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China targets pollution on eve of Xi Jinping’s second term

  • Thu, 12 Oct 2017 14:33

Greenpeace estimates that a third of Chinese cities saw worsened air pollution this spring compared with the previous year © Getty

A wave of environmental inspections in China has led to the closure of tens of thousands of businesses producing commodities from industrial chemicals to cement and rubber, pushing up prices and disrupting some global supply chains.

The inspections highlight the ruling Communist party’s willingness to sacrifice some economic growth for what it calls a “war” on the country’s chronic air, water and land pollution. The crackdown comes ahead of this month’s political congress that will install President Xi Jinping as party chief for a second five-year term.

Mr Xi has struggled to improve the government’s record on pollution in his first term — Greenpeace estimates that a third of Chinese cities saw worsened air pollution this spring compared with the previous year. Critics blame Beijing’s continued focus on meeting economic growth targets, the low status of environmental officials tasked with enforcing rules, and insignificant fines that fail to discourage polluters.

However, a spate of environmental inspections launched in August across 31 provinces and regions were carried out by central government officials — including from the party’s feared anti-graft commission — which means negligent officials can lose their jobs or face jail sentences.

Penalties imposed on polluters have also been toughened. “It used to be just fines, but now it is suspensions or shutting down production. That has a much greater impact because to the manufacturer it is life or death,” said prominent Chinese environmentalist Ma Jun. “It’s the first time I feel companies are becoming motivated to take a greener path.”

More than 7,000 factories have been closed — at least temporarily — in Sichuan province, according to local media. The city of Zibo in Shandong province alone has seen 5,000 chemical companies closed this year, according to Rubber and Plastics News, an industry journal.

Factories forced to close over the past two months include makers of cement, ceramics, wooden boards for furniture, chemical fertilisers used in agriculture and chemical ingredients used in pharmaceuticals, according to Chinese media reports.

Prices for a range of commodities have soared as a result. Cement prices have reached a three-year high, while the price of formic acid, used as a preservative in animal feed, doubled by the end of August compared with a year earlier. Fertiliser prices have risen by more than a third over the same period.

Environmental enforcement could knock 0.25 per cent off China’s gross domestic product growth in the next six months, according to French bank Société Générale. “The Chinese government has turned very serious about fighting pollution,” SocGen’s chief China economist Yao Wei wrote in a note this month.

Prices of major metals — already on a strong run this year due to China’s revived infrastructure investment, a crackdown on overcapacity and looser monetary policy fuelling speculation — have been pushed even higher.

The campaign is hitting international supply chains, with German automotive parts manufacturer Schaeffler taking to social media last month to complain that the closure of a Shanghai factory that supplied it with needle bearings could severely disrupt production of dozens of car models in China and cause billions of dollars in losses for the economy.

Since September, the national inspections have been supplemented with added checks on the steel and cement heartlands surrounding China’s capital ahead of the winter season when the city’s smog is at its worst. Concern about lower production has hit the price of steelmaking ingredient iron ore, which is down 22 per cent over the past five weeks.

The campaign reflects Mr Xi’s focus on centralising power in Beijing, and has been aided by the fact that local officials are on their toes in the politically sensitive run-up to the party congress.

But despite the ferocity of the inspections, some observers worry that many of the factories may reopen once they are over. “Once the inspectors leave the area, they simply open back up,” China manufacturing consultant Jacob Yount wrote in a note. “Thus the factory closures still seem to be tinged with dog-and-pony show theatrics. That’s normal with China.”



Harvard Business Review

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