• China Environmental Law and the Chemical Industry: A Sleeping Dragon
  • October 26, 2006 | Author: Charles R. McElwee
  • Law Firm: Squire, Sanders & Dempsey L.L.P. - Shanghai Office
  • If you have read the stories about the Songhua River spill, or have visited Beijing on a particularly smoggy day, you may assume that Chinese environmental law is a myth. Do not be misled. While the enforcement of environmental laws has taken a back seat to economic development in the past, all signs indicate that you should elevate the level of attention your company devotes to environmental compliance in China, whether you already operate there or are planning to do so.

    What Are the Signs of Change Ahead?

    First, Chinese citizens, fed up with governmental laxity toward (or more likely complicity with) egregious environmental polluters, are starting to take environmental enforcement into their own hands. Riots have occurred in several areas of China directed toward industrial facilities that have caused serious health problems and even deaths as a result of their unchecked discharges.

    The Chinese news agency Xinhua reported on April 23, 2006 that Zhou Shengxian, head of the State Environmental Protection Administration (SEPA), said “pollution has posed a great threat to social stability . . . there were 51,000 disputes over environmental pollution last year.” Threats to “social stability,” especially when reported with such frankness, are taken very seriously by the central government.

    Second, more than 15,000 journalists will descend on the country to cover the Olympics in 2008. The government wants to present them with a cleaner, if not exactly “greener,” China. It wants the story to be environmental progress, not environmental Armageddon.

    Third, China is becoming increasingly aware that its domestic activities can have international consequences. Greenhouse gas emissions are the obvious example here, but other pollutants cross boundaries as well. The Financial Times recently reported (April 12, 2006) that mercury discharged from traditional coalfired power plants and other air pollutants from China are being found in mass quantities as far away as the United States. On top of increasing international trade pressures, China does not want to be seen as a bad international citizen on the environmental front.

    Consequently, the highest levels of the Chinese government are starting to talk tough. Chinese Premier Wen Jiabao recently called for stronger environmental law enforcement. “We must spend money on pollution control sooner or later. The sooner the better,” Wen told a conference in Beijing on April 17, 2006. “Those who cause major pollution accidents through making wrong decisions or lax supervision must be severely punished.”

    What Does This Mean for Your Company?

    Like it or not, the most recent high-profile environmental disasters in China have originated in chemical plants.

    • In November 2005, the widely reported chemical plant blast in northeastern Jilin province released 100 tons of benzene and nitrobenzene into the Songhua River, compelling officials to cut off water supplies to millions of people downstream.
    • A spill of cadmium in the Beijiang River in south China’s Guangdong province has threatened local drinking and agricultural water supplies and chemical spills along Northeast China’s Hun River and central China’s Xiangjiang River.
    • The South China Morning Post reported on April 10, 2006 that SEPA is expected to introduce a more stringent approval process for new industrial projects. As the result of a two-month nationwide audit of 127 chemical producers, it rejected or suspended approval for 44 projects across a range of heavy industries and published a “name-and-shame” list of 20 projects that fell short of environmental standards. The newspaper reported, “Analysts said the crackdown has effectively frozen new petrochemical projects.”

    Foreign Chemical Companies May Be the Next Target

    While it is true that, thus far, the high-profile spills that have driven increased scrutiny of the chemical industry have occurred at state- or township-owned enterprises and not at foreign-invested ones, this fact should not induce complacency. Foreign invested enterprises may have fewer community connections and thus may present easier targets for enforcement.