Reports suggest that China’s promising focus on environmental regulation may be slowing amid an economic downturn.

By Paul A. Davies and Andrew Westgate

Background

At the 2014 National People’s Congress, Chinese Premier Li Keqiang’s rhetoric adopting an “iron fist” approach in a “war against pollution” represented a stunning volte-face from China’s relaxed environmental oversight and prioritization of economic growth over the preceding four decades.

Building on pollution reduction targets set in 2013, the Environmental Protection Law of the People’s Republic of China (EPL) was adopted in 2014 and came into force in 2015. The EPL represented the first real revision to Chinese environmental law since 1989, and it took a modern, holistic approach to environmental legislation. The EPL declared environmental protection a fundamental national policy; obligated all entities and individuals to protect the environment; encouraged entities and individuals to use environmentally friendly and recycled products; adopted a total pollutants emission control system and public disclosure requirements; empowered citizens to report environmental pollution and bring public interest litigation; and imposed penalties, including daily fines and administrative detention for polluters and for government officials that fail to enforce environmental law.

Notwithstanding the above, recent reports on China’s implementation of environmental legislation have been divided, with some claiming an increased focus on environmental protection, and others suggesting the focus is waning.

Short-Term Economic Growth Versus Long-Term Environmental Goals

Government reports suggest that China will increase environmental protection and work harder to prevent and control pollution, as stated by Premier Li at the 13th National People’s Congress in March. The overarching message from this Congress is that short-term economic growth should not eclipse environmental protection. The Ministry of Ecology and Environment has reported that recent efforts to improve environmental protection include the inspection of water pollution enforcement in eight provincial-level regions across China led by Li Zhanshu, Chairman of the NPC Standing Committee, and the plan by China’s Supreme People’s Court to help build a national fund for environmental restoration efforts.

To maintain an environmental focus, the Chinese government has stated that new methods of high-quality development should be explored, prioritizing ecology and highlighting green development across China while maintaining a focus on, and providing solutions to, the concerns of the populace.

A key takeaway from this Congress is that China’s governmental agencies are keen to reiterate the successes achieved to date, and ensure that the government is seen to be continuing along the path of reduced pollution coupled with technological advancement in an effort to provide a better quality of life for citizens and improved conditions for businesses.

Government Vows to Address Business Hardship Caused by Environmental Regulations

In the midst of China’s economic downturn, the other key takeaway from the 13th National People’s Congress is a renewed focus on employment to help counteract the downturn and provide an uptick in production. Businesses have complained to the government that environmental regulation has become costly – job losses have increased, with the smaller private-company sector suffering the most hardship.

The government has pledged to address businesses hardships caused by environmental regulation, while continuing to support and enforce new environmental regulations. One problem is local government, which often fails to enforce pollution targets until deadlines loom or inspectors arrive, at which point the government might take exceptional and stringent measures to meet targets. Unless China consistently applies environmental regulation, short-term pollution-target solutions are likely to continue.

Premier Li has offered an olive branch of sorts to businesses, stating that the reasonable demands of industry should be heard and support offered where required. For example, rather than taking the extreme approach of shutting down factories to meet environmental regulations, China may consider creating a grace period for businesses to comply with environmental requirements.

Conclusion

In a policy environment characterized by increasing economic uncertainty, China faces a difficult balancing act in enforcing increasingly robust and stringent environmental policies without impacting economic growth. Implementation of environmental legislation must be hard enough to bite, but not so stringent as to negatively impact business and production and prolong any downturn.

Latham will continue to follow and report on developments in this area.

This post was prepared with the assistance of Martin Cassidy in the London office of Latham & Watkins.