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China Anti-Pollution Drive Takes Heavy Toll

Posted on December 11th, 2017 by in Chemicals Industry News and Analysis

China

China’s winter anti-pollution campaign at its major industrial bases could 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.”

In January to 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, according to the data.

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 is registering unhealthy pollution levels on Wednesday, 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.

“A range of 6-39% of Chinese petrochemical capacity, depending on product, is within the area impacted by the winter clean air programme in China,” it said.

“Additionally, over 40% of urea capacity could be affected, whilst soda ash, bromine and vitamin capacity may also be curtailed,” UBS said.

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.

“We have devoted serious energy to ecological conservation. As a result, the entire Party and the whole country have become more purposeful and active in pursuing green development, and there has been a clear shift away from the tendency to neglect ecological and environmental protection,” Xi said on 18 October.

“China’s ability to innovate needs to be stronger, the real economy awaits improvement, and we have a long way to go in protecting the environment,” he had said.

The Paris-based International Energy Agency (IEA), in a report dated 14 November, estimated that “only about 2% of the population in China breathes air with a level of fine particulate matter (PM2.5) concentrations that complies with the World Health Organization (WHO) guideline, and only 64% of the population breathes air that meets the standards of even the most modest WHO interim target.”

Almost three out for four Chinese cities have not yet met the required domestic air quality criteria, the IEA added, citing MEP data.

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%.

China’s economy is undergoing a deep transition: the previous model of resource-intensive economic growth, which emerged in the early 1970s, 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.

China GDP

The slowdown is expected to continue this year, with the average GDP growth for 2017 projected at around 6.5%, as China appears willing to sacrifice some growth as the country seriously tackles its huge pollution problem.

Additional reporting by Fanny Zhang, ICIS 

To find out how to read more news and analysis stories from ICIS, go to www.icis.com/about/news/

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