Groundwater Crackdown – Hope Springs

By Debra Tan, Ying Shen 11 July, 2013

The economy slows down but the Chinese government moves to speed up groundwater crackdown

MEP's company blacklists represent an unprecedented level of information released and increased transparency
Cross government department collaboration on groundwater pricing monitoring & enforcement
But proposed law change could be set back; regardless, more spending is need & pollution penalties may rise

Government focus on China’s groundwater problems is not new – we have been talking about it in “New Guard: New Hope for Pollution”. It is the speed of the government’s reaction to groundwater woes since the first announcement of the groundwater plan in late 2011 that is unprecedented. Recent speeches and policies from central and local government all point to increasing government scrutiny and activity on groundwater pollution and enforcement and to a serious crackdown on polluting companies. However, a draft revision of the 1989 Environmental Protection Law released for consultation by the National People’s Congress on 25 June 2013 appears to be a fly in the ointment. Nevertheless, we feel that there has been progress. Here’s why we think so…

Groundwater woes are extensive

In February this year a new Ministry of Land and Resources survey showed that the North China Plain suffers from severe groundwater pollution with over 70% of overall groundwater quality classified as Grade IV+, in other words, unfit for human touch. The  2012 State of Environment Report published last month by the Ministry of Environmental Protection (MEP) also shows that China’s groundwater woes continue to deepen with pollution remaining severe and groundwater falling in the bad to very bad category rising from 55% to 57%. Read our review of the report here.
This level of groundwater pollution is particularly worrying because the North China Plain is one China’s most important agricultural region, producing corn, sorghum, winter wheat, vegetables and cotton. It covers much of Henan, Hebei and Shandong and northern Jiangsu and Anhui provinces. Incidentally, Shandong, Henan, Jiangsu and Hebei are the top four farming provinces of China accounting for 32% of national agricultural output value.
The Chinese have good reason to be worried. In addition to food security, 70% of China’s 1.3 billion population drink groundwater, and over 60% cities rely on groundwater as drinking water source. Poor groundwater quality has been linked to many social problems such as cancer villages, many of which have been linked to groundwater pollution from metal and mining companies (read our review on China’s cancer villages here).

Company blacklists represent an unprecedented level of information released

On 9 May 2013, The Ministry of Environmental Protection announced investigation results of groundwater pollution in the North China Plain prompted by social media allegations of groundwater contamination. Investigations carried out by the MEP of Beijing, Tianjin, Hebei, Shanxi, Shandong and Henan looked at the wastewater discharge of 25,875 enterprises the across six provinces over 40 days and found 558 of them have various environmental violations. 424 of these were ordered to rectify the pollution within a specified time period and 88 companies were fined a total of RMB 6.13 million (more here).
Later on 22 May 2013, the MEP named and shamed 56 companies with seepage well violations (ie using seepage wells and pits with no anti-leakage protection to discharge and store waste/wastewater) in Tianjin, Hebei, Shanxi, Shandong and Henan. Prior to this, on 8 May 2013, the MEP also blacklisted companies for serious environmental pollution incidents in the first quarter of 2013. The purpose listed by the MEP for doing so is that “the handling of these cases is now made public for social supervision”. (See full table in English here; Chinese here.)

Social media to take the credit for increased transparency

Publishing this detailed level of information is unprecedented and considered to be great progress in the field of groundwater violation disclosure. It also appears to be in line with a public involvement push by central government signaled by Li Keqiang at a State Council meeting “we have hundreds of millions of Weibo users. If government didn’t disclose information timely, people will do their talking, even with groundless speculation and finally it leads to public discontent…Knowing that, we shall take the initiative in a timely manner to tell the truth with no concealment”.

“we have hundreds of millions of Weibo users. If government didn’t disclose information timely, people will do their talking, even with groundless speculation and finally it leads to public discontent…Knowing that, we shall take the initiative in a timely manner to tell the truth with no concealment”

Li Keqiang

It is not surprising that the government would move to include the public – with a GDP per capita over $6,000 USD in 2012, the Chinese are now more concerned and worried about environmental problems. They use micro-blogs to express their anger against polluting enterprises, and ultimately blame the government for a lack of supervision.
Food safety, air and water pollution are at the top of their minds and the people are speaking out. Ma Zhong, Associate Dean of Environment College of Renmin University, estimated that about 16 billion tons of waste water was likely emitted secretly underground. Wang Hao, Academician of the Chinese Academy of Engineering, expressed his worry that the pollutants in groundwater are recalcitrant organic, toxic and harmful teratogenic (cause developmental malformations) substances. A recent customer investigation by General Electric in China, Singapore and the United States showed that 93% people in China worry about water quality and limited access to clean water for future generations.
The level of online complaints and physical protests, have been so substantial, that the central and local government departments have had to react with new policies and increased enforcement.

Multi-pronged government groundwater crackdown: Nine-Dragons finally working as one?

One of the criticism with water is that multi government departments “Nine Dragons” have various responsibilities over water and as such water reform is difficult. Nevertheless, there are signs of progress:

  1. Top-level Government Promises: President Xi Jinping promised that China will never seek economic growth at the cost of environment. If the approved projects caused serious pollution, officials in charge will be responsible in his/her “lifetime”. This is considered to be the most stringent approach to accountability.
  2. Interpretation of the Law: Difficulties and high costs associated with the collection of evidence has previously been barriers for enforcement and conviction of environmental criminal cases. In order to overcome these barriers, the Supreme People’s Court and Supreme People’s Procuratorate of China, on 18 June, 2013, jointly released an interpretation for criminal cases of environmental pollution. The new interpretation aims to upgrade the standards and provide practical guidance, including more detailed, feasible and quantifiable standards. For example, 14 criteria were set for the affirmation of “serious environmental pollution”. A lower threshold for the conviction of environmental pollution crimes was also defined – only evidence of polluting behavior will be required in order to secure a conviction, the impact from the pollution incident need not be proven (more on the interpretation here).
  3. Premium Pricing of Groundwater: To progress water tariff reform, multi government departments are working together. On 14 January 2013, the National Development Resource Council (NDRC), Ministry of Finance (MoF) & Ministry of Water Resources jointly announced the Water Resources Fee to raise tariffs by 2015. The scarcity of groundwater will be reflected by difference of the charges – groundwater in Beijing & Tianjin will be 2.5x more expensive than groundwater and in the large coal mining provinces of Shanxi and Inner Mongolia, price of groundwater will be 4x that of surface water (more on water tariff reform in our review here and table of pricing of ground & surface water here).
  4. Increased Enforcement & Monitoring: The National Plan on Groundwater Pollution Control (201-2020) was released in late 2011 indicated that China plans to spend RMB 34.66 billion to control and prevent groundwater pollution. More recently, on 8 March 2013, State Council approved the North China Plain Groundwater Pollution Prevention and Control Work Programme. This was jointly prepared by the Ministry of Environmental Protection, Ministry of Land and Resources, Ministry of Water Resources, and Ministry of Housing and Urban-Rural Development. The first phase of this is to establish a groundwater quality & pollution sources monitoring network by 2015 so that key sources of pollution can be identified. The plan is that by 2020, a comprehensive monitoring of groundwater environmental quality and pollution situation in the North China Plain will be in operation for effective management of groundwater pollution risk.

Price and legal reform in water are only possible with cross-department collaboration and government actions in 2013 indicate that the new guard are resolved to move in this direction.

Provincial governments appear to be stepping up anti-pollution measures

China has long operated a ‘Polluter Pays Principle’ when it comes to environmental pollution. However, in the past, local governments may hesitate when it came to enforcement as the polluting enterprises may have been large taxpayers. But in the face of monumental public discontent and central government direction, some vested interests are side-stepped as provincial governments appear to be stepping up its anti-pollution drive.
Nanjing Municipal Government recently launched a mechanism named “River-Monitor” where each body of water, be it a river or a pond in the area will be assigned a “Monitor” who will be held personally responsible for its protection. For example, the Mayor of Nanjing city, Ji Jianye, was selected as the monitor of the Qinhuai River. Elsewhere, in Jiangsu province, the provincial government recently decided to establish a province-wide joint enforcement between the justice and environmental protection departments. The People’s Court will implement criminal, civil and administrative proceedings together as “three-in-one trial”. This is now only in a pilot phase but it is expected to gather some successful experiences to improve the efficiency of environmental lawsuits.
Hope also springs from the following piloted by various provinces :

  • Jiaxing city in Zhejiang province has said it will set aside RMB 30 million annually for an ecological compensation mechanism to protect sources of drinking water. Incidentally, Jiaxing was suspected of dumping over 10,000 dead pigs to the Huangpu River.
  • In Shaanxi Province, enterprises that have a history of environmental pollution, especially groundwater pollution will be forced to take out environmental pollution liability insurance.
  • Liaoning province released a blacklist of 26 enterprises with serious environmental violations. These 26 enterprises will face loan restrictions as their environmental violation information will be documented into the credit system of the People’s Bank of China. In principle, there will be no new loans, and previously approved loans will be monitored closely.
  • There are also reports in Jiangsu that if a corporate gets “blacklisted” for environmental pollution, EIA approval for construction of new projects will be withheld and auditing for IPO will be suspended.

Proposed draft revision to environmental law sets us forty years back?

The positive outlook towards tackling pollution and increase in public involvement in monitoring pollution were dashed by the draft revision of the 1989 Environmental Protection Law released for examination by the National People’s Congress on 25 June 2013.

 “new law would restrict the right to file pollution-related lawsuits to the government-affiliated Environmental Federation, trampling on the rule of law and exacerbating pollution in China”.

Liu Jianqiang, Beijing Editor, China Dialogue

The draft recommends all public interest environmental lawsuits be directed through the All-China Environmental Federation (ACEF), China’s largest quasi-official environmental organization, effectively stopping other organizations, including NGO’s and individual citizens from initiating lawsuits themselves. Beijing editor of China Dialogue, Liu Jianqiang says that the “new law would restrict the right to file pollution-related lawsuits to the government-affiliated Environmental Federation, trampling on the rule of law and exacerbating pollution in China”. He adds that this will “send the Chinese people back 40 years when there was no rule of law in China”.
On the plus side, the draft revision includes language specifying that “environmental protection is a basic national policy” with harsher penalties for polluters such as daily fines and no upper limits for repeat polluters. More commentary from us on this draft revision here.

Regardless, more money is needed

The authorities are well aware of the high cost of pollution control, especially for groundwater. Tao Qingfa, Deputy Director of Ministry of Land and Resources, admitted publicly that restoration of groundwater pollution will be very difficult and very costly. However, the price of not tackling groundwater issues will be even higher.
That said, investment in environmental protection is still low. Over the last thirty years, the annual investment in environmental protection and pollution control accounted for less than 2% of annual GDP. A mere drop compared to the spend on the Olympic Games of 3% of annual GDP. Against this, the 12FYP spend of RMB 380 billion for waste water treatment over a 5 year period amounting to less than 0.2% of 2012’s GDP appears insignificant.

“increased charges for water, power and industrial emissions as the government more actively enforces environmental regulations; and potentially higher profit taxes to pay for a social safety net.”

China’s Growing Pains, Goldman Sachs, April 2013

So who will foot the bill? Given China’s current provincial credit woes, perhaps higher fines will be introduced and the burden of clean up passed to the blacklisted companies. A Goldman Sachs’s report published this year says that as China moves towards qualitative growth, “this will lead to higher costs for businesses through staff demanding more inclusive and valuable benefits packages; increased charges for water, power and industrial emissions as the government more actively enforces environmental regulations; and potentially higher profit taxes to pay for a social safety net.”
There is no doubt the road to cleaning up groundwater is long. There will be conflicting approaches to tackle pollution as China experiments with many pilots across the country. One thing we can all agree on is that at least the “groundwater crackdown” train has left the station.

Debra Tan
Author: Debra Tan
Debra heads the CWR team and has steered the CWR brand from idea to a leader in the water risk conversation globally. Reports she has written for and with financial institutions analyzing the impact of water risks on the Power, Mining, Agricultural and Textiles industries have been considered groundbreaking and instrumental in understanding not just China’s but future global water challenges. One of these led the fashion industry to nominate CWR as a finalist for the Global Leadership Awards in Sustainable Apparel; another is helping to build consensus toward water risk valuation. Debra is a prolific speaker on water risk delivering keynotes, participating in panel discussions at water prize seminars, numerous investor & industry conferences as well as G2G and academic forums. Before venturing into “water”, she worked in finance, spending over a decade as a chartered accountant and investment banker specializing in M&A and strategic advisory. Debra left banking to pursue her interest in photography and also ran and organized philanthropic and luxury holidays for a small but global private members travel network She has lived and worked in Beijing, HK, KL, London, New York and Singapore and spends her spare time exploring glaciers in Asia.
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Ying Shen
Author: Ying Shen
Ying is China Water Risk’s consultant based in Beijing. She conducts research & analyses on water related issues and writes editorial content for website. Prior to joining China Water Risk, Ying was the Chief Representative Officer of a European consulting firm in Beijing. She has worked on a wide variety of climate change, environmental and loan/technical assistance projects funded by the National High Technology Research and Development Program of China, the National Basic Research Program of China, European Commission, the World Bank, the Asian Development Bank and British Embassy in China amongst others. Ying has a Master’s degree in Environmental Engineering from Chinese Academy of Sciences and a Bachelor’s degree also in Environmental Engineering from Beijing Jiaotong University.
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