16 May 2008 00:00 [Source: ICB]
Improving the environment is top on the government's list of priorities, but enforcement might still be an issue
Will the new MEP's added muscle really cut pollution? What's your experience? Let us know through ICIS connect
THE OPTIMISTS would have you believe that a wind of change is blowing through China's chemical industry - and one that is not necessarily carrying a tell-tale aromatic or sulfur smell.
The decision to upgrade the State Environmental Protection Administration (SEPA) to full ministry status, which was made in March, has raised the prospect of much more stringent enforcement of existing environmental legislation through proper funding.
New laws are also expected to emerge, making the business of chemicals more costly in China and potentially even leading to a level playing field. Foreign investors have long played by international rules while their local competitors have flouted local laws to keep costs down.
But the pessimists will, as always, point out the difficulty in enforcing legislation in a country that is huge in size and huge in corruption.
FAR MORE POWERFUL
"The old SEPA - renamed the Ministry of Environmental Protection (MEP) - has finally got the authority to force companies to stop production before discussions are held over alleged pollution problems," says a Beijing-based chemical consultant. "Previously, the companies were free to carry on pumping untreated water into rivers or high levels of toxins into the air while meetings about meetings took place. Sometimes it could take years to get an abatement order."
The MEP is likely to be given more staff and more funding. It is also expected to take over a local design institute, enabling the setting up of a team of engineers who would more effectively monitor pollution. Another important legislative shift, announced by the National People's Congress at the same time as the MEP was formed, is a new pollution law, which, for the first time, requires companies to help meet the cost of pollution.
The law - which comes into force on June 1 - stipulates that an enterprise "will be responsible for 30% of the direct economic losses resulting from any serious water pollution. Incidents of medium water pollution will result in a 20% penalty." The bosses of companies found to be directly responsible for causing severe water pollution could also face a fine up to half of their previous year's income.
It is also now mandatory for companies to canvass local opinion before pursuing a project and to include the views of residents in an environmental impact assessment report. However, the public still has no right to call for a public inquiry and halt building work.
RESTRUCTURING OF THE DIRTY, OLD PRODUCERS
Smaller, older chemical plants could be forced to close, particularly those using outdated technologies in, for example, the chlor-alkali and sulfuric acid sectors, the consultant adds. But this is where one of the old and well-worn doubts is raised by the pessimists and skeptics.
"Some of the small and outdated chemical plants are crucial to employment in the less developed areas of China. Political influence may be used to keep these facilities operating," says one of the skeptics - an environmental activist.
"You could see consolidation take place where midsized chemical companies buy up some of the older assets and keep them running in remote rural areas. State-of-the-art plants will only be operated in Eastern and Southern China - where the pressure on jobs is not as great."
But more evidence of tougher day-to-day conditions for chemical companies emerged at the China Petrochemical Summit. The conference, which took place in Beijing in March, was a joint venture between ICIS and CBI China. "The new ministry is very powerful and very busy. It has stopped issuing licenses for new chemicals production," said one delegate.
"Some of the companies holding licenses are trying to sell them because they are having difficulties with effluent control." Companies would in the past only operate wastewater treatment facilities when they knew a SEPA official was about to visit, the delegate added. But now meters are being installed that enable MEP employees to monitor whether wastewater is being treated continuously.
SOURCING OF CHEMICALS GETS HARDER
The delegates also reported that sourcing chemical intermediates from China was becoming a great deal more difficult as a result of the environmental clampdown.
"I was at a recent chemicals exhibition where only catalogs were available," said a purchasing manager with an international producer. "No products or prices were on offer because intermediate chemical manufacturers are facing a great deal of uncertainty. They are unwilling to commit to a particular product or a price because they are not sure whether production licenses will be granted."
The delegates also made the important point that the environmental crackdown has firm backing from the central government because of widespread concern over rising pollution levels. One unofficial estimate was that 70% of the 40,000 public protests that took place in China last year were the result of environmental problems.
But even if conditions on the ground are getting harder, and costs are going up as companies are forced to follow legislation, stories still persist of corruption getting in the way of universal, even-handed enforcement. "Officials with the environment agencies can be bribed. I've also heard stories of some firms posting their men down the road to watch out for officials so they can raise the alarm and get production stopped," said a trader who also attended the conference.
LACKING EXPERTISE AND MANPOWER
Another concern is that Chinese companies lack the training to operate pollution monitoring and pollution control equipment. "We have seen the number of enquiries about our equipment increase, so we recently set up a China office," says an executive with a company that supplies hazardous-chemicals early-warning systems.
"We have achieved quite a few sales but I am not entirely confident that the companies we sold to will operate the equipment on a continuous basis. They lack enough sufficiently experienced people." A further problem is that firefighters often lack experience in how to handle chemical accidents.
During an incident in one chemical park a fire crew drove towards a minor fire without realizing that their vehicle was highly flammable, adds the executive. He says that if you are lucky enough to find a good fire crew they have a habit of frequent job-hopping, as is the case in every sought-after profession in China.
But still, 1,934 chemical plants have been closed down in Jiangsu province alone as a result of the environmental clampdown, 1,197 of which were on the shores of the heavily polluted Taihu Lake. Higher standards have also been recently set for energy consumption in the synthetic ammonia, sodium hydroxide, calcium carbide and yellow phosphorous industries.
It's not only the old SEPA that's been upgraded and given more powers. Local authorities have also been given more muscle to tackle highly polluting industries. Perhaps, though, the strongest argument of all in support of those who say that China means business on the environment is that policy is being driven from the top.
"Because the environment is right at the top of Beijing's to-do list, local government officials and company executives have to take heed if they want to keep their jobs," says Arthur Kroeber, managing director of Dragonomics, a Hong Kong-based research service that focuses on the Chinese economy.
"The idea that central government has no control over local governments and companies is one of the commonest and silliest one-liners about China."
Visit John Richardson's Asian Chemical Connections Blog for more on issues hitting the region's market. Go to: www.icis.com/blogs/asian-chemical-connections
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