International Agreements and Internal Heterogeneity: The 'Two Chinas' Problem

Economists, legal scholars, and climate scientists have made a persuasive case that the international community stands to benefit greatly if the United States and China can be persuaded to participate in a global agreement on climate change. Scholars have thus focused on constructing regimes that will incentivize China to join such an accord. We argue that the extant literature and proposals fail to examine fully the Chinese Communist Party's (“CCP’s”) unique internal incentive structure, leading to conclusions and proposals that overstate both the CCP's interest in reaching an agreement and its capacity to implement a reduction of greenhouse gas emissions. Based on a careful examination of the unique role of economic growth as a means of political legitimization, we argue that the CCP has very strong incentives to reject an international climate agreement and, even were one reached, limited capacity to enforce such an agreement internally. First, the CCP has created special economic zones in the eastern coastal provinces of the country and neglected the inland, western provinces. Such policies have produced rising income inequality, social instability and dramatic divisions between East and West, rural and city, and peasant and urban residents. High rates of economic growth in the West are of paramount political importance to the regime, and the CCP cannot take any steps that might endanger this growth. Second, the CCP suffers from an erosion of state capacity. Despite the fact that China is an autocracy, the CCP has surprising difficulty providing public goods such as environmental protection. Third, current quantitative forecasts of Chinese greenhouse gas emissions have improperly relied upon country-level data and incorrectly assumed nationwide homogeneity. In so doing, they have missed important East-West regional variations and are likely to have significantly understated the extent to which Chinese emissions will grow over the next decade. Our paper highlights these problems, all of which are invisible to any analysis that treats China as a black box. We then assess the impact of this theory on a number of the leading proposals for international climate accords. We conclude by suggesting the form that we believe any feasible agreement must assume - one that involves massive transfers of technology from the United States and Europe to China - though we remain pessimistic that the relevant parties will succeed in reaching such an agreement.