Tuesday, January 22, 2013

China, pollution and the future of coal (Part 1)

A few days ago, there was an unprecedentedly bad smog in China: the two satellite pictures below compare January 3 to the situation 11 days later (htp: Barry Ritholtz):

Beijing and Tianjin: January 3, 2013
Beijing and Tianjin: January 14, 2013

It was partly a consequence of the coldest winter in 30 years, prompting rural Chinese to burn more solid fuel (which is no longer permitted in cities). But air pollution has been on the rise generally, because of increased numbers of power plants (many coal-powered) and cars. As well as the hazards of dangerous gases (such as sulphur dioxide and carbon monoxide), airborne particles below 2.5 microns in diameter are small enough to get deep into the lungs (ironically, this also happens to be an issue for eco-minded Westerncities that choose to incinerate waste.)
Geography is another factor. Like London and Los Angeles, Beijing is liable to periodic temperature inversions that trap particulates in a bowl of cold air, lidded by a warmer layer above. This relief map shows the mountains to the north and west that help to hold in the smog, and the January 13 picture above shows the pollution being pushed up and over them by the southern breeze.

China is hardly the only Asian country with that problem, as the Guardian newssite points out, citing the 4,500 pollution-related deaths in Tehran last year. And the West has long had similar experiences itself: the London smog of December 1952 is estimated to have killed 12,000 and harmed a further 100,000, and In the USA, despite Los Angeles officials battling atmospheric pollution since 1947, it was still reported in 2006 to be killing 9,000 Californians annually.
Last week’s foreign reportage offered more criticism than sympathy: the Wall Street Journal turned it into a story about official secretiveness undermined (said ABC News) by a Twitter feed from the US Embassy in Beijing, which has an atmospheric particle monitor on its roof. The New Yorker’s Evan Osnos hinted at future civil unrest: “Someday, I’ll write about the political effects of environmental pollution [...] Hungary and Taiwan...” In fact, the Chinese authorities are concerned about the issue: Time magazine has reportedon a study co-sponsored by Peking University that linked 8,500 premature deaths to pollution in four cities.

Perhaps there is an undercurrent of envy in the Western reports: it is almost as though the Chinese are supposed to suffer for their hard-won economic success. If so, the feeling is completely unjustified. What has happened over the past 30 years of international trade is reminiscent of the way that Britain exploited the Indian textile industry in the second half of the eighteenth century, when the East India Company ruled there: the low indigenous labour costs undercut British workers, until such time as technological improvements increased our own productivity. In the same way, the West has exported industrial jobs for decades, and now there is the beginning of a trendtowards “reshoring” – which will not be the job-saver for which Middle America might hope, since part of the process will be the increased use of automation.
If there is to be societal unrest, it is just as likely to occur among us as in the East, for US median real wages have stagnated since the 1970s, and now we face growing unemployment plus severe pressure on debt-saddled personal and public finances. This was foreseen by billionaire venture capitalist Sir James Goldsmith, who warned in 1994 of the consequences of the GATT talks then ongoing. And it’s not even as though all the profits of the trade imbalance have accrued to the Chinese: I was startled to read in James Kynge’s book  that “all of the work done in China – the sourcing, manufacturing, transportation and export – rarely qualifies for a return of more than 10 or 15 per cent from a product’s sales revenue.” The lion’s share of profit has been captured by a relatively small group of Western entrepreneurs and financiers and the resulting increase in inequality is straining social relations.

Increasingly free of restriction, the cash tsunami that roars around the world has upset stability in developing nations, too. China has experienced a speculative construction boom that has left 64 million residential units unoccupied, and has become uncomfortably dependent on its near-bankrupt export customers. Others are worried, too: the 2008 Doha round of GATT was quickly stalled by countries that realised the threat to their domestic agricultural production, and it seems significant that this was the time that the US chose to involve itself in the Trans-Pacific Partnership, which until then was a small-scale affair but now looks as though it could be used by the US as an alternative method to force the products of its competitive large-scale agribusiness onto foreign markets.
This is a challenging time for the balance of the world economy, not only for the above reasons but also because of ecological concerns about alleged climate change. However, the USA has refused to ratify the Kyoto Protocol and Canada has withdrawn, so they can hardly criticise China for its emissions.

And China can’t afford to stop its economic development. This study of China’s demographics shows that its population is expected to rise by only another 90 million (or 8% of its 2010 total) by 2030, and then decline. However, the underlying picture is that while not enough children are being born to replace those that die, the people are (thanks to the benefits of modern civilisation) living far longer. Proportionally, there will be fewer people in work, and they will on average be older. Without modern technology, how will they support the country’s dependants?
Coal is vital to China at this stage. The nation has the world’s third largest reserves, but is by far the biggest producer and consumerof coal, and (after Japan) the second biggest importer, too. Such is the rate at which this resource is being exploited in the breakneck pace of development that China is estimated to have used up its reserves in 35 years’ time (others say, half a century to a century).

Part 2 will look at coal, coal-burning technology and coal's future in China and the West.

Copyright. Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog; or for unintentional error and inaccuracy. The blog author may have, or intend to change, a personal position in any stock or other kind of investment mentioned.

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