Two Sessions: Reform – Transform

By Yuanchao Xu 18 March, 2019

CWR's Xu looks back at a tough year for China but sees transformations ahead - make sure to stay on top of them!

China’s “Two Sessions” (两会, lianghui) of 2019 have wrapped up. In 2018, China achieved a growth rate of 6.6%. While this number is slightly better than expected and interpreted as “within a reasonable range”, it still represents China’s slowest year of growth since 1990. This has been attributed to a series of challenges which emerged in 2018 (China’s 40^th anniversary since “reform and opening up”), including the trade war, government debts, over de-leverage and the lack of liquidity for non state-owned enterprise (SOEs).

President Xi is staying true to his resolution to build a Beautiful China

However, staying true to his resolution to build a Beautiful China, President Xi has again stressed how important it is to stick to the construction of an eco-civilisation and the prioritisation of ecology. Pollution control, as one of the three tough battles (the other two are preventing financial risks and reducing poverty) for the Chinese government, will be further continued in 2019. The Yangtze River Economic Belt (YREB) will still be the focus of the construction of eco-civilisation, with the help from the legislation of the Yangtze River Protection Law.

Here are some key takeaways from the “Two sessions”:

Ecological civilisation – tough but happening

The battle to tackle pollution has had some short-term impacts on the economy. Some highly polluting enterprises have experienced shut downs or production cuts, which has impacted the local economy of some regions. Some local governments even saw environment protection as the obstacle to local development.

2018 was a tough year for China. With downward pressure on the economy, will China continue its eco-civilisation construction? President Xi has given the answer. During his visit to the Inner Mongolia delegation, President Xi again presented his resolution for eco-civilisation construction.

Environmental protection is a crucial step towards the transition of China’s economy from “high speed” to “high quality”

He stressed the importance of Inner Mongolia as a belt of ecological security and beautiful landscape in Northern China. He also believed that pollution control and environmental protection is a crucial step towards the transition of China’s economy from “high speed” to “high quality”.

President Xi also noticed some issues in balancing economy and environment and stated that “Blindly launching projects should be prohibited even when there are difficulties in the economy because they sacrifice the environment for economic growth and break ecological red lines,” and “We must strive to get over difficulties and firmly stick to ecological environmental protection”.

“We must strive to get over difficulties and firmly stick to ecological environmental protection”

President Xi

Xi’s resolution has also been reflected in the government work report of 2019. Lowering the density of main pollutants is still a key target for 2019. The three wars on pollution (war on air, water, soil pollution) will continue to be pursued.

In a word, realising an eco-civilisation is tough, especially given China’s current situation, but it is still happening.

No more “one size fits all” shutdowns – government to help enterprises transition

An “environmental protection storm” became quite a popular and striking phrase in 2018. Wherever the storm went, local enterprises became horrified and concerned about production cuts or shutdowns. In the beginning of the storm, some local administrations hoped for quick success and arbitrarily/completely shut down projects/factories to get through the environmental protection inspection. However, this “one size fits all” approach is neither sustainable nor a purpose of the inspection, and has brought negative impacts to local residents.

The “one size fits all” phenomenon is to be strictly prohibited…

As a result, the Ministry of Ecology and Environment (MEE) published the “Working Opinions for Prohibiting the ‘One Size Fits All’ Phenomenon in Environmental Protection” at the end of May 2018, just before the review of the inspection. Li Ganjie, the minister of MEE also stated in the “Two Sessions” that the “one size fits all” phenomenon is to be strictly prohibited.

…environmental enforcement will not only inspect but also help enterprises to get over difficulties & comply

In the government work report of 2019, Premier Li Keqiang further stressed that “enterprises as the main body of environmental protection need to be properly guided, helping them to comply with corresponding regulations and standards”. In the subsequent “Two Sessions” press conference, Li Ganjie summarised progress in prohibiting the “one size fits all” phenomenon and further proposed that in the future, environmental enforcement needs to be standardised and service-minded – environmental enforcement will not only inspect but also help enterprises to get over difficulties and comply with certain regulations and standards.

YREB is key – from ecological compensation to a new Yangtze Protection Law

The Yangtze River is vital to China and the global economy. Many global suppliers are located in the Yangtze River Economic Belt (YREB) but the regulatory environment and actions taken in the YREB can cause a fluctuation along global supply chains.

“Big protection rather than big development” for the Yangtze

The Yangtze River clearly concerns President Xi the most. In President Xi’s previous visit to the Yangtze River, he sadly described the Yangtze River as a seriously sick person. “Big protection rather than big development” has since become the mantra for the Yangtze River.

The rehabilitation of the Yangtze River has already started and satisfactory results have been achieved in the last two years. In 2019 the following aspects will be the MEE’s key tasks:

• Drinking water source protection
• Black & odorous (B&O) water body treatment & restoration
• ‘Green Shield’ Action – ecological protection
• ‘Clean Waste Action’
• Treating Grade V+ water body (12 out of 540 national-level controlling points along the Yangtze are still in Grade V+)
• Inspection & pollution control of discharge points along the river
• Controlling three sources of phosphorus pollution (phosphorus mines, phosphorus chemical plant, phosphogypsum storage)
• Special control of wastewater treatment facilities in provincial-level industrial parks in the YREB

In 2018, up to RMB5bn was provided to facilitate ecological compensation in Yangtze River basin

Apart from the above, Li Ganjie also mentioned that ecological compensation in the YREB is being actively advanced, where upstream regions are compensated for ensuring clean water for downstream reaches. The Yangtze River spans a lot of provinces, providing abundant cases for exploring such an ecological compensation system. In 2018, financial support of up to RMB5bn was provided to facilitate ecological compensation in Yangtze River basin. This year MEE will further expand the use of this economic scheme.

The government work report of 2019 also viewed the YREB from an economic angle. It promoted the coordinated development of the upper, middle and lower reach of the Yangtze River and planned to build a comprehensive transportation system in YREB.

The “Yangtze River Protection Law” (YRPL) will be legislated

Moreover, the environmental legislation work for the YREB will also progress in 2019. The “Yangtze River Protection Law” (YRPL) will be legislated, as pointed by Zhang Yesui, the speaker of the 13^th National People’s Congress (NPC). The YRPL was listed in the legislation plan in September 2018 and the draft was submitted at the end of the year. The purpose of the YRPL is to protect and improve the ecological environment of Yangtze River and promote the sustainable use of resources & the high-quality economic development.

Jiang Bixin, the vice-president of China’s Supreme Court, said that the YRPL will be important and provide basis for cases related to environmental resources. The Supreme Court will comprehensively categorise the problems, conflicts and shortcomings through careful investigations, and then submit them to the National People’s Congress to help with legislation.

Ocean development & protection

Apart from a vast land area, China also governs a large body of water. However for a long time in history, instead of reaching out like western countries, China did not attach much importance to the ocean and chose to isolate itself until modern times.

In the 18^th National Party Congress, China proposed to be a maritime power and put the National Maritime Strategy and the Marine Fundamental Law Legislation on the table. The “One Belt One Road” initiative further demonstrates China’s new ambition to reach out and globalise.

However, currently China’s ocean development is facing four challenges according to a recent investigation conducted by the finance committee of NPC,:

• The awareness of ocean development needs to be deepened;
• Extensive traditional ocean industries and lack of strategic emerging industries;
• More scientific and technology support is needed;
• Heavy pollution and ecological pressure.

China is still facing serious environmental risks in its ocean…

Although China’s marine ecological environment quality has steadily improved in recent years, China is still facing serious environmental risks in its oceans. Data shows that about 10% of China’s bay areas are seriously polluted, over 17% of the coast are eroded and about 42% of the coastal areas have exceeded their ecological capacities.

…‘Ocean Pollution Prevention & Control Plan’ (Ocean Ten) should be enacted

Wang Jinnan, the president of the Chinese Academy of Environmental Planning of MEE, suggested in the “Two Sessions” that “ocean development should refer to the successful experiences from the ‘Air Ten’, ‘Water Ten’ and ‘Soil Ten’ to enact the ‘Ocean Pollution Prevention and Control Plan’ (Ocean Ten)”. In the government work report, the development of a “blue economy” and ocean environmental protection also became a key task in 2019. In a similar vein, Ma Huateng, the CEO of Tencent has proposed the construction of national ocean parks.

• From the policy side: the property right of nature reserves needs to be clearly determined through the legislation and amendment of corresponding laws including the “National Park Law”, the “Nature Reserve Law” and the “Property Law”. The administrations in nature reserves should be entitled with the administrative power within nature reserves.
• From the research side: the investment in national ocean parks needs to be increased. As Ma suggested, there should be two to three ocean parks in the first batch of national parks by 2020.
• From the technology side: a national big data platform needs to be established to help with the data exchange and the effective use of biological information, as well as the standardisation of national park constructions. Public participation should be incorporated in the big data platform to raise people’s awareness of ecological environment protection.

Transformation is key

Despite weathering tough times in 2018, China has clearly made headway in the pursuit of a Beautiful China. As it sorts out structural problems in the year ahead, expect the reform to continue and disruptions to ramp up – it’s just the beginning. Robust innovations and industries will sprout up so keep pace with these transformations. We’ve already called it previously that the Year of the Pig will be a transition year and President Xi echoed this in his New Year speech – “time stops for no one, and the seasons keep changing.”

Further Reading

• Key Water Policies 2018-2019 – Haven’t been following China’s environment & water-related policies? Get on top of them now with China Water Risk’s review, including China’s first Soil Ten Law & renewable energy quotas
• Welcome To China’s Zero Waste Cities – China Water Risk’s Yuanchao Xu unpacks China’s new zero waste city initiative – can it save China’s cities from being ‘surrounding by garbage’? Which cities e.g. Greater Bay Area will become pilots?
• Top 10 Responsible Investment Trends For 2019 In China – Chinese financial institutions are increasingly embracing responsible investment, so follow their lead and get up to date with the latest developments and key trends for 2019 from Syntao
• Water Quality From On-Ground: Huang Long Xian Village Case – Jerry Jiang, Wanying Na and Zhenzhen Xu from the Alliance for Water Stewardship showcase their education pilot and explain how it has raised awareness on ground & improved local water quality in China
• China’s Water Sharing Treaties – Reciprocity In Practice? – Does China really deserve its bad rap over its water sharing practices? Chongqing University’s Dr. David J. Devlaeminck questions this by exploring water sharing norms through a Chinese lens

• 2017 State Of Ecology & Environment Report Review – Prioritising rivers appears to have paid off but overall groundwater and Key Lakes & Reservoirs both worsened. Are we now seeing the “real” state of China’s environment? Find out in China Water Risk’s review of the 2017 State Of Ecology & Environment Report
• What ‘Xi’s Thought’ Means For Water – One key message from Xi Jinping at the 19th National Congress was harmony between environment & economic growth, surely this bodes well for water? China Water Risk’s Feng Hu reviews
• Green Development For A Beautiful China – The Minister of Environmental Protection Ganjie Li outlined the MEP’s achievements and future plans at the 19th People’s Congress. What are the key takeaways? China Water Risk’s Yuanchao Xu reviews
• Blue Skies & 13FYP Green Development – Air pollution and the battle on “blue skies” was by far the major environmental focus at China’s Two Sessions. Water and soil are no less important but yet softer and more general targets were set for them. See China Water Risk Hongqiao Liu’s review for the key takeaways
• 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