Pollution is recognized as one of the biggest environmental challenges facing China as the country pushes to modernize and develop its economy. Many major waterways are in unhealthy condition and air pollution now affects almost all of the country's main cities. Some of this impacts on the rest of the world, through acid rain and emissions of greenhouse gases. Consequently there is much interest, both nationally and internationally, in improving the effectiveness of China's environmental protection policies. Among the most important market-based anti-pollution policies in the country is the Pollution Charge System (PCS). Covering four types of pollution - water, air, solid waste and noise - it came into widespread use in 1982. The system combines deterrent fees for pollution offenders with a subsidy system to help polluting enterprises build waste treatment facilities. The efficient working of this system as an economic incentive has, however, been questioned and many reservations concerning its practical application remained unanswered. To try and answer such questions, this study set out to find out whether the PCS really does encourage companies to clean up.

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