Shanghai’s drive to become Global Financial Center…

Shanghai is cracking down on polluters with the introduction of stricter fines to combat the hazardous smog levels that are testing its drive to become a global financial center.

Beginning tomorrow, the city will boost the maximum penalty for pollution fivefold to 500,000 yuan ($82,000). Repeat offenders, whether companies or individuals, risk additional fines.

The penalties are designed to address the growing problem of deteriorating air quality in China’ssecond-most populous city. Dirty air undermines quality of life and threatens to discourage foreign financial industry talent from choosing the city over places likeHong Kong or Singapore as it tests open-market policies with a free-trade zone.

“High-end financial talent usually has a high work intensity combined with greater mobility,” Li Zhiguo, an associate professor from Shanghai’s Fudan University, said by e-mail. “They’re more sensitive to air quality issues.”

Shanghai’s level of PM2.5, the small particles that pose the greatest risk to human health, averaged 62 micrograms per cubic meter in 2013, almost double the national standard of 35, the Shanghai Environmental Protection Bureau said in its annual environmental report. The average PM2.5 level in major financial hubs globally is 20, Fudan University’s Li said.

Air Quality Data

In December, Shanghai experienced its worst pollution since the government began tracking air quality data, with levels of PM2.5 hitting as high as 602. Airline flights were canceled and people were forced indoors.

“Beijing used to be more of an issue in terms of air quality, but over the past year we are hearing more candidates expressing concern over it in Shanghai too,” Emma Wang, a Shanghai-based consultant with talent management company Egon Zehnder International Inc., said by e-mail. “The air quality issue is causing increasing concern but not to the extent that candidates make career decisions because of this.”

The new rules, passed by legislators in July, ban the open burning of straw, leaves and plastic in the city. The government will also order heavy industrial polluters to stop production when smog levels rise to high levels.

China started to monitor and publish PM2.5 data for 74 cities last year and expanded the system to 190 cities this year, said Huang Wei, Greenpeace’s climate and energy campaigner in Beijing.

In the first six months of 2014, Shanghai’s PM2.5 level dropped to 56.1 micrograms, though still exceeding the national standard, according to Greenpeace.

Pollution Response

Air pollution is changing Shanghai’s cityscape in ways large and small.

To reduce the risk of exposing runners to pollution, the Shanghai International Marathon will be held on Nov. 2 this year, a month earlier than usual, the Shanghai Daily reported March 6, citing the Chinese Athletics Association.

The city is also relocating steel and chemical plants and raising quality standards for gasoline. Baosteel Group Corp. will cut steel capacity in Shanghai by 2017 and establish a new plant in the southern port city of Zhanjiang. China Petroleum & Chemical Corp. (386) plans to move part of its refining capacity away from urban areas.

“People have become more aware about PM2.5 and environmental issues over the past three to four years,” said Cindy Xin, founder and managing director of Beijing Signature-Search Business Consulting Co., a recruiter hiring executives for financial institutions.

Still, only in recent years have job candidates begun to forgo career opportunities on the Chinese mainland in favor of jobs in Hong Kong because of environmental concerns, Xin said.

Financial Center Drive

Shanghai’s ambitions are rooted in a push by the State Council to make the city a global financial center by 2020. Moreover, the city aims to boost financial industry employment to 320,000 by 2015 from 230,000 in 2010, according to a government statement from October 2011 outlining a five-year plan for the industry.

That goal pits the Chinese city of 24 million against current financial hubs such as Hong Kong and Singapore. Hong Kong is ranked by Bloomberg as the best place in the world to do business while Singapore places fourth. China was 28th.

HSBC Holdings Plc and Citigroup Inc. are among 23 banking institutions that have set up sub-branches in Shanghai’s free-trade zone. The 29-square-kilometer (11-square-mile) area was inaugurated in September 2013 to test policies that trim government controls in areas includinginterest rates and yuan convertibility. The closest part of the zone is about 20 kilometers east of downtown Shanghai.

Family Decisions

For all the concerns about Shanghai’s pollution, the city ranked only 130th among China’s top polluted cities in the six months through June, according to Greenpeace calculations based on government statistics. Beijing was China’s 29th most polluted city. Hebei province, the nation’s top steel region, placed at the top of the list.

Exposure to PM2.5 pollution contributed to an estimated 8,572 premature deaths in Beijing, Shanghai, Guangzhou and Xi’an in 2012 and more than $1 billion of economic losses, according to a study by Greenpeace and Peking University’s School of Public Health.

Tougher measures are needed to clean the air, Fudan researchers led by Li and former Deutsche Bank AG economist Ma Jun said in a December report. New vehicle growth should be limited to 2 percent per year, more railways should be built and the use of clean energy, including natural gas, should be expanded, the report said.

For the families that make Shanghai home, even more aggressive steps will need to be taken, they say.

“Every morning, the first thing we do is look at the pollution index,” said Yao Zongxiu, 36, a mother of two and the China general manager of French game company Asmodee Group.

Yao, whose French husband is a financial director at a power equipment company in Shanghai, won’t rule out a change in location.

“We are staying in Shanghai because of our jobs,” Yao said. “But honestly if there is the same opportunity in other less polluted cities, we won’t hesitate to move.” Bloomberg