An August 2000 report from U.S. Embassy Beijing

Chinese environmental protection authorities are taking credit this month for the first closure of a major Chinese industrial enterprise for environmental reasons. Although financial factors also reportedly weighed heavily in the decision to shut down the plant, authorities in Beijing are brandishing the case as a warning to other large polluters to clean up their act or face the consequences. Dozens more large polluting plants will have to be closed, throwing many thousands out of work, if China hopes to meet its goal of bringing all industrial enterprises into compliance with national emissions standards by the end of this year.

Shenyang Smelter Ordered Closed

Authorities in Shenyang, capital of Northeast China’s Liaoning Province, ordered Shenyang Smelter to close its doors on August 8, citing the plant’s excessive pollution. Local environmental authorities claimed the plant was responsible for more than 40 percent of sulfur dioxide (SO₂) emissions within the city and 98 percent of lead particulate emissions, while contributing less than 1 percent of the city’s economic output and tax revenue. The plant, built during the Japanese occupation in 1936, had also been losing money for years.

Provincial and municipal environmental protection officials had been trying to close the smelter for years. But local politicians, already worried about the region’s high unemployment, hesitated to put the plant’s more than 20,000 employees out of work. Premier Zhu Rongji reportedly approved the closure during his visit to the city in April.

Wake-up Call to Other Big Polluters

The rumor on the street in Shenyang is that local leaders in truth were more concerned about the smelter’s hemorrhage of cash than its emissions of lead and sulfur and that the environment was merely used to put a virtuous spin on the decision and soften the public relations blow (see, for example, Mark O’Neill’s page-8 story in the August 20 South China Morning Post). Be that as it may, environmental authorities in Beijing have seized on the case as an object lesson for other large industrial polluters in China.

The August 12 edition of the China Environment News (Zhongguo Huanjing Bao), published by the State Environmental Protection Administration (SEPA), gave prominent coverage to the closure of Shenyang Smelter. A front-page boxed editorial led with the stern warning: "If an enterprise doesn’t eliminate pollution, pollution will eliminate the enterprise." This first-ever closure of a major industrial enterprise for pollution reasons demonstrates the government’s resolute commitment to deal with polluters, it continued, and should put Chinese industry on notice that reducing pollution is a firm obligation that cannot be evaded.

Killing the Chicken to Scare the Monkey?

Pursuant to a 1996 decision of the PRC State Council, all industrial enterprises in China must meet national emissions standards by the end of this year or face closure. This is known as the "meet two targets at one stroke" (yi kong shuang da biao) policy, which is described in more detail in June reports on this web page. SEPA Minister Xie Zhenhua has stated repeatedly that technologically backward, high-polluting enterprises should not be allowed to cross the bridge into the 21st century. Thousands of plants have been closed at least in part for environmental reasons since the policy was announced. The vast majority of closed plants, however, have been small, obsolete factories and power plants, which the government has been actively working to shut down as part of its economic restructuring strategy under the so-called "15 smalls" campaign (small power plants, small steel mills, small paper mills, cement plants, etc.). Authorities have been far less willing to crack down on large state-owned polluters that employ large numbers of people.

SEPA’s monthly status reports bear this out. As of the end of July, SEPA reported that 90 percent of the country’s 238,000 industrial enterprises had achieved the requisite standards, up from 88 percent a month earlier and 86 percent at the end of May. But of the 620 largest state-owned firms, just 66 percent were in compliance at the end of June. SEPA more closely monitors a list of roughly 18,000 "priority" pollution sources that are collectively responsible for more than two-thirds of total pollution. Just over 80 percent of these priority firms were up to standard in the latest audit, up from 75 percent at the end of May. But of the 180 firms on that list that are under the direct control of the central government, just 55 percent had met the standards by the end of May. Of the 112 among those 180 considered "key" industrial enterprises by the State Economic and Trade Commission, only 46 percent had met the standards.

Comment

The Achilles heel of the comply-or-close approach is that large, influential firms will call SEPA’s bluff, confident that they are "too big to fail." The key question, then, is whether Shenyang Smelter was a harbinger of more closures to come or simply a weak, expendable firm that lent itself to being made an example of — the chicken that was sacrificed to send a message to the monkey, as the Chinese proverb goes. Of course, the effectiveness of the latter tactic is reduced if the monkeys suspect the chicken would have been killed anyway for failing to lay eggs.

Regardless of the real reasons, closing the smelter is good news for those who live and breathe in Shenyang, with the possible exception of those who worked at the plant and cannot easily find other jobs. The same goes for the 31,800 other, smaller enterprises SEPA claims have been closed in recent years. However, if China is to meet its target of bringing all industrial enterprises into compliance with emissions standards by the end of this year, dozens more large state-owned plants will have to be closed in the next four months. Many of these dwarf Shenyang Smelter. For example, Capital Iron and Steel (Shougang), which lies just west of Beijing and employs 170,000 capital residents, is a major source of Beijing’s air pollution. Closing operations of that scale would be extremely difficult for any government. If, on the other hand, environmental authorities assert four months from now that all of these gargantuan plants miraculously met the standards, they will lose credibility.

China’s most recent environmental legislation and initiatives reflect a subtler, more sophisticated approach than the sledge hammer of the shuang da biao policy. The newer laws try to rely more on economic incentives — particularly fines and emissions charges, and even in some places tradable emissions rights — to achieve incremental reductions in the total volume of pollutants. Their success will depend critically on the credibility of the process, which in turn will depend critically on how authorities handle the end game of the shuang da biao.