China Now the World’s Smokestack It is Absorbing Work That Fouled Skies of Europe Choking on Growth

By Joseph Kahn and Mark Landler

Ninth in a series:

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Jake Hooker and Ma Yi contributed reporting from Beijing and Handan. Sarah Plass contributed reporting from Dortmund and Frankfurt.

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When residents of this northern Chinese city hang their clothes out to dry, the black fallout from nearby Handan Iron & Steel often sends them back to the wash.

Half a world away, neighbors of ThyssenKrupp’s former steel mill in Dortmund in Germany’s Ruhr Valley once had a similar problem. The white shirts men wore to church on Sundays turned gray by the time they got home.

These two steel towns have an unusual kinship, spanning 8,000 kilometers, or 5,000 miles, and a decade of economic upheaval. They have shared the same hulking blast furnace, dismantled and shipped piece by piece from Germany’s old industrial heartland to Hebei Province, China’s new Ruhr Valley.

The transfer, one of dozens since the late 1990s, contributed to a burst in China’s steel production, which now exceeds that of Germany, Japan and the United States combined. It left Germany with lost jobs and a bad case of post-industrial angst.

But steel mills spewing particulates into the air and sucking electricity from China’s coal-fired power plants account for a big chunk of the country’s surging emissions of sulfur dioxide and carbon dioxide. Germany, in contrast, has cleaned its skies and is now leading the fight against global warming.

In its rush to recreate the Industrial Revolution, which made the West rich, China has absorbed most of the major industries that once made the West dirty. Spurred by strong state support, Chinese companies have become the dominant makers of steel, coke, aluminum, cement, chemicals, leather, paper and other goods that faced high costs, including tougher environmental rules, in other parts of the world.

China has become the world’s factory, but also its smokestack.

Dortmund, where ThyssenKrupp once made steel, still suffers from high unemployment because of the loss of jobs to lower-cost countries like China. But Germans can buy Chinese-made iPods, washing machines and cargo ships at prices that, because of lax pollution controls, do not reflect the toll on the environment. And outsourcing of polluting industries has given them cleaner air and water.

“It seems to me that China is making all the mistakes that we made in the 19th century,” said Wilhelm Grote, an environmental regulator in Dortmund, who recalls washing his father’s car as a child, only to see it immediately blanketed by soot. “They will find it is much more expensive to fix up later than to do it right from the start.”

Having ignored the environmental consequences of its industrial binge for years, the Communist Party leadership now says it is determined to develop a cleaner economic model. Beijing has tried to enforce ambitious targets to improve energy efficiency and reduce emissions, though so far they are unmet.

There are few signs, however, that Chinese officials have real regrets about becoming the world’s hub of heavy industry. Investment in new plants and equipment for steel, aluminum and cement has risen sharply even as central planners warn that the sector will get less state support. Chinese steel exports to the European Union are expected to double this year from the record set in 2006.

Five hundred kilometers south of Beijing, the city of Handan is both a beneficiary and a victim.

Hangang, as the local steel mill is commonly called, is a government favorite, having received permission to list its shares on the stock market and expand production. That is even though, like many of China’s largest steel companies, it lies within a crowded city.

Residents on the west side of Handan live in a miasma of dust and smoke that environmental authorities acknowledge contains numerous carcinogens. After public protests, the company agreed to pay an annual “pollution fee” to compensate some neighbors.

In the 1990s, Hangang came under pressure to turn a profit. It eliminated guaranteed perks and bonuses. Its managers decided to jettison their focus on steel bar, steel wire and other construction materials and to make sheet metal, used to make home appliances and cars. That required a major upgrade.

Backed by state bank loans and a listing on the Shanghai stock market, Hangang embarked on an overhaul. But its ambitions far exceeded its budget. The company needed a cheap and radical solution to transform the mill.

The answer came from Europe, especially from the Ruhr Valley.

The Ruhr had been the engine room of German industry since the mid-19th century. It was rich in coal and Prussian zeal. The region’s big steel groups, Thyssen, Krupp and Mannesmann, forged the weapons for Germany’s armies and later the sheet metal for its automobiles.

But by the 1960s, Germany’s industrial golden age had begun to wane. Miners had to dig deeper to extract coal, which became uneconomical. Labor unions won higher wages and shorter hours. The reunification of East and West Germany raised the tax burden and subjected West German companies to subsidized competition from the East. Steel mills also came under heavy government pressure to install the latest environmental and efficiency controls.

“In the 1980s, we still had a dream that it was just a temporary slump and we would grow strong again,” said Michael Schwarze- Rodrian, director of the Ruhr Business Development Agency. “But pressures were too great. Our time had passed.”

Thyssen and Krupp merged their steel operations in 1997 and consolidated production in Duisburg, on the Rhine. The steel mills in Dortmund, called Phoenix, which had been one of Germany’s largest since before World War II, were slated for closing and probably the scrap heap.

That is, until Hangang got word, through a broker in Hong Kong, that it could buy a relatively sophisticated German blast furnace for a small fraction of what a new one would cost.

“The reshuffle of the world steel industry gave Hangang this opportunity,” Liu Hanzhang, chairman of Hangang, told local media after he bought the Phoenix furnace in 1998. “Some people think we are a low-tech steel mill. We will become first-class.”

Facing stiff competition in China’s overcrowded steel industry, Hangang still does not consistently make a profit. But the shopping spree did send production surging. In the decade since 1996, its output rose 350 percent.

Shimmering yellow and raging red, Hangang’s flare stacks burn off waste gases and inflame the night sky. A fleet of diesel locomotives hauling coal shakes the farmhouses and apartment buildings that hug the plant’s outer walls. For Handan’s 8.5 million residents, and especially the tens of thousands who live in the plant’s immediate shadow, the complex is a noisome, noxious, money-spinning, job- creating leviathan.

Hangang officials declined several requests to discuss production and environmental controls. But the company has said in domestic news media interviews that, along with the upgrading of its production facilities, it has installed pollution-control equipment and improved the area’s environment. Government officials in Handan also declined to discuss the plant.

China first surpassed the United States to become the world’s largest steel producer 10 years ago. Since then, steel production in both the United States and Germany has stood still, while China has left them in the dust. Its mills have increased their output fivefold over the decade, to about 38 percent of the world’s total.

The International Energy Agency, an energy policy and research group based in Paris, predicted as recently as a few years ago that China’s carbon emissions would not reach those of the United States until 2020. But industrial production and coal use have grown so much faster than estimated that the agency now thinks China took the lead this year.

China has become the leading polluter because it eagerly courted – and the world more reluctantly ceded – the heaviest polluting industries. China now supplies more iron and steel to Europe and the United States than any other country. It is also the biggest exporter of stone, plaster and cement.

Chen Kexin, a Chinese Ministry of Commerce economist, said weak environmental laws and still-inexpensive power, even more than low labor costs, had given Chinese steel makers leeway to undercut prices elsewhere.

“The shortfall of environmental protection is one of the main reasons why our exports are cheaper,” Chen said. “This is hardly an ‘edge’ that we should be proud of.”

In fact, Beijing has begun to discourage steel exports. It not only eliminated export tax rebates on many steel products in April but also slapped an export surcharge on some. Officials expect export growth to slow.

But Chen said China now so dominated the international steel trade that any drop in its exports would raise prices abroad, keeping local steel competitive. “It could take years to restore a more normal trade balance,” he said.

From Beijing’s perspective, its exports of steel and other “carbon-intensive” products are one more reason – along with its still-moderate per capita emissions and its low standard of living – for rejecting mandatory caps on carbon emissions. Rich countries, it says, should cut their own emissions sharply and transfer technology so that China will not pollute as much as they did when they had their industrial booms.

Some leading environmental economists agree.

“The footprint of the rich countries is very large because they lay claim to resources in other countries,” says R. Andreas Kraemer, director of the Ecologic Institute for International and European Environmental Policy in Berlin. “China says, ‘Yes, our emissions are going up, but that’s because we make the goods that were previously made in Europe and the U.S.’ “

Germany is China’s mirror image. Polluting factories have migrated abroad. Coal mining has withered. Since 1990, Germany has reduced its annual carbon emissions by 19 percent, a period in which China’s contribution to global warming has gone from negligible to dominant.

Germany’s transformation dates from the 1970s, with the first attempts to limit lead in gasoline. But it gained momentum in 1980, with the founding of the Green Party, the first environmental party to gain national prominence in Europe.

In 1986, prodded partly by the Chernobyl nuclear disaster in the Soviet Union, West Germany established a ministry dedicated to protecting the environment. It had plenty to do. Germany’s forests had been badly damaged by acid rain, soot and chemical pollutants from factories in the Ruhr. The Rhine River, which flows past the western edge of the Ruhr Valley, was devoid of marine life.

German reunification in 1990 saddled the country with East Germany’s low-grade brown coal plants – the dirtiest in Europe. Germany cleaned up the East, shutting many low-efficiency factories, and achieved sharp reductions in carbon emissions.

Dortmund and other Ruhr cities never fully recovered jobs lost to China. The unemployment rate in the city still hovers around 15 percent, 50 percent higher than the national average.

Yet, the region is a laboratory for how an industrial economy can make the transition to a post-industrial era. Once a byword for grit and grime, where drivers turned on car headlights midmorning to see through the haze of coal smoke, it has remade itself as a service economy and, increasingly, a cultural center.

In Essen, Zollverein, a depleted coal mine, has been converted into a museum and performing-arts venue. The complex is now a Unesco World Heritage Site.

Dortmund, which in 1960 had 40,000 people working in steel mills, now has barely 3,000. But there are 12,000 new jobs in information technology and 2,300 in nanotechnology, which took root here in the last five years.

Even the Phoenix site is rising again. The city has left two old blast furnaces there as the corroded centerpiece of what they hope will be an outdoor performing-arts complex. The government is spending $500 million to dig up the soil and remove chemical residues from a half-century of steel making.

“It took three generations to do this to the environment,” Schwarze-Rodrian of the Ruhr Business Development Agency said. “I think it’s reasonable that it will take a generation to fix.”

Originally published by The New York Times Media Group.

(c) 2007 International Herald Tribune. Provided by ProQuest Information and Learning. All rights Reserved.