chinese pollutionObserving the scope and pace of Chinese economic growth is fascinating for many Westerners, economists, business people and just interested Sinophiles. China is sui generis in so many ways: its size, its population, its “managed” economy, its multi-generational tradition of top down governance, its control of information. Now, China-watchers are seeing the nation grapple with the same issues that other nations have been dealing with for years: the conundrum of economic growth and environmental preservation.  In Michigan, the news from China could even affect our economy, as Chinese authorities are weighing the options of limiting car sales in order to curtail further air quality deterioration.

Auto makers sold 1.71 million passenger vehicles in March of 2014. The sales of cars are primarily to first time buyers. Foreign brands continue to have robust sales; GM and its Chinese joint ventures sold 313,000 vehicles in March and Ford sold 104,000 vehicles. China eclipses the US in total auto sales at this point with China selling 22 million vehicles, compared to the 15.6 million vehicles sold in the U.S.

At the same time, China has been experiencing worsening air quality issues and crippling smog. Although the most polluted cities in the world in terms of air pollution are actually in India,

Hangzhou, the capital of the relatively prosperous Chinese province of Zhejiang, enacted new laws that limited the numbers of cars that could be sold. The Hangzhou restrictions began on March 26th. There was a run on cars in the city up until that time, as people wanted to complete their purchases prior to the restriction becoming law.

China’s booming car sales could take a hit this year as the government steps up its battle against pollution.

Hangzhou isn’t the only city limiting car purchases and registrations. Auto sales in China’s largest cities could be limited to 300,000, while some smaller cities could have caps closer to 25,000. On top of that, a group of cities are even banning some cars from the streets on certain days to lighten traffic and reduce pollution.

Automakers are strategizing how to work around these new edicts. The auto companies may move dealerships and cars to cities that have the least restrictive sales caps or begin looking at boosting sales outside of China for the foreseeable future.

China’s smog is also hampering its effort to entice foreigners to work and invest in the country. Non-native Chinese who work in Beijing and other northern Chinese locations perceive the smog and air pollution as dangerous to their health. Business leaders report that convincing foreign executives to live in northern China is becoming problematic, according to a poll conducted by the American Chamber of Commerce in Beijing. Northern China has more factories and relies on coal burning plants to provide heat during the long and harsh winter. In contrast, non-Chinese don’t complain in the same way about Shanghai’s air quality, as Shanghai is in the south.

Beijing’s official air quality index (AQI), which measures airborne pollutants including particulate matter and sulphur dioxide, routinely exceeds 300, and sometimes hits levels higher than 500. This past fall, Harbin, a city of 11 million had multiple “hazardous air days”, during which schools and factories were closed and the use of cars was forbidden.

Beijing has only 500 inspectors who are empowered to investigate complaints about pollution and enforce regulations. The inspectors are handling 5,000-6,000 cases a month.