China’s green revolution to affect global supply chains and inflation

BEIJING/SHANGHAI - The great Chinese environmental cleanup, now in full swing, is shifting the corporate landscape in unexpected ways and even stoking inflationary pressure that may soon be felt in supply chains worldwide.

As President Xi Jinping’s government intensifies the fight against the country’s world-class pollution problem, companies are scrambling to adapt to tighter regulation while investing in cleaner energy.

In industries from steel to textiles and consumer goods, the resulting shakeout has left the survivors with far more pricing power. That in turn is reinforcing the already-resurgent factory prices that contribute to global inflation.

These trends are reshaping the business environment, according to Cui Li, Hong Kong-based head of macro research at CCB International Holdings.

"The environment clean-up is and will be a key driver of the industrial consolidation," said Cui, who expects to see greater concentration in steel, paper-making and pharmaceuticals. "With costs rising from wages, land and pollution curbs, China’s manufacturers will have to invest and upgrade to survive. Those who survive will benefit."

Take He Wenyong, manager of a midsized textile company that has supplied Walt Disney and its licence holders.–