Subsidies supplant rural factories as Beijing tackles air pollution

The warm steam inside the village hairdressers’ shop feels unusually clean on a cold winter’s day: in Juncheng, Hebei province, piped gas has replaced the coal that used to leave a sticky residue on every surface. 

This cleanliness comes at a cost, calculated down to the penny by the half-dozen customers waiting their turn for a wash and a haircut. Gas is usually more expensive than coal but, for the moment, the government is paying.

In recent years, a wave of subsidy spending has propped up the economy in the hundreds of small towns and villages of the province that surrounds Beijing. From ecological toilets to cash payments for heating homes with gas, the payouts have helped soften the economic cost of a campaign to improve air quality in the famously smoggy capital.

“As long as the gas is subsidised, it’s fine,” said Mrs Wang, the proprietor, as she poured warm water over a customer’s head. “But it’s very hard to say how much people would use it without the subsidy.”

Hebei is a test case for China’s ability to find an alternative economic model as it weans itself from heavily polluting industry. Rural consumption — channeled with purchasing incentives and subsidies — has helped to support domestic demand since the global financial crisis of 2008.

Workers install gas pipes on homes in Heqiaoxiang, near Baoding, Hebei province © Reuters

The province boasts an economy the size of Poland’s, and twice as many people. Its mills produce a quarter of China’s steel. The province allocates about 6 per cent of its budget to reduce emissions by heavy industry, while mega-projects such as the 2022 Winter Olympics have also helped offset the economic impact of capacity shutdowns. 

But, in the countryside where scattered small factories are an important source of local employment, provinces have increasingly fallen back on subsidies to paper over slowing growth or the local impact of campaigns such as anti-pollution closures. So, the prospect of a broader national slowdown has not deterred local governments eager to stave off discontent. “It’s a growing practice and, given that the fiscal situation doesn’t seem immediately dangerous, we may see more of this in the future,” said Zhu Ning, associate dean of the national institute of financial research at Tsinghua university. “It makes sense to improve social welfare and ensure social stability.”

The subsidy playbook is visible in places such as Juncheng, where brand new, bright yellow gas pipes thread along village walls, thanks to a $250m loan from the Asian Infrastructure Investment Bank.

The government has promised homeowners a RMB1 subsidy for every cubic meter of natural gas purchased over the first three years, to overcome the RMB2,000 difference between heating a home with coal for the winter and heating it with gas.

An alley between homes that have recently been equipped with yellow gas pipelines and meters in Shijiazhuang, Hebei province © Reuters

Whereas in the west social security policies apply to the general population, in China they are more likely to be put in place in response to specific events, Mr Zhu noted. That allows provinces such as Hebei to minimise any impact on the local economy.

Overall, spending on “people’s livelihood and welfare”, including pension benefits and community services, rose 16 per cent in Hebei last year. That tops a 9 per cent increase the year before.

Meanwhile, a two-year anti-pollution campaign has claimed 170,000 factories, cement and fertiliser plants — the tiny local employers that dot the plains of Hebei. Many have not only closed but appear partially torn down, with bricks piled up beside half-dismantled walls.

A market for building supplies in Shijiazhuang, Hebei province, where traders say business is suffering as demand falls in the face of environmental restrictions © Reuters

The closures have caused a drop in local spending at small markets and restaurants. 

“Now that so many factories are shut, people are finding it hard to get jobs here,” said a grocery store clerk in one small town, where the acrid sting of coal smoke made it clear that the gas pipelines had not yet arrived. “It’s very hard to earn money these days. Factories around here were barely profitable even before the environmental protection campaign.”

A rapidly ageing rural population makes migration to the cities more difficult.

“I can’t go anywhere else to work,” grumbled a grizzled man, surnamed Zhang, who lost his job in Heqiao, a county town, when his factory shut in 2018. “I have six old folk to support, not to mention the kids. Someone has to stay here to look after them.”

Li Ganjie, minister of ecology and environment, downplayed concerns that the environmental policies have dampened growth. “The anti-pollution campaign may impact regional economic development, but generally speaking, it has spurred investment and consumption,” he said.

For now, the spending continues. In some Hebei towns, the latest push is for free ecological toilets, to replace hand-dug latrines. Some 1.26m toilets were installed in 2018, Xu Qin, the provincial governor, said in January.

However, one migrant labourer from southern Hebei told his family back home to wait. “The toilets are free, but you have to hire a government company to pump them out,” Mr Dong griped. “And who knows how much that will cost?”

Twitter: @HornbyLucy

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