17 February 2020
Industries with outdated capacities
Industries with outdated capacities

China wrestles with the economics of smog

“How much will the GDP growth drop?”

That’s the question foremost in the minds of many cadres after Chinese Premier Li Keqiang{李克强} vowed an all-out effort to clear the country’s filthy air at this year’s National People’s Congress plenum. They are worried that the Chinese economy, already sputtering after decades of double-digit growth, may be weighed down further by the impact of tougher environmental standards.

The smog blanketing virtually two-thirds of the country earlier this year leaves an omnipresent impact. Beijing’s green pepper cultivation, Sanya’s housing market and Shanghai’s solar farms may seem unconnected to each other, but China’s air pollution problem has provided the link.

A China Agricultural University professor has found that green peppers and other plants take a longer time to ripen during hazy months, and laboratory tests show the crops are less nutritious because not enough photosynthesis is taking place, Southern Weekend reports.

In Sanya {三亞}, a tourist destination in China’s southernmost province of Hainan, the property market has been strong since the start of the year. Statistics from the Sanya Real Estate Administration Bureau show a surge in the number of homebuyers from smog-choked Beijing and Hebei, which now account for more than 30 percent of the city’s transactions involving non-locals.

Meanwhile, experiments by researchers at the Chinese Academy of Sciences’ Institute of Microsystem and Information Technology in Shanghai show an 80 percent drop from normal levels in electricity generated by solar panels whenever the reading of PM2.5 particulates in the city exceeds 600 µg/m³.

The link between air pollution and the economic activities clearly goes way beyond the boom in face mask and air purifier sales. Officials and analysts are only now beginning to gauge the economic downside.

A report prepared by the Asian Development Bank and Tsinghua University shows that as extra cost to the nation’s healthcare system, air pollution exacted more than 680 billion yuan (US$110 billion) last year, or 1.2 percent of the country’s gross domestic product.

The lingering haze in northern China dealt the transport sector a loss of 23 billion yuan in January alone, according to Peking University’s College of Environmental Sciences and Engineering.

Regional economies also suffer as they roll out painful measures to combat pollution. Shijiazhuang, capital of Hebei province which covers Beijing and Tianjin, halted power supply to 2,025 factories and 146 open pit mines in the city for 15 days in February, consequently cutting its GDP by 16 billion yuan.

Some industries, which have been in the crosshairs of the central authorities’ effort to squeeze excess capacity, will continue to face policy headwinds.

Wang Jinnan {王金南}, deputy director at the Ministry of Environmental Protection’s Academy for Environmental Planning, told Xinhua that with the implementation of the State Council’s 10-point action plan for the next four years, steelmakers’ GDP output will drop by 81.2 billion yuan during the period, cement producers by 16.7 billion yuan and the coal sector by 14.2 billion yuan.

Central and western provinces including Hebei, Shanxi, Shaanxi, Inner Mongolia and Gansu, which depend on these industries for the bulk of their revenues, are likely to face short- to medium-term recession.

Hong Yuan Securities chief economist Pang Sihai {房四海} warns that government-instigated industrial consolidations and factory shutdowns to fight air pollution will drag down China’s GDP growth by at least 0.5 percentage point this year.

Government spending in environmental protection will help mitigate the economic impact. Beijing will invest up to 760 billion yuan to reduce PM2.5 pollution and achieve the targets agreed with the central government for 2017, according to mayor Wang Anshun {王安順}.

But all this generous spending, expected to total 3.4 trillion yuan by 2015, won’t aid the affected sectors, namely steel, cement and coal. Instead, other sectors such as energy-from-waste, sludge treatment and hazardous waste disposal will be the major beneficiaries, according to Credit Suisse.

Ma Jun {馬駿}, chief China economist at Deutsche Bank AG, suggests a more radical policy package: increasing the coal resource tax rate five to nine times, doubling the levies on sulfur dioxide and oxynitride emissions, and introducing car license plate lotteries in more cities to keep the car ownership growth at the single-digit level.

Such drastic measures are unlikely to be implemented as authorities take pains to balance rival interests, including their own. But as China shifts its focus from churning out more products to reining in pollution, the shakeup will be big enough to hurt a lot of sectors and lift others.

This will also spark an upheaval in the stock trading environment.

– Contact the writer at [email protected]




EJ Insight writer