INSIGHT: China takes control of the environment

25 February 2008 12:52  [Source: ICIS news]

By John Richardson

China targets environmental reformSINGAPORE (ICIS news)--The ancient proverb, “the mountains are high and the emperor is far away” has often been used by western commentators to describe the difficulty in enforcing central government legislation across such a vast country as China.

A quick search online reveals a plethora of recent news articles that quote the proverb. The belief seems to persist that the writ of Beijing remains weak in everything from trade liberalisation to energy conservation and environmental protection.

However, there is a growing groundswell of opinion within the chemicals industry that on one particular issue - the environment - the government is effectively enforcing a significant shift in priorities.

“Two years ago, it was all about economic growth at the expense of just about everything else,” said one Beijing-based chemicals consultant.

“But what we are now seeing is a genuine and effective focus on sustainable development.

“Project approvals are taking longer and in some cases are not being given at all. Older chemical plants which use outdated processes and with poor waste-water treatment and emissions standards are also being closed down.”

The problem for anyone trying to win approval these days is that emissions standards are being set for cities, regions and provinces.

A chemicals project has to not only employ the latest technologies and best environmental standards, but has to also fit into the bigger picture. Approval for a state-of-the-art plant will still be rejected if it would push a particular city, region or province over an emissions target.

Companies have to either scrap projects or shut down existing capacity in order to help keep to pollution targets.

Coal-to-chemicals projects in some western provinces may also struggle to get approval because of high levels of pollution from existing coal consumption.

The muscle of the State Environmental Protection Administration (SEPA), the main environmental enforcement body, has been increased.

China’s highest executive organ, the State Council, is reportedly helping SEPA enforce legislation throughout the country.

Rumours are afoot, supported by senior China observers, that SEPA could be upgraded to full ministry status - giving it even more authority.

This might occur as soon as next month during the annual meeting of the National People’s Congress (NPC).

Legislation is becoming more stringent and is constantly evolving. For example, the consultant believes that guidelines for chlor-alkali and sulphuric acid producers could soon enter the statute book.

And crucially, local officials are being held accountable for emissions levels and overall environmental standards in their cities, regions and provinces.

“This is serious. If, for instance, there is an environmental incident involving a chemical plant, the local official can be in a great deal of trouble,” the consultant added.

Just how much trouble is unclear, but it’s worth noting that local officials were executed in 1998 during the crackdown on smuggling and more recently as part of efforts to reduce corruption.

In addition, next month’s NPC meeting could see the creation of the long-awaited Energy Ministry, although recent press reports suggest that there could be a further delay.

The ministry would be able to devise a more co-ordinated and effective policy for efficient energy use, which is currently the responsibility of several different ministries.

But the sceptics point to the power of relationships as holding great potential to still override the authority of Beijing. A well-placed local official might continue to have more effective power than his central government superior because of guangxi.

However, Arthur Kroeber of Dragonomics, a research service focusing on the China economy, writes: “The idea that central government has no control over the local governments is one of the commonest and - we are sorry to say - silliest one-liners about China.”

His point is that while it might have never been practical to enforce all the “100 items on a local official’s to-do-list”, the top priorities have always been implemented.

Top priorities include the environment and energy conservation as China enters a new era to follow the period of economic development initiated by Deng Xiaoping, says Kroeber.

Often-used government catchphrases are “a harmonious society” (meaning less social unrest) and “the scientific concept of development” - sustainable development in western terms. 

The drive toward sustainable development does not mean multi-party elections and powerful non-governmental organisations blowing the whistle on polluters.

Political and administrative reform will instead be the tools employed; in other words, tackling corruption, reducing the influence of local government and a more efficient bureaucracy.

But the sceptics say China will find it impossible to rectify its environment problems without western-style openness.

“For as long I have been visiting China [23 years], people have been saying that further progress will only be possible if there are fundamental economic and political changes. And for the last 23 years, these people have been proved wrong,” says Kroeber.

But he, of course, recognises, as does anyone who knows anything about China, that the environmental problems are huge.

The World Health Organization estimates that 750,000 people are dying every year in China from polluted air and water.

More than 75% of river water flowing through China’s urban areas is unsuitable for drinking or fishing with 700m people drinking water contaminated by animal or human waste.

And still, critics point to lack of enforcement of environmental legislation as a big concern.

“SEPA’s recent efforts have been praiseworthy, but the department has limited powers to enforce the law,” said Song Xinzhou, founder of the website Greener Beijing.

“Local governments’ attitudes when faced by SEPA inspection teams reveal their opinion of environmental protection. As soon as their interests are infringed on, they react fiercely.”

However, radical change might take time - as was the case with Den Xiaoping’s decision in 1978 to open up the economy. For example, private home ownership wasn’t allowed until 2000.

And, as we’ve already stated, chemical industry opinion already points towards significant changes in operating conditions at the ground level.

A slowdown in the approvals process is not the only consequence of this shift in the emphasis towards sustainability.

There has also been a rationalisation of non world-scale domestic chemicals capacity, as plants with old technologies and poor standards of environmental protection tend to be small in scale.

Recent closures have included many vinyl chloride monomer (VCM) facilities using acetylene, or calcium carbide, technology.

Many of these plants should have been shut down years ago, but were able to continue operating because of poor implementation of environmental legislation and soft loans from banks.

Another major reform objective is to improve the lending practices of the state-owned banks now that the priority is no longer just rapid economic development. This could mean many more plant closures in the next few years.

This could tighten supply and demand balances in some markets.

The closures would also be good news for western companies which have had to employ good environmental standards and have always had to carry a genuine cost of capital.

Competing interests will get in the way of the environmental shake-up and reforms might end up being piecemeal and painfully slow.

But to quote another Chinese proverb, “a journey of a thousand miles begins with a single step”.

By: John Richardson
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