In recent months, teams of inspectors from China’s Ministry of Environmental Protection and the Communist Party’s anti-corruption commission have conducted a slew of surprise inspections of various industrial facilities throughout China. Estimates suggest that China has temporarily closed as many as 40% of the country’s factories at some point in the last year — sometimes for weeks at a time. The recent crackdown is the fourth in a series of region-wide inspections that began in July 2016, which together amount to some of the most dedicated and comprehensive efforts to enforce environmental compliance in the country’s history.
China’s somewhat urgent enforcement of environmental laws appears — at least in part — motivated by China’s 2013 pledge to reduce emissions from heavily polluting industries by 30% before the end of 2017. Earlier this month, the country ramped up environmental pledges at the 19th National Congress of the Communist Party, announcing an ambitious plan to reduce the concentration of hazardous fine particulate matter (PM2.5) from 47 micrograms in 2016, to 35 in 2035, reported Xinhua, the China’s official press agency.
The economic disruption of these sudden closures could be significant, according to Bloomberg, reducing GDP growth by up to 0.25% and industrial production growth by 0.6-0.8% over the next six months. Production has halted in large parts of Eastern China, forcing companies to relocate entire supply chains to countries such as India and Bangladesh in order to meet demand. In particular, the shutdowns have reportedly affected supply chains producing goods for the Christmas season in the US, potentially leading to an increase in the price of holiday goods. For example, estimates suggest approximately 60% of all Christmas decorations globally originate from Yiwu — a Chinese industrial town where factory owners claim to have missed deadlines due to the shutdowns. Whether companies consider pre-emptive, or perhaps even permanent, relocation to avoid the costs of sudden and unpredictable shuttering of industry remains unclear.
Nevertheless, the government appears willing to bear these costs for a cleaner China. As disruptive as the pollution crackdown may be in the short-term, China seems intent on ensuring that President Xi’s vision of a “beautiful China” comes to fruition.
Read more on the development of China’s environmental policy:
This post was prepared with the assistance of Tegan Creedy in the London office of Latham & Watkins.