Environmental Regulation in China: A Shifting Paradigm

Environmental protection and regulation have become increasingly important topics in recent years. As the public has become more concerned with issues such as climate change and the pollution of air, water, and soil, world governments have started to focus more energy on developing plans to combat such issues. Even China, a country that has historically embraced an economy driven by “growth at any cost,” has begun to take a more serious stance due to public pressure and a deteriorating ecological situation. Within the last five years, China has amended several laws for stricter enforcement and developed action plans for future protection. These changes will undoubtedly have an impact on the supply chain management and future operations of domestic and multinational companies alike, and senior management must prepare to adjust accordingly. Here are some recent and upcoming changes managers should be aware of:

  1. War on Pollution

In 2014, Premier Li Kequiang declared a national war on pollution. In his address to the National People’s Congress, Li outlined plans to reduce particulate matter, such as PM 10, and update or eliminate outdated industrial plants. In addition to combating air pollution, Li announced plans to reduce soil and water pollution

2. Environmental Law

In 2015, the Chinese government amended its environmental law, allowing for stricter enforcement. Fining of infringers was changed from a “per event” basis to a daily basis. Additionally, 15 days of detention is now a penalty for members of senior management with repeated violations. Before these changes, companies found that fines were often cheaper than updating operations to adhere to environmental regulations.

3. Environmental Protection Tax Law of China

This law, enacted in early 2018, names four taxable emissions: air pollution, water pollution, solid wastes, and noise. Previously dictated by the central government, this tax law now mandates that local governments decide tax rates and 100% of taxes collected will become local government revenue. By increasing taxes on environmental violations, dubbed its “green taxation” system, China hopes to improve environmental protection.

4. Water Pollution Prevention and Control Law

In an effort to combat water pollution, this law expands an existing water protection plan that began in the Jiangsu Province ten years ago. In hopes of decreasing corruption, government officials will be held accountable for enforcing water pollution regulations, and their personal evaluations will be tied to improvements in water quality. An additional amendment states that the government will be responsible for providing water treatment in rural areas by constructing sewage and waste treatment systems. Regulations outlined by this law also relate to the production of fertilizers and pesticides. Fines will increase to 1 million yuan (150,000 USD) for violators who illegally discharge of pollutants into waterways.

While enforcement of the environmental law has been historically low in China, companies should take these new environmental regulations seriously. Management should focus on working with environmental assessors and legal counsel to audit their own companies to avoid fines and penalties. In reality, we should all be focused on doing as much as we can to improve our environment, regardless of business. After all, we cannot survive without clean air, water, and soil.