China Eyes Social and Economic Costs of Anti-Smog Campaign

An analysis by Michael Lelyveld
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A cyclist wearing a face mask rides on a road in smog-shrouded Beijing, China, Jan. 16, 2014.
A cyclist wearing a face mask rides on a road in smog-shrouded Beijing, China, Jan. 16, 2014.

As China's government pursues its anti-smog campaign, there are growing signs that the country will face significant social and economic costs.

Experts say that public pressure over the urban air pollution crisis has spurred the government into action. But new rules may also have economic effects as citizens and industries seek to evade environmental curbs.

"There's always a price to pay for cleaning up the air and the water," said Barbara Finamore, director of the China program at the Natural Resources Defense Council. a U.S.- based nongovernmental organization.

"To date, that cost has been borne primarily by the public and not by the polluters themselves, particularly the large state-owned enterprises that have the political clout to avoid taking on these costs," Finamore said in an interview.

The human and economic costs of pollution in China have been hard to quantify, due in part to their enormity.

In January, China's former health minister, Chen Zhu, created a stir in the country by citing estimates that 350,000 to 500,000 premature deaths are caused by outdoor air pollution annually.

The figures published by the British medical journal The Lancet are similar to those of a World Bank study in 2007 but are actually far lower than a World Health Organization estimate of 1.2 million fatalities in 2010.


Chen's comments reported in China by the 21st Century Business Herald were challenged by Mao Qun'an, a spokesman for the National Health and Family Planning Commission, the official English-language China Daily reported.

The health effects of air pollution can only be assessed after long-term monitoring and quantitative data analysis, Mao said.

In 2001, another World Bank study found that damage from pollution was equivalent to between 8 and 12 percent of the country's gross domestic product, essentially offsetting all of China's official  economic growth.

Even without precise figures, there is little doubt that China is suffering serious costs from the smog crisis in terms of lost productivity, factory shutdowns and other emergency measures on danger-level days.

"On balance, it's a major negative impact on the economy," Finamore said.

Government steps to address the problem will have their own costs.


In northern Hebei province, for example, government orders to cut 60 million tons of excess steel production capacity have led to complaints that the move will cost industry 200 billion yuan (U.S. $33 billion), the official Xinhua news agency reported in November.

Last week, the Ministry of Environmental Protection said Hebei closed 8,347 small polluting firms in 2013. But many operations had moved operations to escape detection, Xinhua reported.

Other unpredictable effects are likely to result from resistance to new rules.

Public reactions have been mixed to new limits on car registrations in major cities to reduce emissions from traffic, for example.

In the northern city of Tianjin, the announcement of new license plate restrictions led to a rush of would-be drivers to dealer showrooms, seeking to register cars before the limits took effect.

China Daily reported similar reactions in the eastern city of Nanjing, where buyers have been snapping up cheap used cars for the license plates to avoid new quotas and lottery rules.

In the near term, the result may be more rather than fewer cars on the road.


The responses appear to be a replay of the government's efforts to control speculative price hikes in housing by ordering new profit taxes on home sales last March.

The sudden move set off a flood of new sales to beat the deadline for the tax, pushing housing costs up instead of driving them down. Ten months later, property prices have continued to rise.

Peter Ogden, director of international energy and climate policy at the Center for American Progress in Washington, said there may be a comparable response to the new limits on cars, but it is more likely to be in the short term because of public pressure for cleaner air.

"You might see a little bit of a rush, but in the long term that surge is outweighed by the benefits of the actual restrictions," Ogden said.

A similar reaction has been reported in the United States, where a January deadline for ending production and imports of incandescent light bulbs led to some last-minute stockpiling by consumers. The bulbs are gradually being replaced by more energy efficient models.

"People are going to have to decide ultimately as a society whether or not they like the net effect of the regulations ... and whether they value that more than the driving restrictions," said Ogden.

"If the benefits are real and the policy is there, then the lure of trying to circumvent it can recede," he said.

But if new licensing limits are enforced, they could have longer-term costs for car sales and auto production, one of China's "pillar" industries.

Difficult choice

Follow-on effects may be felt in a host of related industries, including steel and oil refining. The impacts may present the government with a more difficult choice between the environment and economic growth.

Nicholas Borst, research associate and China program manager at the Peterson Institute for International Economics in Washington, said the government is unlikely to let the conflict with economic interests get that far.

Borst believes the license limits will have only a marginal effect on the auto industry.

"There are still so many people in China who would like to own a car and do not yet own a car that they're going to continue to find ways to sell to them," said Borst.

Last year, industry sales rose 13.9 percent to nearly 22 million vehicles, the China Association of Automobile Manufacturers reported, making China the biggest car market in the world.

"I'd be very doubtful that they're going to do anything to kill the car market in China," Borst said.

But whether the new rules make a major dent in car sales or not, they may still represent a conflict between competing interests.

Barbara Finamore says the smog crisis is shifting the balance of public opinion and government policy toward environmental interests.

"I see China reaching that point right now where public concern is very likely in the next year or two to trump the concerns about economic development," Finamore said.





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