Description
The People’s Republic of China (PRC) is seeking new approaches to improve water management outcomes in the face of a growing water crisis caused by ongoing pollution control and watershed management challenges. This has included numerous experiments in “eco-compensation” (which shares characteristics with payments for ecological services). This paper details progress in creating a national eco-compensation ordinance and discusses the ongoing institutional challenges in its effective development. Water is possibly the single most-pressing resource bottleneck of economic growth for the PRC over the medium term. As such, the degree to which such initiatives are ultimately successful is not only critical for the PRC but also has major ramifications for global food, fuel, and commodity markets and production chains.

Contents
List of Tables, Figures, and Boxes iv
Preface v
Acknowledgments vi
Abbreviations vii
Executive Summary viii
Introduction 1
The Water Crisis in the People’s Republic of China 6
Institutional Responses and Policy Innovations 8
Regional Zoning 8
Water Conservation Targeted in the 2011 No. 1 Document 9
Eco-Compensation and Market-Based Approaches 9
Watershed Eco-Compensation Schemes—Sustainable Financing
and Institutional Mechanisms to Address Water Challenges 12
Challenges and Opportunities for a National Eco-Compensation Ordinance 15
Recommendations for Advancing Watershed Eco-Compensation 20
Recommendation 1: Consider Eco-Compensation as a Potential Tool
for Integrated River Basin Management 21
Recommendation 2: Balance Firmness with Flexibility—Focus on Outcomes 23
Recommendation 3: Take Account of the Scale of Actors 25
Conclusion: Watershed Eco-Compensation for the Greater Social Good 27
Appendix 28
Endnotes 35
References 39
iv
Tables, Figures, and Boxes
Tables
1 Total Land Area and Population of National Key Ecological Function Zones 11
2 Water-Related Responsibilities of Agencies under the State Council
of the People’s Republic of China 16
3 Key Central Government Documents Regarding Eco-Compensation
in the 11th Five-Year Plan Period, 2006–2010 17
A1 Laws Related to Eco-Compensation in the People’s Republic of China 28
A2 Administrative Laws, Regulations, Standards, and Rules Related
to Eco-Compensation in the People’s Republic of China 30
A3 Eco-Compensation-Related Ministerial and Departmental Rules
and Regulations Issued by Agencies under the State Council
of the People’s Republic of China 33
Figures
1 Basic Structure of the National Function-Based Land Zoning System
of the People’s Republic of China 10
2 Growth in Payment for Watershed Services Programs
in the People’s Republic of China, 1999–2008 13
3 Annual Payment for Watershed Service Program Transactions
in the People’s Republic of China, 1999–2008 14
Boxes
1 Phases in Developing the National Eco-Compensation Ordinance 2
2 Eco-Compensation Primer 4
3 Chao Lake Integrated Management—Opportunities for Eco-Compensation 22
4 Eco-Compensation Subsidy Rates—Revisiting the Logic
behind Payments for Ecological Services 24
v
Preface
This report was produced to complement the International Conference on Payment for
Watershed Services and Eco-Compensation Legislation, held in Ya’an, Sichuan Province,
People’s Republic of China (PRC) on 23–24 October 2010. The conference was cohosted by
the National Development and Reform Commission, the Sichuan Provincial Government, and the
Asian Development Bank, in partnership with the Chinese Academy for Environmental Planning
and the Ministry of Environmental Protection of the PRC. In addition to these agencies, the
conference was also attended by representatives from the Legislative Affairs Office of the State
Council, the Ministry of Finance, the Ministry of Land and Resources, the Ministry of Housing
and Urban–Rural Development, the Ministry of Water Resources, the Ministry of Agriculture, the
State Administration of Taxation, the State Forestry Administration, the State Statistical Bureau,
and the State Oceanic Administration, as well as representatives from provincial government
development and reform commissions and environmental departments in the provinces of Anhui,
Guizhou, Hainan, Hubei, Hunan, Jiangxi, Shaanxi, Shandong, and Zhejiang. More than 150 people
participated in the conference.
While developed as a stand-alone knowledge product, this publication is a continuation
of the collaboration with the National Development and Reform Commission in developing the
national Eco-Compensation Ordinance. Two publications have already been produced from this
collaboration—An Eco-Compensation Policy Framework for the People’s Republic of China:
Challenges and Opportunities; and Payments for Ecological Services and Eco-Compensation:
Practices and Innovations in the People’s Republic of China.
vi
Acknowledgments
This paper was jointly prepared by Qingfeng Zhang and Michael T. Bennett, with the guidance
and inspiration of Klaus Gerhaeusser, director general of the East Asia Department of the
Asian Development Bank (ADB). Mr. Gerhaeusser also led the international team of experts
and speakers at the International Conference on Payment for Watershed Services and Eco-
Compensation Legislation, which was held in Ya’an, Sichuan Province, People’s Republic of
China (PRC) on 23–24 October 2010. Reports and findings presented during the conference
were the bases of this publication. ADB staff, including Kunhamboo Kannan, Wouter T. Linklaen
Arriens, and Alvin Lopez, who attended and spoke at the conference, contributed to the
preparation of this paper.
Consultants Robert Crooks and Leshan Jin, who were also speakers at the conference,
helped in developing the concept and refining the recommendations. External peer review was
also provided by John Talberth, Evan Branosky, and Cy Jones from the World Resources Institute.
Melissa Alipalo, Anthony Victoria, and Joy Quitazol-Gonzalez contributed in the editing, design,
and production of this publication.
This knowledge product benefited from the strong support and close collaboration of ADB
with the National Development and Reform Commission (NDRC), through whose successful
organization and hosting of the conference, the information provided in this report has been made
possible. ADB is particularly grateful to Vice Chairman Du Ying of the NDRC, for his leading role
in cross-ministerial efforts on payment for ecological services in the PRC. ADB would also like
to thank Qin Yucai, director-general of the Department of Western Region Development of the
NDRC, and his colleagues Zhang Yadan, Tong Zhangshun, and Xiao Weiming for their excellent
coordination and technical capacity in dealing with this cross-agency work.
vii
Abbreviations
ADB – Asian Development Bank
CCFG – Conversion of Cropland to Forests and Grassland
IRBM – integrated river basin management
NDRC – National Development and Reform Commission
NFPP – National Forest Protection Program
NPS – nonpoint source (pollution)
MoF – Ministry of Finance
MWR – Ministry of Water Resources
PES – payment for ecological services
PRC – People’s Republic of China
SEPA – State Environmental Protection Administration
(now called Ministry of Environmental Protection)
viii
Executive Summary
Water is possibly the single most pressing resource bottleneck to the ongoing economic growth
of the People’s Republic of China (PRC) over the next 10–15 years. Annual per capita freshwater
resources are among the lowest for a major country, and effective water resources are further
reduced by pollution. According to the country’s Macro Strategic Research Report on the PRC’s
Environment, released in April 2011, drinking water for one in seven Chinese does not meet national
pollution standards, while 300 million rural Chinese lack access to safe drinking water. A recent report
by the World Bank estimated that the PRC’s water crisis is already costing the country 2.3%
of its gross domestic product, of which 1.3% is attributable to water scarcity and 1.0% is from
the direct impacts of water pollution. This, however, is a conservative lower-bound estimate
of the true costs.
In the face of these challenges, the central and the provincial governments across the
PRC have been investing in and seeking new ideas and methods for improving both supplyside
and demand-side management of water resources. This has included numerous national,
provincial, and local experiments over the past decade in market-based environmental policy
tools under the broad heading of “eco-compensation,” with this trend culminating in central
government uptake wherein the National Development and Reform Commission (NDRC) has
been tasked with developing a national eco-compensation ordinance.
Eco-compensation not only shares characteristics with payments for ecological services,
but also encompasses fiscal transfer schemes between provincial governments to improve the
apportioning of funding for and clarify responsibilities and tasks on environmental management,
especially on ecological service flows that cross administrative and regional boundaries, such
as watershed ecological services. Such innovations have been at the core of the government’s
ongoing efforts to identify and address the underlying institutional drivers of the PRC’s water
crisis. The degree to which this will ultimately be successful is not only critical for the PRC, but
also has major global ramifications, impacting world food and fuel markets most directly, and
having repercussions throughout international commodity and production chains.
This paper details progress to date on the development of the national Eco-Compensation
Ordinance, and highlights the ongoing institutional challenges faced by policy makers in
developing an effective ordinance. In particular, water management in the PRC is scattered
across multiple central government and provincial agencies. No less than 10 national ministries,
for example, have some form of water management responsibility. Furthermore, while water
resources are state owned according to both the original and revised Water Law of the People’s
Republic of China (1988, 2002), with the state responsible for allocating resources through
government orders and water quotas, this system has resulted in poorly defined water use rights
and artificially low water prices, leading to de facto open access, conflict, and inefficient distribution
of resources. As such, water management in the PRC remains fragmented, uncoordinated
(both horizontally and vertically), and lacking in sufficient legal structure and foundation, with
numerous overlapping and/or ambiguous regulatory mandates and rights. This, combined with
relatively weak central government enforcement capacity, has hindered effective watershed and
water resource protection and management.
Executive Summary ix
There is already a significant and growing body of national and provincial rules and
policies that either directly mention or have an important bearing on eco-compensation.Thus,
while strengthening legal foundations will be important, the NDRC also faces the challenge of
developing the national Eco-Compensation Ordinance in a way that complements and strengthens
current institutional and regulatory frameworks governing environmental management (or at
a minimum does not create additional administrative and regulatory conflicts), while retaining
sufficient flexibility to be able to anticipate, evolve with, and if possible, influence the ongoing
reforms of the PRC’s environmental management system, in general, and watershed management,
in particular.
Given these challenges, this paper makes three key recommendations for the design of the
Eco-Compensation Ordinance as it relates to water:
1. Consider eco-compensation as a potential tool for integrated river basin management
Much work still needs to be done in the PRC, as elsewhere, to develop effective,
comprehensive frameworks for integrated river basin management. While this presents
a significant challenge, it also provides numerous opportunities for the application of
eco-compensation mechanisms. Eco-compensation mechanisms can be valuable as a
means to sustainably finance watershed investment and management. Such mechanisms
can likewise help identify key obstacles to achieving sustainable watershed management,
and serve as important platforms for watershed protection engagement and negotiation
among the key stakeholders. While the institutional labyrinth of water management in
the PRC highlights the challenges ahead, a well-designed eco-compensation ordinance
coupled with sufficient follow-up supporting regulations, funding, and activities could
be an effective platform and focal point to harmonize the disparate water-related
management responsibilities that are distributed across various ministries and regional
government units.
2. Balance firmness with flexibility—focus on outcomes
As watershed ecological services significantly depend on scale and location, policy
makers need to strike a balance between creating a strong regulatory framework to ensure
compliance, and allowing for flexibility in how outcomes are achieved so as to allow for
and catalyze local-level innovation and adaptation of central policies to fit local needs
and constraints. Significant effort has been devoted to developing criteria and formulas
for calculating eco-compensation subsidies and fiscal transfer rates. Greater focus on
the ultimate goals or outcomes of eco-compensation policy—the effective protection,
restoration, and improvement of key ecological service flows and environmental
resources—will help keep the discussion centered on the importance of developing
appropriate incentives, rather than, as is currently the case, on the development of
formulas for calculating subsidy rates. Ultimately, the most basic and fundamental
question for an eco-compensation program is whether the benefits outweigh the costs.
All that should matter, fundamentally, is that outcomes are achieved and that both
parties benefit from participation in an eco-compensation scheme. Focusing on outcomes,
but allowing for flexibility in how they are achieved, will not only help to engender
innovations that can ultimately lower program costs, but the resultant regional variations
in eco-compensation programs could also reveal the regional costs and benefits
of ecological services provision, which could then serve as a guide to better target
limited funds to achieve maximum conservation outcomes. Focusing on outcomes also
highlights the point that eco-compensation is only one of a number of potentially useful
policy tools.
x Executive Summary
3. Take account of the scale of actors
While the Eco-Compensation Ordinance hopes to encompass all levels of potential
buyers and providers of ecological services—from central government to individual land
users—within a common framework, the institutional “size” of the parties involved will
have important impacts on how they should be treated in the ordinance. The degree to
which different stakeholders have clear property rights and responsibilities over specific
ecological service flows influences the feasibility of developing eco-compensation
schemes in different contexts, while the “size” of actors has important bearing on the
degree to which such property rights are already clearly delineated within the PRC’s
regulatory system.
In the case of “large” buyers and suppliers (e.g., provincial governments), the most
challenging environmental management issues relate to ecological service flows that
spill across multiple administrative and regional boundaries, such as from watershed
ecosystems. In the PRC, much work needs to be done to strengthen and clarify both the
legal frameworks governing water use rights and the relationships between the multiple
government-level stakeholders of watershed ecological services; but, to a large degree,
this is work that needs to be done outside the eco-compensation regulatory framework.
Thus, the ordinance will need to be structured in a way to anticipate this and, if possible,
help facilitate and influence the transition to a watershed management regime wherein
regional and administrative rights and responsibilities are more clearly delineated.
In contrast, land rights in the PRC are de jure already strong enough to support
the development of an eco-compensation program targeting individual land users.
Furthermore, in cases where actual tenure is shorter and less stable than that stipulated by
law, eco-compensation programs targeting individual land users can often help strengthen
tenure by providing additional guarantees over land enrolled in programs, and can thus
create legal precedence. As such, in regulating eco-compensation programs that target
individual land users, policy makers need not be as concerned about the delineation of
property rights, but rather could spend more effort on developing guarantees to protect the
rights and welfare of individual land users that participate in these schemes. Given such
guarantees, eco-compensation policies targeting individual agricultural land users have
the potential to serve as a valuable means to proactively address future environmental
stresses on and resulting from the agricultural sector.
The International Conference on Payment for Watershed Services and Eco-Compensation
Legislation, held on 23–24 October 2010 in Ya’an, Sichuan Province concluded that while the
challenges and constraints to watershed eco-compensation schemes are still significant and
will require all stakeholders to continue to strive for better solutions, there is already a strong
foundation of experience, commitment, and capacity to build upon as policy makers develop the
national Eco-Compensation Ordinance.
1
Introduction
regarding ecological service flows that cross
administrative and regional boundaries, such
as watershed ecological services. Such
innovations have been at the core of the
government’s ongoing efforts to identify and
address the underlying institutional drivers
of the PRC’s water crisis. The degree to
which this will ultimately be successful is
not only critical for the PRC, but also has
major global ramifications, impacting world
food and fuel markets most directly, and
having repercussions throughout international
commodity and production chains.
The concept of eco-compensation has
been an important focus and catalyst for debate
and experimentation on the future direction of
the PRC’s evolving environmental management
framework, and thus has been at the lead in
what could be a historic shift in the country’s
economic development paradigm. Though this
shift has been quietly taking place over the past
decade or more, it was formally given voice
by Premier Wen Jiabao at the Sixth National
Conference on Environmental Protection in
2006, when he announced that the PRC would
adopt a more sustainable approach toward
economic development that emphasizes
Water is possibly the single most pressing
resource bottleneck to the ongoing economic
growth of the People’s Republic of China (PRC)
over the next 10–15 years.1 Annual per capita
freshwater resources are among the lowest for
a major country, and effective water resources
are further reduced by pollution.2 According to
the country’s Macro Strategic Research Report
on the PRC’s Environment, released in April
2011, drinking water for one in seven Chinese
does not meet national pollution standards,
while 300 million rural Chinese lack access
to safe drinking water.3 A recent report by the
World Bank has estimated that the PRC’s water
crisis is already costing the country 2.3% of
its gross domestic product, of which 1.3% is
attributable to water scarcity and 1.0% is from
the direct impacts of water pollution. This,
however, represents a conservative lowerbound
estimate of the total costs.4
In the face of these challenges, the
central and provincial governments across
the PRC have been actively investing in
and seeking new ideas and methods for
improving both supply-side and demandside
management of water resources.5 This
has included numerous national, provincial,
and local experiments since 2000 in marketbased
environmental policy tools under the
broad heading of “eco-compensation,” with
this trend culminating in central government
uptake wherein the National Development and
Reform Commission (NDRC) has been tasked
with developing a national eco-compensation
ordinance.6
Eco-compensation not only shares
characteristics with payments for ecological
services (PES), but also encompasses
fiscal transfer schemes between regional
governments to improve the apportioning of
funding for and clarify responsibilities and tasks
on environmental management, especially
A recent report by the World
Bank has estimated that the
PRC’s water crisis is already
costing the country 2.3% of
its gross domestic product,
of which 1.3% is attributable
to water scarcity and 1.0%
is from the direct impacts of
water pollution
2 Eco-Compensation for Watershed Services in the People’s Republic of China
Box 1 Phases in Developing the National Eco-Compensation Ordinance
The National Development and Reform Commission (NDRC) has taken a number of important steps
toward developing the Eco-Compensation Ordinance of the People’s Republic of China (PRC). The
work has been developed in three phases:
Phase 1: Planning and Organization
The first phase involved the establishment of a steering committee, a small working group, and an
expert consultative committee for the development of the draft ordinance. The steering committee is
comprised of key officials from 10 central government ministries, including the NDRC, the Ministry of
Finance, the Ministry of Land and Resources, the Ministry of Environmental Protection, the Ministry
of Agriculture, and the Ministry of Water Resources, with NDRC Vice Chairman Du Ying serving as
leader and Ministry of Finance Vice Minister Liao Xiaojun serving as deputy leader. The small working
group is comprised of representatives from the 10 ministries and has over 30 members. It is situated
in the offices of the NDRC and is headed by Director General Qin Yucai of the NDRC’s Department
of Wester Region Development. The expert consultative committee, comprising 25 academics and
experts, is headed by Shen Guofang of the Chinese Academy of Engineering. Li Wenhua of the
Institute of Geographical Sciences and Natural Resources Research, Chinese Academy of Sciences,
serves as deputy leader.
Phase 2: Survey Work and Solicitation of Public and Expert Input
The second phase involved comprehensive survey research. The draft ordinance working group was
divided into seven research groups to conduct surveys in 13 provinces, with high-quality research
reports produced at the end of each survey. The NDRC has also been eliciting both public and expert
feedback on the draft ordinance. It established a page on its website to elicit online public feedback,
and has been hosting annual international conferences, with the support of the Asian Development
Bank (ADB), to inform the development of eco-compensation in the PRC. The first conference was
in Shizuishan, Ningxia Hui Autonomous Region, in September 2009. From this, two publications
were produced to synthesize findings and provide policy input.a The second conference, from which
this publication has been developed, was held in Ya’an, Sichuan Province in October 2010. A third
conference will take place in Jiujiang (on Boyang Lake), Jiangxi Province, in November 2011.
the quality of growth, proactively pursues
environmental protection, and more equally
balances environmental management with
economic development.7 As part of this new
direction, the government completed in 2010
a national function-based land zoning plan to
serve as the basis for a more comprehensive
system of environmental planning and
management that will also include (i) reforms to
the public sector fiscal system to better apportion
funding for environmental management and
target key ecological function zones, and
(ii) revision of the system for evaluating the
performance of local officials to place greater
emphasis on environmental and sustainable
development targets.8 Eco-compensation is to
serve as a key component of this system.
Box 1 discusses the work being undertaken
by the NDRC toward the development of the
PRC’s Eco-Compensation Ordinance.
continued on next page
Introduction 3
Phase 3: Develop the Draft Ordinance and Key Policy Documents
The third phase has involved the development of a core framework for the Eco-Compensation
Ordinance and the drafting of a preparatory policy document entitled Several Opinions Regarding
Establishing and Refining Eco-Compensation Mechanisms. This document is a critical, formal step
for the establishment of a national ordinance. To date, the document has gone through three central
government revisions and two formal reviews from the State Council, and has received significant
feedback and suggestions from the country’s 31 provinces, municipalities, and autonomous regions
in three separate symposia held in Hefei (Anhui Province) for central PRC, Xiamen (Fujian Province) for
east PRC, and Chongqing Municipality for west PRC. A revised draft of the document will be completed
and formally submitted for input from the State Council and relevant ministries by the end of 2011.
Based on expert and government feedback, the draft Eco-Compensation Ordinance currently consists
of eight sections: general principles, scope and targets, methods, subsidy standards, payment reporting
procedures, monitoring and ex-post program evaluation, penalties and legal responsibilities, and
appendix, with a glossary of terms and the details of the period of effect for the ordinance. In drafting
the Eco-Compensation Ordinance, the working group considered that three laws already contain
explicit eco-compensation components within them. These are the Forest Law of the PRC, which has
regulations governing the Forest Ecological Compensation Fund; the Mineral Resource Law of the
PRC, which has regulations governing mineral resource compensation fees; and the Water Pollution
Prevention and Control Law of the PRC, which has regulations regarding financial transfer payments.
a Zhang et al. 2010a. An Eco-Compensation Policy Framework for the People’s Republic of China: Challenges and Opportunities.
Manila: ADB; and Zhang, et al., eds. 2010b. Payments for Ecological Services and Eco-Compensation: Practices and
Innovations in the People’s Republic of China. Manila: ADB.
Source: Xiao, Weiming. 2011. The Development of a National Eco-Compensation Regulatory and Policy Framework. Report
from the Eco-Compensation Technical Assistance Grant Initiation Meeting, cohosted by ADB and the NDRC. 17 May; and Du,
Ying. 2010. Vigorously Building a Regulatory System of Safeguards, Accelerating the Development of Sound Eco-Compensation
Mechanisms. Address from the Vice Chairman of the NDRC at the International Conference on Payment for Watershed Services
and Eco-Compensation Legislation. Ya’an, Sichuan Province, PRC. 23–24 October.
Box 1 continued
The process of developing the national
Eco-Compensation Ordinance also reveals
much about the remaining challenges in
reforming the PRC’s system of environmental
governance regarding water. As elsewhere,
water management responsibilities in the
PRC are scattered across multiple central
government ministries and regional entities
(endnote 1). The resulting system of overlapping
and/or ambiguous regulatory responsibilities
and rights, combined with relatively weak
central government enforcement capacity,
has hindered effective management, and
this is something the central government has
pledged to address.9 The various central and
provincial government agencies involved in the
development of a national eco-compensation
regulatory framework have thus all been keen
to provide input and retain their footing in
this evolving institutional landscape. This has
been most clearly articulated in the multiple
ongoing initiatives being developed by
the different ministries. The Ministry of
Environmental Protection and the Ministry
of Water Resources, for example, are both
developing their own watershed ecocompensation
pilot projects, while numerous
provincial pilot projects vie for the attention
of the central government. Viewed from this
perspective, the disparate eco-compensationrelated
activities taking place across the country
can be seen to represent an ongoing dialogue
4 Eco-Compensation for Watershed Services in the People’s Republic of China
Box 2 Eco-Compensation Primer
What is eco-compensation?
The National Development and Reform Commission (NDRC) of the People’s Republic of China (PRC)
has developed what it considers to be a fairly consistent tentative definition of “eco-compensation”
for the purpose of the ordinance, which is as follows:
Eco-compensation is a type of public system or institution that brings to bear either public or
private sector measures to adjust the relative benefits and costs of ecological service provision
among the key stakeholders in order to realize the goals of protecting the environment;
promoting the harmonious coexistence of man and nature; and comprehensively considering
the costs of conservation, opportunity costs of foregone development, and the value of
ecological service provision.
This definition contains three key components:
(i) Subject and object of eco-compensation: The subject of eco-compensation are the
beneficiaries of ecological services: the government (central and provincial), organizations,
enterprises, communities, and individuals. The objects of eco-compensation (i.e., those
that receive payments) are those that supply and protect the provision of these ecological
services, whether they are individuals, organizations and enterprises, or provincial or local
governments. The NDRC is also developing a separate class within the Eco-Compensation
Ordinance for those who degrade ecological services and those who suffer from the impacts
of degradation, with limited liability regarding past degradation.
(ii) Eco-compensation subsidy standard: This will be calculated taking the conservation cost
as the basis, while also adding opportunity cost (referred to in PRC policy documents as the
“development opportunity cost”) and the value of the ecological services being targeted.
(iii) Eco-compensation methods: At present, two types of payment methods or sources are
defined to be addressed separately in the Eco-Compensation Ordinance: public sector
instruments and private sector instruments.a
What is the scope of eco-compensation?
The government is currently developing eco-compensation regulations around seven key areas:
forestland, grasslands, wetlands, water, marine resources and ecosystems, desertified areas and
wastelands, and mining zones. For the moment, the government is not considering the inclusion of
the agriculture sector or of climate regulatory services, since the national government already has
numerous subsidies in place for agriculture, and the inclusion of the ecological services of climate
regulation would significantly complicate the task of completing the Eco-Compensation Ordinance.
Of these seven areas, forestry is the most developed; the Forest Ecological Compensation Fund, for
example, currently protects around 193 million hectares (2.9 billion mu)b of forests. The second most
developed is for grasslands, with eco-compensation subsidies for the goal of effectively protecting
246.7 million hectares (3.7 billion mu) of grassland. Pilot projects for wetlands and watershed ecocompensation
are currently under development, while mining eco-compensation pilot projects in
places such as Shanxi Province have been promoting sustainable development funds procured from
mining fees.
continued on next page
Introduction 5
Box 1 continued
What are the Eco-Compensation Policy Instruments?
This includes both public and private sector payments and instruments. Public sector measures that
will be addressed in the Eco-Compensation Ordinance consist of the following:
(i) Financial transfer payments: These include vertical fiscal transfers—central-to-local
government transfers, and provincial-to-subprovincial government transfers. For the 12th
Five-Year Plan period, the central government plans to have eco-compensation or ecological
payment transfer s