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R1 China pollution .pdf

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China Faces Balancing Act in
Slowing Business to Reduce
Beijing’s pollution red alert highlights the country’s dilemma of
sacrificing economic activity to clamp down on pollution


Women wore masks to protect against pollution as they visited Tiananmen Square in Beijing on Dec.

Dec. 10, 2015 6:32 a.m. ET


BEIJING—As authorities lifted a pollution “red alert” that had shut down businesses across
northern China to clear the pollution, a question lingered: What will be the economic impact if
such drastic measures become the new normal?
At the Shahe Jindong Glass Co., about 270 miles south of Beijing in China’s industrial heartland,
Vice President Liu Zhiqi said the company was trying to do its part to reduce emissions by
slashing production by 50% this week, even though it meant postponing some orders. “We
realize the seriousness of the pollution, and we need to cooperate,” he said.
For now, economists say a few days of such factory closures is likely to barely register on
growth or at least to be a smaller blip than clampdowns to clear Beijing’s skies ahead of a
summit of world leaders last year or a military parade to mark the end of World War II in early


But the first-ever red alert over Beijing smog highlights the dilemma for leaders of whether to
sacrifice economic activity at a time of already sagging growth to clamp down on pollution.
On the one hand, leaders are already trying to steer away from a reliance on industries that are
among the severest polluters, and economists say the heightened awareness of pollution damage
could speed up a shift toward cleaner and higher-value industries that can drive growth.

But any loss of economic activity is a challenge as authorities struggle to meet a growth target of
about 7% this year.
Since the alert was announced on Monday, Yuan Qiwei, manager of a Beijing gym chain called I
Fitness, which operates three gyms in the city, said he saw a 30% drop in visitors, as residents
huddled indoors. “We are trying to figure out ways to tackle this,” he said.
School closings or the ordering of thousands of cars off the road are only some of the
inconveniences for Beijing residents as authorities respond to growing public pressure to fight
“For residents of large cities like Beijing, I think tolerance for red-alert days will quickly
dissipate,” said Mary Gallagher, director of the University of Michigan’s Lieberthal-Rogel
Center for Chinese Studies.
On Wednesday, Mr. Wang, a driver for Uber, picked up about 17 passengers, down from his
typical 24 rides a day. “It’s kind of annoying,” he said as he drove his tan Volkswagen Passat,
one of seven cars he owns that all have even-numbered license plates. “My wife doesn’t work so
it affects me a lot.” Mr. Wang, who declined to give his first name, said if such alerts become
commonplace, he will need to buy an odd-numbered license plate to ensure he gets steady work.
In Beijing alone, about 2,100 factories shut down or limited operation around the capital during
the 2½-day alert, according to the Beijing Municipal Commission of Economy and Information
That appeared to be a less severe measure than during the lead-up to a military parade to mark
the end of World War II in early September, when the government ordered more than 10,000
factories across northern China to shut down for about one week. It was unclear how many
factories were closed in the latest shutdown.
The parade shutdown contributed to the Caixin Manufacturing PMI falling to a six-and-a-half
year low in August, according to research firm Capital Economics. Industrial production was
also weaker than expected in the month ahead of the parade.

This time, “the impact is transitory,” said Mizuho Securities Asia chief economist Jianguang
Both in August and now, authorities called for a halt to construction, to limit dust from building
sites. But this late in the year, many construction sites had already closed down for winter.
However, Li Zifeng, 37, who has been working at a construction site in Tianjin since August,
said “no one has asked us to stop working.” Mr. Li, who makes 200 yuan (about $31) a day, said
that wasn’t the case during the military parade in early September, when the pollution shutdown
prompted him to return to his hometown as work dried up.
In most cases, regular employees—such as workers at the Shahe Jindong Glass factory—still get
paid even during shutdowns. But temporary workers don’t get paid when they don’t work, which
could lead to more discontent and unrest if pollution shutdowns become commonplace.
“People will suffer economic losses if they are not able to work and make their salaries,
especially lower-level workers who are paid by the hour,” said Ms. Gallagher of the University
of Michigan.
Economists say frequent warnings in the future could have an impact on many sectors of the
economy, such as tourism. Euromonitor senior analyst Fangting Sun called Beijing’s pollution a
“major threat” to inbound tourism.
In the long term, economists say red alerts could promote a sense of urgency that could help
break the nation’s decadeslong dependence on manufacturing for growth.
Leaders say investment in clean energy infrastructure—such as wind, solar and other
technology—will serve as growth drivers in the coming decades, as cities try to limit pollution
while still meeting high energy demand. Such state-led spending will ultimately provide an
economic boost, says HSBC economist John Zhu.
More frequent red alerts could also spur Beijing and neighboring regions to reduce their reliance
on coal, which still heats many homes. “It’s a good thing to remind people how serious the

pollution is,” Mizuho’s Mr. Shen said. “These alerts could accelerate green-energy projects and
create a new era for investment.”
On Thursday, the Asian Development Bank approved a $300 million loan to China to clean up
Beijing’s air by helping Hebei province—often considered the area most in need of cleanup—
develop programs to reduce pollution and guide clean-energy investments. Hamid Sharif, China
director for the bank, said one of the most important parts of the loan was providing funding for
monitoring and enforcement.
Beijing plans to double the 36 air-pollution monitoring stations it has set up around the city, Vice
Mayor Li Shixiang told reporters on Thursday. Hebei, meanwhile, is requiring polluting
enterprises to install monitoring systems that make it harder to turn off pollution-scrubbing
equipment when regulators aren’t looking.
“When it comes to controlling pollution, we basically know what we need to do. But it’s really
not easy,” said Yang Chongyong, Hebei’s executive vice governor.
As blue skies returned to Beijing, Shahe Jindong Glass turned to full capacity Thursday. Mr. Liu
said there were no subsidies from the government to help with lost revenue as a result of the
shutdown. “We have to bear the loss by ourselves.”
He said, “We surely will be asked to reduce production again. That will make it harder for us to

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