China's revamped Environment Protection Law could make it cheaper for polluters to clean up than mess up. By ramping up the costs of breaking the rules, it improves on what came before. Like many of China's reforms though, it leaves room for Beijing to pick winners and losers.
Environmental damage costs China around 9 per cent of its gross national income, more than ten times the level of neighbouring Japan and South Korea, according to the World Bank's China 2030 report. That's a drain that a slowing economy can no longer ignore.
At first glance the revised law has the potential to be powerful indeed. Pollution checks used to be a minor cost of business - non-compliance would earn a one-off, modest fine, on the off-chance authorities noticed. But since revised rules came into play on January 1, dirty industrials risk uncapped fines, shut-downs and even jail time. Officials will have environmental targets factored into their appraisals. Environmental agents - notorious for colluding with polluters - can be held accountable for their failings. Local eco-warriors have a chance to pitch in too: the revisions make it easier for lobby groups to bring a case to court.
In theory, this is a big leap forward. Many companies are already feeling the pressure, and the new regime could tip the balance financially for polluters in fragmented, low-margin and water-intensive sectors. Compliance costs could eat up as much as half of operating profit for some large textiles companies and would be prohibitively expensive for smaller companies, according to an analysis by CLSA. In the first small but significant case to be bought under the new law, environmental groups are asking a mining company to dish out as much as 2 million yuan ($320,123) to restore a damaged Fujian forest.
The biggest obstacle would be gradual and selective implementation. Courts are still very choosy about which cases they take on; only the government-sanctioned lobby groups are allowed to bring a case; and supervision of local authorities is far from easy at the best of times. Polluters are finding they have more wiggle room if government policy is in their favour - so although there are 16 sectors on the Ministry of Environment's official hit list of dirty industries, it's the less productive offenders who come under pressure first.
That's the way China likes it. President Xi Jinping's "new normal" motto means quality is supposed to trump quantity when it comes to economic activity, but local governments are likely to push hard to protect jobs and taxes. Meanwhile it remains to be seen whether the law will change the ways of huge state-owed polluters like oil producer Sinopec. The rebooted rules are encouraging, but there are still too many shades of green.
