Pollution in China may dampen growth: analysts

China's economy has slowed and the world's largest emitter of greenhouse gases may be willing to accept lower growth rates if it means improved air quality, according to observers.

China is aiming for annual growth of about 6.5 percent, impressive in relation to other economies but below the country's previous growth rates. Last week, Beijing grappled with air pollution that was so rare that the capital city issued its first red alert. The dense smog crippled industry and transportation and affected more than 300 million people.

"If the new [GDP] rate means less growth in manufacturing and more in the service sector which could result in less pollution and a better environment, then I think that would be acceptable," said Kevin Chen, chief investment officer of Three Mountain Capital Management.

Chen joined others in a panel discussion at a forum sponsored by the Cheung Kong Graduate School of Business (CKGSB) in New York on December 10 said the nation's air pollution problems may result in the populace accepting a smaller level of growth if it results in less pollution.

"Less steel production might help to mitigate the pollution problem," added Blake Zhang, chairman of the Asian Financial Society and a vice-president at Deutsche Bank Securities.

"It depends on how low the growth is. If its 6 percent that should not be a problem," said Henry Mo, managing director and deputy chief economist at AIG. "However, if the growth is like 3 percent, then that could be a problem."

Zhou Li, an assistant dean at CKGSB, who moderated the discussion, said too much emphasis is placed on the raw GDP numbers. "We have become too GDP focused. What is important is the quality of GDP and where the growth will occur. Service-sector growth will also generate jobs," he said.

The panel also discussed the turmoil in China's stock market during the summer. Chinese stocks more than doubled in the 12 months ended June 12 as millions of investors bet heavily on stocks, often borrowing money to buy shares. Shortly after that, prices tumbled forcing the government to take aggressive action to halt the slide.

Zhang said the government's plan to introduce a stock-index circuit breaker next year to prevent the wild swings that accelerated the stock-market crash, may not work as intended.

"Circuit breakers come out of good intentions but that could also trigger a loss of liquidity in the market. Liquidity is very important for a market to function properly," Zhang said.

"Investors and regulators learned about leverage in the turmoil," commented Cao Huining, professor of finance at CKGSB, who noted that previously it was very hard to borrow money for stock purchases. "Leverage can be scary."

"China should develop a system of hedges and option strategies so investors have more tools to manage risk," said Chen.

paulwelitzkin@chinadailyusa.com