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. Air pollution is killing 1 million people and costing Chinese economy 267 billion yuan a year 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. In February this year, Reuters reported that air pollution in 39 major northern Chinese cities had risen 16 per cent on the year in January, thanks to surging industrial production. Yonts noted that only 4 of 28 cities in China had met their smog, or air quality targets, and that was after those targets had been “reduced dramatically”. On August 30, Li Gao, head of the climate change office at the Ministry of Ecology and Environment, said “external elements, such as the China-US trade war, had brought negative impacts and increasing uncertainties to the global economy, which has also made it more difficult for China to tackle climate change.” The Financial Times quoted Greenpeace China’s Li Shuo as saying that the Chinese government is now undergoing an internal debate about climate change, and is looking at its options, with the slowdown cited as a reason not to do more. The report noted that anti-emissions campaigns that form part of President Xi Jinping’s “Beautiful China” campaign have resulted in the closure of around 170,000 small factories in Hebei province alone. Coal consumption in China increased just 1 per cent in 2018, much slower than the expansion of cleaner fuel, but still made up 59 per cent of the country’s total energy consumption, according to the National Bureau of Statistics. Yonts pointed to satellite imagery that showed an additional 259 gigawatts of coal-fired power plants being built, most of which had been suspended in 2017. China Coal Energy Company, the nation’s second largest coal producer, saw revenues rise drastically in the first half of 2019, from US$7.08 billion to US$8.58 billion. China’s largest, Shenhua, dropped from US$17.93 billion to US$16.38 billion, but revenues from coal sales rose from US$10.9 billion to US$11.27 billion. Over 98 per cent of Shenhua’s coal is for the China domestic market.