Northern China’s clean air targets get lost in the smog of the trade war

All eyes were on the sky on Wednesday as heavy pollution descended on the Chinese capital, sending air quality plummeting.

The pall was a sharp contrast to the clear blue days that have graced Beijing in recent months and the general decline in smog in the last year due to a concerted crackdown on pollution.

The National Meteorological Centre put the worsening conditions down to a combination of the start of the heating season and a lack of wind to disperse pollutants.

But just a two-hour drive southeast of the capital there are signs that there is more than weather at play – that China is lowering its environmental standards as it tries to cope with slowing growth and the fallout from the trade war with the United States.

Plywood county

In Wenan county, Hebei province, the skies have been grey for weeks. The county is home to a legion of plywood plants that are both the backbone of the local economy and one of the most labour-intensive and heavily polluting sectors in the “poverty belt” around Beijing.

China is a major plywood exporter to the US and Wenan accounts for a seventh of China’s annual output, although most of that is sold on the domestic market.

Tens of thousands of residents and migrant workers in the county depend on plywood and related industries to make a living.

But last year the industry was also a big target of the national clean air campaign. Together with polluters from metalwork to glass manufacturing in Hebei, environmental curbs, the most forceful in decades, hit hard after President Xi Jinping declared improving air quality as one of the three main economic priorities for the three years from 2017.

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The Ministry of Ecology and Environment set an ambitious target for 28 cities in the Beijing-Tianjin-Hebei region, ordering a 15 per cent cut in levels of PM2.5 – the small airborne pollutants particularly harmful to human health – over the autumn and winter. “Favourable weather” helped the area exceed that target to achieve a 25 per cent emissions reduction, the ministry said.

Thousands of small plywood plants in Wenan closed, while dozens of bigger ones were frequently forced to cut production, Xinhua reported in November 2017, trumpeting the cuts as an achievement in the environmental cause.

But many, if not all, of the plywood plants have come back to life this year as Beijing has swept aside its more demanding requirements to reduce air pollution.

This year the aim is for a 3 per cent cut in PM2.5 emissions – a fraction of the decrease a year earlier and below the 5 per cent initially proposed.

Ministry spokesman Liu Youbin said this year’s targets did not mean China had lowered environmental requirements. They were, rather, “realistic” and “challenging” goals after big improvement was made last year.

The change – against the background of a slowing economy – followed complaints from employers and the public that production suspensions and plant closures disrupted operations, while the replacement of coal heating with gas by some local governments left many poor families without heat last winter.

In places like Wenan, cutting emissions means shutting down production and cutting into already razor-thin profit margins.

Zhang Guodong, owner of Xingyue Wood, said his plant had suspended production only once this autumn, as local authorities imposed a temporary curb on a heavily polluted day.

“Although there is less disruption, the cost is high as I have to amortise the two million yuan we spent in upgrading equipment to meet environmental standards last year,” he said. “If it were not to keep the around 100 employees who have been working with my father and me for many years, I would probably rather shut it down.”

Slowing growth

Zhang’s difficulties have been compounded by the trade war.

China has been an important and fast growing market for US timber exports in recent years. An estimated 60 per cent of all hardwood timber produced in the US is exported, with 54 per cent going to China, according to the American Hardwood Export Council. Before the trade war, China encouraged timber imports by fixing no tariffs at all.

But Zhang said prices of raw materials had increased by 20 per cent since China announced punitive tariffs of up to 25 per cent on US$1.83 billion worth of timber and wood imports from the US in August.

“There are so many plywood makers in China and we cannot raise prices,” he said. “As demand from overseas markets has been sluggish this year, our profit has been squeezed to extremely low levels.”

Buyers in Britain and Mexico were waiting for price to fall, Zhang said, after the US hit China’s hardwood plywood exports with as much as a combined 378 per cent in anti-dumping and countervailing duties this year.

He said the biggest beneficiaries of this year’s more lenient smog measures were unlicensed plywood plants which survived a cat-and-mouse game with environmental inspectors last year and were now operating “flexibly” while paying low wages.

Those plants can be seen just off the main road, with dozens of chimneys belching thick smoke near walls with bearing the slogan “Environment protection always on our mind”.

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University of London associate professor Jinghan Zeng said the Chinese authorities were responding to broad economic conditions.

“The lower environmental targets are more about the long-term economic slowdown instead of a direct consequence of the trade war,” he said.

Tsinghua University economics professor Yuan Gangming said it was not unsurprising to see China bend environmental goals to benefit the economy as it had done so repeatedly in the past.

“The current problem, policymakers think, is an economic slowdown which could worsen in the trade war,” he said.

Rosealea Yao, an analyst with Hong Kong consultancy Gavekal Dragonomics, said policymakers were sensitive to both economic disruption and public opinion.

“However, they are more concerned about potential impact to growth than they were last year, with infrastructure investment weak and the US ramping up tariffs on Chinese exports … The environment authorities will not want to be blamed for hurting the growth,” she said.

In Wenan, 48-year-old migrant worker Jia Gengyi, has felt the effect of smog curbs first hand – his employer, an unlicensed plywood maker, owed him 35,300 yuan (US$5,000) in back pay.

“The owner said he did not make money last year as he was affected by the production bans last winter,” Jia said. “I still work there. So far, we have not experienced any environmental crackdowns. I think I will get paid this year.”

Pointed to spots of plywood adhesive on his shoes, he said: “I know the glue is corrosive and harmful to my health, but it’s the only way I can earn bread for my family.”