Xinhua Insight: Businesses feel pain as emission-cut war escalates

As if China's perennial smog worries were not enough, the weakest economic growth for years means a painstaking struggle must now strike a balance between the environment and the economy.

With 40 percent of its GDP coming from glass, cement and iron, Xingtai City in north China's Hebei Province is always near the top of "most smoggy" lists. Slowdowns in manufacturing and real estate were already squeezing the profits of the city's factories, before the cost of pollution control had businesses lurching from bad to worse.

Changcheng, a local glass manufacturer, claims to have cut production since the beginning of last year, yet all glass boilers on the five production lines are still ablaze.

It costs some 100 million yuan (16 million U.S. dollars) to cool each boiler and reheat it to the required temperature of over 1,600 degrees Celsius, so the company leaves them burning, hoping that business will improve, said Li Binchen, a Changcheng director.

"For every square meter of glass produced, we earned an amount equal to the price of a boiled egg [one or two yuan] last year. Now, we are just burning money," he said.

A local government campaign has seen Changcheng converting production lines from coal to natural gas. "Transformation of each production line costs some 140 million yuan and it costs an extra 20,000 yuan per day to run the new facilities," Li said. "Our output last year was 1.2 billion yuan, but we made almost no profit at all."

China declared a "war against pollution" last year and northern areas, including Hebei and the cities of Beijing and Tianjin, are the battlefront.

In 2014, Beijing shut down 392 polluting plants, and Hebei reduced iron and steel production by over 15 million tonnes respectively.

LESS MONEY, FEWER JOBS

Changcheng is just one of many of businesses caught in the conundrum.

Jidong, a Xingtai-based cement producer, has produced nothing at all since October, but still pays full wages to its 200 workers. Wei Xiaofeng, the company's manager in charge of environmental affairs, said the company is losing 20 million yuan every month.

Wang Sheping, an employee of glass manufacturer Zhengda, based in Xingtai's Shahe, said, "Orders this year are a third less than last year. We used to produce day and night, but now the night shift has been canceled."

The government is not immune. Shrinking production has slashed fiscal revenue. Xingtai closed 68 factories and reduced production in 198 others last year, all in the name of fighting smog. A decrease in output of 28 billion yuan dragged local GDP growth down by 3.4 percent.

Fiscal revenue in Shahe decreased by 11.6 percent in 2014, under the combined influence of economic pressure and the anti-pollution campaign.

Zeng Shebin, head of Shahe environmental protection bureau, said his department has a severe lack of money. In an interview in April, Zeng said, "We borrowed one million yuan from the finance bureau to pay wages in January and February, but we still owe last month's."

Additionally, unemployment is rising. Xingtai shed some 10,000 jobs last year. The average annual income of workers in affected industries dropped by 4,500 yuan.

Guo Zhizhong of Hebei provincial department of environmental protection reckons that about 600,000 workers will have to be laid off to reach Hebei's emission target.

RESTRUCTURE OR PERISH

Wang Sumin of Xingtai development and reform commission believes that while pollution control is taking its toll on profits and jobs in the short-term, high consumption and high pollution will harm the economy in the long run.

"As a city largely reliant on heavy industry, we have to restructure to survive," she said.

Xingtai iron company Delong laid off over 600 of its 4,700 workers last year due to production cuts, while spending 240 million yuan on pollution control. By improving management and product added value, however, the company still made some profit in Q1 this year.

Changcheng is also moving up the value chain, from raw glass to various glass products such as windows and doors, and ultra-thin or ultra-thick glass.

The local government also has its part to play. At the beginning of this year, one county in Xingtai adjusted performance evaluations to give more weight to the environment. Under the new mechanism, GDP performance accounts for 5 points while environmental protection covers 19.

Bao Jingling, former chief engineer of the environmental protection bureau in Tianjin, wants government at higher levels to support local environment departments in terms of capital and personnel. He also wants more private investment in pollution control, and for the government to give companies that cut emissions incentives in the form of preferential policies.

"Preferential policies must reward companies actively cutting emissions," he said. Endi