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China tackles environmental and economic woes

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Downward trend

Factory activity in China continued its downward trend in April for the fourth consecutive month, though the pace of decline is reportedly slowing. The government has taken steps to underpin growth, but has so far steered clear of full on stimulus measures, saying the key is job creation and it doesn’t matter if growth falls shy of the targeted 7.5% for the year.

According to Reuters, the HSBC/Markit Purchasing Managers Index (PMI) for April was 48.3, i.e. in contraction rather than expansion. Though this was above the 48 recorded at the end of March, analysts are not inclined to see this as a turning point marking the beginning of an upswing in the economy.

China’s central bank has announced plans to cut the amount of deposits rural banks must hold as reserves, in an effort to combat the slowdown by releasing liquidity into the market. Reuters reports that some economists expect a cut in the reserve requirement for all banks at some point this year, as the pressure increases on the central bank to pump liquidity into the economy. A spokesman for the National Development and Reform Commission told press “We will not take short term strong stimulus in response to momentary economic fluctuations”.

Environmental pressures

Meanwhile, industrial China is also facing more stringent environmental regulation and the threat of environmental taxes as the country attempts to tackle a sever air pollution problem. A new report also claims that at least 60% of China’s underground water resources are unsuitable for drinking directly, being either ‘very poor’ or ‘relatively poor’ quality according to a survey by China’s Ministry of Land and Resources, which monitored 4778 areas in 203 Chinese cities in 2013. This marks a 2% decrease from 2012. Water regarded as ‘relatively poor’ must be treated before drinking. The report states that water quality worsened in 754 areas being monitored and improved in 647 sites. The pollution is blamed on rapid economic growth and inadequate environmental oversight. Industrialisation is also blamed for the pollution of one-fifth of the country’s farmland. In all, 71 of 74 cities monitored in 2013 did not meet state environmental standards for various reasons. There is some concern that air pollution will impede photosynthesis, which could damage crop production.

Battling environmental and economic woes will no doubt keep the Chinese industry busy in the coming years. On the other hand, falling short of 7.5% growth still puts China a long way ahead of much of the western world.

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