This week two developments in China highlighted the difficult balance the country faces as it tries to keep its economy growing while at the same time reducing the air pollution that choked the capital for the past several days.
At a time when Beijing issued “red alerts” for extremely toxic smog, leaders announced that urban development would be the core of the next stage of economic reforms. The move to create and expand cities signals China’s determination to continue with its time-tested policy of driving economic growth through infrastructure development.
But it will mean a sharp increase in the consumption of cement, steel, energy and construction materials which contribute heavily to pollution, analysts said. The decision is significant because it comes two weeks after China promised at the United Nations Conference on Climate Change in Paris to drastically cut carbon emissions.
“Implementing strict environmental controls will have a very serious effect on the economy. Industry sectors like coal, electricity and oil will be affected,” Chen Wei Dong, senior economist at CNOOC Energy Economics Institute of the China National Offshore Oil Corporation.
“It is a serious dilemma because the Chinese government also wants to ensure clean environment and put an end to continuous smog in the cities,” he said.
Balancing jobs and clean air
The government’s main concern involves retaining jobs in mining and industrial sectors that would be hit if environment controls are rigorously implemented. The coal, electricity and oil segments, which will be the most affected industries, account for more than 20 million jobs. A coal mine in northeastern China recently announced it was laying off 100,000 workers because the company’s business is shrinking.
Jobs are also at risk because the falling prices of oil have severely hit China’s petroleum companies. They produce oil at about $60 a barrel while the international price of oil hovers around $40 a barrel. Profits at oil companies are plummeting, but they are forced to continue operations because the industry employs nearly 10 million people.
At the United Nations Conference of Climate Change in Paris, China promised to cut carbon emissions per unit of economic output by 65 percent from 2005 levels. China also promised to peak carbon emissions by 2030, which means it must speed up efforts to cut down pollution.
But there is still a serious debate within the Chinese government over whether to make serious sacrifices in economic development to achieve a cleaner atmosphere, or allow polluting industries to continue because they are important for jobs and growth.
“The economic and social sacrifices will be even greater if China does not reduce its energy intensity upon which its dependency on coal consumption plays a huge part,” Adam Dunnett, secretary general of the European Chamber of Commerce in China, said.
Political fallout from smog, sinking economy
While officials worry about lost jobs, there is also a growing political risk from the country’s chronic smog. Millions of Chinese are bitterly complaining about the heavy smog that covers the skies and makes breathing difficult.
“Both jobs and environment are serious political issues. The problem is that you risk jobs if you want to protect the environment,” a Beijing based Communist Party member said. “The Party is trying to manage both ends, and looking for a middle path.”
One middle path may be building new cities in places that do not already have the environmental challenges of its existing urban magnets. That would allow important industries like coal, steel, cement and construction equipment to continue operating. But some warn that this only exacerbates the country’s existing problems.
“The overcapacity in these sectors grew at an alarming rate in previous years. They were not based on real economic demand but on a supply side push,” Dunnett said. “Banks need stop rolling-over bad debt and local governments need to stop investing in projects with negative returns.”
Meeting the Paris pledges
There are some questions about what prompted China to promise drastic emission controls at the Paris conference, and whether it will fully implement the commitment.
Chinese officials told the organizers of the Paris conference that the country has already made remarkable progress reducing emissions per unit of economic output, by 33.8 percent from 2005 levels.
That is "a greater rate than most other countries have ever been able to achieve," said Xiaochen Zhang, associate director for climate change of the group Business for Social Responsibility, in a report last October.
The fact is that China’s success in cutting emissions has been helped by the sharp slide in economic growth, which has meant less use of coal and electricity.
The government’s efforts to change the energy mix by encouraging solar and nuclear energy has helped a little but not much, sources said. Non-renewal sector contributes just about 15 percent in total electricity generation.
Many observers say that China will adhere to its environmental pledges only so far as they do not significant hurt employment.