Climate Change and Catastrophe Management in a Changing China: The Way Forward

Oct 22, 2026

Uploaded by cksankcs

Report 1902 analyzes climate change and escalating natural disasters in a changing China, focusing on how catastrophe risk can be reduced through compensation and governance design. It evaluates China’s “Whole Nation System,” outlining its coordination advantages alongside government failures such as corruption incentives, underinvestment in mitigation, regressive counterpart aid, and insufficient risk financing. It then examines insurance’s dual functions—risk pooling and moral hazard regulation—while addressing market failures and proposing a multilayer public-private model moving toward private-led disaster insurance.

LanguageEnglish

CategoryResearch & Report

FormatPDF

Pages4

Reading Time10 min

AccessFree to download

Climate Change and Catastrophe Management in a Changing China: The Way Forward

China’s “Whole Nation System”: Success and Failure

The Role of Insurance

Market Failure of Insurance

China’s Choice: The Way Forward

Asia-Pacific Centre for Environmental Law Report 1902 Climate Change and Catastrophe Management in a Changing China: The Way Forward Qihao He APCEL Visiting Fellow Uploaded July 2019 Climate Change and Catastrophe Management in a Changing China: The Way Forward Qihao He Under the influence of climate extremes and other natural disasters, the world is exposed to more and more catastrophe disasters. There is increasing attention not only to the question of how to compensate victims, but also of how compensation mechanisms, including insurance, can stimulate disaster risk reduction. China’s “Whole Nation System”: Success and Failure Policymakers’ first instinct is to rely on government intervention and controls. In disaster management field, it performs through the “Whole Nation System”. In contrast with federal disaster policy in the United States, the Whole-Nation System is not the result of the failure of the private catastrophe insurance market. It generally refers to the government’s effort to deploy and allocate the whole nation’s resources to fulfill a specific difficult task within a limited time and thus promote the nation’s interest. Government fiscal support serves as the major capital source for disaster relief and post disaster reconstruction. Under the Whole-Nation System, China’s government has resources at its disposal to manage the disaster response and recovery processes. It coordinates multiple levels of government and establishes national pools. It also mobilizes the military for emergency response to disasters. However, the government is by no means a perfect risk manager. The Whole-Nation System confronts government failures as follows: 􀁺 The perverse incentives for rent-seeking and corruption 􀁺 Samaritan’s Dilemma reducing people’s incentives to invest in protection and mitigation measures 􀁺 The regressive effects of counterpart aid 􀁺 The lack of risk financing under the Whole-Nation System 􀁺 The burden on public budgets and possible hindrance to economic growth 􀁺 The overuse of the military’s resources for nondefense purposes In view of these concerns, there is growing attention to how to augment government intervention by harnessing market forces to address disaster risks. The Role of Insurance Increasingly, policymakers have come to realize that government alone cannot prevent or defray climate-related disaster risks. The role of insurance in managing global climate change has received a fair amount of attention in China. For example, in 2014, Shenzhen began its first large-scale experiment with a city government funded model called the Disaster Insurance Pilot. Two important functions of insurance should be distinguished. The first is that it can spread risks over a larger community and thus compensate risk-averse individuals exposed to risky activities through risk pooling and risk shifting. A second function is precisely that by controlling the moral hazard risk insurers also regulate policyholders’ behavior and can thus contribute to risk reduction. Insurers can have these important functions also for catastrophic risks, provided specific conditions are met. Insurance has an increasingly important potential to mitigate risk and prevent loss through regulating risky behaviors, because once insurers underwrite catastrophe risk, they have every reason to work to reduce their payouts. Therefore, regulation by insurance may help realizing the goal of disaster risk reduction and the corresponding losses. Market Failure of Insurance However, promoting insurance to combat disaster risks faces a number of general challenges. Firstly, Chinese citizens are used to relying on the government, not private insurance, for catastrophe relief. Secondly, underwriting catastrophe insurance faces both supply-side and demand-side barriers. The commercial catastrophe insurance market is still in its infancy. On the supply side, problems with insurability and capacity hamper the u

FAQs

What problem does the report address regarding climate extremes and disasters?

The report addresses increasing catastrophe disasters driven by climate extremes and natural disasters, including how compensation and related mechanisms can influence disaster risk reduction.

What are the key government failure concerns under China’s “Whole Nation System”?

It highlights perverse incentives for rent-seeking and corruption, reduced incentives to invest in protection due to a Samaritan’s dilemma, regressive effects of counterpart aid, lack of risk financing, budget burdens, and overuse of military resources for nondefense purposes.

How does the report explain insurance’s contribution to risk reduction?

Insurance helps by spreading risks through pooling and shifting, and by regulating policyholders’ behavior through moral hazard constraints when specific conditions are met, which can reduce payouts and encourage mitigation.

Oct 22, 2026

Uploaded by cksankcs