Jiangsu Chemical Park Explosion: Rectify Or Shutdown?

By Yuanchao Xu 18 June, 2019

What does a plant explosion have to do with environmental & regulatory risk? Turns out, quite a lot as CWR's Xu shows

On 21 March 2019, a “boom” in Jiangsu province drew the attention of all of China. The source? A chemical plant explosion in the Xiangshui chemical industrial park in Yancheng city, resulting in 78 deaths. Apart from the large number of deaths and people injured, the explosion has also shaken the whole chemical industry in Jiangsu, severely impacting China’s chemical supply chain.

In the immediate aftermath, on 1 April 2019, Jiangsu province released the ‘Plan for Regulating and Improving the Chemical Industry of Jiangsu Province (Consultation Paper)’, planning to:

• reduce the number of chemical enterprises to 2,000 by 2020, and 1,000 by 2022;
• reduce the number of chemical industrial parks to 20;
• stop production at chemical enterprises not fulfilling related safety/environmental norms; and
• prohibit new projects on pesticides/medicines/dye intermediates.

Xiangshui chemical industrial park was shut down & Jiangsu govt released a strong consultation paper

Although it is only a consultation paper at the moment and may not be fully executed ultimately, it still shows the strong resolution of the government. However, definitive action came three days later. On 4 April 2019, the government of Yancheng city decided to shut down the Xiangshui chemical industrial park permanently.

Many chemical material futures prices started to rise & over 40 stocks rose by the daily limit (10%)

According to Guotai Junan Securities, Xiangshui industrial park had played an important role in the supply chain of dyes and fertilisers and that the shutdown will drive up the prices of corresponding chemical products and companies which were not involved. They were soon proven right when the stock market reacted. Many chemical material futures prices started to rise and over 40 stocks rose by the daily limit (10%) in the morning of 8 April 2019 (the first trading day after the shutdown decision). Not everybody benefited however. Companies directly impacted by the news saw their share prices plummet.

Chemical industrial parks in Jiangsu

Although the explosion was indeed an extremely severe incident, many still saw the decision as a “one size fits all” shutdown (where governments order shutdown to pass inspections without helping enterprises comply). Before we go further and share our opinion, first some facts about Jiangsu province and its chemical industrial parks below.

Jiangsu is a big producer of fertilisers & dyes e.g. 87.2% of national pesticide production

Jiangsu is a big producer of fertilisers and dyes, with its chemical sector’s gross output value ranking second in China. Since 2008, the chemical sector’s contribution to Jiangsu’s GDP has remained large at over 20%. Guotai Junan Securities has summarised a list of chemical raw materials’ dependence on Jiangsu’s productivity, some of which can be as high as 87.2%, e.g., 87.2% of national dimethomorph (pesticide) production is from Jiangsu.

Most of the chem industrial parks are located in extremely water stressed or frequently flooded areas

Currently, Jiangsu has a total of 53 chemical industrial parks, densely distributed in northern Jiangsu and along the Yangtze River. According to WRI’s baseline water stress and flood occurrence maps, it is not hard to see that most of the chemical industrial parks are located in places which are either extremely water stressed (northern Jiangsu) or frequently flooded (along Yangtze river).

Enforcement is fundamental

Not surprisingly, with the highly clustered chemical parks and the vulnerable environmental conditions, the government has acknowledged the problem and taken specific measures for chemical industrial parks even before the explosion.

On 26 February 2019, the Jiangsu government released the ‘Opinions on the Environmental Improvement of Chemical Industrial Parks’ together with corresponding entry criteria, norms and appraisal system. On the same day, the government of Yancheng city released the ‘List of Outstanding Environmental Issues (2019-2020)’, in which four chemical industrial parks including Xiangshui were listed and required to finish rectification before 2020.

Apart from local government regulations, environmental issues in Jiangsu industrial parks have also drawn the attention from the central environmental inspection team. In the third inspection in 2017, 38 industrial parks including Xiangshui were listed due to safety issues. In the fourth inspection in 2018, Xiangshui was listed again due to waste gas pollution.

There were already warning signs… plus the incident is not the first severe explosion in Jiangsu…

So there were already warning signs… plus the incident is not the first severe explosion in Jiangsu. On 7 February 2018, another chemical company exploded in Lianyungang city. To learn from that explosion, the Ministry of Emergency Management conducted an inspection in the region and ironically, 13 issues were found with Tianjiayi Chemical Ltd., the company which exploded this time.

…”Effective & strict enforcement is better than a hundred policies”

With so many notices and warnings, the March explosion still occurred. It is therefore no wonder that the government of Jiangsu province and Yancheng city were so resolute this time with the strong consultation paper. Effective and strict enforcement is better than a hundred policies.

Where the risks lie… pollution, population, drinking water source

As mentioned in the consultation paper, compliance, population density and environmental sensitivity are three key criteria for deciding a chemical plant’s shutdown. We have applied these criteria to chemical industrial parks as well, to give a general picture of the environmental/regulatory risk of industrial parks.

Based on the compliance map from the Institute of Public and Environmental Affairs (IPE), it can be seen that many industrial parks are located in places with both bad environmental conditions and violation records. As such they may face stricter inspections in the near future.

Many industrial parks are located in places with both bad environmental conditions & violation records…

…which may face stricter inspections in future

Population density is another factor to be considered. While it was difficult to obtain such data in Jiangsu, the NASA Earth At Night map does provide us with an indication of population density. From the map, it is clear that there is a perfect match between chemical parks and night light clusters, especially along the Yangtze River. With respect to shutdowns due to population density, almost all industrial parks are worth considering.

Drinking water source reserves are very environmentally sensitive and no factories are allowed within these areas. However, some of the chemical parks are relatively close to such important drinking water sources as shown in the map above, which indicates potential environmental risks and strict enforcement or even shutdowns in future.

The risks are clear…

…whether or not the consultation paper goes into force, it is time to factor in environmental & regulatory risks

The risks are clear. Whether or not the consultation paper goes into force, it is time for enterprises/industrial parks and governments to factor in environmental and regulatory risks especially in a tightening regulatory landscape. However, the final decision on the paper may depend on a more comprehensive view including economy, employment, environment, etc., whatever happens, good environmental performance is always a plus.

Further Reading

• 2018 State Of Ecology & Environment Report Review – It is one year on since the Ministry of Ecology and Environment (MEE) reform, has it impacted China’s water? What has worsened & what has improved? We review the latest 2018 report
• UAVs To Monitor Ship Emissions – Is it a bird? Is it a plane? No it’s a drone! Dr Zhi Ning from HKUST expands on their method to detect ship emissions & help check compliance
• Beyond The Wall & Into The Watershed – Reducing your own factory’s water use is all well & good but what do you do when your basin is being impacted? Ecolab’s Ting He, Nestlé’s Qi Zhang & AWS’ Zhenzhen Xu provide examples on how to move into the watershed
• Your Inside Track To Rare Earths – Do China’s threats to weaponise rare earths in the trade war have any teeth? Even if not, a house of cards worth trillions could be at stake – find out why & get the edge now
• Eco-preneurs To Combat Pollution – What are “eco-preneurs”? The Ministry of Ecology & Environment’s Dr Zhanfeng Dong explains & elaborates on their role as a lynchpin in winning China’s war on pollution

• Water Ten: Comply Or Else – China’s new Water Ten Plan sets tough action on pollution prevention & control. While this is good for the water sector, less obvious is who or which sectors will be impacted. China Water Risk’s Tan on why China is serious about its fast & furious pollution reforms to propel China to a new norm
• Moutai: Risks Along The Intoxicating River – Moutai’s stocks have soared & with a 90% profit margin it is hard not to have a hopeful outlook but China Water Risk’s Yuanchao Xu warns of river basin risks – best to keep a clear head to ensure future prosperity
• Yangtze Flows: Pollution & Heavy Metals: Areas along the Yangtze River dominate Chinese production but at what cost? With Grade V water in its tributaries, rapid growth in upstream wastewater plus concerns over a disproportionately large share of the nation’s heavy metals discharge, can the Yangtze River Economic Belt still flourish? CWR’s Hu takes a closer look
• Water-nomics: Trade-offs Along The Yangtze – With significant economic, water use and pollution disparities along the Yangtze River, China Water Risk & the Foreign Economic Cooperation Office of the Ministry of Environmental Protection, publish a joint brief to explore strategies to find the right development mix. Check out some of the key findings in this review