Important:Central Environmental Inspections Nail Thousands of ViolatorsBrowse: Date: 2017-08-23
2017-07-14 from US-China Business Council
Thousands of companies have moved, shut down, or reduced capacity since China’s central government increased inspections in their implementation of the 2015 Environmental Protection Law. A variety of additional environmental regulations have been released since the law’s enactment and promise a sharp uptick in environmental inspections, which could have far-reaching consequences for foreign company operations. To proactively minimize these risks, the US-China Business Council (USCBC) recommends companies evaluate supplier compliance with the current law while preparing for changes that the pending environmental tax law is expected to usher in.
Environmental inspection programs since 2015
The Chinese Communist Party (CCP) Central Committee and the State Council began a pilot environmental inspection program in Hebei in late 2015 with three rounds of inspections in 23 provinces and municipalities. Inspectors required 32,543 operators to relocate operations, reduce existing production capacity, or in some cases shutter operations. Investigation teams found about 60,000 environmental infractions, fined 42,000 companies for more than RMB 800 million, conducted 1,200 investigations, and brought criminal charges against 1,000 people.
CCP-driven environmental inspections are expected to expand to cover all 31 provinces, autonomous regions, and municipalities by the end of 2017, according to Chen Jining, the former minister of MEP. Chen indicated the likely candidates for the next round of inspection include Shandong, Zhejiang, and Sichuan. Inspections could begin before the end of the year.
Party-led Environmental Inspection Campaigns as of July 2017
|INSPECTION CAMPAIGN||TIME||NUMBER OF PROVINCES||COVERING REGIONS|
|Pilot||December 2015 – January 2016||1||Hebei|
|First Group of Central Inspection Teams||July – August 2016||8||Inner Mongolia, Heilongjiang, Jiangsu, Jiangxi, Henan, Guangxi, Yunnan, and Ningxia|
|Second Group of Central Inspection Teams||November – December 2016||7||Beijing, Shanghai, Hubei, Guangdong, Chongqing, Shannxi, and Gansu|
|Third Group of Central Inspection Teams||April – May 2017||7||Anhui, Fujian, Guizhou, Hunan, Liaoning, Shanxi, and Tianjin|
|Fourth Group of Central Inspection Teams (TBD)||Projected for 2017||3+||Shandong, Zhejiang and Sichuan; additional provinces may be added in the future.|
How CCP investigations work
In general, CCP investigations have much more serious potential consequences than government investigations. Environmental investigations led by China’s government generally lead to remediation plans for companies to address and resolve environmental problems, and have little impact on senior officials. CCP-driven inspections, on the other hand, are aimed at uncovering any official corruption and fraud that may have contributed to company violations. Findings of CCP investigations may result in termination, jail time, or in extreme circumstances death sentences for the government officials involved.
Party-driven inspections are launched and supervised by the CCP and State Council. Inspection teams consist of representatives from the Ministry of Environmental Protection (MEP), Central Commission for Discipline Inspection (CCDI), and the Central Organization Department. Usually the team directors are designated by the State Council, and deputy directors are vice ministerial-level officials of MEP.
Inspection results are filed with the Central Organization Department of the CCP Central Committee, the key staffing organization for the party. Such a reporting structure means local governments put a premium on ensuring the investigations are rigorously conducted.
Independent MEP inspection campaigns
In addition to the party-led investigations, MEP can independently initiate inspections. The nation’s first air pollution inspection campaign, launched by MEP in April 2017, targeted Beijing, Tianjin, and 26 cities in Hebei, Shanxi, Shandong, and Henan provinces. Investigations are conducted by eight MEP inspectors and last two weeks in each of the designated cities. As of July 2017, MEP has conducted six rounds of investigations. The most prominent violations found in these investigations include VOC emissions, and absence or malfunction of pollution treatment facilities.
Company considerations as investigations continue
Companies with manufacturing and sourcing operations in China should make sure they are in compliance with environmental protection requirements by taking into consideration best practices:
Check supplier compliance With ongoing investigations, closures, and shut downs, another important consideration for US companies is that noncompliant suppliers could be shut down during an inspection, disrupting the supply chain. For example, if a supplier is operating outside of a designated industry zone–such as a chemical manufacturing zone–inspectors could required it to move, shut down, or reduce capacity. Companies should proactively assess their suppliers’ compliance in order to avoid disruptions in their supply chain.Be an educator Demonstrate the ability to reduce emissions and improve efficiency. One company was told they needed to move, but after demonstrating their capabilities to reduce emissions and efficiency and submitting a detailed plan to the local environmental protection bureaus (EPB), they were approved to stay.
Gather insights on long-term trends It is important for companies to have an understanding of long-term development plans for their region. Some companies suggested weighing the cost of relocating when it seems the directive to move may be coming, rather than investing in operations that will be forced to close.
Engage the right official Engaging the right official is important. Companies should develop close relationships with industry zone officials, and cultivate connections with provincial-level authorities. Provincial government authorities can be helpful allies, especially where zone leadership reports to the central government.
The draft Environmental Protection Tax Law—released by the State Administration of Taxation (SAT), Ministry of Finance (MOF), and MEP—is open for public comment through Wednesday, July 26, 2017. It includes 42 articles that further clarify taxable pollutants, calculations of four pollutants, reductions and exemptions, that could lead to more environmental-related fees and paperwork for companies.