Reasons Behind Closing Factories

In a perfect globalized circuit, if you switch on your air conditioning in Beijing, you might cause the closure of a factory in the countryside or ceasing the smoke of a chimney when you start the engine of your car. Energy efficiency and pollution are inextricably linked and together may lead to a worrisome conclusion: China consumes much, too much, inefficiently for sure.
The World Bank is clear in its position: Chinese industries use much more energy than the ones in the industrialized countries for the same output. Beijing is aware of this and promised a reduction of 20 percent in five years of its “energy intensity” i.e. the ratio between consumption and final output. Over the last four years the reduction was in the range of 12-13%, which might cause the final five-year target to be unreachable.
Now the government has the intention to use its iron fist to meet the deadline. Last August it gave orders to shut down 2,087 factories, accused of poor energy efficiency. The closure will affect cement factories, coking plants and steel, aluminium, and paper mills spreading all over the country. From now on, excessive energy consumption and inefficiency in its usage will constitute a valid reason to be closed.
The order, already in place, is noble and late at the same time. It aims to bring modernity to antiquate plants, able in the past to absorb inputs, but not improved in quantity and added value. They should learn that time and energy is not inexhaustible and their consumption must be proper and wise.
Local governments fear to lose power and face social unrest with so many plants closures. But the initiative reflects the choice of the past, when the investment was the driving force of the Chinese growth. Still today it accounts for over 40 percent of GDP and its contribution to the 2009’s GDP growth surpassed 90 percent.
The country became over the years a titanic machine for goods. This change might be the reason behind China’s determination to curb wastes. Environmentalists applauded Wen Jiabao’s draconian decision while economists, on the other side, are concerned. They are afraid the invisible monster of overproduction is behind the corner.
If supply is much bigger than demand, they know you must find new consumers. But the West is hardly recovering, while the rest is still too small to compensate. In this case, shut down factories can be a drastic shortcut and a disturbing signal.