China’s clean up pits old economy against new

Bloomberg

Xie Shuijuan, a lifelong textile seller in Shaoxing, eastern China, says a clampdown by zealous officials on pollution caused by the local dyeing industry has boosted prices, squeezed her margins, and bankrupted some of her friends.
Yet she’s not opposed. “This river used to smell in the summer and garbage floated on the surface,” Xie said, sitting in her shop in a market built on a bridge spanning one of the water channels that crisscross the home of Asia’s biggest textile market. “Now, I can’t smell anything. I think this is the better way to go.”
China is embarking on a government-mandated environmental clean-up right down to the municipal level, prompted by popular outrage over everything from Beijing’s infamous smog to groundwater fouling, greenhouse gases and vehicle emissions. At the Communist Party’s own admission, the country’s pollution problem is “ grave,” and officials now seem to recognize that breakneck growth at the expense of the environment is no longer sustainable.
The challenge that policy makers in Beijing and at the local tier face is how to tackle the tidy-up without collapsing an economy that’s rested for so long on production without regard for the consequences. It’s becoming one of the swing factors for economists now trying to judge how much reform in China will impact output.
“China’s need to curb pollution is a binding constraint on growth,” said Liang Hong, chief economist at China International Capital Corp. in Beijing. “Still, China needs to fix environmental damage and that requires huge investment. So there’s also demand here.”

BRAKE OR SPUR
So far, as the government also tries to scrub the financial system and cool an overheating property market, growth is holding up. Gross domestic product data for the second quarter is due on July 17, with the median estimate in a Bloomberg survey projecting an expansion of 6.8 percent, just shy of the first quarter’s rebound performance.
Growth is expected to slow for a seventh straight year after averaging 10 percent for three decades through 2010. Policy makers are steering the $11 trillion economy away from the older and dirtier drivers of manufacturing, exporting, and government infrastructure building. Services accounted for more than half of output for the first time in 2015, and consumption is giving a bigger boost, contributing 77.2 percent to first quarter growth.
For the world, China’s nascent cleansing will provide evidence in the debate over whether environmental responsibility is a brake on the economy, or a spur. China has shut down steel mills and halted construction during severe smog episodes, and announced plans to reduce nationwide coal consumption. But without something to replace that activity, growth will suffer.
In Shaoxing, the water-pollution clampdown since 2016 provides micro-level evidence of how the authorities are responding.
The coastal city of five million, 200 kilometers southwest of Shanghai, is restructuring its lifeblood textile industry that for decades fouled the lakes and canals of the 2,500-year-old historic center. Dye plants that once sat next door to homes, spewing effluent into the waterways, have now been moved to the outskirts of the city. This week, a swimmer could be seen doing the breaststroke in a canal near the city center.
As a country that targets for everything from economic growth to population size, China also has set goals for air quality to forest coverage in its five-year plans. Crucially, local authorities have the power to be more ambitious — or heavy-handed in execution. That matters even more now since the announcement of a reform this month that will mean environmental audits will count to a greater extent towards local officials’ promotion chances.
The Shaoxing city government says it wants all of their waterways to meet or exceed a national surface water standard by 2020.
But that goal has had a cost: Immediately after the clean-up was announced, 76 out of the about 200 dyeing plants were forced to close and output in the city slowed to 4.3 percent in the first quarter of that year, from 6.7 percent a year earlier.
Phone calls placed to many of the firms advertising dyeing services still visible in the city ended in numbers out of service — or by staff hanging up, not wanting to talk about what had happened.

UNPAID LOANS
Smaller shops feel the pain. For Xie, dyeing costs rose as much as 20 percent for some textiles, and fierce competition meant she couldn’t pass on those costs to customers, squeezing her profits. Some of her friends in the industry she started in as a teenager went bankrupt after the crackdown on plants last year, leaving millions of yuan in unpaid loans.
Yet the authorities stress that they want to strengthen the sector, not kill it. And they’re putting money behind their environmental goals: 138 billion yuan ($20.3 billion) has been set aside for investments by 2020 related to the environment, including improving water quality and reducing sulfur dioxide emissions. The city aims to lift per-capita income to more than 138,000 yuan per year by 2020 — about the same level as the average citizen of Saudi Arabia today.