China’s growing pains: expect more smog on the horizon

The price of China’s rapid economic growth has been toxic air pollution.

Beijing has been blanketed by another round of heavy smog, this time causing more chaos as businesses reopen and people return after the Lunar New Year Holiday. Over the past eight weeks, the capital has endured its worst air pollution in recent memory.

While researchers and analysts generally agree that lowering vehicle emissions in Beijing is the key to fixing Beijing’s air pollution, the fact that Beijing’s smog problem is a regional problem has been neglected in the debates. More importantly, it is not clear whether China is on the right path to stopping it from becoming worse.

Beijing’s smog is not just a one-city problem, but a regional problem. According to researchers at the Chinese Academy of Sciences, fine particles (PM2.5), the major cause for choking smog in Beijing, have increased rapidly in the last decade. The group reported that January’s high PM2.5 came from two major sources: vehicle emission within Beijing and industrial pollution in the surrounding provinces. Unlike other pollutants, PM2.5 are long range and trans-boundary pollutants, which can stay in the air and travel up to a thousand kilometres. Thus, fine particles emitted from power plants, steel plants or industries in neighbouring regions can end up in Beijing’s air. This means that even if Beijing were to lower vehicle emissions through restricting car travel or enforcing specific technology standards, emissions from surrounding provinces are still beyond its control.

The matter is exacerbated as Beijing is surrounded by major heavy-industry provinces such as Hebei, Inner Mongolia, and Shanxi. Hebei is China’s largest steelmaking province and accounts for one quarter of the national steel production. Similarly, Inner Mongolia and Shanxi provinces, directly up wind of Beijing, are China’s biggest coal mining provinces. Since the unveiling of China’s 2008 stimulus program aiming to bolster domestic demand and build transport and housing infrastructures, a vast numbers of smelters, steel plants and mills were built across cities and towns in these three provinces. In 2010, they were responsible for nearly one third of China’s raw coal consumption (as shown in Table 1).

China Energy Statistical Yearbook 2011

While products from these smelters and steel plants continue to feed the rapid growth of housing and automobiles demand in and outside Beijing, the burning of coal to provide electricity for their operation produces a significant portion of the PM2.5 emissions.

For local governments, there is little incentive to control air pollution. These local polluters are often the backbones of local economies. The fiscal decentralisation implemented over the past two decades and the readiness of the central government to reward and punish local officials on the basis of their economic performance have created a pro-business incentive structure for local officials and motivated them to focus more on economic growth. Affected by the global economic downturn in 2008, local governments were even more eager to sustain economic growth and maintain social stability through building a tight relationship with private enterprises.

This link between local government and private enterprises sometimes dilutes the effect of formal legislation. There have been reports that since the precipitous drop in steel prices in late 2012, rather than penalising polluters, Hebei’s local governments have been subsidising steel mills and coal producers to keep them in operation. Thus, underlying the failure of the regional initiative is a fundamental economic issue: as China restructures from an export-oriented mode to domestically-driven growth to reduce its exposure to the volatility of the world economy, the Chinese government and individuals have to be well-prepared for the subsequent emergence of new forms of pain, like the Beijing smog.

China is not immune from an economic downturn. The economic stimulus package rolled out in 2008 had, to some extent, countered the sharp slowdown of export growth and assured stable economic growth. The economic impact of the GFC in China had been felt less harshly than elsewhere: the Chinese economy has been fairly resilient in comparison to US and some countries in Europe, and the average GDP growth rate for the last five years is 9.26%. China’s job market remains quite steady, while lots of new jobs have been created. But the smog remains a potent side effect of China’s growing pains. As more cars are sold and more properties are built, people should not be surprised that more smog will come, at least for the short term.

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