China is pursuing ambitious environmental targets through 2020 with far-reaching consequences for all industries. Minrui Ji, General Manager of INVERTO China, outlines the key points for you.
Which specific environmental protection policies have already taken effect, or will take effect in the near future?
The Chinese government takes environmental protection very seriously. Since the 10th of January this year, new measures have taken effect for manufacturing industries—so-called Emission Permit Administration Measures—which concern emissions of air and water pollutants and which control emission limits. At the same time, environmental tax legislation was introduced which resulted in increased costs for “environmental polluters”.
How have the Chinese authorities approached enforcement of the new rules?
Rigorously. In fact, factories that do not meet the new environmental requirements are closed straight away. In some cases the authorities act on the principle of “close and approve”, which means that companies in industries which heavily pollute the environment are forced to close and are only allowed to resume production when they can prove that the necessary modifications and upgrades have been made.
What impact has the new environmental policy had on manufacturing companies in China?
Manufacturing companies must now acquire “pollution rights” similar to European CO2 certification, which means they have to pay a kind of environmental tax. Emissions of air and water pollutants are being controlled strictly and automatically. Violations result in an immediate restriction or even termination of production.
The consequences of that are delivery delays and loss of suppliers. Customers from highly diverse industries who have been affected by this regularly contact our office. Significant price increases are already evident for goods which are produced in a particularly “environmentally unfriendly” way. For example, metal components which have surface treatment, or textile products like jeans or sportswear. A customer from the construction industry had to contend with supply shortages and accept price increases of more than 50% on a key material. Almost 30 suppliers of one customer from the chemicals industry had to stop production because they didn’t meet the requirements.
What advice would you give companies who work with suppliers in China?
First, companies must assess for themselves how relevant China is as a supplier market. If China is a key procurement market, then the following question needs to be answered: are the goods to be purchased from the industries directly affected, such as chemicals, pharmaceuticals, paper, metal, etc.? If yes, then it needs to be clarified with the individual Chinese supplier whether they have any price and supply risks from upstream suppliers as a result of the new environmental protection measures. The most important question is whether they have acquired an “Emissions Permit”. It also needs to be clarified whether the supplier could be affected in the future by further environmental protection measures from the
Chinese government’s five-year plan.
Minrui JI, General Manager, INVERTO China