Last winter’s air pollution control plan in the larger Beijing area was unprecedented both in scale and intensity. The action plan was part of a much broader, central government led effort to tackle China’s pervasive air pollution problem, and significantly ramp up environmental protection efforts in general.

China’s leadership appears to be acutely aware that environmental degradation is at a tipping point for the country. Under Xi Jinping’s leadership, the central government has drastically shifted its stance on the importance of environmental governance and has made it a cornerstone of its reform agenda—the most recent case in point being the massive ministerial re-shuffle that created the Ministry of Ecology and Environment and the Ministry of Natural Resources. Given the strong public rhetoric coming from China’s leadership team, and importantly from Xi Jinping himself, it is starting to look like winning the war on pollution has become a regime legitimacy question. We thus expect commitment from the top to endure long-term (at least while Xi Jinping is in power).

Analysis of PM2.5 levels (atmospheric particulate matter with a diameter of less than 2.5 micrometers) for the Beijing-Tianjin-Hebei (BTH) region shows that the widespread production curbing policies implemented during the 2017/2018 winter have clearly created positive impact in improving air quality for the region. But serious challenges remain to sustain and deepen this impact. Further improvements will require significant, continuous government efforts. It is clear from the intense efforts that were needed to implement the BTH Action Plan how massive the long-term undertaking will need to be to achieve substantial, enduring improvements nationwide, not only to tackle air pollution, but also soil and water pollution.

It is highly unlikely at this point that the government will backtrack on this issue, given the long-term economic and political ramifications of doing so. This implies that the government will continue and probably increase anti-pollution efforts going forward. In the near-term, we expect more rigorous planning and measurement at the local level, more regulatory intervention, and a greater willingness to disrupt industrial operations to achieve important environmental targets. There will be a higher baseline of overall compliance, and it will continue to shift upwards. Companies operating in China need to closely monitor these developments and beware of their potential ramifications.

Members of The Conference Board can download a more detailed analysis of the trends outlined above and their impacts on business in China.

Excerpt:

Last winter’s air pollution control plan in the larger Beijing area was unprecedented both in scale and intensity. The action plan was part of a much broader, central government-led effort to tackle China’s pervasive air pollution problem and significantly ramp up environmental protection efforts in general. It is highly unlikely at this point that the government will backtrack on this issue, given the long-term economic and political ramifications of doing so. This implies that the government will continue and probably increase anti-pollution efforts going forward.