Analysis: Stronger Regulation Needed to Improve Corporate Pollution Record in China

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The recent criticism of several foreign-owned companies by China’s top environmental authority has turned up the heat on multinational corporations (MNC) operating in the country. Earlier this month, the State Environmental Protection Administration (SEPA) followed up with 130 MNCs caught polluting since 2004 and exposed three persistent polluters, according to China Business News.

The recent criticism of several foreign-owned companies by China’s top environmental authority has turned up the heat on multinational corporations (MNC) operating in the country. Earlier this month, the State Environmental Protection Administration (SEPA) followed up with 130 MNCs caught polluting since 2004 and exposed three persistent polluters, according to China Business News.

SEPA’s attention to multinationals was triggered by a joint campaign between the Chinese media and the nation’s nongovernmental sector. In late 2006, the Institute of Public and Environmental Affairs, an independent organization based in Beijing, first brought MNC polluters into the spotlight when its researchers stumbled upon dozens of big international names in a government database of water polluters. The group’s allies in the media soon chimed in and made the issue well known to the public.

Under the Institute’s closer scrutiny, the number of MNC polluters increased from the original 33 to more than 260 water polluters and over 50 air polluters. Spanning the spectrum of industry from food, electronics, and petrochemicals to machinery and paper making, most of the offending companies are from Japan, the United States, and Europe. They include famous brands such as Pepsi, KFC, Carlsberg, Nestle, GM, Dupont, and 3M.

MNCs have generally been perceived as good environmental performers in industrialized countries, where they often play the environmental trump card to win over customers. Their apparent “double standard” in China is more often a product of local conditions that facilitate less-than-stellar environmental behavior than a lack of moral fortitude when it comes to developing-world operations.

Weak supervision and lousy enforcement in China has been a major passive encouragement to businesses for doing poorly environmentally. Fines are almost the sole method of punishment, and the actual amounts are close to nothing in most cases, failing to serve as a deterrent. The maximum fine for severe water pollution is 1 million RMB, or roughly US$140,000, while that for air pollution is half as much. In most cases, polluters are fined below 100,000 RMB (US$14,000), and no more than once a month. Comparing a fine of a few thousand dollars to the hundreds or thousands times that needed to pay for treatment facilities and other anti-pollution investments, most businesses understandably follow the course of maximum profit seeking and continue to pollute.

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Local governments are also implicit in shielding MNC polluters from pressures to improve environmental performance. These companies are typically major money-generating machines for localities, providing employment, paying taxes, and driving up local GDP growth. Many local authorities use shoddy environmental standards to woo foreign investors in the first place, and enact preferential policies to create a local safe haven for pollution.

A municipal regulation in Anhui, for example, requires environmental administrators to report their plans for inspections 30 days in advance, providing detailed information about when, where, and how the inspection will be carried out. Another stipulation requires that an enterprise should not be inspected more than once a year. Similar local policies can be found across China, effectively barring environmental enforcers from even setting their feet in the economic and industrial parks where most polluters cluster.

Low public awareness contributes to the poor environmental performance of businesses as well. In countries with strong consumer movements, environmental abuse can smear brands and incur protests and boycotts by the environmentally sensitive public. In China, however, the general public is still mostly concerned with the price and quality of a product or service, and environmental performance does not influence purchasing choices much.

These conditions provide little incentive for businesses—whether foreign or domestic—to discipline themselves in protecting the environment. Although the regulatory process is often difficult and painful, it is always more sensible to improve outside factors through effective policies than to rely on business conscience for a better environment.