China has become the world's smokestack

In its rush to become the world's factory, China has absorbed industries that once made the West dirty
Joseph Kahn and Mark Landler, New York Times Business Times 24 Dec 07;

WHEN residents of this northern Chinese city hang their clothes out to dry, the black fallout from nearby Handan Iron and Steel often sends them back to the wash. Half a world away, neighbours of ThyssenKrupp's former steel mill in the Ruhr Valley of Germany once had a similar problem. The white shirts men wore to church on Sundays turned gray by the time they got home.

These two steel towns have an unusual kinship, spanning 8,000 kilometres and a decade of economic upheaval. They have shared the same hulking blast furnace, dismantled and shipped piece by piece from Germany's old industrial heartland to Hebei province, China's new Ruhr Valley.

The transfer, one of dozens since the late 1990s, contributed to a burst in China's steel production, which now exceeds that of Germany, Japan and the United States combined. It left Germany with lost jobs and a bad case of post-industrial angst.

But steel mills spewing particulates into the air and sucking electricity from China's coal-fired power plants account for a big chunk of the country's surging emissions of sulphur dioxide and carbon dioxide. Germany, in contrast, has cleaned its skies and is now leading the fight against global warming.

In its rush to re-create the industrial revolution that made the West rich, China has absorbed most of the major industries that once made the West dirty. Spurred by strong state support, Chinese companies have become the dominant makers of steel, coke, aluminium, cement, chemicals, leather, paper and other goods that faced high costs, including tougher environmental rules, in other parts of the world. China has become the world's factory, but also its smokestack.

This mass shift of polluting industries has blighted China's economic rise. Double-digit growth rates have done less to improve people's lives when the damages to the air, land, water and human health are considered, some economists say. Outmoded production equipment will have to be replaced or retrofitted at high cost if the country intends to reduce pollution.

China's worsening environment has also upended the geopolitics of global warming. It produces and exports so many goods once made in the West that many wealthy countries can boast of declining carbon emissions, even while the world's overall emissions are rising quickly.

Expensive mistake

The Ruhr Valley city of Dortmund, where ThyssenKrupp once made steel, still suffers from high unemployment because of the loss of jobs to lower-cost countries like China. But Germans can buy Chinese-made iPods, washing machines and cargo ships at prices that, because of lax pollution controls, do not reflect the toll on the environment. And the outsourcing of polluting industries has given them cleaner air and water.

'It seems to me that China is making all the mistakes that we made in the 19th century,' says Wilhelm Grote, an environmental regulator in Dortmund, who recalls washing his father's car as a child, only to see it immediately blanketed by soot. 'They will find it is much more expensive to fix up later than to do it right from the start.' Having ignored the environmental consequences of its industrial binge for years, the Communist Party leadership now says it is determined to develop a cleaner economic model. Beijing has tried to enforce ambitious - though so far unmet - targets to improve energy efficiency and reduce emissions.

Officials say they are especially concerned about the environmental burden of producing more than US$1 trillion of goods each year for sale overseas. Of China's total carbon emissions, which by some estimates now exceed those of the US, just over a third are incurred in the course of making products for foreign consumers, according to the International Energy Agency, an energy policy and research group in Paris.

The country's central planning agency recently barred purchases of some used industrial equipment from abroad, requiring companies to install newer energy-efficient systems. It has cancelled many incentives devised to promote exports, especially for companies that guzzle energy and pollute heavily. Officials have warned companies that breaking environmental laws will cost them their export licences.

Nearly 500 km south of Beijing, the city of Handan is both a beneficiary and a victim. Hangang, as the local steel mill is called, is a government favourite, having received permission to list its shares on the stock market and expand production. That is despite the fact that, like many of China's largest steel companies, it is in a crowded city.

Residents on the west side of Handan live in a miasma of dust and smoke that environmental authorities acknowledge contains numerous carcinogens. After public protests, the company agreed to pay an annual 'pollution fee' to compensate some neighbours.

The Ruhr gets a different kind of subsidy. Germany and the European Union have committed nearly US$22 billion to transform the region into a centre of education, technology and tourism. Bulldozers are remaking ThyssenKrupp's old steel mill into a terraced hillside community, with shops, restaurants and single-family homes surrounding a manmade lake.

Hangang was created by an act of Mao. In 1958, the Chinese leader spurred his people to sacrifice everything, including their pots and pans, in China's first attempt to become a steel superpower. He called the campaign the Great Leap Forward. Handan, an ancient but neglected city on the parched plains of southern Hebei province, had two advantages: rich veins of coal and iron ore and easy access to a major north-south railway line.

In economic terms, Hangang was not markedly more successful than the rest of the Great Leap Forward, which led to mass famine. It survived for decades on state subsidies, providing benefits for its 30,000 workers but making low-quality ferrous metals that earned poor returns.

In the 1990s, Hangang came under pressure to turn a profit. Its managers decided to start making sheet metal, for home appliances and cars, as well as their usual output of construction materials. That required a major upgrade.

Backed by state bank loans and a listing on the Shanghai stock market, Hangang embarked on an overhaul. But its ambitions far exceeded its budget. The company needed a cheap and radical solution to transform the mill. The answer came from Europe, especially from the Ruhr Valley.

The Ruhr had been the engine room of German industry since the mid-9th century. It was rich in coal and Prussian zeal. The region's big steel groups, Thyssen, Krupp and Mannesmann, forged the weapons for Germany's armies and later the sheet metal for its automobiles. But by the 1960s, Germany's industrial golden age had begun to wane. Miners had to dig deeper to extract coal, which became uneconomical. Taxes and labour costs rose, while reunification subjected West German companies to subsidised competition from the East.

Thyssen and Krupp merged their steel operations in 1997 and consolidated production in Duisburg, on the Rhine. The Dortmund steel mills, called Phoenix, which had been among Germany's largest since before World War II, were slated for closure, and probably the scrap heap.

That is, until Hangang got word that it could buy a relatively sophisticated German blast furnace for a small fraction of what a new one would cost. 'The reshuffle of the world steel industry gave Hangang this opportunity,' Liu Hanzhang, chairman of Hangang, told local media after he bought the Phoenix furnace in 1998. Hangang sent workers to Dortmund. They labelled every part of the seven-story furnace, then disassembled it and packed it in thousands of wooden crates for the long voyage to the port of Tianjin.

Other Chinese companies flocked to the European fire sale, stripping Dortmund of its assets. ThyssenKrupp sold the remaining parts of the Phoenix plant to Shagang Group, a privately run steel mill on the Yangtze River, in 2000. And in 2003, Chinese workers dismantled the Kaiserstuhl coking plant in Dortmund, which had been built only a few years earlier to meet exacting European environmental standards. It now belongs to Yankuang Group, a coking company in Shandong province.

Belching and thundering 24 hours a day, the coking, iron and steel works at Hangang cover four square miles and resemble a working museum of the industrial age. Its oldest coal-powered furnace, with its corroded, protruding shoots and shafts, might have belonged to Andrew Carnegie. The newest, part of a big expansion, uses waste heat to generate power, a technology that saves energy. The European castoffs fell somewhere in between. It took Hangang several years to integrate this equipment into its patchwork of production lines.

Facing stiff competition in China's overcrowded steel industry, Hangang still does not consistently make a profit. But the shopping spree did send production surging. In the decade after 1996, its output rose 350 per cent.

Shimmering yellow and raging red, Hangang's flare stacks burn off waste gases and inflame the night sky. A fleet of diesel locomotives hauling coal shakes the farmhouses and apartment buildings that hug the plant's outer walls. For Handan's 8.5 million residents, and especially the tens of thousands who live in the plant's immediate shadow, the complex is a noisome, noxious, money-spinning, job-creating leviathan.

Tian Lanxiu said she and other villagers learned to cope with Hangang's emissions. People do not eat outdoors, she said, to avoid black flakes on their rice. If her children cannot fall asleep at night, she stuffs their ears with cotton. Some people in Mengwu have died young, she said, often of heart disease or cancer. She has no evidence to connect their deaths to the steel mill, but says she has few doubts herself.

A 2006 study by the city and Tianjin University found abnormally high levels of chemicals of the benzene family attached to coal dust particulates around Handan. Airborne concentrations of benzopyrene, a byproduct of coking that some studies have linked to lung cancer, were just below the level measured in two of the country's most polluted industrial areas, Lanzhou and Taiyuan, and 100 times the levels measured in London, the study said.

Hangang officials once considered moving their older, more heavily polluting production lines farther west of the city. Local environmental officials told state news media in 2005 that if the steel mill did move part of its operations, sulphur dioxide levels in Handan would drop 65 per cent. Hangang ultimately elected not to move its older facilities, several people who work at the mill said, because the cost was prohibitive. Instead, Hangang and Shanghai-based Baoshan Iron and Steel teamed up to build another steel mill at the new site. Hangang's old plant remains in operation.

People who live near the plant have staged scattered protests about its pollution for years. Two years ago, Tian and a group of mostly older women sat on railroad tracks leading into Hangang and unfurled a banner that said 'Don't darken our skies'. Their sit-in blocked a train. They demanded that Hangang arrange for them to move far from the plant, Tian said. Hangang declined to do so. But it later agreed to pay them a subsidy in lieu of moving, which the villagers call a 'pollution fee'.

China surpassed the US to become the world's largest steel producer 10 years ago. Since then, steel production in both the US and Germany has barely budged, while China has left them in the dust. Its mills have increased their output five-fold over the decade, to about 38 per cent of the world's total. That is a realisation of Mao's dream. But steel has also proved a curse. China has 77 large steel mills like Hangang, and hundreds of smaller rivals. They have so much excess capacity that production of some basic steel products has become unprofitable at home and abroad. Worse, steel pollutes more than any other industry in China, perhaps in the world.

Despite a government-mandated efficiency drive, steel will use 11 per cent more power this year than last, fully one-tenth of the country's total energy supply, according to the China Iron and Steel Association. Along with aluminium and cement, steel is the biggest reason China added 90 gigawatts of generation capacity this year, the third year in a row in which it will increase its power output by more than the total capacity of Britain. About 85 per cent of those new power plants burn coal.

Transfer of pollution

The International Energy Agency, which had predicted that China's carbon emissions would not equal those of the US until 2020, now thinks China took the lead this year.

The transfer of pollution to China also complicates international efforts to cut greenhouse gas emissions and agree on a plan to succeed the Kyoto Protocol, an issue that will be under discussion for the next two years. One apparent benefit of China's industrial rise is that developed countries have slowed or cut their carbon emissions, a political and environmental boon as pressure to combat climate change has increased.

Even the US, which has declined to set limits on carbon emissions, has recently shown slight declines. But the gains are illusory. A study by researchers at Carnegie Mellon University found that if all the goods that the US imported between 1997 and 2004 had been produced domestically, America's carbon emissions would have been 30 per cent higher.

From Beijing's perspective, its exports of steel and other 'carbon-intensive' products provide one more reason - along with its still moderate per capita emissions and its low standard of living - for rejecting mandatory caps on carbon emissions. Rich countries, it says, should cut their own emissions sharply and transfer technology so that China will not pollute as much as those countries did when they had their industrial booms.

Some leading environmental economists agree. 'The footprint of the rich countries is very large, because they lay claim to resources in other countries,' said R Andreas Kraemer, director of the Ecologic Institute for International and European Environmental Policy in Berlin. He and other experts say wealthy countries may have to reduce their consumption as well as their production of carbon in the future. That would oblige them to count what they import from China and elsewhere.

But that idea is notional, while heavy industry's shift to China is inexorable. -- NYT