Compliance in a Green China: A Manageable Challenge
Environmental scrutiny is not a new concern for chemical companies in China. But even they agree that recent anti-pollution efforts are unprecedented.
Mr. Zhu Qing-ping, CEO of FUCHS China, explains how the market-leading lubricants producer is adapting to this “new normal”. FUCHS, a listed global company with German roots, entered China in 1988 and has since then expanded its local presence to two production facilities and 18 service branches.
Mr. Zhu believes that meeting China’s “green” challenge is a tough but manageable task for quality-driven foreign companies. The right approach, he suggests, is to combine innovative technical solutions with a conventional emphasis on compliance and continuous improvement.
Was 2017 a turning point for China’s environmental policy enforcement?
We started seeing signs of impending change a few years ago, especially in larger cities. But it wasn’t until 2017 that stronger policies started to be enforced and the pressure to comply grew substantially. There is a much stronger focus on the ongoing monitoring of environmental compliance. Previously, environmental considerations came into play primarily at the approval stage of a project. Now, companies are supervised more closely post-approval – and not only by the government. Local authorities have started sending third-party agencies to examine and monitor compliance as well.
Are third-party environmental supervisors a game-changer?
For companies like FUCHS, with strong anti-pollution mechanisms in place, the only implication is that we now have an extra layer of reporting and supervision. But for businesses with weak pollution controls, it means that they can no longer get away with it – having a good relationship with local authorities is no longer enough.
Do China’s stricter environmental regulations affect foreign and domestic companies equally?
Yes. It’s a mistake to assume that the anti-pollution drive is targeted at foreign companies. Most businesses that have been shut down were local private companies. Foreign companies have actually been less affected because they tend to have more environmental and compliance awareness.
Which regulations pose the biggest hurdles for chemical companies like FUCHS?
Total pollutants discharge quotas – China’s long-existing discharge quotas are now being implemented much more strictly. Each company has a maximum quota of polluting by-products – such as solid hazardous waste – that it’s allowed to discharge. The limit is calculated based on the industry, region, and the company’s production capacity. Exceeding this threshold carries a heavy fine.
EIA approval – Before constructing or expanding a production site, companies must submit an Environmental Impact Assessment (EIA) report detailing the project’s pollution-related implications and prevention mechanisms. A few years ago, passing the EIA was unproblematic. Now, it’s difficult for chemical companies to get approval unless they’re located in a chemical industry park. This makes the search for a suitable factory location harder, and it’s leading to industrial transfer away from tier 1 cities.
What key actions has FUCHS taken to adapt successfully?
New location – The new plant we’re building in Suzhou’s Wujiang district will replace our existing one in Shanghai, where obtaining EIA approval would have been more complicated.
Product innovation – We continuously develop environmentally-friendly lubricants that reduce toxic discharges for us and our clients. Helping them meet environmental targets gives us a competitive edge.
Process innovation – We’re always analysing our production process to identify opportunities for environmentally-friendly engineering solutions, such as the process of “reduced pressure distillation” that we’re now using to collect treated/reusable fluids from our waste liquid.
Collaboration with customers – We have created innovative packaging solutions to increase reusability across the supply chain, and we’re helping clients to extend the product life of our lubricants by using filters.
External experts – It’s very difficult for a foreign company alone to solve environmental compliance issues comprehensively because it requires a lot of new technical knowledge and regulatory understanding.
Do you have any recommendations for foreign companies with production sites in China?
Apart from supporting the government’s anti-pollution drive, foreign companies should proactively foster communication with authorities and bring suggestions to the table, especially when new regulations or guidelines are being reviewed. They should also bear in mind that the “green” direction in which China is heading matches the competitive strengths of international players. The advantage for foreign firms is that environmental sustainability, technological innovation, and overall compliance are not new priorities.
At Fiducia, we are helping industrial clients adjust to China’s stricter anti-pollution controls in a strategic, systematic, and cost-efficient way through our “Environmental Health Check” service. Learn more about it here or ask us at firstname.lastname@example.org.