CO2 is clear, isn't a component of smog and certainly doesn't cause respiratory problems. This air pollution is the old-fashioned kind that's a result of industrial activity that doesn't use scrubbers to keep the air clean. Ultimately, the Chinese government has decided that industrial competitiveness requires that it turns a blind eye to air pollution. The difficulty for China's current supremo, Xi Jinping, is that his predecessors could have mandated smog pollution controls when the economy was growing in the low teens, and the cost might have taken growth into the high single digits. Now that it is either growing in the low single digits or not growing at all, Xi is hard-put to clamp down on pollution, lest he takes the economy into recession, resulting in potential social unrest and his removal from power by his Party rivals.