Tue, Oct 03, 2017 - Page 10 News List

China’s pollution curbs to slow growth, lift prices, Societe Generale forecasts

Bloomberg

China’s drive to cut pollution could reduce economic growth by 0.25 percentage points in the next six months while boosting factory inflation, Societe Generale SA said.

Production cuts to curb emissions and tougher nationwide environmental inspections will also support the profits of large industrial companies as producer prices rise, said Yao Wei (姚煒), chief China economist at SocGen in Paris.

She said the campaign will 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,” she said.

Authorities have intensified their anti-pollution drive before a twice-a-decade Chinese Communist Party National Congress set to begin on Oct. 18.

The expansion has not yet shown signs of suffering for it and economists surveyed by Bloomberg project a second-straight year of 6.7 percent growth.

Yao reiterated her view that Chinese leaders are likely to tolerate growth rates below 6.5 percent next year and beyond.

That is 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 are aiming for GDP growth “of about 6.5 percent, or higher if possible in practice.”

Annual growth should be no less than 6.5 percent in the next five years to realize the goal of doubling 2010 GDP and per capita income by 2020, Chinese President Xi Jinping (習近平) said in 2015.

The 13th five-year plan unveiled that year was the first to confront an era of sub-7 percent expansion since former Chinese leader Deng Xiaoping (鄧小平) opened the nation to the outside world in the late 1970s.

If China manages to grow 6.8 percent this year, the pace of expansion needed to achieve Xi’s goal is just 6.3 percent in the next three years, Yao said.

She wrote in a December last year report that China is poised to abandon its 6.5 percent growth target within two years as leaders push to contain asset bubbles and financial leverage.

The Chinese Ministry of Environmental Protection’s new plan to tackle winter air pollution focuses on Beijing, Tianjin, and Hebei, Henan, Shanxi and Shandong provinces.

It aims to reduce coal consumption, used for power generation, and vehicle emissions.

Assuming production cuts are strictly implemented, industrial production growth is likely to be 0.6 percentage points to 0.8 percentage points lower than otherwise, while GDP growth will be 0.2 percentage points to 0.25 percentage points lower in the next six months, Yao said.

“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 automakers.

She said that the push might have a lasting impact on local officials’ behavior when it comes to balancing economic growth and non-economic developments.

Inspection results “are said to have affected the potential promotions of thousands of officials, a stern reminder to other officials that environmental production should be given higher priority,” she added.

This story has been viewed 953 times.

Comments will be moderated. Remarks containing abusive and obscene language, personal attacks of any kind or promotion will be removed and the user banned.

TOP top