China Vows to Halt Projects in Polluted Regions

A new alert system targets environmental "overloading."

China's rise to become the world's second-largest economy was largely powered by cheap, dirty coal gouged out of the earth by migrant workers and processed at plants such as this one in Mentougou on the outskirts of Beijing, shown in a photo taken on Dec. 12, 2016.

China's government may be taking its toughest stand yet in its war against pollution by threatening to ban new projects in regions that have exhausted their "environmental capacity."

In a document issued on Sept. 20, the Communist Party of China (CPC) Central Committee and the cabinet-level State Council said they had devised an "environmental and resource capacity" alert system to measure "overloading" in at-risk regions.

The color-coded alert scheme divides regional environments into three categories, those with "overloading, near overloading and not overloading," state media said.

Regions facing capacity overloading would be given a red or orange alert, while those close to capacity would be warned with a yellow or blue alert, according to Xinhua.

A green rating will be reserved for regions "without excessive pollution and resource loss," the official news agency said.

In the worst case of a red-alert area, authorities would deny approvals for "relevant projects." Polluting enterprises will face penalties including fines, production restrictions and shutdowns, it said.

The announcement gave rise to a host of questions.

How will "capacity" be measured? What would be considered a "resource?" Would the government define "regions" as smaller units like counties or larger ones like provinces?

Details may be forthcoming in the weeks ahead.

But for now, the government seems satisfied with sending a message of stricter environmental enforcement in the days before the CPC's 19th National Congress, scheduled to start on Oct. 18.

The Central Committee and State Council followed up their announcement of the alert system a day later with renewed pledges to improve the accuracy of environmental data and punish falsification.

In June, an unnamed Ministry of Environmental Protection (MEP) official told Xinhua that the agency would establish a system "to prevent and punish" data fraud following the sentencing of environmental officials in Shaanxi province to prison terms for tampering with monitoring equipment in the capital Xi'an last year.

The larger question

Aside from the uncertainties about definitions in the alert system, the larger question is whether the threat to block new projects in polluted areas is anything more than a get-tough message for the party congress event. China analysts believe that it is.

"I do think the Party is in the process of substituting environmental progress for rapid growth as a goal, since rapid growth is no longer achievable and environmental improvement is much needed," said Derek Scissors, an Asia economist and resident scholar at the American Enterprise Institute in Washington.

How the government's commitment will stand up to economic pressure in the future is another question.

"The test is not now, when the economy doesn't need boosting. It's when the next slowdown hits. What happens then to environmental plans?" Scissors said.

Recent developments in the economy and the environment may be seen as evidence on both sides. The government's record has been mixed since Premier Li Keqiang declared a "war against pollution" in 2014.

In the past year, the government pumped up the economy with infrastructure projects and bank loans while pushing smokestack industries like coal and steel to reduce production overcapacity. The result was a collision between growth-driven demand and threatened cuts in supplies.

Higher prices prompted increases in coal and steel output in the second half of last year, creating a smog crisis in northern cities during the winter heating season. The reaction has led to tighter environmental inspections and enforcement in 2017.

The inspections in turn have forced some industries in polluted areas to lower production, an outcome that was seen as unlikely until this year.

Last month, Reuters reported that some 30 independent oil refineries in Shandong province had closed since mid-July along with several petrochemical plants due to random checks.

Prices for fuel and some plastic products in Shandong have risen as a result.

Production of nonferrous metals also fell in August, marking the first year-on-year decline since December 2015.

The drop was attributed to the environmental crackdown, Reuters said.

The choice of the environment over economic growth has also been seen in new rules that will cut winter steel production by half in the northeast city of Tianjin and suspend most construction in Beijing during the four winter months.

Effect of alert system

A strict application of the environmental capacity alert system could have a significant effect on polluted industrial centers like Hebei province, which is home to China's highest concentration of coal-fired steel mills.

Last week, Hebei provincial officials announced a six-month campaign against pollution-related crime, focusing on hazardous waste disposal, small factory emissions and data fraud, Xinhua said.

Whether the new alert system leads to shutdowns may technically depend on the definitions of the new capacity policy. But residents in neighboring northern cities know pollution when they see it. Public pressure seems likely to push such regions into the red-alert zone.

Last year's excessive stimulus spurred the economy to a 6.9-percent growth rate in the first half, overshooting the government's targets and potentially giving it more room to slow industrial output in the remainder of the year.

Mikkal Herberg, energy security research director for the Seattle-based National Bureau of Asian Research, said the alert system could have a significant energy and environmental impact, if it is enforced.

The timing of the announcement before the party congress is likely to be a sign that the leadership is serious about enforcement, despite expected resistance from local government and business interests.

"It could be both a statement for the party congress and something more serious. I would think of it both ways," Herberg said. "It puts all the cadres on notice that this is a high-priority item."

Herberg sees environmental enforcement as a test of President Xi Jinping's drive to consolidate power and extend control over social and political forces through party discipline.

Pollution "has just become an incredibly urgent social problem for the leadership," he said.

The visible pollution of smog outbreaks in the northern cities has become a public test of central government authority.

"I think the leadership is extremely worried about the functional consequences of being perceived as not being able to control the pollution problems," Herberg said.

But the outline of the alert system also suggests a narrow focus on keeping local pollution below the threshold of public complaints, leaving the door open for industrial development in regions with less "capacity overloading."

Efforts to curb industrial pollution in the east have already shifted some production to less developed western regions.

"The scale of pollution creation will be less in the west than the reductions in the east. I think that's their hope and expectation," Herberg said. "But their most important goal, first and foremost, is to start cutting pollution in the east."