I want you to take a guess…a simple guess.
The pictures below are taken from China’s largest ecommerce platform, Taobao.com. It is operated by Alibaba [NYSE:BABA].
These pictures are all showing one type of consumer product. I want you to take a guess at what it is.
And here is a clue: it is a life-saving device.
If you said anything other than ‘air purifier’, you were wrong.
This week, Beijing officially issued its first smog ‘Red Alert’ in history. Some days ago, Beijing experienced some very severe smog conditions, which received a ‘Yellow Alert’.
During the Yellow Alert, visibility dropped to below 100 meters. Air quality dropped to…well, why don’t you take a look for yourself?
I saved some images from my friends’ posts on Wechat in Beijing during this yellow alert. Wechat is China’s top social networking app, operated by Tencent [HK:0700].
Here are those ‘beautiful’ pictures.
Top-left: Beijing CBD skyline; Top-right: People dancing in the Beijing Olympic Park; Down: Inside a shopping mall
From left to right: various apps reporting the air quality index in Beijing, the last one is placed inside a room.
During this Yellow Alert, Xi Jinping happened to be attending the Paris climate summit. Below is a screen shot of a CNBC headline on that day.
Other headlines in that week included: ‘Airpocalpyse in Beijing as Xi touts a greener China’, ‘Is this the end for coal?’ and ‘Bill Gates to launch massive clean tech initiative’.
There is no choice this time
My point is extremely simple. China, the biggest greenhouse emitter in the world, is at the end of its rope when it comes to pollution.
I am not even talking about climate change on a global scale. A lot of people don’t buy the climate change argument and the scientific numbers behind the argument remain debatable.
However, while climate change can wait, people can’t wait for clean air. What matters to people at the end of the day is that they and their children need to be able to breathe.
And in China, they can’t…
What does that mean for China — a country that will be 25% bigger than the US economy in five years on a Purchasing Power Parity basis?
For one, it means social unrest at the existing level of pollution. Secondly, it means massive health effects associated with lungs and throats, particularly for young children and the elderly. The negative health effects will undoubtedly become more pronounced in the next few years.
But that’s not all. It also means MORE social unrest IF Beijing is not seen doing anything about this challenge.
I want you to take this in for a moment. How would you feel if you are choking on air and there is absolutely nothing you can do to stop it?
Pretty depressed, yes? That’s exactly how my friends feel in Beijing. I know because I asked them.
Recently, the Chinese yuan was inducted into the IMF SDR (Special Drawing Right). This was another nod on the rising financial and political power of China in the world.
In the Mao era during ‘The Great Leap’, the slogan of the day was ‘to surpass Britain and to catch up with America’.
‘The Great Leap’ was Mao’s economic experiment. It ended in massive famines and countless deaths.
But today, the ‘dream’ is finally coming true for Chinese nationalism.
However, it has come at a cost. A cost all too high for everybody.
This is the turning point
On the surface, the smog Armageddon in China dwarfs the economic slowdown concerns. However, the two actually stem from the same single problem — a lack of sustainable development.
You have heard about China’s rebalancing from manufacturing and exports to services and consumption.
In terms of free market economics, that makes perfect sense. As China’s secondary industries reach a point of gross overcapacity, it brings about a deflation in commodities and a slowdown in economic activities.
The other side of the coin is the sustainability dimension. People have traditionally overlooked this dimension in financial and economic analysis.
But as the social and political costs of unsustainable development increase, even an authoritarian government like Beijing has to make a U-turn if it wants to stay in power.
It has to change its energy mix to increase renewable energy and clean energy; it has to reduce the use of fossil-fuel based energy sources.
And China is doing that.
In my 83 page travel journal, ‘The Real China Revealed, The Insider’s Guide to the King of Emerging Markets’, I interviewed fund managers and brokers on their view of the sustainability issue in China. I also interviewed the CEO of a synthetic leather producer, which is identified as a major polluting industry.
The revelations were consistent with the state plans from the NDRC (National Development and Reform Commission). China is spearheading towards a more sustainable growth model.
Right now, we have a willing US and a desperate China. We also have an unwilling India.
What about coal, you may ask. No, coal is not going to be phased out any time soon. It powers more than 60% of China’s energy and it powers about 70% of India’s energy need.
But the growth of clean energy technology, and renewable, clean and nuclear energies are going to pick up.
That also means green investing is going to come back. As investors, you need to be looking into this area.
Emerging Markets Analyst, New Frontier Investor
Ed Note: This article first appeared in Money Morning.