Beijing: China’s drive to cut pollution could reduce economic growth by 0.25 percentage point in the next six months while boosting factory inflation, according to Societe Generale SA.
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, 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."
Authorities have intensified their anti-pollution drive before a twice-a-decade Communist Party Congress set to begin 18 October. The expansion hasn’t yet shown signs of suffering for it, and economists surveyed by Bloomberg project a second-straight year of 6.7 % growth.
Yao reiterated her view that leaders are likely to tolerate growth rates below 6.5% in 2018 and beyond. That’s the country’s longer-term growth target for the five years through 2020 as well as the target for this year, when policy makers have said they’re aiming for gross domestic product growth “of around 6.5%, or higher if possible in practice."
Annual growth should be no less than 6.5% in the next five years to realize the goal of doubling 2010 GDP and per capita income by 2020, president Xi Jinping said in 2015. The 13th five-year plan unveiled that year was the first to confront an era of sub-7 percent expansion since Deng Xiaoping opened the nation to the outside world in the late 1970s.
Now, if China manages to grow 6.8% this year, the pace of expansion needed to achieve Xi’s goal is just 6.3% in the next three years, Yao said. She wrote in a December report that China is poised to abandon its 6.5%t growth target within two years as leaders push to contain asset bubbles and financial leverage.
The ministry of environmental Protection’s new plan to tackle winter air pollution focuses on Beijing, Tianjin, and the provinces of Hebei, Henan, Shanxi and Shandong. 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 point to 0.8 percentage point lower than otherwise, while GDP growth will be 0.2 percentage point to 0.25 percentage point 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 carmakers.
She said that the push may have a lasting impact on local officials’ behaviour when it comes to balancing economic growth and non-economic developments. Inspection results, she added, “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." Bloomberg