BEIJING/SHANGHAI (Reuters) – Amid a slowing economy and a slew of mixed signals from the environment ministry, China’s embattled local governments are facing a dilemma: do they go all out to curb smog this winter, or do their best to keep factories humming?

China has promised to put an end to a “growth at all costs” economic model, which has blackened its skies and contaminated large stretches of its water and soil. The government just embarked on another winter campaign against polluters in a dozen smog-prone provinces and regions.

Environmental compliance has become a key test of political loyalty among local officials, but this year they must plot a course that will also keep the economy on track.

That could be tricky, as China’s third-quarter growth is at its slowest since the global financial crisis a fact Beijing has acknowledged.

“Local governments in the polluting regions are working hard to reduce air pollution but also are exhausted,” said Zhu Shu, the regional director of the East Asia Secretariat of the International Council for Local Environmental Initiatives (ICLEI), a Bonn-based think tank that helps local governments tackle pollution.

Though local authorities have been asked to show more flexibility in cracking down on polluters, the new approach has already sown confusion. If officials show leniency, they are accused of chasing growth, but if they come down hard, they are considered brittle bureaucrats.

With the goalposts constantly shifting, few know how to strike the right balance, experts said.

“We have seen ‘name and shame’ statements from the Ministry of Ecology and Environment accusing (local governments) of either ‘failing to do their duty’ or ‘overdoing it in a wrong way,’” said a researcher with ties to the ministry who declined to be identified because he is not authorized to talk to the media.

A TRICKY BALANCE

China last year forced 28 northern cities to curb industrial output, traffic and coal consumption to reduce emissions of small, breathable particles known as PM2.5 by at least 15 percent from November 2017 to March 2018.

Economists with China’s Tianfeng Securities said last year’s controls – which included the closure of vast numbers of industrial plants, some permanently – would cost 40,000 jobs in the Beijing-Tianjin-Hebei region alone.

Heavy industrial cities throughout the north have struggled to diversify their economies, and delegates to parliament this year urged Beijing to provide more financial support.

The targeted cuts for 2018 are much lower, though the controls have now been extended to as many as 79 cities. Many are under pressure to cut PM2.5 by about 3 percent, but some are still making provisions to close up to half of their factories when required.

According to Reuters analysis of official government data, PM2.5 readings in the 79 cities stood at an average of 69.8 micrograms in November this year, 14 percent higher than the same period last year. Of the total, only 32 cities saw improvements over the period.

To minimize disruptions, companies in Hebei province – normally China’s most polluted – have also been placed into four categories, with only those in the lowest class subject to stringent shutdowns this year.

“From what I understand, the government is turning a blind eye as long as air quality is good enough for them to meet the targets,” said an official at a steel mill in Tangshan, Hebei’s top steel-producing base, who did not wish to be identified because of the sensitivity of the issue. “Production cuts are just a measure, not the final aim.”

Nevertheless, regions that missed targets last year will come under increased pressure to make deeper cuts.

Jincheng, which saw emissions rise and its economy tank in the first quarter, is still planning to shut at least half of its industrial plants during smog build-ups.

Authorities must also outperform neighbors. In Hebei, the poorest-performing counties and towns are fined 1 million yuan ($145,490) and the money is awarded to regions that overachieved. Officials from the worst-ranking districts also face disciplinary measures.

There are concerns that unfavorable weather conditions will put cities at risk of missing targets. An official with a government-run environmental think tank in the eastern Chinese province of Jiangsu said poor weather could to boost smog by 5-10 percent this year.

FLEXIBILITY

Last winter, a crude “one size fits all” approach to the war on pollution disrupted large parts of the industrial economy, with inspectors forcing companies to shut down whether they caused smog or not.

Environment minister Li Ganjie promised to set up dedicated inspectorates to help make enforcement more nuanced. Authorities were also encouraged to set their own targets based on local circumstances.

This year, they have also been instructed to help violators comply instead of simply shutting them down.

Environment ministry spokesman Liu Youbin told a media briefing in November that officials would be punished if they went too far – or not far enough. Hundreds have already been reprimanded.

While China wants to make long-term environmental improvements by devising new laws, raising standards, taxing pollutants and forcing companies to adopt cleaner production methods, it still relies on short-term crackdowns to meet its targets. Many local economies still depend on polluting industries like coal or steel.

“The core solution to this dilemma is to adjust the industrial structure,” said Zhu. “That is a problem they will face and have to deal with sooner or later.”

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