BOFIT Viikkokatsaus / BOFIT Weekly 2017/44

The central government plans to enforce strict measures this winter season in areas suffering from poor air quality, especially in China's northern provinces. Officials are paying particular attention to reducing coal-burning and cutting production of polluting industries. This year is the deadline for meeting the 2013 air quality target, which calls for reducing small particulates (PM2.5) in China's most important metropolitan areas by 15–25 % from 2012 levels. The central government also recently issued city-level targets for this winter for Beijing and other northern cities. These cities must reduce their PM2.5 levels by at least 25 % compared to last year. According to the environment ministry, city leaders will be held personally responsible for failing to hit their air quality targets. However, achieving the 2013 goals appears unlikely as the environment ministry says that in the first eight months of this year, the air quality in 338 of China's largest cities was worse than in the same period in 2016. Greenpeace also reports that air quality has become worse in about a third of Chinese cities. Air pollution is estimated to cause the premature deaths of 1.8 million Chinese every year.

Officials would like to replace coal with natural gas in heating and electrical power generation. Reuters reports that during a recent six-month campaign, heating systems of over 1 million households have been replaced. The impacts of the campaign became visible in June-August, when natural gas consumption in mainland China rose by nearly 30 % instead of 5–10 % as in previous summers. Analysts say that much of a significant increase in natural gas demand will cause supply interruption to industry this winter as gas supplies are inadequate to satisfy the increased demand. Households have higher priority to gas deliveries than industry.

The reduction of air pollution is difficult to implement in conjunction with an ambitious GDP growth target. Due to the growth target, the growth has been heavily supported by various stimulus measures to e.g. the construction industry. The construction industry relies on many of the products of heavy industry such as steel and cement, which are very dirty industries. Stimulus measures are partly to blame for the decrease in air quality in Beijing and its surroundings this year, even if air quality had improved somewhat earlier. Official are now cracking down on polluters, including temporary closures in recent months of tens of thousands of plants that have broken environmental laws. Furthermore, production limits have been imposed for the November-March period in many cities that rely on heavy industry. Reuters reports that Tangshan, China's leading steel city (which produces more steel than the entire United States), plans to cut steel output by half this winter season.

China's official industrial purchasing managers' index went into decline in October, which may partly reflect harsher application of environmental protection policies.