03 September 2013

Push For Soil Quality Regulations Will Have Consequence

With environmental pollution front and center in the Chinese press, the government in Beijing has moved to address at least one aspect of the problem - soil pollution. In a sign that new regulations on soil quality are on their way, the State Council recently issued a directive titled "Working Arrangement of the Recent Environmental Protection and Comprehensive Treatment of Soil." Investors take note: the policies proposed by the Council will almost certainly impact existing and future investments in sectors such as manufacturing and heavy industry, as well as investments in geographic areas deemed to be ecologically sensitive.

A Council directive is intended to guide the drafting of legislation and is an important clue to the scope of future regulation. A number of the Council's recommendations could significantly alter the current regulatory landscape. We expect regulation to be forthcoming on national, provincial and local levels in the following areas:

  1. Regular monitoring of soil quality with deadlines for pollution clean-up. The Council recommends that soil quality be monitored around industrial and mining establishments that emit heavy metals and organic contaminants, as well as around facilities that process sewage, garbage, and hazardous waste. Any pollution would need to be controlled within prescribed deadlines.
  2. Enhanced soil protection areas. The Council recommends that cultivated land and watersheds around reservoirs be granted priority protection. Within these areas, there would be a prohibition on new projects involving non-ferrous metals, leather products, lead-acid batteries, oil and coal, and chemicals and pharmaceuticals.
  3. Measures to forbid various uses of polluted land. The Council recommends that construction permits, including those for new industrial projects, should not be issued for land that cannot meet certain soil quality tests. It further recommends that such land be barred from residential development and agricultural use.
  4. Model Areas for Soil Control and Recovery. The Council recommends that heavily-polluted areas such as the Yangtze River Delta, the Pearl River Delta, and central and southern Liaoning be made into models for the control and treatment of soil pollution. Comprehensive treatment plans for these areas would be required by the end of 2013. Under this recommendation, investors with projects in these areas could potentially face new environmental regulations by the end of this year.
  5. Increased Funding for Treatment of Soil Pollution. The Council recommends that governments increase funding for soil environmental protection. It further recommends that enterprises be held liable for the treatment costs of pollution they cause.
  6. Enhanced Accountability. The Council recommends that local governments sign agreements with key enterprises to commit them to certain environmental targets. Failure to meet these targets would expose the enterprises to liability.

Recently, several additional developments have confirmed Beijing's increased concern with environmental protection. First, China's leaders at the 18th Communist Party Conference affirmed that environmental protection was as important an area of policy as the Party's traditional concerns with economic, political, cultural, and social issues. In a meeting of the Central Committee's Political Bureau this year, President Xi Jinping equated environmental protection with the protection of economic productivity.

Second, in early May, the Ministry of Environmental Protection, among others, promulgated a draft "Soil Environment Protection Law." However, this draft is still confidential. Its provisions will be explored in our later newsletters when it is issued.

Additionally, in June, the Supreme People's Court together with the Supreme People's Procuratorates issued the Interpretations on Certain Issues Concerning the Application of Law in Handling Criminal Cases of Environmental Pollution ( the "Interpretations"), which became effective on June 19, 2013. The Interpretations list 14 actions constituting "severe environmental pollution", breach of which can carry the criminal penalties of imprisonment of no more than 3 years, criminal detention, and/ or penalty in accordance with Article 338 of the PRC Criminal Law. Some actions amounting to "severe environmental pollution" include illegal releasing, dumping, or disposing of dangerous waste of more than 3 tons, illegal releasing of pollutants 3 times above the national emission standard or local emission standard and causing loss or permanent damage to cultivated land, specially used forests of more than 0.8 acres or other land of more than 3.2 acres.

Moreover, the Interpretations also list actions constituting "exceptionally serious consequences". These can carry fixed-term imprisonments of more than 3 years and less than 7 years and a fine in accordance with Article 338 of the PRC Criminal Law, The "exceptionally serious consequences" include causing loss or permanent damage to cultivated land, specially used forests of more than 2.5 acres or other land of more than 10 acres and causing property damage exceeding 1 million RMB or causing more than 1 death or severe disability.

These developments signal that changes are coming to China's environmental regulatory regime. The Council's directive on soil pollution and the newly implemented Interpretations are strong indications that, at the very least, existing and future projects will face enhanced regulatory scrutiny and criminal liabilities related to environmental pollution. Prudent investors should plan accordingly.

(This article was originally written in Chinese, and the English version is a translation.)

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