Sustainable Business Focus Group Quarterly Update – Q1 2016

Published on 2016-05-13

In March this year the environment minister Chen Jining described reforms to make environmental enforcement and monitoring agencies at the city/county level report directly to provincial environmental protection departments rather than local governments.

China’s Grip on Pollution Tightens

Minister of Environmental Protection Chen Jining said in March that average ambient levels of PM 2.5, the most dangerous air pollutant, were down by 14.1 percent in 74 key cities last year, the first year after China established a national PM 2.5 standard of 35 ug/m3. These results were corroborated by NASA satellites.

As anyone living in China will tell you, there is still a long way to go and China’s regulatory control of pollution has been tightening in recent months. The new Environmental Protection Law (EPL) is hitting polluting enterprises hard and environmental reforms will further enable effective enforcement of China’s strict environment laws.

Environmental Law Implementation

According to the Ministry of Environmental Protection the new EPL has resulted in 715 daily penalty cases last year with penalties totalling 569 million RMB, plus 4,191 "sealing up and detention" cases where polluting factories are shut down and those responsible detained by the authorities.

In March a Zhejiang court upheld a decision fine three chemical companies who dumped 26,000 tons of hazardous waste into rivers 78 million yuan. Ten people including the heads of the three companies received jail terms ranging from one to none years.

The new EPL also enables environmental NGOs to bring public interest litigation against polluters. Friends of Nature and Fujian Green Home filed the first lawsuit under the EPL in Fujian Province, petitioning for compensation and ecological recovery of forest and land damaged by an unlicensed quarry. In October 2015, the court supported almost all the NGO claims and awarded compensation for environmental damage, ecological recovery fees and litigation costs.

But it is not only the new EPL that is being enforced. In 2015 the Ministry of Environmental Protection used existing legislation to inspect 1.77 million enterprises, prosecute 191,000 enterprises, order 34,000 enterprises to cease production and 20,000 companies to close. Altogether there were more than 97,000 administrative penalty cases at all levels of environmental enforcement, with fines totalling 4.25 billion RMB, a 34% increase compared to 2014.

Regulatory Change

China’s difficulty in implementing its relatively strict environmental protection laws has been due to local protectionism. Local environmental bureaus are hired, managed and paid by local officials who are measured on the increase of GDP in their jurisdiction, and are unlikely to punish polluters.

In March this year the environment minister Chen Jining described reforms to make environmental enforcement and monitoring agencies at the city/county level report directly to provincial environmental protection departments (EPDs) rather than local governments.

What this Means for British companies

While Chinese competitors who long have escaped punishment for environmental pollution are having to spend money on environmental clean-up, British companies who source in China should make sure their suppliers are in compliance with environmental regulations, and understand the risks if they are not.