Monday, June 3, 2019

Economic Impact of Pollution: Article Analysis

Economic Impact of Pollution Article AnalysisLuis Andre Talavera NunezCONTEMPORARY ECONOMIC analytic thinkingAn analysis of Peter Cais expression Iron ore the victim in capital of Red Chinas smog crackdown in the Business Published the 26th of February 2015 in the website businessspectator.com.auEXECUTIVE compendiousPeter Cais article analyses the scotch mend of the pollution produced by the trade name factories in China and their repercussion in the steel mart and the conjure ore expenditures.The article takes as an example the city of Hebei, one of the virtually important steel producer centres of China, which suffers one of the most critical pollution levels of its history. The provinces strategic location close to Beijing, the Chinese capital is a contributor factor to the increment of smog in the metropolitan area. The social pressure that arises from this turn out is forcing the governing to take drastic decisions with potential socio-economic electrical shocks.New environmental standards were created in order to regulate the sacks. The sassy policies have the power to shut down any(prenominal) factory that does not meet the minimum standards. This is creating a lot of pressure on the industry and forcing the steel makers to trim output and, in some cases, to modify their assets.This new policies come in line with the Chinese economy slow down and the reduction of necessitate for the steel and its main resource, the iron ore. This has generated a crisis in the steel manufacturing industry that has seen a reduction of revenue and an increase of the operational cost in the last year.There is a potential risk of long plants shut downs due to an important number of the steel makers wont be fit to afford the high cost that an update represents. This is also a consequence of poor government regulations during the economic boom that did not stimulate the companies to reinvest the capital in new and cleaner technologies when the revenue was higher.The social pressure has compel the government to take strong policies orientated to reduce the steel production capacity with the get hold of to minimize and control the toxic emissions. This represents a massive economic regard for the government which will be affected by lower tax revenue and potential increase of unemployment.INTRODUCTIONThe Hebei province, well known as the spoiledgest steel producer in China and the second worldwide, contributor of the 22.5 percent of the national steel output is veneer a critical time. The reports demonstrate a fall of 0.6 percent from the total steel production in 2014 in comparison to the 2013 figures and Chinas total production is expected to drop 1.07% to 814 meg tonnes by 2015. (Stanway, 2015 the Australian, 2015). The main reason for this crisis is the reduction in demand for the Chinese food market and the new environmental policies that restrict the operation of plants that exceed the new emission standards (Li 2013). This environmental issue has situated the province within the top 10 most contaminated cities in China and has been affected peoples wellness critically reducing life expectancy by five years (Cai P., 2015 Stanway, 2015). As a consequence, there is a strong social pressure that pass along fast solutions to a problem that seems not to have a sustainable solution in the short consideration.This article address the following issuesThe economic impact of the reduction of steel productions output in the province of Hebei and its repercussion on the steel and iron prices in the short and medium border.The impact of the new environmental policies that force the shutdown of steels factories that dont meet the minimum emission standards.Reduction in the demand of steel, impact on the government revenue and increment in the unemployment rate.ECONOMIC THEORIES one and only(a) of the most important parts of the article is the dynamic of the Chinese steel market and its influence in the iron glob al supply. In the last decade the Chinese demand and supply for steel have been growing consistently drive by the strong urbanization process (World brace Association 2014). However, this figure is changing rapidly due to Chinas growth slowdown and a shift towards an economic model orientated to consumption and less steel dependent. The performance indicators demonstrate that the Chinese steel markets not in shape (Serapio. 2014), hardiness serious issues related to competitiveness, productivity, efficient logistics, infrastructure and technology. The chart below explains the relation between Supply and Demand during the last 7 years and the reduction in market growth as result of the deceleration.Figure 1 Source EYGM Limited. 2014.The effect of the reduction in steel demand has been reflected in lower steel prices as result of the existing excess of the capacity. The steel producers have no other option than become more competitive, orientating their efforts to improve producti vity and reduce costs in order to maximize the profits. According Agrawal (EYGM Limited. 2014), this highly competitive scenario will lead to a flatter marginal cost curve along the productive sector, reducing the breach between the competitors. This means that any fluctuation in the market variables will affect most of the participants evenly.THE PARTICIPATION OF THE GOVERNMENTWhat is the survey of the government? The Chinese government is facing two major issues. According Elliott (EYGM Limited. 2015), the two major contributor factors are the critical contamination levels in most of the major cities around the country as product of the poor regulation constitution to the steel market and the socio economic pressure to maintain an industry that provides munificent tax income and maintain low unemployment levels.As result of social pressure the government decided to apply new regulation policies with the aim to reduce the developed steel production capacity. The new industrial emission standards give the government the tools to shut down the plants that dont meet the new environmental requirements (Jiabao, Li. 2013). The article mentions that the pollution reduction technologies are expensive and under the current steel prices and many of the current steel producers are not going to be able to afford the investment. This exemplifies a clear normative economic, where the government identify a problem and prescribe solutions based on facts.Un-employment is an additional impact that has to be managed by the government. According Cais article, the new industrial policy could cost 200,000 direct jobs as well as another 400,000 indirect positions. In the short term the chances of a rapid migration towards a cleaner and environmental friendly industry are almost impossible due to the economic situation that the China is facing at the moment.. Here is where the government must evaluate different tools like tax incentives in order to stimulate the migration to cle aner industries in the medium term.One fact that was not mentioned in the article is that the government possesses participation in some factories these factories receive incentives that allow them to operate even in acquittance with the aim to maintain levels of employment. This creates a clear dead weight loss for the government (EYGM Limited. 2014). The government subsidies are illustrated in the graph belowFigure 2 Deadweight loss of government subsidy in the steel market.P1 is the original market price for the steel and Q1 is the original demand. Pc is the price that the consumer pays after the subsidy whilst Ps is the square price including the subsidy. Qs is the quantity of steel produced as result of the subsidy, this represent inefficient production.The area highlighted in red represents the deadweight loss to that the society pays as product of the government subsidy.CONCLUSIONCais article highlights the complex situation that the Chinese steel market is facing these da ys, as well as, the economic, environmental and social repercussion of its reduction capacity and the roll of the government in the market regulation.The article makes reference to production figures that can be easily tracked and verified in divers(prenominal) economic reports. There are two points that the article doesnt cover in deep. The subsidies of the government to some steel makers and how this affects the supply and the effect of the Iron Ore price fluctuations in the Chinese steel market.Its clear that the social pressure is changing the traditional political Chinese scenario, characterized by their authoritarian decision make at the moment to approve and put in practice government interest policies. The demand for a better air quality reflects a new scenario where the politicians are willing to listen and negotiate.The short term solution of shutting down factories that dont meet the environmental standards is only a policy that can alleviate the current contamination b ut does not provide a sustainable solution to the underlying problems Maintain the competitiveness of Chinese market under optimal environmental standards. Reduce unemployment and also guarantee the resources that the country required to continue growing sustainably.The priority in a long term is to promote the development of more environmental friendly industries that can produce the high end products that China will require in the future. However, this is a big risk considering the investment and time required to transform an industry that has been considered one of the most traditional and important in China.REFERENCESCai, P. (2015). Iron ore the victim in Beijings smog crackdown. Business spectator. Retrieved from http//www.businessspectator.com.au/article/2015/2/26/china/iron-ore-victim-beijings-smog-crackdown.EY Limited (2014). Global steel 2014, planning to profit from opportunity preparing for future demand. Retrieved from http//www.ey.com/Publication/vwLUAssets/EY_-_Global_ steel_2014/$ filing cabinet/EY-Global-steel-2014.pdfThe Australian (2015). Chinas steel production to fall. Retrieved from http//www.theaustralian.com.au/business/mining-energy/chinas-steel-production-to-fall/story-e6frg9df-1227208363291Serapio, Manolo. 2014 China steel demand shrinks for first time in 14 years as slowdown stingshttp//www.reuters.com/article/2014/09/25/us-china-steel-idUSKCN0HK0Z320140925Stanway, David. 2015. Steel output dips 0.6 pct in Chinas Hebei in 2014http//www.reuters.com/article/2015/01/26/china-steel-hebei-idUSL4N0V51DK20150126World Steel Association. 2014. World Steel in figures 2014http//www.worldsteel.org/dms/internetDocumentList/bookshop/World-Steel-in-Figures-2014/document/World%20Steel%20in%20Figures%202014%20Final.pdfEYGM Limited. 2015. Global steel 2014 Planning to profi t from opportunity preparing for future demandhttp//www.ey.com/Publication/vwLUAssets/EY_-_Global_steel_2014/$FILE/EY-Global-steel-2014.pdfJiabao, Li. 2013 Plant shutdowns likely as emission standards kick inhttp//usa.chinadaily.com.cn/business/2013-03/15/content_16310734.htmAmerican Economic Review. 1997http//www.swlearning.com/ibc/hall/pdf/CH1a_hl.pdf

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