Environment becomes a trade-war victim as China ramps up industrial production to offset economic slowdown caused by commerce conflict

The long-running trade war with the US has taken a well documented toll on China’s economy, dragging growth down to its slowest pace in decades. But as the country ramps up its factory output to try and counteract the slowdown, the environment is now paying a price too, according to a growing body of evidence.

Increased industrial production aimed at offsetting stuttering growth is cancelling out efforts to eradicate the famous smogs that hang above many of China’s cities, said Charles Yonts, head of power and ESG research at CLSA.

The rises in activity of the most dirty industries in northern China pointed to a “smokestack stimulus”, he said, as part of a “desperate effort to keep GDP humming along.”

During a presentation at the CLSA Investors’ Forum in Hong Kong on Tuesday, Yonts said air pollution levels had climbed by 6.5 per cent from October to March 2019 in the Jing-Jin-Ji area – a region that encompasses Beijing, Tianjin and the surrounding province of Hebei.

Yonts cited statistics showing that rises in heavy industrial production – the so-called “smokestack industries” – were pushing up coal consumption and greenhouse gas emissions.

In the Beijing area, including Hebei, Shandong, Shanxi and Henan provinces, industrial production of cement, metals, pig iron, steel products and thermal power – all of which emit carbon dioxide, the most common greenhouse gas – saw sharp increases in the October to March period, against sharp declines a year earlier.

Steel production is estimated to emit up to 5 per cent of all greenhouse gas, thanks to the use of coking coal. CLSA figures showed that crude steel production in northern China rose 21.2 per cent last winter, against a fall of 4.9 per cent in the winter of 2018. Production of steel products rose 29.7 per cent last winter, against a fall of 25.9 per cent the year before.