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“Comply or Close”- the New Reality for Industrial Facilities in China

13 December 2017

By Cherry Hu and Piers Touzel

Chinese Authorities are increasingly shifting their focus from permitting of industrial facilities to ensuring operational compliance.

Recent State Council reforms have pursued the parallel objectives of simplifying “green tape” associated with environmental permitting of new industrial developments while at the same time implementing supervision measures to promote operational compliance with environmental regulations for existing facilities.

These changes mark a significant departure from the Ministry of Environmental Protection’s (MEP) long-standing policy of focusing on permitting and approvals for new facilities with minimal monitoring of environmental compliance over the operational life of industrial facilities.

Plant Managers at industrial facilities in China have long known that failing to abide by environmental standards set by MEP is unlikely to land them in hot water. With few resources available to monitor facilities themselves, local authorities have generally left industrial facilities to self-report discharges to the environment with minimal supervision. The result has been a steady deterioration in the environment that has accompanied China’s industrial development. That changed earlier this year. Self-reporting is out and Central Government Inspections are in as China’s MEP gets tough on polluting facilities.

In the first three quarters of 2017, almost 29,000 violations have been issued under the new Environmental Protection Law. Penalties include plant shutdowns, confiscation of company property and fines. Local officials and managers (both at Chinese and foreign facilities) have been detained. The numbers speak for themselves. Year to date, almost 6,500 industrial facilities have been ordered to suspend or shutdown operations across the country. Almost 6,300 administrative detentions have been ordered, a year-on-year increase of 170%. In Shanghai alone, over 21,000 inspections have been conducted between January and October 2017.

Read more in ERM's paper on the new challenges for business in China's changing regulatory landscape 


About the authors

Cherry Hu, Partner, ERM China
Dr. Cherry Hu is responsible for ERM China’s Regulatory Advisory Services. Prior to joining ERM in 2008, Dr Hu was an official with China’s Ministry of Environmental Protection, based in Beijing. She is a registered Environmental Expert with MEP and has been called on to act as an external technical expert to support the central government’s Environmental Inspection Group, visiting multiple industrial sites alongside government inspection teams in 2017. Dr Hu is based in Shanghai. 

Piers Touzel, Country Manager, ERM China
Mr. Piers Touzel has helped multinational clients identify, assess and manage EHS risks in China for over 17 years. He advises industrial clients, investors and financial institutions on the financial implications of sustainability challenges associated with the establishment of new facilities as well as acquisitions and divestitures. Mr. Touzel splits his time between Shanghai, Beijing and Hong Kong. 

“Comply or Close”- the New Reality for Industrial Facilities in China

Download ERM's paper on the new challenges for business in China's changing regulatory landscape