Toxic China Lake Incites Next Generation as Xi Eases GDP Focus

Toxic China Lake Incites Next Generation as Xi Eases GDP Focus

Ian Chen recalls his father quietly accepting he could no longer wade into a lake near their home in southern China where he’d swum his whole life. The raw sewage and agricultural waste spilling into the water meant it wasn’t safe anymore.

Twenty years later, Chen worries a new source of pollution may be about to envelop his hometown of Kunming. Silence wasn’t an option for the 29-year-old who sold flat-screen televisions on London’s Oxford Street before returning to Kunming, where he now owns three cake shops. He took to the Internet to drum up opposition to a refinery planned on the edge of town that residents fear will spew toxic particles.“My parents were more focused on putting food on the table,” said Chen, sitting in one of his Mr. Cake shops sporting black Ray-Ban sunglasses and a Bluetooth headset. “But for us, we’re living very well and we want a better quality of life. We want the things we’re eating to be the best, we want the place we’re living in to be the best, we want the air we’re breathing to be the best.”

Chen’s concerns help explain why China’s new leaders have signaled they are willing to endure the pain of slower growth as they push a more durable economic model that buttresses the Communist Party’s legitimacy. The nation is entering uncharted territory — navigating the demands of a newly vocal middle class without the democratic and civil institutions that helped Japan and the U.S. clean up environmental damage in the 1970s.

Legitimacy Question

“The party is in a difficult position because they need to continue their growth in order to maintain their legitimacy,” Judith Shapiro, the author of “China’s Environmental Challenges” and a professor at American University in Washington D.C., said of the Communist leadership. “But they will lose that legitimacy if they don’t deal with the pollution.”

China’s middle class, 43 percent of the urban population in 2006 and forecast by McKinsey & Co. to grow by 2025 to 76 percent, or 612 million people, is increasingly focused on the quality and not just quantity of economic growth.

Anger over pollution has replaced land grabs as the primary cause of social unrest, with many of the protests against chemical plants and oil refineries erupting in more prosperous coastal cities like Dalian and Ningbo, where residents have deployed smartphones and access to social media to organize their campaigns.

Fewer than one percent of the 500 largest cities in China meet the air-quality standards recommended by the World Health Organization. Seven are ranked among the 10 most-polluted cities in the world, according to a 2012 report by the Asian Development Bank.

Toxic Eggs

Scandals over food contamination regularly make headlines. Authorities halted production last month at 30 plants producing preserved eggs in Jiangxi province after a report that industrial copper sulphate, which is toxic, was being used to accelerate production of the Chinese delicacy, the state-run web portal reported.

After China’s leaders and the public tolerated the environmental cost of rapid growth as the nation catapulted in three decades to a manufacturing-based economy from an agrarian one, growing evidence of pollution-related threats is changing attitudes.

Air pollution in China contributed to an estimated 1.2 million premature deaths in 2010, according to the 2010 Global Burden of Disease report. The study found outdoor air pollution was the No. 4 risk factor for death in China in 2010.

Health Costs

“What’s the point if our air isn’t safe to breathe, our water not safe to drink and our food not safe to eat?” said Ma Jun, the Beijing-based founder of the Institute of Public and Environmental Affairs, referring to the cost of development. “Urban residents, most of them middle class, have a much better sense of their environmental rights and they’re willing to take to the streets.”

In 2007, the World Bank estimated the health costs of air and water pollution were about 4.3 percent of gross domestic product a year. When the non-health impact of pollution is added, such as the effects of acid rain on crops, the figure rose to 5.8 percent.

“There are costs like cancer that will take some years to develop,” said Graeme Lang, an environmental sociologist at the City University of Hong Kong. “Some of these costs will play out over 10, 15, 20, 25, 30 years so it’s difficult to bring that cost back into current GDP.”

Residents’ Anger

In the eastern city of Ningbo, demonstrations turned violent last October when hundreds of residents blocked traffic and clashed with police over China Petroleum & Chemical Corp. (386)’s plans to produce paraxylene, a chemical used in plastics, fabrics and cleaning solvents. The local government announced on its website it was halting those plans. Also last year, the Shifang city government in Sichuan province made a similar announcement on its website, freezing construction of a copper plant after protesters clashed with police.

This May, hundreds of people took to the streets of Kunming, capital of the province of Yunnan, galvanized by reports of plans to produce paraxylene at the new refinery, according to state media and people who joined the protest. They organized by using the WeChat instant messaging service on their mobile phones.

The city of 7.3 million, with its wide bicycle lanes running along quiet streets where tourists shop for jade jewelry from Myanmar, about 250 miles (400 kilometers) away, saw the first signs of protest in April in the form of postings on China’s Twitter-like Weibo microblogging platform. Residents vented their anger at not being consulted over plans by China National Petroleum Corp. to build the refinery 17 miles west of the city center to process oil from a new pipeline running from the coast of Myanmar to China.

Tourism Threatened

Zhou Min, who runs a gourmet food company in Kunming and said she’d never been interested in the environment before, was detained by police after she joined demonstrators on May 4 who donned face masks imprinted with “PX” — for paraxylene — covered with a red cross. She feared the plant would sully Kunming’s reputation as a refuge for tourists looking to escape the smog-tainted skies of Beijing, Shanghai and Tianjin.

“If we become a CNPC project city and you come and the sky is all black, will you still be interested in coming here?” said Zhou, sitting in a restaurant and looking around to see if she was being followed.

Local officials detained some residents and told them to sign documents saying they would stop protesting or posting on the Internet. Taxi drivers were ordered not to take people to the location of the refinery, according to one who gave his last name as Li and said he’d been driving in the city for 12 years.

‘Ill Equipped’

The country’s leadership is “ill-equipped to manage protests by thousands of educated and wired urban Chinese,” said Elizabeth Economy, author of “The River Runs Black: The Environmental Challenge to China’s Future,” and director for Asia Studies at the Council on Foreign Relations in New York. “What this really speaks to is the lack of formal institutions for effective political participation and the lack of legitimacy of these officials.”

The Ministry of Environmental Protection in Beijing didn’t respond to faxed questions about how the government will address China’s environmental problems. China National Petroleum Corp. (CNPZ) also didn’t respond to faxed questions about the Kunming project. Calls to the Kunming government’s propaganda office went unanswered.

Japan Accountability

In Asian neighbor Japan, political accountability helped to drive change as the nation faced a pollution crisis as a result of rapid industrialization after World War II. While the economy was growing at an annual rate of 10 percent in the 1960s, Japanese began protesting the smog choking their cities.

The Diet, or parliament, enacted a series of anti-pollution laws starting in 1970 that included financial penalties for offenders, earning that session the moniker “Pollution Diet.” Tokyo’s 2009 pollution level was a third the average level among nearly 1,100 cities worldwide, according to a World Health Organization database covering 2003-2010.

Public demands also pushed the U.S. government to act as a postwar boom spawned pollution. In 1948, a toxic cloud from a zinc smelter enveloped the town of Donora, Pennsylvania, for a week, killing nearly 40 people and leaving about 7,000 sick, according to the U.S. Environmental Protection Agency. U.S. lawmakers began responding to environmental concerns in the 1950s and 1960s before passing the comprehensive Clean Air Act in 1970 and the Clean Water Act two years later.

Impact Study

In China, the authorities aren’t deaf to the protests. After officials in Kunming initially said the findings of an environmental impact study would be secret, they relented, saying the full report would be made available. Hu Jingke, the general manager of CNPC’s Yunnan subsidiary, said at a May 10 press conference that paraxylene wouldn’t be produced at the refinery, the official Xinhua News Agency reported.

Kunming Mayor Li Wenrong addressed protesters over a loudspeaker at a mid-May demonstration. He later promised to strengthen oversight of the refinery, saying “supervision will not be missing just because the operator is a major state-owned enterprise,” Xinhua reported June 2.

Such promises have failed to persuade people like Chen, the cake-shop owner. Dianchi Lake, where his father once swam, periodically suffers foul-smelling algae blooms, and the government hasn’t shown it backs up its words with action, he said.

Just Talk

“We want to trust the government but look at what happened — Dianchi Lake happened and something is happening right now,” Chen said. “We want them to do what they say, not just talk.”

Public pressure has wrung concessions elsewhere. After record smog levels in Beijing exceeded World Health Organization norms by almost 40 times in January, Premier Li Keqiang pledged to enforce more strictly existing environmental laws.

Five months later, the government introduced 10 air-control measures, including tighter standards for coal-burning emissions and road traffic, in a move that Deutsche Bank AG’s (DBK) chief Greater China economist Ma Jun called the country’s “most aggressive” push so far to address smog.

China also plans to increase the number of cities curbing auto purchases to fight pollution and congestion, the government-backed China Association of Automobile Manufacturers said July 10.

GDP Growth

President Xi Jinping, who took over as Communist Party leader in November and cemented the nation’s once-a-decade power succession in March, told a May 24 study session of the party’s top leadership that China won’t sacrifice the environment on the altar of short-term growth. Last month, he said officials shouldn’t be judged solely on their record boosting GDP, according to Xinhua.

Imposing more stringent environmental standards may impinge on growth. If the economy continues to slow — it expanded at a 13-year low of 7.8 percent last year — then Xi and Li may face growing pressure to adopt stimulus. Li spoke in May of a 7 percent annual target for the decade ending 2020, down from the 7.5 percent target set at a March conference in Beijing.

The leadership also needs to ensure its message of sustainable growth filters down to local government leaders, who until now have been rewarded for spurring investment-driven expansion in the form of roads, railways and industrial plants. In seeking to control pollution levels, Communist Party leaders also will have to impose limits on state-owned coal and cement companies that are among the biggest emitters of carbon dioxide.

Public Scrutiny

“It will be very tough for the state-owned enterprises and the major companies to accept the change,” said Ma of the Institute of Public and Environmental Affairs. “They benefited from the old ways of doing things.”

Dong Rubin, who runs his own marketing company in Kunming, visited the site of the Kunming refinery this year to conduct his own inspection and then posted his findings online, where he has more than 40,000 followers on Weibo and goes by the user name Bian Min. He’s willing to accept the refinery only if the public has a role in monitoring it because the bad track record companies and government have in overseeing themselves, he said.

“The current economic model can’t be sustained for another five years,” said the 51-year-old Dong. “The cost of environmental pollution is too high.”

To contact Bloomberg News staff for this story: Henry Sanderson in Beijing at

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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