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China Is Set to Lose 2% of GDP Cleaning Up Decades of Pollution

Li Pingri remembers swimming with fish and shrimp as a boy in Guangdong’s Chigang waterway in China. Today, even after the city spent 48.6 billion yuan ($7.2 billion) on a cleanup, he can’t stand the canal’s smell.

“We are surrounded by black and smelly waterways, breathing the foul air every day and paying the price at the cost of our health,” said Li, 79, a former researcher at the Guangzhou Institute of Geography. “If we can’t breathe clean air or drink clean water, high economic growth is meaningless.”

China, the world’s worst polluter, needs to spend at least 2 percent of gross domestic product a year -- 680 billion yuan at 2009 figures -- to clean up 30 years of industrial waste, said He Ping, chairman of the Washington-based International Fund for China’s Environment. Mun Sing Ho, a senior economist at Dale W. Jorgenson Associates and a visiting scholar at Harvard University in Cambridge, Massachusetts, put the range at 2 percent to 4 percent of GDP.

Failure to spend that much -- equivalent to the annual GDP of Vietnam -- may cost the Chinese economy half as much again in blighted crops, health costs and pollution-related expenses, He said: “The cleanup can’t catch up with the speed of pollution” if spending is less.

A double-edged approach by China to undo previous contamination and enforce stricter laws against new pollution would raise costs for companies in metals smelting, such as Hunan-based Zhuzhou Smelter Group Co. and Henan Yuguang Gold & Lead Co. in Henan. It would also benefit companies involved in environmental control, like Beijing Originwater Technology Co. and Shenzhen Green Eco-manufacture Hi-tech Co., said Chen Junpeng, an analyst at Donghai Securities Co. in Shanghai.

Lost Productivity

The costs arising from pollution in China -- including lost productivity due to health issues, crop degradation and losses from pollution-related accidents -- totaled 511.8 billion yuan, or 3.1 percent of GDP, in 2004, the latest figures available, according to the Beijing-based Chinese Academy for Environmental Planning, part of the Ministry of Environmental Protection.

China doubled total environmental spending in the 2006-2010 period to 1.4 trillion yuan from the previous five-year plan, and may more than double it again to 3.1 trillion yuan in the five years through 2015, said Wang Jinnan, vice-president of the academy.

That’s less than the amount He predicts will be needed on the cleanup and includes other costs: developing alternative energy and new sewage works, and protecting ecological habitats. It’s also less than the 4 trillion yuan China spent on stimulus in one year to boost the economy.

‘Not Enough’

“What China has done is not enough,” James Blackburn, an environmental lawyer and adjunct professor at Rice University’s China-U.S. Center for Environmental Remediation and Sustainable Development in Houston, Texas. “China should map out a strategy to integrate the green economy into the country’s general economic structure.”

China’s economy is predicted to expand 9.5 percent this year, according to State Council researcher Zhang Liqun. China outpaced Japan as the world’s second-largest economy last quarter, after last year overtaking Germany as the largest exporter and surpassing the U.S. as the world’s biggest energy user and automobile market.

China is far behind the U.S. in addressing environmental cleanup, said Frank O’Donnell, president of Clean Air Watch in Washington.

“The situation got much worse in China and had to be dealt with after the fact,” O’Donnell said in an interview. “In the U.S. we were ahead of the curve. We made sure that anything new coming on line was going to be very clean, and that’s cheaper than going back and trying to deal with what’s already there. China has got a more dire problem because it got out of hand.”

Lost Work Days

The annual cost of meeting U.S. pollution targets in the 1990 Clean Air Act is expected to reach $65.6 billion in 2020, more than triple the 1990 total, according to the Environmental Protection Agency. That’s offset by fewer pollution-related deaths, lost work days and emergency room visits, worth almost $2 trillion by 2020, the agency said. The EPA could not provide an estimate of the cost of cleaning up all industrial waste.

In China, more than a quarter of the country’s surface water is unfit for human consumption, according to the Ministry of Environmental Protection in Beijing. From January to June, air quality deteriorated for the first time in five years.

Recent environmental disasters have highlighted the levels of contamination and its effect on health, prompting widespread protests that could lead to social unrest if the government doesn’t tackle pollution, according to Ma Jun, founder of the Institute of Public Environmental Affairs in Beijing.

Acid-Laced Waste

Fujian-based Zijin Mining Group Co., China’s largest gold producer, was forced to shut a copper plant and limit production at a gold mine in eastern China’s Fujian province after acid- laced waste spilled into a local river, killing enough fish to feed 72,000 people for a year.

Authorities shut substandard smelters last year after thousands of children were poisoned by lead, zinc and manganese plants in Yunnan, Henan, Shaanxi and Hunan provinces. Elsewhere, 3,000 barrels of hazardous chemicals washed into the Songhua river in Jilin province (or Jilin City in Jilin Province) and an oil spill shut beaches and ports in Dalian, Liaoning.

“If China doesn’t address the environmental issues when the economy is growing fast, it might become a destabilizing factor in the society,” Ma said.

Hundreds of villagers in Fengxiang county, Shaanxi province, tore down the fence around the Dongling Lead and Zinc Smelting Co. in August last year and vandalized equipment after government officials blamed the plant for giving more than 600 children lead poisoning, Xinhua reported.

Twitter Protests

“Environmental protests have been one of the leading sources of social unrest for more than two decades,” Elizabeth Economy, director for Asia Studies at the New York-based Council on Foreign Relations and author of “The River Runs Black,” a book on China’s environment, said in an e-mail. What has changed is “the ability of people to communicate through texting, e- mail, and Twitter to organize a protest.”

Campaigns of up to 10,000 people in major cities such as Xiamen, Zhangzhou and Chengdu were fighting the planned siting of large-scale chemical plants, and in some cases have forced the government to reverse a decision, Economy told the U.S. Congressional-Executive Commission on China in October 2009. She said about 700 million people in China drink water contaminated with human or animal waste.

Every Two Days

There were 51,000 pollution-related protests in 2005, up 30 percent a year since 2002, state media reported in 2006, citing Zhou Shengxian, the environmental protection minister. One environmental accident occurred once every two days and there were 600,000 environment complaints in 2006, the ministry said in a 2007 statement on its website.

Last month, National People’s Congress Vice Chairwoman Chen Zhili said China’s incentives and funding for factories to adopt cleaner production methods had been poorly implemented and she called for preferential tax rates to encourage lower pollution, according to a report from state news agency Xinhua.

Standing to benefit from the increased attention and spending on the environment are waste treatment companies such as Beijing Originwater, Beijing Water Business Doctor Co., Hubei-based Sound Environmental Co., and Shenzhen Green Eco- manufacture Hi-tech Co., said Donghai’s Chen Junpeng.

Chen expects environmental investment to rise 14.5 percent a year to 2.3 trillion yuan by 2020 if the Chinese economy sustains an 8 percent yearly growth over the next decade.

Early Mortality

“The sectors with the most opportunities might be solid waste, water and air treatment,” said Chen. The next government plan for the industry might include “fiscal, taxation and other financing support,” he said.

In addition to the cost of clearing up contaminated water, land and air, pollution is costing China billions in additional health costs, lost productivity and early mortality.

The World Bank estimated China’s environmental costs come to be around $100 billion a year, or about 5.8 percent of GDP, including the impact on mortality, it said in a 2007 report. A combined paper by researchers from Harvard and Tsinghua universities last year estimated air pollution alone contributed to health damages equivalent to 1.8 percent of GDP.

Chinese Premier Wen Jiabao said at the World Economic Forum’s Summer Davos meeting in Tianjin this month that China will cooperate on low-carbon global efforts to reduce carbon emissions and will maintain efforts on environmental protection and energy savings. The country is still preparing numerical targets for environmental conservation in its 12th five-year plan, Zhang Xiaoqiang, vice chairman of the National Development and Reform Commission, said in Tianjin.

Olympic Clean-Up

China’s efforts, such as Beijing’s push to curb emissions to keep the skies clear during the 2008 Summer Olympic Games, haven’t been sustained, said Cao Jing, who teaches environmental and resource economics at Tsinghua University’s School of Economics and Management in Beijing.

Removing polluting factories and limiting the number of vehicles on the roads “had a visible improvement on the overall environment,” he said. “Two years on, however, we see the pollution gradually coming back as car ownership grows exponentially.”

About 10,000 new vehicles take to the roads every week in the capital, he said.

Guangzhou’s 48.6 billion yuan in spending to clean up pollution was in preparation for the city to host the 2010 Asian Games in November. The mayor promised at the end of 2008 that all district head officials would be able to swim in the river after a year.

Eighteen months later, Li wrote to the mayor pointing out that the water in the Chigang, which runs in front of his apartment, is as bad as ever.

“It’s too ambitious to think that all the pollution accumulated over the decades can be cleaned up in a year and half,” Li said.

--Glenys Sim in Singapore and Feiwen Rong in Beijing. With assistance from Christopher Martin in New York and Jim Efstathiou Jr. in Washington. Editors: Adam Majendie, Anne Swardson.

To contact the Bloomberg News staff for this story: Glenys Sim in Singapore at sgsim4@bloomberg.net Feiwen Rong in Beijing at frong2@bloomberg.net

To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net; Chris Anstey at canstey@bloomberg.net.

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