No Quick Fix for China’s Air Quality

No Quick Fix for China’s Air Quality

ANDREW BROWNE

Jan. 14, 2014 5:02 a.m. ET

TANGSHAN, China—To control the pollution that’s choking Beijing, demolition squads recently swooped down on this industrial city located two hours away by car and crippled a batch of coal-burning steel works.TV cameras caught the officially sanctioned saboteurs dismantling massive pieces of equipment in outdated steel facilities that had long resisted government orders to close. Some reports say they used explosives to blow up boilers in what was dubbed “Operation Sunday.” The message to local officials who are often complicit with owners of polluting factories, many of them big taxpayers: get serious about the urban cleanup.

As China’s air pollution indexes hit record highs, it’s easy to conclude that the country’s central government lacks resolve in dealing with the problem.

But the military-style operation in Tangshan suggests the opposite is true.

In fact, a team of scientists and engineers from Harvard University in the U.S. and several top Chinese institutions, including Tsinghua University, say that China’s air quality is getting worse despite draconian efforts to eliminate sources of pollution.

And, even as the skies over Beijing and other major cities continue to darken, these experts credit the government with some of the most successful pollution abatement programs in history.

The conclusion they reach is a troubling one both for China and its neighbors, including Japan and South Korea, which stand in the exhaust stream of China’s roaring industrial engine: The best efforts of Chinese authorities to combat pollution are being overwhelmed by the sheer pace of economic expansion in the country.

In short, these scientists say, there are no quick or easy fixes.

“There’s nothing irrational about the claim that China has been very successful at certain types of pollution control,” says Chris Nielsen, the executive director of the China Project at Harvard’s School of Engineering and Applied Sciences.

The fact that this success hasn’t immediately translated into bluer skies show that “these are extraordinarily complex problems,” he argues.

Brute force, exemplified by the Tangshan demolition raids, is a beguiling option for Chinese politicians eager to demonstrate progress against pollution to an increasingly angry and impatient public.

Air pollution is now the fourth-biggest health threat to Chinese people, according to a study published last year in the Lancet, a British medical journal. About 1.2 million people died prematurely in China in 2010 as a result of air pollution, the study showed. Chinese government data show that lung cancer is now the leading cause of death from malignant tumors.

Tangshan is ground zero in this escalating health crisis. On average last year, the air breathed by its 7.6 million people was considered hazardous to health for five days out of seven according to China’s own official standards. That makes Tangshan one of the filthiest cities in China—and thus the world.

Its noxious emissions, combined with those from other gritty cities surrounding Beijing, helped produced the “airpocalypse” a year ago when the Chinese capital experienced air pollution more than 70 times greater than the level considered safe in the U.S.

What’s more, Tangshan’s steel industry is plagued by overcapacity—an immense problem in China whose total redundant steel capacity is estimated to equal the entire steel production capacity of the U.S.

Disabling the oldest and dirtiest steel plants, therefore, struck at two problems at once.

However, says Mr. Nielsen, the huge complexity of China’s pollution challenge doesn’t always lend itself to the kind of top-down solutions favored by Chinese state planners.

For instance, China’s dramatic progress in reducing sulfur dioxide emissions from coal-fired power stations may actually have increased the levels of fine PM 2.5 particles in the air in north China during the winter. The particles, which do the most damage to human lungs, are formed by chemical reactions in the air. Removing the sulfur allowed even more polluting reactions to occur, says Mr. Nielsen.

Shifting climate patterns are also conspiring against the environmental cleanup. At one time, cold fronts moving through Beijing helped flush pollutants out to sea. But lately the air has become more stationary.

“They’re going after a moving target,” says Deborah Seligsohn, an expert on the Chinese environment who is a researcher at the University of California, San Diego. Still, she predicts that in five to 10 years “there will be an improvement in air quality that you’ll be able to see.”

Last year, a National Action Plan targeted massive spending of $275 billion on antipollution measures over the next five years until 2017. Over that period, the government has targeted a 25% reduction in PM 2.5 levels in the region around Beijing.

Mr. Nielsen believes that the ultimate answer may be a carbon tax on industry, a market-based solution also favored by China’s new finance minister, Lou Jiwei.

Still, he points out that no country in the world has been able to shift suddenly from grey skies to blue. “It’s going to take decades,” he says.

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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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