‘POLLUTION DRIVE TO CLIP GDP GROWTH’
But slower expansion a necessary sacrifice for maintaining social stability, says SocGen
CHINA’S drive to cut pollution could reduce economic growth by 0.25 percentage point in the next six months while boosting factory inflation, according to Societe Generale SA (SocGen).
Production cuts to curb emissions and tougher nationwide environmental inspections would also support the profits of large industrial companies as producer prices rise, said Yao Wei, chief China economist at SocGen in Paris. She said the campaign would give a “notable supply shock” to the economy.
“The Chinese government has turned very serious about fighting pollution,” Yao wrote in a note. It will be “more than a transitory objective for the current leadership. Modestly slower growth will be a necessary sacrifice for maintaining social stability over the medium term”.
Authorities have intensified their anti-pollution drive before a twice-a-decade Communist Party Congress set to begin on October 18. The expansion had not yet shown signs of suffering for it, and economists surveyed by Bloomberg projected a secondstraight year of 6.7 per cent growth.
Yao said leaders were likely to tolerate growth rates below 6.5 per cent next year and beyond. That’s the country’s longer-term growth target for the five years through 2020 as well as the target for this year, when policymakers have said they’re aiming for gross domestic product growth (GDP) “of around 6.5 per cent, or higher if possible in practice”.
Annual growth should be no less than 6.5 per cent in the next five years to realise the goal of doubling 2010 GDP and per capita income by 2020, said President Xi Jinping in 2015.
The 13th five-year plan unveiled that year was the first to confront an era of sub-seven per cent expansion since Deng Xiaoping opened the nation to the outside world in the late 1970s.
Now, if China managed to grow 6.8 per cent this year, the pace of expansion needed to achieve Xi’s goal was just 6.3 per cent in the next three years, said Yao.
The Ministry of Environmental Protection’s new plan to tackle winter air pollution focused on Beijing, Tianjin, and the provinces of Hebei, Henan, Shanxi and Shandong. It aimed to reduce coal consumption, used for power generation, and vehicle emissions.
Assuming production cuts were strictly implemented, industrial production growth was likely to be 0.6 to 0.8 percentage point lower than otherwise, while GDP growth would be 0.2 to 0.25 percentage point lower in the next six months, said Yao.
“This campaign is likely to result in additional production disruptions on top of the impact of the anti-air-pollution plan, as the inspections may have led to the closure or production suspension of factories throughout the country in a wide range of sectors,” Yao wrote, adding that supplier shutdowns could upset production by several major carmakers. Bloomberg