Analysis | How China’s pollution clean-up is driving up prices for shoppers
Cost of meeting environmental regulations is increasing companies’ costs and leading some firms to consider moving production abroad, according to analysts
The great Chinese environmental clean-up, now in full swing, is shifting the corporate landscape in unexpected ways and even stoking inflationary pressure that may soon be felt worldwide.
As President Xi Jinping’s government intensifies the fight against the country’s huge pollution problem, companies are scrambling to adapt to tighter regulation while investing in cleaner energy. In industries from steel to textiles and consumer goods, the resulting shakeout has left the survivors with far more pricing power. That in turn is reinforcing the already-resurgent factory prices that contribute to global inflation.
These trends are reshaping the business environment, according to Cui Li, Hong Kong-based head of macro research at CCB International Holdings.
“The environment clean-up is and will be a key driver of the industrial consolidation in China,” said Cui, who expects to see greater concentration in steel, papermaking and pharmaceuticals. “With costs rising from wages, land and pollution curbs, China’s manufacturers will have to invest and upgrade to survive. Those who survive will benefit.”
Take He Wenyong, manager of a mid-sized textile company that has supplied Walt Disney Co and its license holders. Amid a forced switch to natural gas from coal in his industry, the company, Shenzhen Yabi Textiles., is benefiting from past investments and eating up the market share of smaller competitors that could not foot the bill.
He said his company was now able to raise prices by eight per cent. “Those small, messy factories took up a third of market share. Now that they’re gone, everything is much better for us.”
