Let’s hope a few days of inhaling Switzerland’s pristine air breathes new life into Chinese President Xi Jinping’s determination to clean up Beijing’s blackening skies.
One of the great paradoxes of China’s global influence gaining altitude is that Xi’s airplane may have a hard time landing back in Greyjing, as locals call the capital city. In Davos, Xi is hawking China as an alternative to Donald Trump’s America, pledging increased innovation and a soft landing. What Xi omits is the Dickensian reality to which he’ll return. The environmental cost of fresh stimulus his Communist Party is tossing at a fragile economy is literally in the air.
In mid-December, Xi’s government made a big show of demanding that 1,200 factories, including state-run oil refineries, slash production. It’s all cosmetic, though. It’s only Jan. 18 and already more than 60 mainland cities have issued health alerts, a step many municipal officials only take when they absolutely have to. As analysts at Zero Hedge put it, “another staple of the ‘new’ Chinese economy are smog alerts following every burst in economic strength driven by ‘old economy’ manufacturing.”
It’s a vital point as artists and social activists risk arrest to protest Beijing setting a 2017 air quality goal that’s more than twice World Health Organization standards. WHO puts acceptable levels of PM2.5, or inhalable coarse particles, at between 20 and 25 micrograms per cubic meter. Beijing’s targeted annual average is now 60. Progress? “Air quality readings in Beijing have been worse for longer even than during the ‘airpocalypse’ of January 2014, which led the central government to declare a ‘war’ on air pollution,” says Rosealea Yao of Gavekal Dragonomics.
Sure makes you wonder what happened to Xi’s promises to stabilize China’s carbon footprint. Or a People’s Bank of China plan, leaked in March, to unleash a green-bond revolution to incentivize polluters to embrace sustainable production techniques. And what of China’s coal addiction, one that appears to be worsening before mainlanders’ eyes — and face masks?
The problem is the Communist Party’s obsession with keeping growth close to 7 percent. Every time the rate edges toward 6 percent, global markets quake and party leaders pound the table for more output: more credit on top of the tens of trillions of dollars’ worth since 2008, more local government borrowing, turning a blind eye to factories and households burning coal and tolerating even blacker skies.
That strategy is as toxic as Greyjing’s air. If ever there were a reason to guide gross domestic product lower it’s the risk of hundreds of millions of people literally choking on growth. As Greenpeace warns, the 460 million Chinese afflicted by worsening pollution over the last month is equivalent to the populations of the U.S., Canada and Mexico combined. It should worry a party obsessed with social stability that the number of protests over toxic rivers and air has replaced those over corruption and public land grabs.
“As the Chinese public becomes more informed and more concerned about the health costs of air pollution, the government will have to pay a higher and higher political price for its continued pursuit of a high-growth policy,” Yao says.
Political will is lacking. Xi may be the most influential Chinese leader in decades, but his reformist instincts collide with party bigwigs who fear disruption. The urgent need to curb pollution fits with Xi’s “China dream” platform of raising living standards and enhancing quality of life measures. That aspiration relies on replacing smokestack industries with services. It requires taking heavy-polluting state-owned enterprises down a few pegs, and that’s where the real tension lies. China’s stock market crashing anew this year, as some analysts predict, could further reduce Xi’s odds of altering China’s model.
Governments tend to stick with what works, as Japan and South Korea prove year after year. Both Tokyo and Seoul need to upend the export-led models that propelled them to today’s heights, but neither has shown sufficient political will to irk vested interests. Beijing doesn’t have that luxury, partly because of the scale of its asset bubbles, partly because of its PM2.5 bubble.
Why not break the cycle in 2017? While Xi wants China to play a greater role in global economic leadership, such clout starts at home. China has proven it can grow rapidly, but it must prove it can handle it. Even if American, European and Japanese officials attending the World Economic Forum envy Xi’s growth rate, at least they won’t be returning to scenes that might have shocked Charles Dickens.
China has the power to avoid a dystopian future, just as the United Kingdom did in the 1800s. One way is to accelerate approvals of green-debt issuance. In 2016, China sold about $31 billion of $78 billion of such bonds issued around the globe. Let’s add a zero to that number this year. More importantly, Xi must tolerate less growth so there’s less choking in Greyjing.
Based in Tokyo, William Pesek is executive editor of Barron’s Asia and writes on Asian economics, markets and politics. www.barronsasia.com
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