Cleaner air a bitter pill for north China cities

October 22, 2013 2:20 pm

Cleaner air a bitter pill for north China cities

By Lucy Hornby in Chengde

When people in Beijing put on their pollution masks, it makes international headlines. But the effort to clean up the air in northern China depends on steel-producing cities such as Chengde, whose three million people are more worried about jobs than smog. The authorities have become so concerned about the state of the air in the Chinese capital that they want the industrial cities of Hebei province that encircle Beijing to cut coal use and steel and cement capacity to ease the problem.But for Chengde and other cities, where incomes are lower and steel mills with their belching smokestacks are valued employers, that translates into fewer jobs. The issue of keeping jobs in cities without other industries makes the whole shift much more complicated and politically dangerous for Beijing.

“Hebei has legitimate concerns that they are less developed and they are heavily reliant on heavy industry,” says Li Yan, head of Greenpeace’s climate and energy campaign for China. “But the public outcry and attention, especially international attention, to China’s ‘airpocalypse’ really triggered concerns at the top level and the centre decided it was time to make a move.”

On Tuesday, the Beijing city government unveiled a new round of measures, from traffic restrictions to keeping children out of school, for use on heavily polluted days. But blue skies in the wealthy capital are dependent upon co-operation from the industrial cities that surround it.

Chengde, in Hebei Province, is one such place. The steel mill makes up its own mini-city, complete with the Chengde Steel hospital, in a western suburb of a town better known for the summer palaces of the Manchu emperors.

Hebei is home to most of the unsightly industry and power plants that were banished from Beijing before the 2008 Olympic Games. The province’s pledge to cut coal usage and dismantle some polluting steel and cement plants comes at a cost – the central government will transfer Rmb2bn ($330m) to Hebei as part of the deal, Chinese media reported. But state-owned steel mills such as Chengde Steel are too important to Hebei’s cities to be simply shut down.

The hinterland accounts for at least one-quarter of Beijing’s pollution, estimates Fang Li, vice-director of the municipal environmental bureau.

Even on a clear day, pollution from Chengde Steel is so thick it can be seen on satellite images of the town. Grey smog submerges the dusty villages on the main road to the mill.

Chengde Steel’s emissions are so bad that it was one of three polluting plants showcased on state television the day China announced its new plan for reducing air pollution in three major population centres. The company and the city government did not respond to requests for interviews.

“We ordinary people, we watch the news. CCTV discusses pollution endlessly. It’s serious, but at the local level nobody does anything about it,” says Zhang, a villager whose tidy home is frequently covered with dust from Chengde Steel’s plants. Like most residents interviewed by Financial Times, he was reluctant to give his full name.

Cleaning up pollution at state-owned Chengde Steel is unlikely to be much of a priority for anyone. The mill commands the only large vanadium mine in northern China and so has strategic value as a producer of the metal used to make hard, rust-resistant steel for tools and nuclear plants.

It is also the biggest employer around, accounting for one in eight of all state employees in Chengde. It employs about 16,000 people and another 7,000 or so worked there until they retired.

“If this steel mill didn’t exist, we wouldn’t even have anywhere to go to eat. Everything revolves around this steel factory – our children work here,” said Mrs Li, who moved to Chengde 40 years ago to work at the plant.

It remains to be seen whether Beijing’s new determination in the fight against pollution will succeed where previous campaigns have failed. Chengde Steel has already survived a campaign to shut hundreds of smaller and older mills and create a handful of national champions. Hebei Province, which collects taxes from Chengde Steel, gathered its big state-owned mills into one conglomerate but made no move to shut any of them.

You have to take care of the basic needs before you can tackle things like pollution

– Noodle shop owner in Gonghou village

Average urban salaries in Chengde are only 34,000 yuan a year ($5,400) compared with 56,000 yuan a year in Beijing, so the province can ill-afford any move that threatens jobs. In Beijing, citizens check air pollution levels daily and wear masks on smoggy days. In Chengde, there was talk of moving the housing that stood nearest to the mill, but a compensation plan was never finalised and residents continue to live next to the plant.

In Gonghou village, about a mile from the mill’s main gate, the corn fields have gradually given way to divisions of Chengde Steel and an automotive plant.

Villagers whose families had farmed here since at least the Qing dynasty now work as dispatch labourers at the steel mill. “You have to take care of the basic needs before you can tackle things like pollution,” says one noodle shop owner, wiping a thin film of grime off his tables before the lunch crowd arrives.

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 (www.heroinnovator.com), 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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