INTERACTIVE: China anti-pollution drive takes heavy toll on petchem output

China’s winter anti-pollution campaign at its major industrial bases would deal another blow to the country’s overall petrochemical production already hit by shutdowns amid strict environmental compliance checks at factories throughout the year.

Official data showed a deceleration in petrochemical output growth at the world’s second-biggest economy this year following the government’s tighter embrace of a more environmentally friendly policy in what Chinese President Xi Jinping termed as the country’s “war against pollution”.

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In January-October 2017, production of chemical raw materials and chemical products grew at a more moderate year-on-year pace of 3.9% from 8.5% registered in the same period last year, data from China’s National Bureau of Statistics (NBS) showed. Growth in production of rubber and plastic products also decelerated, posting a 6.3% increase over the same period from 7.8% in January-October 2016.

China is considered to have the worst air quality in the world following its rapid industrialisation, fuelled by coal – the cheapest but highly polluting energy source, which the country has in abundance. The winter anti-pollution measures are directed at the Beijing-Tianjin-Hebei region and its surrounding areas – dubbed “2+26” in northern China. The region is undergoing four months of comprehensive environmental inspections from September.

A huge portion of northeastern China was registering unhealthy pollution levels on 22 November, based on the real-time World Air Quality Index Project. To counter heavy smog – the smoke and fog produced by burning coal – that typically engulfs northern China in the winter months, the central government has mandated production cuts at manufacturing plants in the region. The Beijing-Tianjin-Hebei region is being required to lower the regional concentration of PM2.5 – a hazardous fine particulate matter – by 25% by the end of the year compared with 2012 levels, and Beijing must lower it to 60 micrograms per cubic meter, according to Chinese state-run newspaper China Daily.

Industry sources expect the environmental measures to be adopted in the eastern and southern parts of China as well, and could mean a further curtailment to the country’s overall petrochemical supply that will consequently drive up prices. There “is likely to be significant disruption to existing chemicals’ capacity” amid China’s environmental protection campaign, UBS Global Research said in a report on the chemicals sector dated 19 November.

Over the last 18 months, the focus on environmental protection and supply reform, such as reducing overcapacity, has intensified in China. Thousands of small-scale downstream plants have had to shut following waves of nationwide inspections instigated by China’s Ministry of Environmental Protection (MEP) on domestic factories’ compliance with regulations.

At the 19th China National Communist Party Congress in October, Chinese President Xi Jinping listed environmental protection as a national priority. China, under President Xi, has started its campaign to embrace a more environmentally friendly manufacturing policy in 2013, and launched strict inspections of domestic factories from mid-2016.

The country is a signatory to the 2015 Paris Agreement on Climate Change, standing by its commitment to work on reducing its carbon emissions, which should peak by around 2030 if not earlier; as well as to increase the share of non-fossil energy sources, such as renewable and nuclear, in its energy mix to around 20%.

ECONOMY SHIFTS TO SERVICES

China’s economy is undergoing a deep transition: the previous model of resource-intensive economic growth is gradually giving way to a more sustainable model driven by consumption and the services sector, the so-called “new normal”, according to the IEA.

The government is promoting a series of “supply-side” reforms, with a view to reduce the debt and liability levels in the corporate sector and reduce excess capacity in key industrial sectors, including coal and power, it said.

China’s economic expansion has steadily decelerated from its peak in 2010 to its slowest in 26 years at 6.7% in 2016 and may fall to 6.5% this year.