China is the world’s 4^th largest and most populous country, yet its per capita land holdings are small by world standards.Land productivity is low and land degradation serious and widespread.Since reforms were started in the late 1970s, individual land users have been able to enter into contracts with communes for the right to use a given piece of land for a fixed period of time, usually 30 years, and to benefit from any profit made from that land.Despite all this, China has the world’s 6^th largest economy with a real annual growth in GDP in recent years of almost 10%.It is projected in time to become the world’s largest economy.This rapid economic growth, much of it due to large increases in manufacturing output, has produced a range of environmental problems.These are beginning to be addressed by the government, including though compensation payments made to farmers and others to reha-bilitate degraded land.Land in China is the property of either the state or the communes.

This paper reviews the potential impacts on payments for environmental services in China of current globalization processes.Particular attention is given to China’s membership of the World Trade Organization (especially the current Doha Round of negotiations, centred on agriculture), and its involvement in major multilateral environmental agreements, specifically the United Nations Framework Convention on Climate Change and the Kyoto Protocol, the Convention on Biological Diversity, the UN Convention to Combat Desertification, and the Ramsar Convention on Wetlands.

As the world’s most populous developing country, and with a rapidly growing economy, China is actively seeking closer integration into the global community.This paper addresses two main issues:

1.Will multilateral agreements on trade and the environment promote more active transactions involving payments for forest watershed environmental services in China?

2.Will these multilateral agreements promote a clearer definition of property rights over forest land and forest-derived watershed environmental services?

China has been actively engaging globalization since the end of the 1970s.It has changed from an isolationist, command-and-control economy to one that is increasingly based on free—market principles.Entry to the WTO in December 2001 greatly increased trade between China and the rest of the world, on balance much in China’s favour.The country has a comparative advantage in the production of labour-intensive manufactured goods, but is at a relative disadvantage with land-demanding agricultural products.Restructuring of the Chinese economy is producing major changes in the locus of economic activity, population distribution and land use, among others.Many people have moved from rural to urban areas in search of employment, resulting in the abandonment of farm land because the rights to use this land cannot be transferred.People are also reluctant to give up their rights to use this land, preferring to hold on to them in case of unemployment or repatriation from urban areas.

China has also participated actively in negotiating and implementing many international environmental treaties and agreements.The processes of economic and environmental globalization has generated opportunity for China to allocate more land resources for forests and other ecological resources; has helped to relieve pressure on its environment, and has opened doors to intensified and valued added agriculture.Increased trade, particularly the import of agricultural products, is generating shocks throughout Chinese agriculture, inducing structuring changes particularly in land use.Farmer livelihoods are being affected, but the process is also generating incentives for China to reform its land use systems.

Whether the Chinese land use system will be changed to accommodate more market-based payment systems for forest environmental services and to improve on existing government-led payment systems will ultimately depend on China’s own political determination to overhaul its ineffective and ambiguous land tenure system, both in agricultural and in forestry.