Since 1978 China ' s economy has produced economic growth rates making it one of the fastest growing economies. In the same period, China ' s environment has deteriorated significantly. Rapid urbanization and industrialization have generated enormous volumes of air and water pollutants, lowering air and water quality. China ' s urban population soared, moving more Chinese closer to industrial smokestacks and residential emissions and increasing the number of people exposed to polluted urban air and water. This report focuses on two of China ' s most pressing environmental concerns -air and water pollution- and their relation to economic growth. Specifically, it addresses three questions: What are the costs of pollution in China today? Will future economic growth impair or improve air and water quality? And what policies are needed now to ensure that rising incomes translate into a higher environmental standard of living for current and future generations? Chapter 2 estimates the costs of pollution -urban air pollution, indoor air pollution, water pollution, and lead pollution- on health (premature deaths and sicknesses); and assesses the damage to productive resources and urban infrastructure. Chapter 3 examines the economic reforms and environmental policies that can hold pollution costs in check. Various scenarios are presented: the business-as-usual scenario and alternative scenarios that increase fuel substitutions, improve energy efficiency and conservation and diversify energy supplies, invest in air pollution control, develop public transportation systems and discourage vehicle use, raise the abatement rate for industrial water pollution, and increase the coverage and level ofmunicipal wastewater treatment. Chapter 4 concentrates on improving efficiency and developing coal alternatives, and controlling emissions by industrial, power, commercial, and household sources. Chapter 5 focuses on China ' s need to revamp its regulatory system to harness market forces and reorient new investment to safeguard the environment. Chapter 6 argues that China should shape its urban environmental destiny by both using the conventional pollution control policies and harnessing its own considerable administrative and coordinating capacity in transportation management and municipal planning. Water shortages and water pollution, two main water-related constraints to China ' s socioeconomic development, are the focus of Chapter 7. Finally, Chapter 8 encourages China to turn its assets into advantages for preserving and improving its environment and securing higher environmental living standards.
