Choking on the Cost of China’s Toxic Air

(Originally published here.)

Governments sometimes support rapid growth in manufacturing and construction by going easy on polluters. But the short-term benefits probably aren’t worth the trouble once you properly account for the long-term damage.

Two recent stories out of China are useful reminders of this point. Here is Bloomberg News describing the reluctance of expatriates to work in China because of the risks pollution poses to their health and that of their families:

About 48 percent of respondents to a survey in 2014 by the American Chamber of Commerce for Beijing and Northeastern China said they had difficulties recruiting or retaining senior executives in China due to the pollution. James McGregor, Greater China chairman of consultancy APCO, is moving to Shanghai in May after being in Beijing for 25 years and says his wife spends more time in Minnesota now, partly due to the pollution. To provide a clean work place, his firm installed air filters every 25 feet (7.6 meters) in their Beijing office, about a dozen devices for 30 staff members. Even so, employees need more medical leave than 18 months ago. “There are a lot of sick days, and sometimes our office in Beijing sounds like tuberculosis wards,” McGregor, 60, said. “People in our office are complaining they don’t feel good, they don’t have energy.”

Talented foreigners have provided Chinese companies with superior technology and managerial prowess. Good managers are hard to find in emerging markets, though they can have a big impact on productivity. If pollution makes China a less attractive place to live, the people who contribute the most to innovation and long-term growth will leave. That’s obviously undesirable.

Even worse is what happens to all the people who can’t escape China’s pollution. Pregnant women exposed to emissions from coal-fired power plants have children who seem to have much higher rates of genetic learning disabilities. Few things could be worse for a country’s growth prospects than an entire generation of people whose brains have been damaged by chemicals.

Then there are all the other diseases associated with air pollution that will lead to shorter working lives in the future and higher health-care costs. That means there will be less money spent on things people actually want. Michael Pettis, a finance professor at Peking University’s business school, has gone so far as to argue that China’s lax pollution regulations are among the many ways that the government transfers wealth from regular people to the owners of big politically connected businesses.

China’s new leaders seem to appreciate the magnitude of the challenge; whether they can accomplish much is debatable. One can only hope people in other countries have been paying attention.

To contact the writer of this article: Matthew C. Klein at

To contact the editor responsible for this article: James Greiff at


About Matthew C. Klein

I write about the economy and financial markets for Bloomberg View. Before that I wrote for The Economist on a fellowship provided by the Marjorie Deane Financial Journalism Foundation. I have worked at the world's largest hedge fund and read every FOMC transcript since May, 1987.
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