Will China’s economic slowdown affect its battle against pollution?

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The issuance, by the Beijing authorities, of the first-ever air pollution ‘red alert’ on 7 December 2015 has brought into sharp focus one of the central topics facing the government: how to attain a sustainable economic growth model that avoids causing further environmental degradation.

Prompted by record levels of small-particulate toxic air pollution, the red alert closed schools and some factories, halted construction work and enforced traffic limits. For once, the story of   environmental pollution in China grabbed bigger headlines than those about the slowdown of China’s GDP growth rate. Yet those two issues, economic growth and the environment, are inextricably linked.

China’s growth-at-all-costs strategy has resulted in pollution reaching such a point that China’s environment minister, speaking at a meeting concerning the 13th Five Year Plan that is due for approval in March this year, argued that China’s current growth model must be discarded, as it has reached its limit.

So why has the environment has become such a hot topic in China? Air pollution in China is around 10 times the level recommended by the World Health Organisation. It has become an unavoidable problem that affects everybody, regardless of their income level or party connections. Air in China is the most polluted in the world in terms of particulate matter, and smog is so severe that it sometimes reduces visibility to less than 50 metres.

And the problem doesn’t just affect Beijing and North Eastern China; other densely populated areas like Shanghai and Guangzhou are also often smog-bound. Air pollution affects humans by causing conditions ranging from headaches and irritation of the eyes, nose and throat, to lung cancer, liver problems and cardiovascular diseases. It caused up to 500 000 premature deaths in 2012 – that’s around the total population of France’s second-biggest city, Lyon, for example – with economic repercussions in the range of USD 100 billion to USD 300 billion a year.

Last month’s red alert on air pollution makes it perhaps too easy to forget that China is also struggling with another type of pollution that, despite making fewer headlines, is arguably just as worrying and harmful: soil pollution.

A recent study by the non-profit Changsha Shuguang Environmental Charity Development Center found that farmland in Hunan province – one of China’s biggest rice-producing regions – contains 200 times the government’s own declared ‘safe levels’ of heavy metals such as cadmium or lead. The problem is that Hunan province is also a major heavy metals industrial area, producing 2.6 million tonnes of non-ferrous metals in 2011. This has resulted in nearly 1 000 sludge sites containing 440 million tonnes of solid waste contaminated with poisonous heavy metals. People who eat food processed from these plants grown in these areas are prone to develop serious medical conditions, including organ damage and weakened bones, and have their livelihoods ruined and food security threatened.

Given such circumstances, expectations for the 13th Five Year Plan are high. It may include the introduction of carbon taxes, new targets for renewable energy and caps on carbon consumption. China has already increased its annual target for solar installations. Current targets for reducing air pollution require five times more investment than the plan laid out for 2011-2015, with industrial clean-up accounting for 48% of the new money needed. So we may see increased investment objectives in these areas. And as the Chinese government comes to see soil pollution as a food security issue, we would also expect new investment in the areas of soil clean-up and restoration.

While it is unlikely that China will change its growth model entirely, we do not see the current economic slowdown affecting investment in environmentally-related sectors. On the contrary, any forthcoming stimulus is likely to be targeted towards investment in cleaner energy, transportation and industrial practices as the government lays out new, tougher targets and the focus on enforcement sharpens.

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Alvaro Ruiz-Navajas

PhD, Portfolio Manager

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