Market News

 July 30, 2013
Economist with green agenda

 China needs to have long-term strategies to tackle air pollution, reduce emissions, says expert.

Though he is a firm believer that China will win pole position in the global economy, Ma Jun says that to achieve this it is important for Beijing to come out with a "big-bang" measure to tackle air pollution.

Ma, chief economist of Deutsche Bank for China, says efforts to tackle air pollution should be accompanied by drastic measures, including policy changes, in sectors such as energy, automobiles, the environment and public transport.

"The main problem with the existing policies is that they are inconsistent with the need to reduce pollution to acceptable levels within a short period of time," he says.

"To achieve this, China needs to reduce its intake of coal and cars, and invest more on clean energy, subways and railways."

Ma has just finished the first study that quantifies the necessary policy actions for China to achieve a reduction of the urban average PM2.5 to 30 by 2030, which is in line with the Ministry of Environmental Protection's target to have all cities in China achieve level II air quality by 2030.

PM2.5 refers to fine particulate matter with a diameter of less than 2.5 microns. The term frequently crops up in news headlines, as high PM2.5 levels are considered to be extremely hazardous for respiratory and cardiovascular systems.

The 49-year-old economist admits that studies indicate that China's pollution targets are achievable and its impact on economic growth, fiscal balance and inflation is quite manageable. "It does, however, require a strong government will to overcome the opposition from varied interest groups," Ma says.

His PM2.5 model indicates that one of the most important tasks for China to meet the safe level of PM2.5 by 2030 is to reduce annual average coal consumption growth to 2.7 percent from the current forecast of a 4 percent compound annual growth rate between 2013 and 2017, and to cut coal consumption by 22 percent from 2017 to 2030.

This means that China's coal consumption should peak in 2016 whereas the consensus projection is of a peak around 2025. It seems like a mission impossible given China's robust economic growth, which requires increasing energy consumption. But Ma believes that the target "could be and should be achieved".

To offset the cut in coal consumption, China can increase its clean energy consumption, he says. More importantly, if the task is not fulfilled, even with the best efforts in emission controls through clean coal technologies and in the transport sector, the PM2.5 will likely remain above 40 in 2030.

Ma, who is based in Hong Kong and is frequently invited by government agencies for policy discussions, anticipates coal consumption reduction will encounter difficulties with some local governments which have based economic growth on coal production. But he believes that mounting public concern over air quality will ultimately prompt government action.

"With the massive coverage by the media, especially social media, Chinese citizens are now well exposed to information on PM2.5, a term which was still unfamiliar to them one year ago. Since they understand the negative health impact of air pollution, their strong demand for policy changes serves as an additional incentive for the authorities to make the right decisions," he says.

"On June 15, the State Council announced 10 measures to tackle air pollution in China, while six heavily-polluted regions in the north (Beijing, Tianjin, Hebei, Shanxi, Shandong and Inner Mongolia) are drafting detailed action plans which involve setting targets to reduce coal consumption by 2017. The government and society are in action now."

Ma, whose main research interests include macroeconomic forecasting, monetary and exchange rate policy, as well as fiscal and structural reforms, was inspired to do the research on PM2.5 on Jan 14 this year, the day that Beijing grabbed the attention of the whole world due to its record level of PM2.5.

"I was in Beijing that day and the hourly average PM2.5 level in the city approached a dreadful level of 1,000. I realized that economic policies such as those influencing the energy mix and transport modes are so important to reduce PM2.5 but they are well beyond the control of the environmental ministry. Seeing the same smog and breathing the same air made me feel that I was obliged to fill the gap," Ma says.

The reduction in coal consumption is the most critical item in the policy package Ma and his research team have proposed. Among the six key points are increasing the length of railways and subways by 60 percent and four-fold, respectively, from 2013 to 2020 and reducing coal-related emissions by about 70 percent in the coming 18 years through clean coal technologies. The most challenging proposal is to control the number of private cars to 250 million units, says Ma, who adds that the current market expectation is to have 400 million units by 2030.

"The technical related measures are relatively easy to achieve, but the target to control the number of private cars is difficult," he says. "This requires strong government will, which can also lead to widespread criticism from new car buyers.

"However, air pollution is exactly the type of 'negative externality' each individual driver could exert on other people but he or she does not care. This tendency has to be corrected by policy," Ma says.

Cutting coal consumption and controlling the number of private cars also raises concerns on whether or not this aggressive policy package will drastically reduce economic growth in China. Ma, however, says that the answer is to the contrary, adding that his proposal is consistent with a 6.8 percent annual growth in GDP.

"The simple reason is that while coal and auto consumption growth declines, new energies, railways, subways and telecommunications sectors expand more quickly than before," Ma says, adding the proposed annual 6.8 growth rate is in fact higher than many experts' expectations.

His research model shows that the reduction in GDP by 2020 would be about 500 billion yuan ($81.5 billion; 61.96 billion euros) due to reduced coal consumption, while the control on the number of private cars, the use of new energy and the construction of subways and railway systems can increase GDP by 500 billion yuan.

Despite being frequently rated as the leading expert in his field by various investor polls, such as being named No 1 China analyst by the Institutional Investor for four years in a row from 2009 and one of the Top Chinese Bankers by Finance Asia in 2012, Ma is very proud about the feedback of his economic research on environmental issues.

"We have submitted this report to top policymakers in China, discussed it with various government departments, local officials, as well as environmental specialists, and the feedback so far has been positive," he says.

A prolific author, Ma has published nine books so far and is currently working on another. "Plans are afoot to publish a book early next year focusing on policy packages for PM2.5 reduction in Beijing and Shanghai, along with a complete overview of international experiences, and further fine-tuning of the national-level policy proposals."