China’s Most Polluted Cities – What it Means for Business

July 6, 2017 Posted by China Briefing Reading Time: 6 minutes

By Gidon Gautel

Five of China’s ten most polluted cities are located in Hebei province in the country’s north, with the city of Shijiazhuang ranking the highest, according to the latest data from the World Health Organization’s (WHO) Ambient Air Pollution Database.

WHO information shows that air pollution in certain areas of China has markedly improved since 2011. Beijing, which was ranked the fifth most polluted city in China in 2011, has dropped out of the top 20. This is partially due to increasing efforts by the government to address air quality issues, though it still ranks 12^th for levels of PM2.5.

The drive to tackle China’s air pollution presents a variety of opportunities for foreign investors. Foreign businesses in green industries will benefit from easier market entry and greater demand for cleantech products, while firms in highly polluted cities will enjoy higher retention rates for employees as a result of cleaner air. However, significant challenges remain as China continues to pollute heavily and numerous obstacles will have to be overcome to successfully curb air pollution.

WHO’s list of most and least polluted cities in China

Updated in May 2016, the WHO’s database focuses on levels of particulate matter smaller than 10 micrometers (PM10) and 2.5 micrometers (PM2.5). Both can cause serious respiratory diseases including lung cancer, especially PM2.5, which penetrate deeper into lung tissue.

A 2013 joint study by Tsinghua University, Peking University, and the Massachusetts Institute of Technology (MIT) revealed that high levels of air pollution in northwest China reduced life expectancy by 5.5 years, on average.

The top 10 most polluted Chinese cities, in terms of air pollution, are ranked as follows:

China’s least polluted cities tend to be situated in the south, with Sanya topping both the PM10 and PM2.5 tables for lowest pollution levels. Hong Kong, not included in the original 2011 WHO China data, has seen a slight drop of air quality since then, from PM10 levels of 47mcg/m³ to 49, taking it out of the top 10 cleanest list.

The top 10 least polluted Chinese cities, in terms of air quality, are as follows:

The full report, covering all major cities across the globe, can be found here.

The government’s strained efforts to crack down on polluters

The country’s capital, Beijing, has drawn international criticism for its highly-publicized levels of pollution, which may explain why the government has been aggressively targeting the problem there and in the general Beijing-Tianjin-Hebei (Jing-Jin-Ji) area. The Ministry of Environmental Protection announced in March this year that PM2.5 and PM10 concentrations in the region still needed to be cut by 60 percent and 50 percent, respectively, in order to meet national standards.

The government has introduced punitive fines and revised tax laws to try to lower pollution levels across major cities. Despite this, from 2011’s 20 worst polluted cities, only Beijing has seen improvements thus far. Nationally, general levels of pollution have worsened. PM10 levels recorded in 2016 for Shijiazhuang were twice as high as PM10 levels recorded in 2011 for Lanzhou, the most polluted city in China that year.

Shijiazhuang’s annual mean concentration of PM10 was 305 micrograms per cubic meter (mcg/m³), more than 15 times higher than the WHO’s recommended annual upper limit of 20 mcg/m³. Shijiazhuang’s annual mean concentration of PM2.5 was 121 mcg/m³, more than 12 times higher than the WHO’s recommended annual limit of 10 mcg/m³.

There is some concern over the accuracy of this data as the WHO uses official Chinese sources, which have a reputation of being imprecise and distorted. For example, seven local officials in Xi’an were jailed this month for tampering with data and stuffing cotton gauze into sensors to create more favorable readings.

To its credit, the central government has acknowledged the problem and introduced measures of control over local authorities. On June 19, Premier Li Keqiang signed new legislation on statistical data which detailed harsher punishments for falsifying or tampering with the information. Despite this, concerns over data accuracy, particularly in regards to the environment, remain.

In addition, even though the legislation may be signed, that does not mean that it is effectively implemented. Noncompliance remains a critical issue. Of the 4,077 firms recently inspected by the monitoring department of the Ministry of Environmental Protection in the Beijing-Tianjin-Hebei area, 70 percent broke environmental laws.

Opportunities for foreign businesses

The government’s campaign to combat air pollution presents an array of opportunities and benefits for foreign investors and businesses operating in China.

For those looking to invest in Chinese A Shares, China’s cleantech firms are the fastest growing in APAC, and make up 36 percent of the Clean200 list (a compilation of the largest green energy and technology firms in the world), with a combined clean energy revenue of US$35 billion.

VC/PE investment into smaller firms also looks promising, as the total disclosed investment value in Q1 of 2016 into the cleantech/renewables industry totaled US$657 million. Opportunities for early stage investments into cleantech startups may also grow, as Chinese innovators look for creative solutions to national air problems.

Poor air quality has also opened a large market for monitoring equipment and air purifiers. Sales for monitoring and abatement equipment will be driven by private companies looking to find sources of their pollution, rather than traditional public sector clients trying to monitor air quality.

The air purifier market is largely fueled by demand from homes and small businesses, and has seen 70 percent year-on-year growth since 2015.

Cleaner air in cities like Beijing may also improve employee retention rates, as foreign businesses list poor air quality as the number one issue affecting their ability to attract and retain talent.

Finally, foreign green businesses may enjoy financial and regulatory incentives. Regulatory fast tracking is a possibility, and the Ministry of Commerce’s newly updated Catalogue for the Guidance of Foreign Investment Industries is rife with “environmentally-friendly” industries encouraged for foreign investment. Tax incentives and government grants are available, such as those in Boston Power’s 2011 US$125 million battery manufacturing deal with GSR Ventures. Green technology developers would also do well to look towards China for strategic and joint development options, like EcoMotors’ 2014 signing of a US$200 million licensing agreement with Zhongding Power to share use of its highly efficient OPOC engines.

Opportunities for foreigners in China will endure, and new ones will continually present themselves, as the government persists in dealing with air pollution and continues to view aligning China as a global leader in environmental protection as an ever-increasing priority.

Editor’s note: This article was originally published on September 28, 2011, and has been updated to include the latest statistics and developments.

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