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Beautiful China: the war on pollution

Beautiful China: the war on pollution

23-08-2018 | Insight

China’s unparalleled growth over the past decades has come at a price: pollution. The government has made fighting it one of its prime objectives. Its aim of a Beautiful China ties in with other strategic goals, including global leadership in electric vehicles and technological innovation.

  • Victoria  Mio
    Victoria
    Mio
    CIO China, co-Head Asia Pacific Equities, Fund Manager Robeco Chinese Equities

Speed read

  • Environmental reform is a key objective for China
  • The government has taken large-scale measures, which appear to be effective
  • China’s clean energy investments present opportunities for (sustainable) investors

At the latest National People’s Congress in March 2018, China’s leaders announced a 19% increase in spending to curb pollution, to an amount of RMB 40.5 billion (USD 6.4 billion). One of the aims is to cut sulfur dioxide and nitrogen oxide emissions by 3% in 2018.

Serious measures

As of 1 January 2015, the New Environmental Protection Law has significantly increased corporates’ pollution cost because of the high penalties that are being enforced. As of May 2017, the Central Environmental Inspections team had imposed 15,586 penalties to a total amount of RMB 775 million. Corporates’ environmental investments have increased to up to 13% of total investments.

Last winter, factories were required to cut their output capacity by 50% on heavy pollution days, and millions of households and industrial shops were ordered to switch their heating systems from coal to electricity in an effort to reduce toxic emissions. In 2018, the country aims to convert another 4 million homes to natural gas or electricity. The government has closed polluting factories and has set up a special police force. This year, it has expanded environmental inspections to more cities and regions in a new round of checks that will be executed until April 2019, as part of a three-year anti-pollution plan.

The environment reform isn’t limited to improving air quality. China has stopped accepting other countries’ plastic and paper trash as well, in response to public concern over pollution and a decreased need for scrap materials.

A match with other strategic goals

The war on pollution tallies with many other Chinese objectives. Its focus on environmental reform and technological innovation has made it the global leader in electric vehicles, to name but one result. Robeco Chinese Equities holds several stocks with direct exposure to the electric vehicles theme, i.e. car manufacturers, or indirect exposure, such as battery producers.

China also takes up an important role in clean energy. Throughout the world, solar panel prices are falling, as China is investing huge amounts in clean energy. China invests more than double the amount of the US and two-thirds of solar panels are produced in China1. This offers interesting investment opportunities to (sustainable) investors. In addition to wind and solar energy, China is looking into new clean energy technologies such as hydrogen. Finally, China’s supply-side reforms, aimed at cutting excess industrial capacity, also help clean up the environment.

Source: U.S. Department of State Air Quality Monitoring Program, China Customs

As the biggest polluters are state-owned, government efforts to reduce concentrations of the smallest polluting particles have been effective. The Chinese government states that heavy air pollution days in key cities are down 50% over the past five years. Last year, Beijing’s average daily concentration of PM2.5 particles – tiny particles in the air which, in large concentrations, pose a risk to people’s health – was almost a third lower than in 2015, compared with declines of around a tenth for some other major cities. As growth accelerated to 6.9% over 2017, there’s no sign so far that the war on pollution comes at the expense of economic growth.

1 Source: Bloomberg New Energy Finance

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