution
mitigation to become model exemplars, and to push forward the plants
around. When a certain boss says again it is very difficult to do ... this and
that…then they [officials of local departments] will say, “No … he [the
owners of exemplar companies] said it did not cost much, why don’t you
also do that?” Then, some plants called me to ask about that.
100

The above interviewees whose company helped develop a benchmark for “knit fabric”
also reported similarly that the faster progress of this company had influenced the other
companies, making them follow and copy from this company.
When we walk faster, we influence other companies in the industry to
follow us. This actually happened. We went faster, they copied us. This
happened.
101

A final, and perhaps the most interesting, feature in the governmental effort to identify
exemplars among the regulated population is that there are often compulsory measures
implemented along with various voluntary programs. To the knowledge of one of the
interviewees, whose company had “won” in the Guangdong Province Cleaner Production

100
Interview with O.
101
Interview with K.

150
program in 2009, some enterprises were “compelled” to participate in the program.
102

This was echoed by the report of another earlier interviewee. He said that given the larger
scale of his company’s production plant in the area, his company was identified as a
“dragonhead” in the industry. It had not much choice but was demanded to be a “model
enterprise”. This meant that the company had to be “better than normal”, achieving
“more than enough”.
Actually, that is not up to us to choose. I say this because: obeying the law
is a must. But at a higher level, when the Chinese government decides to
face directly this thing [certain environmental issue], or take it seriously,
she has to find some dragonhead enterprises to do this thing. And we were
chosen. … The government demanded us to be a model enterprise, which
means we have to be better than normal. This is not up to us to say that we
do not want to do. Since that moment, from my impression, around 2 to 3
years ago, we have to achieve “more than enough”.
103

This compelled participation, nevertheless, was not an adversarial, hands-off mandate.
Government agencies actually sent some experts in “dyeing”, “not simply some energy-
saving, emission-reduction experts”, to his plants. These experts participated, supported,
and worked with the company to derive environmental solutions, so much so that the
interviewee saw this as a positive influence, and commented that the company could
demonstrate to smaller enterprises that there were some enterprises in the industry that
had managed to achieve environmental protection. This suggested that the government
was more interested in improving the possible standard of the industry than in regulating
because of regulatory violations.

102
Interview with K.
103
Interview with B.

151
I would not say “influence”. I think that move was positive, because their
demand to us has actually become higher. And their involvement has
increased. Very often, it was in the form of cooperation. When we were
asked to be an exemplar enterprise, they were not saying “you [company
name], transform into an exemplar enterprise in three months”. Actually
they had participation. They sent some experts to us. These experts were
not simply some energy-saving, emission-reduction experts. They actually
sent some experts in dyeing to our plants, to give us some opinion about
how we should do. Therefore, I think this influence is a positive one. She
speeded up the whole process.

It is both good and bad. Maybe she [government official] supported us.
But in terms of pressure, for sure there was, no matter whether it was
about the pace, or the kinds of demand. They [the pressures] were for sure
there. But she would not just let you do it on your own, she had
participation, and support. [Were there some times you could not achieve
it?] Actually, we together came up with some methods. In some situations,
we together derived the solution. Rather than [saying], “You are not right.
I do not care. You fix it on your own!” … Actually this is good for the
industry; at least in our industry there are some enterprises that can really
achieve that, and this encourages other smaller enterprises…
104

Discussion:
Voluntary Programs from a Broader Institutional Perspective

To see how the identification of exemplars in voluntary programs helps the local
governments in China tackle the third practical challenge of standard setting and their
justification, we need to understand further the general nature of standards. In essence,
standards are institutions. Recent understandings of institutions have gone beyond the
often quoted definition that institutions are “rules of the game” or “humanly devised
constraints that shape human interaction” (North, 1990, p. 3), to now consider also our

104
Interview with B.

152
motivations to follow these rules as an integrated part of any institution (Greif, 2006, p.
39). In fact, from a major recent philosophical advancement on the ontology of
institutions, we learn that the existence of all institutions is because the case we made by
declaration, that certain objects/artifacts carry certain functions in certain contexts,
continuously receives the “collective acceptance or recognition” of the concerned
community (Searle, 2010, esp. pp. 90-104). In other words, the latest understandings of
institutions take seriously the advice of Hardin (1968) in his seminal article on the
Tragedy of the Commons that the social arrangements we create to solve the tragedy
require our mutual agreement (c.f., “mutual coercion mutually agreed upon”, p. 1247),
which further informs us about the conditions under which rules-in-form become rules-
in-use.

Despite being an intermediate administrative invention between centrally devised rules
on paper and locally adopted policy in action, the standards set by local government
officials are also institutions, or institutions-to-be. They require the same conditions of
“collective acceptance or recognition” formed among the governed population, before
they are received as the rules-in-use. The identification of exemplars thus allows the
regulators to speed up this collective process. This is achieved as the regulators make use
of the natural heterogeneity in the governed population, confer status to those whose
performance is on a par with the administratively set standard, and endorse the name and
work of these identified exemplars through public demonstrations and arranged visits. In

153
effect, these publicly recognized entities, as they agree (“voluntarily”) to be identified as
exemplars, embody these standards, de facto endorsing the administrative invention.

This explains the findings that the local governments of Guangdong not only identified a
great number of exemplars with outstanding performance in environmental management,
but also organized a lot of arranged visits for surrounding companies for demonstrative
purposes, especially when there was a new leadership or there were new policy goals to
be achieved. This also explains why at least some leading companies in the industry,
publicly known because of their scale, had been compelled to become models and were
given exemplar status. From the theoretical discussion above, we learn that without the
participation of these firms, who carry weight among the concerned governed population,
be it within or outside the corresponding industry, the validity of the claim that the
enforced standards are viable or reasonable will be severely undermined. These actions
represent in part the government’s effort to justify its enforced standards. As shown in the
interviews, the government has also sent environmental experts specializing in the
operation of the industry to the compelled exemplar in order to derive environmental
solutions together. This move of the government should be seen less as “killing the big
tiger”, which induces a sense of fear among the firms toward the government, than as
standards development, which furthers the possible standards of the industry for future
regulatory enforcement. In essence, the performance of the exemplars helps the
government define the boundaries of its enforcement.

154
The identification of exemplars in the regulated population also helps resolve the second
challenge of collective inaction among the regulatees. Similar to the understanding of the
literature (see Potoski & Prakash, 2009a), the local governments in Guangdong conferred
reputational benefit to the exemplar regulatees through voluntary programs, informing
the concerned stakeholders about their production of positive externalities. Furthermore,
as the local governments publicized works of some members among the regulatees,
through, for example, public endorsement and/or arranged visits, other regulatees were
assured that at least some among them are committed to such an effort. In situations when
competitive advantages among the regulated companies hinge very much on their
technological know-how for achieving the regulatory goal, the regulators in Guangdong
invited exemplars to set industrial standards and benchmarks (e.g., “China RoHS”,
“benchmark for ‘knit fabric’”) together, and sent specialized experts to its other
regulatory targets. Doing so sent similar signals to other regulatees. These actions
reduced the information asymmetry among the regulatees, which were otherwise
increased by their competition, or the sheer number and variety of regulatees. This in turn
helped resolve the collective inaction problem among the regulated companies.

The analysis above suggests that, given the “implementation gaps”, policy plans and
written laws and regulations in China cannot be relied upon as useful guides for
compliance decisions. The absence of a reliable objective reference leaves the regulatees
with no better choice but to interpret the supposedly flexible (and potentially reasonable)
enforcement strategy of some benevolent regulators as giving preferential treatment, or

155
regulating arbitrarily by asking for personal favors. Identifying exemplars among the
regulatees helps the regulator to develop a set of reliable, objective references for the
regulatees to judge whether the regulator is regulating reasonably or arbitrarily. The
empirical findings followed this logic. Apart from publicly endorsing a list of exemplars
and organizing arranged visits, the regulators in Guangdong also made reference in their
regulatory enforcement to the performance of exemplars, the information about which
were collected through, for example, casual conversations with exemplars, and inviting
exemplars to set industry-specific benchmarks and standards. In doing so, the regulator
develops objective references by which the regulatees may judge its enforcement.

Through publicly endorsing exemplars among the regulatees, as well as developing and
enforcing industrial standards and benchmarks among the regulatees, the regulator will
likely be able to make known his regulation-enforced, and convey to the regulatees his
commitment to regulating non-arbitrarily, restoring the regulatory situations to a
“normal” situation characterized by regulatory dilemma. To further this trust-building
process and resolve the regulatory dilemma, while not falling back to the earlier stage of
interaction characterized by potential arbitrary enforcement, the regulator cannot pursue a
maximal strategy that exceeds the best perceived performance of the identified group of
exemplars. As discussed earlier, given that the exemplars now are the embodiment of the
administratively set standards, used by local government regulators to justify such
creation, their performance would be the natural boundary of enforcement allowed to the
regulator.

156

This logic corresponds to the empirical finding that regulators in Guangdong were
reported to work and derive environmental solutions with exemplars together. It
represents governmental efforts to advance the maximum standard of enforcement, while
sticking with a non-arbitrary enforcement strategy. The same logic is also compatible
with how government sponsors of various voluntary programs treated the exemplar status
it conferred to various exemplars, as reported in the literature and found in the latest
development of the Cleaner Production program in Guangdong. Empirical studies have
repeatedly shown that model cities in the National Model City of Environmental
Protection program may lose their status. This potential for “losing face” was widely
acknowledged among city leaders (see esp. Li et al., 2011, p. 127; Economy, 2006, p.
179). In a policy document issued in August 2011
105
, the Guangdong government
required the 228 recognized Cleaner Production Enterprises to “renew their certificates”.
If any enterprises failed to report their latest environmental performance on time as
requested, their exemplar status would be “automatically cancelled, and publicly
announced” (“逾期不遞交換證申請的企業, ‘廣東省清潔生產企業’ 稱號自動取消, 並予以公告
”). As exemplars were endorsed publicly, their “face”, or reputation among their
stakeholders and other regulatees, created and given by the regulator, may now be lost.
They will now need to continuously perform according to the latest standard of, and the

105
Notice Concerning the Expiration of Guangdong Province Cleaner Production Enterprises and
Certificate Renewal. (2011). Retrieved March 24, 2012, from the webpage of The Economic and
Information Commission of Guangdong Province,
http://www.gdei.gov.cn/flxx/jnjh/qjsc/201108/t20110819_105539.html.

157
resultant social expectations for, the exemplar in order to maintain their reputation. The
regulator, in effect, has developed and utilized a social sanctioning mechanism to further
enhance the original maximal standard for its enforcement.

Conclusion

Empirical studies in the literature have found that regulatory governance effectiveness
depends very much on a country’s “regulatory commitment” shown in the existence of
formal and/or informal institutional mechanisms that restrain the regulator’s “potential
arbitrary administrative action” (Levi & Spiller, 1994; see also North, 1990). Why,
however, would these institutional constraints be introduced and abided by in the first
place (Greif, 2006; Aoki, 2007; Kingston & Caballero, 2009)? History tells us that it is
probably not appealing to any autocratic regime to permanently give up its centralized
legislative and executive power without receiving in return a highly certain and
substantial gain in its governing effectiveness. The establishment of an independent
judiciary system and the rule of law to check against other branches of power will also
incur a lot of time and conflict. Even if an “independent” regulatory agency is to be
established, it only pushes the problem one step later: it still does not solve the potential
problem of arbitrary enforcement using unreasonably high standards by the agency, and
the problem that written plans, laws and regulations cannot be relied upon as objective
references for guiding compliance decisions of the regulatees.

158
Given the structural characteristics of “implementation gaps”, and thus the substantial
discretionary power given to local government officials, China’s relatively poor
“institutional endowment” (Levi & Spillers, 1994) shall probably be associated with a
very unsatisfactory regulatory outcome. Through examining the local governments’
recent effort in promoting environmental protection among enterprises in Guangdong,
nevertheless, this chapter found that the identification of exemplars through various
government-sponsored voluntary programs may help local government officials
transform various environmental policy plans and legal rules into real-world practices,
achieving the regulatory goal. To be sure, for the overall environmental reform effort to
be effective, strict enforcement, especially at the lower end of the standard, is still
needed
106
, and the pace of that enforcement may still cause some complaints
107
. The
identification of exemplars among the population also does not guarantee that the
enforced standards these exemplars embodied are in accordance with the reasonable
expectations agreed and described in the existing public normative discourse. If what is
being enforced is very much different from the general expectations of the society, or
moral and ethical values of the governed, then it is quite likely that there will be huge
disputes against the authority, i.e., the institutional status of the rule-enforcers, the rule-
makers and the rule-making bodies, such as the local governments and their leaders, as
well as the National People’s Congress and the ruling Communist Party. Despite all

106
Interviews with K & O.
107
Interviews with A & O.

159
these, the above analysis shows that regulatory effectiveness may be attained when
institutional self-constraints are introduced limitedly but gradually at the local level.

In summary, the analysis of this chapter suggests the identification of exemplars through
various voluntary programs may help local regulators in China gauge and justify the
possible extent of enforcement at different times. It allows them to utilize the natural
heterogeneity among the policy targets, and the industrial information originally owned
privately by the exemplars, for conveying the viability of the enforced standards in
actualizing various laws and work plans. It not only confers reputation benefits to
participants of these programs, but also signals the population that many others are
engaging in producing positive externalities for achieving the regulatory goal, resolving
the collective inaction problem among the regulatees. The existence of these exemplars
also demonstrates to the larger regulated population that the regulator is not regulating
arbitrarily. The exemplars serve as the living but objective reference, developed for the
regulatees to judge their enforcement. Through publicly endorsing exemplars among the
regulatees, making the exemplar identification process transparent and reasonable, as
well as enforcing industrial standards and benchmarks that are developed with the
regulatees, the regulator is more likely to be able to convey his commitment to regulating
non-arbitrarily to the regulatees, restoring the regulator-regulatee interaction to the
“normal” regulatory situation, with the performance of the exemplars as the upper
boundary of its maximal enforcement. Overall, this flexible and relatively non-costly

160
regulatory enforcement strategy complements the more open, legalistic regulatory
approach that is under construction in China.

161
Chapter 5
Conclusion

This dissertation examined the recent environmental reform in China by analyzing data
collected from senior executives of Hong Kong-owned firms with manufacturing
operations in the Pearl River Delta region, Guangdong. It adopted three theoretical
perspectives for understanding three distinct but interrelated aspects of the reform. This
final chapter summarizes the findings of these inquiries, and discusses possible lines of
further research.

Summary of Empirical Findings

One major question posed in the beginning of the dissertation asked what the progress
and effectiveness of various reform measures are in fostering behavioral changes among
enterprises, the country’s major source of pollution emission and energy consmption.
Chapter 2 of the dissertation sought to answer this question by comparing China’s
situation with environmental reform experiences from around the world, captured by the
theoretical model portrayed in the Ecological Modernization Theory.

Following the Theory’s comprehensive framework, the analyses examined qualitatively
from a firm’s perspective their perceptions and responses to the environmental demands
exerted from various actors in the state, market, and civil society in China. The strength

162
and effectivness of these demands were also measured and analyzed by quantitatively
regressing these demands toward the firms’ actual behaviors of adopting various
environmental management practices.

The analyses showed that economic rationality is no longer the only organizing principle
in the Chinese economy. Government, market, and to a lesser extent civil society actors
are exerting stronger environmental pressures on business enterprises, which in some
circumstances has led these enterprises to adopt more progressive environmental
behaviors.

In particular, government actors were found to have applied the largest environmental
pressures. Their efforts in regulatory governance are very much decentralized, with local
Environmental Protection Bureaus being the key state enforcers in the process. The style
of these efforts, meanwhile, is becoming more and more formalistic and impersonal,
which differs greatly from the flexible enforcement style commonly pursued in the West.
The overall environmental requirements from the Chinese government, despite regional
disparities, are moving toward a stricter and more rigorous end.

Comparatively, market actors’ influence on firms’ environmental behavior is relatively
smaller. Among them, organization buyers along supply chains are increasingly exerting
stronger environmental pressures to push their direct and indirect suppliers, albeit with
immense difficulties, to adopt stricter international standards. In fact, much of the

163
environmental work of the respondents was reported to be motivated by their personal
commitment to environmental protection, the basic managerial concern of saving cost in
the production process, and, for some, the strategic considerations of anticipating
potential customers’ demands in the future. The environmental responses of the business
enterprises were often considered convenient means for achieving economic ends.

Civil society actors exert the least environmental pressures on the firms. Enterprises with
poorer environmental performance may be more susceptible to their influence, as they
create governing concerns for the local officials, but these influences remain weak in
affecting enterprises’ environmental behaviors. At least to the interviewees, the civil
society is not an independent force to be reckoned with, but very much a recipient of their
benevolence toward the community, an idea that is consistent with traditional Confucian
ethics (see below).

Built on findings from the above overview, Chapter 3 went on to focus on the strong
environmental influence from local government regulators and looked into its nature. In
doing so, the chapter examined in detail what motivates firms’ compliance behaviors
with governmental regulatory demands, and elaborated accordingly on how firms
perceive these various kinds of influence.

The chapter briefly reviewed China’s judiciary context for its environmental regulatory
enforcement, and the existing literature on regulatory compliance. Based on the reviews,

164
the chapter proposed an analytical framework for systematically mapping firms’
compliance motivations in China’s regulatory situation in which the rule of law cannot be
assumed.

The analyses found that the firms’ decisions to adopt environmental behaviors were less
driven by their intentions to better comply with environmental laws and regulations than
by their motivations to avoid the punishment they may receive for violating the
regulator’s demands, and, notably, to prevent the potential arbitrary interference from the
regulator’s use of his enforcement power.

Firms’ environmental behaviors also varied negatively with the amount of challenges
they found in trying to understand the de facto regulations that represent the regulator’s
self-restraint in using his enforcement power. The more the firms know about such de
facto regulations, the more likely they are to trust the regulator, and thus the more likely
they are to adopt environmental behaviors.

The analyses also showed that there seems to be no strong social foundation supporting
the regulatory enforcement of the regulator. Other than the significant effect on firms’
proactive environmental behaviors from the environmental influence they perceived
aggregately from their peers, environmental influence from other members of the society
did not have a strong impact on firms’ environmental behavior, as found earlier in
Chapter 2.

165

These findings suggest that, as the independence of the legal system, or rule of law, has
not been well-established in China, the environmental laws and regulations, that were
supposedly created for guiding regulatory enforcement, cannot be relied on as a useful,
objective reference for regulatees’ compliance decisions. This poses significant
challenges for regulatees in judging whether the regulator is regulating arbitrarily for his
personal interests, as well as on local regulators in communicating their potentially good
intentions to the regulatees.

With regard to the sustainability of recent reform efforts, another major question posed in
Chapter 1, these findings suggest we reject the use of a campaign-style regulatory
approach (van Rooij, 2006) or a flexible regulatory approach (Scholz, 1984b; Potoski &
Prakash, 2004) at this stage of environmental reform. This is because these approaches
may both generate high uncertainty in the regulatory situation, deepening the distrust
among the interacting parties. The analysis in Chapter 3 also helps us understand why a
more formalistic and impersonal regulatory approach is found in the latest government
regulatory effort, as reported in Chapter 2. The findings support the continuous use of the
latest approach despite its initial setbacks (see Lo, Fryxell, & van Rooij, 2009).

Based on these initial understandings, Chapter 4 focused specifically on the interaction
among firms and government officials at the local level. It analyzed the dynamics of their

166
strategic interactions as local environmental officials tried to transform the centrally
devised plans and rules into actual local policy practices.

The chapter first reviewed China’s governing context of policy making and
implementation, and, with the help of game-theoretic techniques, deduced theoretically
the likely behavioral consequences and implications of such a context. The developed
theoretical models were then matched with the empirical reality of China’s environmental
reform as identified in the literature and the preceding chapters.

Accordingly, three practical challenges were identified in the rule-transformation process,
namely, the regulatee’s concern about the potential arbitrary enforcement of the
regulator, the regulatees’ concern about the collective inaction problem among them, and
the regulator’s concern about standard setting for achieving effective regulatory
governance.

Through a parallel investigation of the empirical puzzle of the recent surge of
government-sponsored voluntary environmental programs in China, the chapter found
support for the above theoretical analysis, and the findings also suggested how the
identified practical challenges might be tackled.

Analyzing the findings from a broader institutional perspective, the chapter found that
these voluntary programs help local government officials identify among the policy

167
population a set of exemplars whose performances represent the de facto regulations
guiding the regulatory enforcement of local regulators. The government’s public
endorsement of these exemplars demonstrates to the policy population the viability and
plausibility of the extent of regulatory enforcement administratively set at a certain point
in time, and assures individual regulatees that there are others in the regulated population
who are also working toward the regulatory goal.

Most importantly, the local governments’ endorsement, their corresponding willingness
to make transparent and reasonable the exemplar selection process, as well as their self-
restraints to treat the performance of these exemplars as the upper boundary of its
regulatory standards, showed the regulated firms that the regulators were committed to
not engaging in arbitrary enforcement. This helps induce cooperation from the wider
population of regulatees, and provides the basis for the adoption of a more flexible
regulatory strategy, as suggested by the literature for the regulatory situation under the
rule of law. Overall, these government-sponsored voluntary programs complement the
more open, legalistic regulatory approach that is under construction. They suggest
directions for bringing China’s environmental reform to the next stage.

168
Limitations and Further Research:

Environmental Commitment and
Informal Institutions for Environmental Protection

The dissertation has hitherto focused mostly on China’s state-led effort in environmental
reform from a firm’s point of view. Although this research strategy has its merits (see
Chapter 1), firms’ interaction with the governmet represents only one major aspect of
consideration in their decisions to engage in environemntal behaviors. To carry this line
of inquiry further, the dissertation proposes the following two major research agendas:

The Formation of Environmental Commitment
One possible line of futher research is to inquire into the formation of ethical
environmental values among Chinese businessmen over time. Regression analyses in
Chapter 2 and Chapter 3 showed that there was a statistically sginficant relationship
between the variable top management commitment and the firms’ environmental
behaviors. The variable, despite being treated as a control, had quite a remarkable
correlation with the dependent variable. It meaured a firm’s senior executives’ ethical
environmental values through such suvey questions as “We recognize that the company
has an ethical responsibility to adopt better environmental protection measures”, “In
asking ourselves if we have been a successful as a company, we usually think about
whether we’ve made a positive contribution to society and to people’s quality of life”,
and “We are personally interested in developing and implementing environmental

169
protection measures within the company” (see Table 2.2). How did such strong ethical
environmental values develop in the minds and/or decision-making models of the
Chinese business executives, and motivate their environmental behaviors accordingly?

In the management literature, factors such as sense of duty, environmental attitude,
environmental values, and commitment to the environment are often used to explain
business organizations’ environmental behavior (e.g. “social responsibility” in Bansal,
2000; “duty to comply” in Winter & May, 2001, pp. 677-678; “to do the right thing” in
Koski & May, 2006, p. 332; “organizational values” in Berkhout & Rowlands, 2007, pp.
285-286; Deng, Walker, & Swinnerton, 2006; Heath & Gifford, 2006). Seldom have
these studies, nevertheless, looked deeper into the process through which these
environmenal values were acquired. If the above empirical findings are to inform
environmental policy making, and in particular China’s future environmental reform,
researchers will probably need to know more about how such a set of “duties”,
“attitudes”, “values” and/or “commitments” is formulated.

A review of the literature in ethics and motivation is informative here. As Colby &
Damon (1993) argue in their study on moral exemplars,
[M]oral exemplars are not distinguished from others by the particular
values that they hold so much as by the high degree to which these values
or moral beliefs are integrated with the participants’ sense of self. It is this
integration of moral beliefs with the self [emphasis added] that …
accounts for the virtuous facts of the moral exemplars. (Monore, 2001, p.
498)

170
Shamir (1991) and Perry (2000), through their extensive review of the psychology and
motivation literature, elaborate further on how this process of integrating moral beliefs
with the self is achieved. The two organization management scholars found that
individuals are “not only goal-oriented but also self-expressive” (Shamir, 1991, pp. 411-
412); they are “motivated by their self-concepts” (Perry, 2000, also Shamir, 1991), which
can be regarded as
containing a variety [emphasized in original] of representations … [these]
representations of self may be cognitive and/or affective … they represent
the self in the past and future as well as the here-and-now; they are of the
actual self and of the possible self (Markus & Wurf, 1987, p. 307; see also
Geca, 1982; Demo, 1992).

From this perspective, individuals are to maintain a sense of consistency “among
components of the self-concept at a given time”, “along the time dimension”, and
between the “self-concept and behavior” (Shamir, 1991; p. 412; also Monore, 2001, p.
499). Such a process of consistency maintenance is similar to the goal of the social
mechanism commonly known among social scientists as cognitive dissonance (Elster,
1989; Monore, 2001, p. 500), the discomfort arising from discrepancies in cognition,
especially when one’s action threatens one’s self-image (Monore, 2001, p. 500). The
belief-integration process also resembles an individual’s creative “sense-making” efforts
including, for example, (re)assembling, (re)arranging, and (re)theorizing cues taken from
the environment, as desribed in the management literature on sensemaking (e.g., Daft &
Weick, 1984; Weick, 1993, 1995; also Fiss & Hirsch, 2005).

171
Based on the above discussion, our question can be reformulated as: How do Chinese
business executives integrate ethical environmental values into their self-concepts, or
generally their senses of self? What are the self-concepts these executives commonly
uphold? How do these self-concepts lead to their corresponding environmental
behaviors?

The ways in which our interviewees saw themselves in promoting environemntal
protection in their companies’ operations provides us with some important clues. As
reported in Chapter 2, when the interviewees described the reasons why they engaged in
environmental behaviors, they tended to consider themselves the leaders of their
respective communities. They felt that they were obliged to “pay back to society”
(huikui shehui 回饋社會) and “be responsible ” (you zeren 有責任) to the next
generation, as well as to improve the living standards of their own employees and the
local community.

These linkages seem to reflect one of the long ethical traditions in China, which stresses
the cultivation of virtue based on Confucian norms and ethics. As described in a well-
known classical Confucian passage in The Great Learning, the ultimate goal of a person
with great virtue is to contribute to the world, or tianxia (天下):
Things being investigated, knowledge became complete. Their knowledge
being complete, their thoughts were sincere. Their thoughts being sincere,
their hearts were then rectified. Their hearts being rectified, their persons
were cultivated. Their persons being cultivated, their families were
regulated. Their families being regulated, their states [country] were

172
rightly governed. Their states [country] being rightly governed, the whole
kingdom [the world] was made tranquil and happy. (Confucius, ca. 500
B.C.E)

Embedded in this idea is an important emphasis on a “natural progression” that one shall
follow in the process of virtue cultivation (see Yee & Cooper, 2012). The idea not only
links two main goals of Confucianism: neisheng (內聖), “inner saint”, or virtue in the
private realm, and waiwang (外王), “outer merit/benevolence”, or good deeds in the
public realm (Yu, 2010, p. 22), but also suggests a natural path of virtue cultivation,
moving from improving the state of affairs of improving oneself, to one’s family, to one’s
country, and finally to the world (shen jia guo tianxia, 身、家、國、天下). The great
similiarity between this idea and the way how our interviewees see themselves in their
environmental work suggests to us an important working hypothesis, that the acquisition
of ethical enviromental values among ethnic Chinese business executives varies greatly
from that of executives from a different culture.

Further research is needed to develop and test this hypothesis. In-depth qualitative
interviews may be conducted with business executives to understand more about their
conceptions of environmental protection, how they were developed, and how they are
reflected accordingly in their environmental behaviors. As environmental reform
continues to be applied to many other less-developed provinces in China, the findings of
this research will help create more appropriate policy measures for facilitating the
development of ethical environmental values among the population of China.

173
Informal Institutions for Environmental Protection
The analyses in the last three chapters suggest that the state’s effort of environmental
protection has not been supported by a strong social foundation. Overall, environmental
demands from various members of society did not have statistically significant effects on
the firms’ environmental behaviors. In other words, China’s societal environmental
demands, if any, are not effective in inducing firms to pursue a greener path of
development.

In the literature, nevertheless, the role of informal institutions in various developmental
issues has been gaining a lot of attention recently. Apart from the works cited earlier from
the regulatory literature (e.g., Posner, 2000; see Chapter 3), academic and policy
resechers in fields such as comparative politics and developmental studies have also been
developing reserch agendas to examine this important dimension of social interaction
underlying many social phenomena (e.g., Helmke & Levitsky, 2004; Casson, Giusta,
Kambhampati, 2010; Jütting, Drechsler, Bartsch, & de Soysa, 2007). In fact, as early as
the beginning of the last century, the great American institutionalist John R. Commons
had already observed that “between the individual and the State is a supreme principle of
stablization by custom” (Commons, 2009, p. 128).
[T]he State…might incresingly protect the good practices of capitalism
and restrain the bad practices…but in no case can either branch of
government goes very far ahead of what is customary and sanctioned by
associations, though it may fail to go as far as better customs would
already support (Commons, 2009, p. 130).

174
All these suggest to us that in China’s largely state-led environmental governance reform,
governments at various levels shall at the same time create and reinforce the informal
institutions of environmental protection (e.g., norms, customs, conventions, or
“sanctioned by associations”) among their policy targets, as well as various members in
the community.

What then is the nature of such an informal institution? What constitutes its sustainable
existence? The scholarship of the new institutionalism in economic sociology provides
some useful guides here. Developed to challenge the dominant perspective of new
institutional economics (NIE), this stream of literature sees individuals as embedded in
social networks (Granovetter, 1985). Similar to what NIE scholars propose, individuals’
behaviors in new institutionalism are interest-driven. These interests, however, are
contextually defined, regulated by the informal institutions shared among the members in
their embedded social network (Nee, 2005). These informal institutions, in turn, are
sustained by various interaction mechanisms that involve, for example, “the exchange of
social rewards (i.e., esteem and status) for behavior that conforms to the group’s norms,
and [the exchange of social] punishment (i.e., disapproval and ostracism) for violating
them” (Nee, 2005, p. 57).

Some of our empirical findings have already shown the nascent nature of an informal
institution of environmental protection among our interviewed enterprises. As reported in
Chapter 2, the requirements stipulated by international environmental management

175
standards have already pushed some of our interviewees to spend a substantial amount of
effort to make sure that organizations in their supply chains also fulfill these international
standards. Meanwhile, the analysis in Chapter 4 also suggests that many local
governments have already utilized the social sanctioning mechanism of “losing face”
among enterprise owners to induce environmental behaviors.

Accordingly, further empirical research along this line may be conducted to understand
more about the formation and maintenance of various informal institutions among the
enterprises, as well as the potential role of the state in “harnessing [this] complexity”
(Axelrod & Cohen, 2000) of interactions so as to support the overall environmental
reform.

After all, the best and most sustainable governance outcome is one that requires the least
governing effort from the governor. Through informal instituions of environemntal
protection constructed among the firms and, more generally, the people, one may be
induced to adopt environmental behaviors voluntarily, perhaps even without noticing, as
desribed in Lao-tzu’s Tao-te Ching, Chapter 17:
In the highest antiquity, (the people) did not know that there were (their
rulers). In the next age they loved them and praised them. In the next they
feared them; in the next they despised them. Thus it was that when faith
(in the Tao) was deficient (in the rulers) a want of faith in them ensued (in
the people).

How irresolute did those (earliest rulers) appear, showing (by their
reticence) the importance which they set upon their words! Their work
was done and their undertakings were successful, while the people all said,
“We are as we are, of ourselves!” (Lao-tsu, n.d.)

176

Final Remarks

Analyzing Chinese environmental reform from a firm’s perspective, this dissertation
found that the country has been steering quite a different path to ecological
modernization from what is described in the theoretical model of ecological
modernization (Mol, 2006): The Chinese government has to take into account also the
parallel development of its legal and political systems, as well as the establishment of a
social norm of environmental protection in society. The analyses of the dissertation
suggest that, given the current stage of economic development of China, as well as its
existing socio-political institutional context, the Chinese government shall continue to
adopt a formalized and impartial regulatory approach in improving its environmental
governance. This helps foster a stable and more open business environment, and thus a
more constructive reciprocal relationship between the government and the firms. In
promoting environmental sustainability in the country, the fact that adopting
environmental management initiatives can be profitable should appeal the most to
business owners, whereas the traditional sense of duty of providing a better living
environment to one’s embedded community should facilitate the development of stronger
environmental social norms among the larger population. Surely, further empirical
investigations are required to assess the effects of these recommendations.

In the end, the author would like to acknowledge the innovative spirit of the interviewees
in their environmental protection endeavors. How excited and proud they were in

177
presenting and sharing their self-inventions, that utilize a little more effectively their
companies’ energy and resources, and contribute a little more to the betterment of the
working environment for the company’s staff as well as the living environment for the
neighboring communities! They and other motivated employees in the company
continuously derive and experiment pragmatically, despite multiple failures, with new
ideas for a more environmental friendly operation process. Whenever necessary, they are
eager to break away from tradition and develop something new to the existing body of
knowledge that does not fit their own inspirations and needs. To acknowledge the
importance of this innovative spirit, the author would like to end the dissertation by
quoting a passage from The Great Learning, a passage that has often been interpreted as
the Great King T’ang of the Shang Dynasty’s own reminder to incessantly renew himself
to “make his virtue illustrious”:
On the bathing tub of T’ang, the following words were engraved: “If you
can one day renovate […], do so from day to day. Yea, let there be daily
renovation”. (Confucius, ca. 500 B.C.E)
108

108
Please see Pan Geng I: 7, Shang Shu, Shang Shu (尚書．商書．盤庚上: 7). Retrieved March 27, 2012,
from the webpage of the Chinese Text Project, http://ctext.org/shang-shu/shang-shu.

178
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191
Appendix A
Characteristics of the Interviewed Firms

Name Date of interview Year of
est.
Number of
employees
(approx.)
Size (HKD,
approx.)
Nature / Industry Interviewee
A February 22, 2010 1981 2,500 n/a Wire and cable products Assistant Manager, Environment, Health
and Safety
B February 24, 2010 1969 15,700 Sales (2008)
= 6.1B
Textiles and garments Project Manager; Corporate
Communications and Investor Relations
Manager
C March 4, 2010 Early
1980s
> 4800 n/a After-market printer
consumables
Chief Operations Officers
D March 12, 2010 1992 > 1,200 Capital (2003)
= 156M
Printed circuit board services
and products
CEO, Chairman; Quality Systems
Assistant Manager; Financial Controller
E March 23, 2010 1963 n/a Confidential Home, medical and health
care electronic products
Managing Director
F March 29, 2010 1982 18,000 Confidential Printing and paper products Director, Environment, Facilities and
Outsourcing Management
G March 29, 2010 1974 6,000 n/a Lingerie materials and
accessories suppliers
Technical Director
H March 29, 2010
(by FHKI)
1987 > 2,000 n/a Precision metal stamping
products
Chairman
I March 30, 2010 1888 n/a Sales (2009)
= a few billions
Sauce products Director of Engineering and
Manufacturing Services; Engineering
Manager; Corporate Communication
Manager
J April 7, 2010 1986 > 8,000 Sales (2008)
= 3B
Electronics manufacturing
services
Chairman & Senior Managing Director
K April 9, 2010 1997 > 6,500 Sales (2010)
= 5.8B
Customized knitted fabric in
textile industry
Chairman
L April 12, 2010 1974 n/a n/a Home textiles Chairman; Deputy Managing Director;
contracted environmental consultant

192
M April 12, 2010 1985 > 16,000 Sales (2009)
= 24B
Products in home
improvement and
construction industries
Group Vice Chairman, Executive
Director
N April 19, 2010 1953 n/a n/a Fabric and yarn production Director
O April 21, 2010 1969 n/a n/a Plastic and metal stationery
supply
Director
P May 14, 2010 1964 9,800 Sales (2009) =
4.7B
Batteries and battery-related
products
Director; environmental manager A &
B*
Q May 17, 2010 1975 8,000 n/a Metal stamping, tooling
fabrication and product
assembly
President; environmental manager*
* Exact title missing.

193

Appendix B
Survey on Corporate Environmental Management of
Hong Kong Enterprises in the Pearl River Delta Region

Part One: Environmental Implications of Business Activities

1A. Relative to most other enterprises in China, what do you consider to be the degree of
the environmental impact of your company’s operations? We use 1-7 to describe the
degree of agreement on the following statements, with 1 denoting “Strongly Disagree”,
and 7 denotes “Strongly Agree”, the larger the number, the higher will be the degree of
agreement.
Relative to most other enterprises in
China, my company:
Strongly
Disagree
Very
Much
Disagree
Disagree Neutral Agree Very
Much
Agree
Strongly
Agree
1. produces large amounts of water
pollutants
1 2 3 4 5 6 7
2. produces large amounts of air
pollutants
1 2 3 4 5 6 7
3. produces large amounts of solid
waste
1 2 3 4 5 6 7
4. produces large amounts of
chemical or other hazardous waste
1 2 3 4 5 6 7
5. uses relatively little energy 1 2 3 4 5 6 7
6. uses large amounts of mineral
resources (extracted minerals)
1 2 3 4 5 6 7
7. uses relatively few biological
resources (i.e., plant or animal
material)
1 2 3 4 5 6 7
8. overall our impact on the
environment is trivial
1 2 3 4 5 6 7

1B. Relative to most other enterprises in your industry sector, what do you consider to be
the degree of environmental impact of your company’s operations? We use 1-7 to
describe the degree of agreement on the following statements, with 1 denoting “Strongly
Disagree”, and 7 denotes “Strongly Agree”, the larger the number, the higher will be the
degree of agreement.
Relative to most other enterprises in
our industry sector, my company:
Strongly
Disagree
Very
Much
Disagree
Disagree Neutral Agree Very
Much
Agree
Strongly
Agree
1. is environmentally friendly
1 2 3 4 5 6 7
2. has made significant progress in
reducing our impact on the
environment
1 2 3 4 5 6 7
3. has an outstanding record in
environmental protection
1 2 3 4 5 6 7

194
Part Two: Company Activities

2A. The following table lists different activities related to corporate environmental
management. We use 1-7 to describe the operation situation of your company’s
environmental management programs and activities, with 1 denoting “your company has
never considered the implementation of that program or activity”, and 7 denoting “that
program or activity has already become a way of life in your company”.
How well integrated are the
following activities into your
company’s business model?
Never
consider-
ed
Consi-
dered,
but no
action
taken
Experi-
mented
with, but
did not
adopt
Have
adopted,
but does
not seem
to be a
priority
Adopted
and
empha-
sized
Fully
integra-
ted into
all func-
tions of
the
company
A way
of life
1. Sponsorship of events about
environmental protection
1 2 3 4 5 6 7
2. Company displays about
environmental programs
1 2 3 4 5 6 7
3. Incorporating ecological themes
when marketing some of our
products
1 2 3 4 5 6 7
4. Routine environmental audits 1 2 3 4 5 6 7
5. Recycling of waste streams 1 2 3 4 5 6 7
6. Environmental training for
managers
1 2 3 4 5 6 7
7. Environmental training for
operatives
1 2 3 4 5 6 7
8. Using filters and other emission
controls in our production
processes
1 2 3 4 5 6 7
9. Scientifically assessing the life-
cycle impact of our products
1 2 3 4 5 6 7
10. Participation in government-
sponsored environmental programs
1 2 3 4 5 6 7
11. Setting environmental
performance objectives as part of
our annual business plans
1 2 3 4 5 6 7
12. Measuring key aspects of our
business’ environmental
performance
1 2 3 4 5 6 7
13. Making investments in clean
production technologies
1 2 3 4 5 6 7
14. Preparation and release of
environmental reports
1 2 3 4 5 6 7
15. Developing a certifiable
environmental management system
(e.g., ISO 14001)
1 2 3 4 5 6 7
16. Including environmental
performance measures in our
management evaluations
1 2 3 4 5 6 7

195
Part Three: Motivations for Environmental Initiatives

3A. By adopting better environmental protection measures, what are the likely comes that
your company can achieve? We use 1-7 to describe the degree of agreement on the following
statements, with 1 denoting “Strongly Disagree”, and 7 denoting “Strongly Agree”; the larger
the number, the higher the degree of agreement.
By adopting better environmental
protection measures, my company
can:
Strongly
Disagree
Very
Much
Disagree
Disagree Neutral Agree Very
Much
Agree
Strongly
Agree
1. lower production costs
1 2 3 4 5 6 7
2. improve our corporate reputation 1 2 3 4 5 6 7
3. improve the quality of our
products
1 2 3 4 5 6 7
4. enhance our employees’
commitment
1 2 3 4 5 6 7
5. serve our customers better 1 2 3 4 5 6 7
6. better comply with existing
environmental regulations
1 2 3 4 5 6 7
7. avoid facing stricter
environmental regulations in the
future
1 2 3 4 5 6 7
8. reduce the risk of lawsuits 1 2 3 4 5 6 7
9. avoid negative publicity 1 2 3 4 5 6 7
10. attain better relations with
government officials
1 2 3 4 5 6 7
11. increase the customer base of
our products
1 2 3 4 5 6 7
12. attain competitive advantages
over our nearest competitors
1 2 3 4 5 6 7

196
B. The Attitude of the Top Management

3B. What is the attitude of the top management of your company toward environmental
protection? We use 1-7 to describe the degree of agreement on the following statements,
1 denoting “Strongly Disagree”, and 7 “Strongly Agree”; the larger the number, the
higher the degree of agreement.
The top management of our
company
Strongly
Disagree
Very
Much
Disagree
Disagree Neutral Agree Very
Much
Agree
Strongly
Agree
1. recognizes that the company has
an ethical responsibility to adopt
better environmental protection
measures
1 2 3 4 5 6 7
2. are personally interested in
developing and implementing
environmental protection measures
within the company
1 2 3 4 5 6 7
3. want to be viewed as leaders in
environmental protection in our
industry sector
1 2 3 4 5 6 7
4. include environmental protection
as a key part of our company’s key
vision and mission
1 2 3 4 5 6 7
5. believe environmental protection
can provide competitive advantages
over our nearest competitors
1 2 3 4 5 6 7

197
C. Stakeholders’ Influence

3C. Have the following stakeholders influenced your company’s environmental
management (e.g., have they made demands on your company to develop better
environmental protection measures)? We use 1-7 to describe the degree of agreement on
the following statements, with 1 denoting “Strongly Disagree”, and 7 “Strongly Agree”;
the larger the number, the higher the degree of agreement.
The following groups have made
demands on your company to
develop better environmental
protection measures:
Strongly
Disagree
Very
Much
Disagree
Disagree Neutral Agree Very
Much
Agree
Strongly
Agree
1. The local government (e.g.,
mayor, local people’s congress….)
1 2 3 4 5 6 7
2. The local Environmental
Protection Bureau (i.e., through
fines, fees, or citations)
1 2 3 4 5 6 7
3. Environmental interest groups
1 2 3 4 5 6 7
4. The community via legal action 1 2 3 4 5 6 7
5. The community via other means
(e.g., internet, bloggers, boycotts, or
demonstrations)
1 2 3 4 5 6 7
6. Media organizations (e.g., official
newspapers and broadcast media)
1 2 3 4 5 6 7
7. Customers (e.g., via purchasing
requirements or other means)
1 2 3 4 5 6 7
8. Employees 1 2 3 4 5 6 7
9. Major competitors (i.e., through
fear of losing business to them)
1 2 3 4 5 6 7
10. Shareholders 1 2 3 4 5 6 7
11. Industry associations 1 2 3 4 5 6 7

198
Part Four: Obstacles to Introducing Corporate Environmental Initiatives

4A. How far do the following external factors affect your company in conducting
environmental protection? We use 1-7 to describe the degree of agreement on the
following statements, with 1 denoting “Strongly Disagree”, and 7 “Strongly Agree”; the
larger the number, the higher the degree of agreement.

Strongly
Disagree
Very
Much
Disagree
Disagree Neutral Agree Very
Much
Agree
Strongly
Agree
1. Environmental protection
technologies are generally too
expensive for my company to make
use of.
1 2 3 4 5 6 7
2. A large number of technologies
are currently not available that could
significantly reduce the
environmental impact of my
company.
1 2 3 4 5 6 7
3. Too few local customers care
about the environment to make
environmental initiatives in my
company worthwhile.
1 2 3 4 5 6 7
4. Enough overseas customers really
care about the environment to make
environmental initiatives in my
company worthwhile.
1 2 3 4 5 6 7
5. Our retailers would be willing to
provide sufficient support to permit
us to introduce more
environmentally friendly products
into the market.
1 2 3 4 5 6 7
6. All rhetoric aside, shareholders of
companies are really only interested
in maximizing short-term
profitability and growth.
1 2 3 4 5 6 7
7. There is too little awareness in my
company that environmental
performance may be an important
business issue.
1 2 3 4 5 6 7
8. It is nearly impossible to
understand all of the relevant
environmental regulations that
pertain to my business.
1 2 3 4 5 6 7

199
4B. How far do the following internal factors affect your company in conducting
environmental protection? We use 1-7 to describe the degree of agreement on the
following statements, with 1 denoting “Strongly Disagree”, with 7 “Strongly Agree”; the
larger the number, the higher the degree of agreement.

Strongly
Disagree
Very
Much
Disagree
Disagree Neutral Agree Very
Much
Agree
Strongly
Agree
1. Producing a more
environmentally friendly product
will generally compromise
performance or quality.
1 2 3 4 5 6 7
2. We currently have complete
knowledge on what pollution control
technologies are available.
1 2 3 4 5 6 7
3. Most employees in my company
are totally unaware of the need to
protect the environment.
1 2 3 4 5 6 7
4. My company has been extremely
effective in protecting the
environment.
1 2 3 4 5 6 7
5. It is very difficult for us get
accurate data on the pollution levels
of our operation.
1 2 3 4 5 6 7

200
Part Five: Other Considerations

5A. How appealing would it be to collaborate with the following groups in the interests
of environmental protection? We use 1-7 to describe the degree of agreement on the
following statements, with 1 denoting “Strongly Disagree”, and 7 “Strongly Agree”; the
larger the number, the higher the degree of agreement.
How appealing would it be to
collaborate with the following
groups in the interest of
environmental protection?
Strongly
Disagree
Very
Much
Disagree
Disagree Neutral Agree Very
Much
Agree
Strongly
Agree
1. If approached by local
government environmental agencies,
my company would be willing to
collaborate on corporate
environmental protection projects.
1 2 3 4 5 6 7
2. If the Federation of Hong Kong
Industry approached us with projects
related to corporate environmental
protection, my company would be
willing to participate.
1 2 3 4 5 6 7
3. If local environmental
organizations approached us with
ideas for improving corporate
pollution, my company would be
willing to work with them on
corporate environmental protection
projects.
1 2 3 4 5 6 7
4. We are willing to work with other
firms on projects related to corporate
environmental protection.
1 2 3 4 5 6 7
5. We are willing to work closely
with academic institutions on
projects related to corporate
environmental protection.
1 2 3 4 5 6 7

201
5B. How strong is the internal support in your company for the implementation of
environmental protection? We use 1-7 to describe the degree of agreement on the
following statements, with 1 denoting “Strongly Disagree”, and 7 “Strongly Agree”, the
larger the number, the higher will be the degree of agreement.

Strongly
Disagree
Very
Much
Disagree
Disagree Neutral Agree Very
Much
Agree
Strongly
Agree
1. Many top-level managers in my
company are personally and actively
involved in developing
environmental policies and
monitoring their implementation.
1 2 3 4 5 6 7
2. Ideas on pollution management
are shared freely among lower,
middle, and upper levels within my
company.
1 2 3 4 5 6 7
3. My company has an
environmental officer at the senior
management level.
1 2 3 4 5 6 7
4. Environmental managers or those
chiefly responsible for
environmental management in my
company have adequate authority to
influence capital investment
decisions.
1 2 3 4 5 6 7

202
Part Six: Challenges to Environmental Compliance

6A. What are the challenges your company faces in the complying with environmental
regulations? We use 1-7 to describe the degree of agreement on the following statements,
with 1 denoting “Strongly Disagree”, and 7 “Strongly Agree”; the larger the number, the
higher the degree of agreement.

Strongly
Disagree
Very
Much
Disagree
Disagree Neutral Agree Very
Much
Agree
Strongly
Agree
1. Many environmental regulations
are too complicated for us to fully
understand.

1 2 3 4 5 6 7
2. Our relationship with the local
environmental protection bureau has
not been as constructive as it
probably should be.
1 2 3 4 5 6 7
3. We have been unable to get
sufficient technical support from
local environmental protection
bureaus.
1 2 3 4 5 6 7
4. In my view most current pollution
control standards are unreasonable.
1 2 3 4 5 6 7
5. The pollutant discharge fees
system is too complicated for us to
understand.
1 2 3 4 5 6 7
6. The local Environmental
Protection Bureau is too inflexible in
their enforcement of environmental
regulations.
1 2 3 4 5 6 7
7. The local Environmental
Protection Bureau is inconsistent in
their enforcement of environmental
regulations.
1 2 3 4 5 6 7
8. The local Environmental
Protection Bureau doesn’t seem
interested in really trying to
understand our difficulties in trying
to comply with local environmental
regulations.
1 2 3 4 5 6 7
9. We have generally been unable to
obtain good advice from local
Environmental Protection Bureaus
to help us comply with local
environmental regulations.
1 2 3 4 5 6 7
10. The local Environmental
Protection Bureau has been very
much “picking” on us in the
enforcement of environmental
1 2 3 4 5 6 7

203
regulations (i.e., has focused on
small details rather on than the
larger picture).
11. There has been insufficient
direct (face-to-face) communication
between our company and the local
Environmental Protection Bureau.
1 2 3 4 5 6 7
12. It is difficult for the EPB to
detect regulatory violations by our
company.
1 2 3 4 5 6 7
13. The pollution discharge fees
paid by our company are an
insignificant amount in terms of
expenses for our company.
1 2 3 4 5 6 7
14. The pollution fines are an
insignificant amount in terms of
expenses for our company.
1 2 3 4 5 6 7

204
Part Seven: Environmental Orientation and Awareness

7A. How would you rate your personal awareness and knowledge of the following
environmental concepts/frameworks on the scale provided? We use 1-7 to describe
different levels of knowledge on the following statements, with 1 denoting “Have not
heard of it”, and 7 denoting “Consider myself an expert on it”; the larger the number, the
higher the level of knowledge.
Concept/Framework
Have
not
heard of
it
Have
just
heard of
it
Have
just a
little
know-
ledge of
it
Have
some
know-
ledge of
it
Gene-
rally
know
about it
Have a
good
working
know-
ledge of
it
Consi-
der
myself
an
expert
on it
1. “ISO 14000”
1 2 3 4 5 6 7
2. Industrial Ecology 1 2 3 4 5 6 7
3. Principles of Sustainable
Design
1 2 3 4 5 6 7
4. Full-Cost Accounting 1 2 3 4 5 6 7
5. Life Cycle Analysis 1 2 3 4 5 6 7
6. The “Global Reporting
Initiative”
1 2 3 4 5 6 7
7. Eco-labels
1 2 3 4 5 6 7
8. The “Global Compact” 1 2 3 4 5 6 7
9. The “Precautionary
Principle”
1 2 3 4 5 6 7
10. Environmental
Management Systems
1 2 3 4 5 6 7
11. Green purchasing
requirements
1 2 3 4 5 6 7
12. Clean Production
Technologies for My Industry
1 2 3 4 5 6 7
13. Clean Development
Mechanisms under Kyoto
Treaty
1 2 3 4 5 6 7
14. “Factor 4” 1 2 3 4 5 6 7

205
7B. What is your company’s orientation to the environment? We use 1-7 to describe the
degree of agreement on the following statements, with 1 denoting “Strongly Disagree”,
and 7 denoting “Strongly Agree”; the larger the number, the higher the degree of
agreement.

Strongly
Disagree
Very
Much
Disagree
Disagree Neutral Agree Very
Much
Agree
Strongly
Agree
1. When thinking of our
environmental impact, my company
focuses mainly on the production of
our products.
1 2 3 4 5 6 7
2. In my company, business success
is defined predominantly in terms of
profits, sales growth, and market
share.
1 2 3 4 5 6 7
3. My company has clearly stated
objectives to reduce the quantity of
materials used in production.
1 2 3 4 5 6 7
4. My company would not like our
products to be more durable (i.e.,
last longer) if it meant that
customers would wait longer to
repurchase.
1 2 3 4 5 6 7
5. My company has a program in
place to use less toxic and more
environmentally friendly
components in our products and
production processes.
1 2 3 4 5 6 7
6. When managers in my company
think about the environmental
impact of our business, they seldom
consider the way in which raw
materials are extracted and
processed, or where they come from.
1 2 3 4 5 6 7
7. In asking ourselves if we have
been a successful as a company, we
usually think about whether we’ve
made a positive contribution to
society and to people’s quality of
life.
1 2 3 4 5 6 7
8. Relative to the product itself, my
company uses large quantities of
materials in our packaging in order
to enhance its market appeal.
1 2 3 4 5 6 7
9. Environmental protection is
mainly the responsibility of the
government—it is not really a
business responsibility.
1 2 3 4 5 6 7
10. When considering our 1 2 3 4 5 6 7

206
environmental responsibilities, we
always take into account what
happens to our products after they
are discarded.
11. My company has adopted
environmental protection measures
that go well beyond legal
requirements.
1 2 3 4 5 6 7

207
Information of Your Company

1. What is the type of ownership of your company?

a. Hong Kong-Wholly Owned
b. Hong Kong-Mainland Joint Venture
c. Hong Kong-Foreign Joint Venture
d. Foreign Enterprise
e. Other (please specify): _________

2. The city/town/village where your company operates is:

a. Hong Kong
b. Pearl River Delta Region in Guangdong Province
c. Other (please specify): _________

3. How long has your company been in its current site?

a. Less than 5 years
b. 5 – 10 years
c. 11 – 15 years
d. 15 – 20 years
e. 21 – 25 years
f. More than 25 years

4. Number of employees in business:

a. Less than 100
b. 100 – 499
c. 500 – 999
d. 1000 – 4999
e. More than 5000

5. The percentage of your company’s product sold to overseas markets is:

a. Less than 10%
b. 11 – 20%
c. 21 – 30%
d. 31 – 40%
e. 41 – 50%
f. More than 50%
g. Not applicable

208
6. Based on financial year 2006, what is the yearly profit of your company?

a. Making a substantial profit
b. Making some profit
c. Making some loss
d. Making a serious loss
e. Break even
f. Don’t know

7. Over the past three years, relative to our most relevant competitors:

Strongly
Disagree
Very
Much
Disagree
Disagree Neutral Agree Very
Much
Agree
Strongly
Agree
1. Our profitability has been
substantially better.
1 2 3 4 5 6 7
2. Our return on investment has
been substantially better.
1 2 3 4 5 6 7
3. Our growth in market share
has been substantially better.
1 2 3 4 5 6 7
4. Our sales growth has been
substantially better.
1 2 3 4 5 6 7
5. Our record of environmental
protection has been substantially
better.
1 2 3 4 5 6 7
6. Our profit growth has been
substantially better.
1 2 3 4 5 6 7
7. Our quality of
products/services has been
substantially better.
1 2 3 4 5 6 7
8. Our return on assets has been
substantially better.
1 2 3 4 5 6 7

209
8. Your primary industry? (If in more than one, indicate the one with the largest
contribution to sales):

Manufacturing sector

a. Chemical
b. Paper
c. Electroplating
d. Plastics
e. Cement
f. Electronics
g. Textiles and Dyeing
h. Other: _________

Service sector

i. Banking and Finance
j. Food and Drinks
k. Insurance
l. Retailing
m. Other: _________

Public utilities

n. Power and Energy
o. Transportation
p. Other: _________

Other

q. Other: _________

9. Has your company joined the “One Factory-One Year-One Environment Program” (1-
1-1 program) organized by the Federation of Hong Kong Industry?

a. Yes
b. No

210
Biographical Information

1. Your position in the company:

a. General Manager
b. Manager in charge of environmental management
c. Other (please specify): _________

2. Age (in years):

a. Under 30
b. 30 – 40
c. 41 – 50
d. Over 50

3. Education

a. Below post-secondary
b. Post-secondary
c. Undergraduate
d. Master’s degree
e. Doctorate degree
f. Other (please specify): _________

4. Gender:

a. Male
b. Female

5. Industry experience (in years):

a. Less than 5
b. 5 – 10
c. 11 – 15
d. 16 – 20
e. 21 – 25
f. More than 25

211
6. Managerial experience (in years):

a. Less than 5
b. 5 – 10
c. 11 – 15
d. 16 – 20
e. 21 – 25
f. More than 25

7. Do you know that the Federation of Hong Kong Industry is now launching the “One
Factory-One Year-One Environment Program” (1-1-1 program)?

a. Yes
b. No

Personal Views

Do you agree with the following statements?
Yes No Items
It is sometimes hard for me to go on with my work if I am not encouraged.

I sometimes feel resentful when I don’t get my way.

On a few occasions, I have given up doing something because I thought too little of my
ability.

There have been times when I felt like rebelling against people in authority even though
I knew they were right.

No matter who I’m talking to, I’m always a good listener.

There have been occasions when I took advantage of someone.

I’m always willing to admit it when I make a mistake.

I sometimes try to get even rather than forgive and forget.

I am always courteous, even to people who are disagreeable.

I have never been irked when people expressed ideas very different from my own.

There have been times when I was quite jealous of the good fortune of others.

I am sometimes irritated by people who ask favors of me.

I have never deliberately said something that hurt someone’s feelings.

Abstract (if available)

Abstract China’s rapid economic growth in the past three decades has created devastating consequences for its environment. Recently, however, there have been many signs of positive change. This dissertation examines the recent environmental reform in China by analyzing data collected from senior executives of Hong Kong-owned firms with manufacturing operations in the Pearl River Delta region, Guangdong. It adopts three theoretical perspectives for understanding three distinct but interrelated aspects of the reform. ❧ The first study of the dissertation examines, through an ecological modernization perspective, the progress and effectiveness of various reform measures in fostering behavioral changes among firms. It finds that economic rationality is no longer the only organizing principle in the Chinese economy. Government, market, and to a lesser extent civil society actors are exerting stronger environmental pressures on business enterprises, which in some circumstances has led these enterprises to adopt more progressive environmental behaviors. ❧ The second study examines from a regulatory compliance perspective what motivates firms’ compliance behaviors with governmental regulatory demands. It proposes an analytical framework for systematically mapping firms’ compliance motivations in China’s regulatory situation, in which the rule of law cannot be assumed. The study found that firms’ environmental behaviors were driven less by their intentions to better comply with environmental laws and regulations than by their motivations to avoid the punishment they may receive for violating the regulator’s demands, and, notably, to prevent the potential arbitrary interference from the regulator’s use of his enforcement power. Their environmental behaviors also varied negatively with the number of challenges they found in trying to understand the de facto regulation that represents the regulator’s self-restraint in using his enforcement power. These findings suggest that environmental laws and regulations in China cannot yet be relied upon as a useful objective reference for regulatees’ compliance decisions. This poses significant challenges for regulatees in judging whether the regulator is regulating arbitrarily for his personal interests, as well as on local regulators in demonstrating their commitments to the regulatory goals. ❧ The third study analyzed the recent surge of government-sponsored voluntary environmental programs from a broader perspective of institutional change. Three practical challenges were identified in the local governments’ efforts to transform centrally devised environmental plans and rules into actual local policy practices: namely, the regulatees’ concerns about the potential arbitrary enforcement of the regulator, the regulatees’ concerns about the collective inaction problem among them, and the regulator’s concern about standard setting for achieving effective regulatory governance. The study finds that voluntary programs help local officials identify among the policy population a set of exemplars whose performances represent the de facto regulations guiding the regulatory enforcement of local regulators. This demonstrates the plausibility of the administratively set standards, as well as assuring individual regulatees that there are others in the regulated population who are also working toward the regulatory goal. Most importantly, these programs help local officials demonstrate their commitment to not engaging in arbitrary enforcement. Overall, these programs complement the more open, legalistic regulatory approach that is under construction. ❧ Analyzing the environmental reform from a firm’s perspective, this dissertation finds that China has been steering a unique path to ecological modernization. Given the current stage of economic development of China, as well as its existing sociopolitical institutional context, the Chinese government shall continue to adopt a formalized and impartial regulatory approach in improving its environmental governance, which helps foster a stable and more open business environment, and thus a more constructive reciprocal relationship between the government and the firms.

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Asset Metadata

Creator Yee, Wai-Hang (author)

Core Title China's environmental reform: ecological modernization, regulatory compliance, and institutional change

School School of Policy, Planning and Development

Degree Doctor of Philosophy

Degree Program Policy, Planning, and Development

Publication Date 07/13/2014

Defense Date 05/09/2012

Publisher University of Southern California (original), University of Southern California. Libraries (digital)

Tag china,Compliance,ecological modernization,environment,institutional change,OAI-PMH Harvest,reform,regulation,regulation enforced,regulation-stated,Voluntary Program

Language English

Contributor Electronically uploaded by the author (provenance)

Advisor Tang, Shui Yan (committee chair), Fiss, Peer C. (committee member), Mazmanian, Daniel A. (committee member)

Creator Email waihang.yee@usc.edu,yeewaihang@yahoo.com.hk

Permanent Link (DOI) https://doi.org/10.25549/usctheses-c3-57970

Unique identifier UC11288966

Identifier usctheses-c3-57970 (legacy record id)

Legacy Identifier etd-YeeWaiHang-948.pdf

Dmrecord 57970

Document Type Dissertation

Rights Yee, Wai-Hang

Type texts

Source University of Southern California (contributing entity), University of Southern California Dissertations and Theses (collection)

Access Conditions The author retains rights to his/her dissertation, thesis or other graduate work according to U.S. copyright law. Electronic access is being provided by the USC Libraries in agreement with the a...

Repository Name University of Southern California Digital Library

Repository Location USC Digital Library, University of Southern California, University Park Campus MC 2810, 3434 South Grand Avenue, 2nd Floor, Los Angeles, California 90089-2810, USA