[Note: This text-only version does not include illustrations, tables, text boxes, Appendix A (Maps), nor Appendix F (Development Zones). These appear only in the print and Adobe Acrobat versions of this report.]

China environmental technologies export market plan.

U.S. DEPARTMENT OF COMMERCE

International Trade Administration

Washington, D.C.

September 2002

Library of Congress Cataloging-in-Publication Data

China environmental technologies export market plan.

p.  cm.

1. Pollution control equipment industry - China. 2. Pollution control equipment industry - United States. 3. Imports - China. 4. Export marketing - United States.                     5. Pollution - China. 6. Market surveys - China. I. United States. International Trade Administration.

HD9718.C62 C48 2001

382'.4568176--dc21

2001051470

ISBN: 0-16-051189-5

For sale by the Superintendent of Documents, U.S. Government Printing Office

Internet: http://bookstore.gpo.gov

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Mail: Stop SSOP, Washington, DC 20402-0001

Stock number: 003-009-00728-3

Illustration on page viii courtesy of the Central Intelligence Agency.

The full text of this report is available on the International Trade Administration's Internet site at www.environment.ita.doc.gov. Reprints on paper or microfiche are available for purchase from the National Technical Information Service, 5285 Port Royal Road, Springfield, VA 22161; www.ntis.gov.

Federal Recycling Program

Printed on recycled paper.

Acknowledgments

This report was prepared by Sinosphere, Inc., under contract to the Office of Environmental Technologies Industries of the U.S. Department of Commerce, International Trade Administration, with assistance from the U.S. and Foreign Commercial Service, Beijing. Conclusions and statements expressed in this report are those of the contractor and do not necessarily represent the views or policies of the U.S. Department of Commerce or the U.S. government.

Contents

	

	Abbreviations and Acronyms	vii

	Executive Summary	ix

	1	The Market for Environmental Technologies	1

	2	Economic Overview	12

	3	Legal and Policy Review	22

	4	The Water Sector	40

	5	The Solid Waste Sector	48

	6	Air Pollution	56

	7	The Environmental Services Sector	62

	8	Resource Management	66

	9	Finance Programs and Resources	70

10	Positioning U.S. Exporters in the Market	80

Appendices

Appendix A: Maps	95

Appendix B: China Contacts	98

Appendix C: International Contacts	104

Appendix D: Legal and Market Consultants	108

Appendix E: Web Sites	110

Appendix F: Development Zones	116

Abbreviations and Acronyms 

ADB		Asian Development Bank

BOT		build-operate-transfer

CDB		China Development Bank

CESTT		Center for Environmentally Sound 				Technology Transfer

CFB		circulating fluidized bed

CIDA		Canadian International      					Development Agency

COD		chemical oxygen demand

CRAES		Chinese Research Academy of 				Environmental Sciences

CSRC		China Securities Regulatory 					Commission

EIA		environmental impact assessment

EPB		environmental protection bureau 				(provincial and local levels)

EPU		Environmental Projects Limit

ETI		Environmental Technologies Industries

Ex-Im		Export-Import Bank of the             				United States

FAS		free alongside ship

FGD		flue gas desulfurization

GDP		gross domestic product

GEF		Global Environment Facility

GTZ		Deutsche Gesellschaft fr Technische 				Busammenarbeit (German Technical 				Corporation)

HSE		health, safety, and environment

HTS		Harmonized Tariff Schedule

IFC		International Finance Corporation

IPR		intellectual property rights

JEXIM		Export-Import Bank of Japan

JV		joint venture (enterprise)

JBIC		Japan Bank for International 					Cooperation

MIGA		Multilateral Investment Guarantee 				Agency

MOFTEC	Ministry of Foreign Trade and 				Economic Cooperation

NGO		non-governmental organization

NPC		National People's Congress

OECD		Organization for Economic 					Cooperation and Development

OECF		Overseas Economic Cooperation                      		Fund of Japan

PDF		project development funds

PM		particulate matter

PPP		public private partnership

PRC		People's Republic of China

RMB		yuan renminbi (Chinese currency)

SDPC		State Development and Planning 				Commission

SEPA 		State Environmental Protection 				Administration

SETC		State Economic and Trade 					Commission

SOE		state-owned enterprise

TDA		Trade and Development Agency

TEC		total emissions control

TIPC		total investment in pollution control

tpd		tons per day

TSP		total suspended particulate

TVIE		town and village industrial enterprise

UNCHE		United Nations Conference on the 				Human Environment

UNDP		United Nations Development Program

UNEP		United Nations Environment Program

UNIDO		United Nations Industrial 					Development Organization

USAEP		United States-Asia Environmental 				Partnership

USAID		U.S. Agency for International 				Development

WFOE		wholly foreign-owned enterprise

WHO		World Health Organization

WTO		World Trade Organization

Note: Unless otherwise noted, dollar figures given are U.S. dollars. The exchange rate for the Chinese yuan, or RMB, has been calculated at 8.3 to the U.S. dollar.

Executive Summary

Environmental protection is currently receiving more attention in Chinese domestic policy than ever before, and all indications are that this attention is going to continue to increase. Spending on environmental protection topped 1 percent of China's gross domestic product (GDP) for the first time in 1999, and investment rates are expected to continue rising. Similarly, citizen awareness and the demand for environmental well-being are increasing. The central government, increasingly cognizant of the financial and social costs of a deteriorating environment, has clearly made its protection a priority.

In November 2000, the Chinese Research Academy of Environmental Sciences (CRAES) estimated that RMB 700 billion ($85 billion) would be needed to meet the environmental goals of the Tenth Five Year Plan (2001-2005). Other estimates indicate that as much as hundreds of billions of U.S. dollars will be necessary to address all the issues thoroughly. The World Bank has estimated that 2 percent of GDP will be needed just to bring air quality standards within range of those seen in the United States in the 1980s. Regardless of the estimations observed, the central government is expected to contribute only 11.4 percent of the CRAES estimate ($9.7 billion) over the next five years, while 34 percent of that estimate (nearly $29 billion) is expected to be sourced from provincial and local governments and 55 percent (over $46 billion) from business enterprises themselves. 

The financial demands indicate a strong need for non-public investment, whether it be directly from Chinese state-owned enterprises (SOEs), from the small but growing domestic private sector, or from a variety of foreign investment channels. Under ideal market-oriented circumstances, such investment might materialize with relative ease, but as the system currently functions, it remains challenging to operate profitably in China's environmental sector. This is due in part to the facts that pricing strata for environmental services such as waste and water management do not reflect the actual costs of providing those services, guarantees and security mechanisms are not well established to mitigate the risks of private investment, and legal transparency and equitable enforcement of the law remain lacking in many instances. The government appears to be aware of these conflicts and the fact that they must be addressed if the private sector is to play a considerable role in the environmental protection plan. The rate and efficacy with which these issues can and will be addressed is uncertain.

There is already a trend toward the liberalization of environmental service tariffs. Water prices are rising,  and some investors report cooperation from local       governments in setting water prices at rates that offer potential for returns on long-term facility investments. Similar tariff liberalization may carry over to          wastewater treatment and, in due time, to solid waste management as well. Nonetheless, the common consensus is that, in order to enter the market and eventually turn a profit, investors must have both ample finances and patience.

Because most of the government bodies and enterprises (both SOEs and private enterprises) seeking to invest in environmental protection work under financial constraints, it is critical that the technologies they invest in are efficient and affordable. A fundamental underlying indication of this market analysis is the Chinese demand for innovative technologies that can provide significant results at relatively low marginal costs, management and clean production schemes that can assist in the attainment of efficiencies, and innovative recycling techniques that can turn waste products into money-generating commodities. 

Yet, before attempting to enter the Chinese market, it is important to keep in mind the eccentricities of doing any sort of business in China. Numerous complications and barriers, many of which are addressed in detail throughout this document, are encountered by nearly all exporters and foreign investors that enter the Chinese marketplace. Perhaps paramount among those is personal relations, referred to in Chinese and colloquially among non-Chinese as "guanxi." Personal relationships are often at the core of business dealings in China. For those who lack the time, money, ability, or interest to establish such relations and presence in China, an increasing number of service providers with extensive connections and know-how can, for a fee, provide the necessary connections, networking, and guidance. Regardless of the facilitation and assistance sought, entry into the Chinese market can be a slow and sometimes exasperating process; those willing to spend the time and effort may find the payoff worthwhile in the end.

For the purposes of this report, the environmental sector is divided into the water sector, the solid waste sector, the air sector, the services sector, and resource management. All of these sectors present unique opportunities and complications, which are discussed in turn in the corresponding chapters. Additionally, efforts to enter markets in any of the sectors are subject to a relatively standard set of conditions that apply across the environmental sector and in some cases to foreign investment in China in general; these conditions are addressed in the remaining chapters.

This market study aims to clarify three things for U.S. companies looking to invest in China's environmental protection industry: 

1. The real demands for environmental protection        in China,

2. The current investment climate in the environmental protection industry and developing trends that may affect it in the near and medium-term future,

3. Methods to access the market and potential       results that can be reasonably expected from      investment efforts.

This report does not provide comprehensive lists of industries looking to buy or manufacture equipment, local governments looking to implement initiatives, or massive infrastructure development programs that may offer opportunities to technology providers, as all these types of information are time dependent and would be obsolete soon after printing. It does, however, indicate channels by which investors can find this information while offering insights into what the market may have to offer as China pursues its goal of rapid modernization.

Chapter 1

The Market for Environmental Technologies

China's domestic environmental technology industry, according to local government and business leaders, does not lack the ability to produce standard environmental protection equipment. However, the quality and innovative character of this equipment is widely known to be poor, and the country's demand for reliable, affordable, and effective environmental protection equipment is not satisfied. Many of the potential consumers of such equipment lack access to necessary finances. The management skills and know-how needed to use the available technology effectively remain substandard, severely cutting into the efficient allocation of what little funding is available.

Chinese-produced equipment that is of lesser quality than similar foreign-produced equipment is often favored by Chinese end users, as it makes up for its shortfalls in quality by being less expensive and domestically produced. In some instances, purchasers are beginning to favor more expensive, higher-quality exports as maintaining mediocre domestically-produced equipment proves to be inefficient. Nonetheless, it is difficult for foreign technology producers exporting to China to enter the market competitively with products that are similar in design or function to anything already produced in the country. The exceptions to this rule are exporters that are able to provide equipment at significantly reduced prices and those that offer attractive support packages. Such exporters remain few, given such factors as high import tariffs, reduced production costs in China, and various other market barriers.  Changes associated with the accession of China to the World Trade Organization (WTO) are having a beneficial impact. 

Vendors looking to export equipment to China need either to provide exceptional products brokered through a reliable local representative or to enter the market indirectly through multilateral projects, through other foreign-funded investment schemes, or by targeting the demands of foreign-invested companies operating in China. Another option is to forgo the notion of exporting and establish a local presence in-country via a joint venture (JV) or wholly foreign-owned enterprise (WFOE). Such in-country operations can reasonably expect a share of the market demand if they offer competitively priced goods and services. Trends indicate that Chinese end users prefer to buy equipment and parts produced by Western-invested JVs and WFOEs due to inherent quality differences. JVs and WFOEs can also maintain competitiveness by avoiding customs tariffs and taking advantage of reduced production and labor costs that exporters cannot. Changes associated with WTO accession are influencing these realities and should be considered when developing a market strategy. (See further discussion of the WTO later in this chapter.)

Despite the broad range of environmental legislation that has been promulgated over the past decade and will likely be promulgated in the decades to come, regulation remains weak or non-existent. Chinese environmental protection is not regulation driven but rather economically driven; the economy and its forces, meanwhile, can be described as somewhat market oriented although controlled by seemingly monopolistic behavior. Once this is understood and a marketing strategy is developed that provides an economic and profit-driven explanation for the use of a product, then market entry may be possible. Such a market strategy would require indications not only that a proven technology is technically appropriate for a task but, more important, that savings can be realized, that the payback period for an investment would be favorable, and ultimately that profitability could be enhanced. More sophisticated and costly technologies might require creative financing, in which the vendor would initially carry some of the cost, thus shouldering some risk in proving that the technology is viable, and would later be paid back from the accrued savings or profits according to a pre-arranged formula.

China's Real Demands

The domestic production of basic environmental technology is not impossible for China. The following is an assessment of the country's more complex and advanced needs, which can be roughly divided into four categories: inexpensive solutions, innovations and efficiency, management skills and best practice, and maintenance and equipment servicing.

According to State Environmental Protection Administration (SEPA) statistics, over 70 percent of China's pollution problems stem from industrial pollution, which is primarily generated by seven industrial subsectors: non-metal mineral production; chemical production; pulp and paper production; textiles; ferrous smelting and processing; mining; and electricity production. Nonetheless, other sources such as municipal waste and agricultural pollution factor heavily into the equation, and the needs discussed below are generally applicable across the board.

Inexpensive Solutions

Available finances for environmental protection fall far short of what is needed to address China's serious environmental degradation. One consistent response from local government leaders and enterprises during the research for this market plan was that needs are tremendous but money is scarce.

Foreign enterprises looking to provide marketable solutions to China's environmental problems need to find innovative solutions and to develop affordable and cost-effective methodologies backed by creative financing. Technology providers who can offer means to make significant environmental improvements at affordable prices find themselves warmly welcomed in China. 

The potential market size, economies of scale, and the reduced costs of producing in Chinathrough either a JV or WFOEare keys to commercial viability for inexpensive solutions. A solid market analysis, effective and widespread marketing, and adept use of the advantages of in-country production are all required. Enterprises composed, at least in part, by foreign technology providers are regarded as superior by many consumers in China.

Innovations and Efficiency

SEPA Minister Xie Zhenhua has indicated that RMB 700 billion ($85 billion) will be needed to meet the environmental goals of the Tenth Five Year Plan and, according to CRAES, about 55 percent of that is expected to be covered by enterprises themselves. However, many business enterprises already view environmental protection as a costly burden, and new goals are met with increased disfavor. Therefore, a market demand is developing for innovations and efficient management techniques that allow an enterprise to simultaneously protect the environment and save or generate money, either through increasing efficiency or reusing and recycling by-products. 

Some of China's major industries are already putting such innovations to use and are finding that waste products previously seen as useless and troublesome to dispose of can be reused or recycled, and can generate further income. Other industries are developing more efficient and cleaner production methods and are reducing pollution levies and cleanup costs so much that expenditures formerly used to cover those costs can cover upgrade investment costs over a surprisingly short period of time (see Box 1).  As enterprises are increasingly burdened with the responsibility of funding China's environmental protectionand internalizing their own environmental liabilitiesthey increasingly seek out means to make that responsibility affordable and profitable.

Management Skills and Best Practices

Although China is capable of manufacturing a great deal of the basic equipment for environmental protection, there remains a considerable gap in terms of management and know-how when putting that technology to use. There is a demand for consulting and management training that improves equipment performance and overall environmental performance. Many industrialists and officials contacted during the research for this document expressed a need for training on sound management practices and operations.

Additionally, there is a widespread lack of understanding regarding best practices. In some cases, this is due simply to the fact that enterprises are not aware of or do not seek out information regarding such practices. In other cases, a perception perists that environmental protection is necessarily costly and that therefore enterprises must become financially sound before they can become environmentally sound. In either case, it is apparent that information on best practice needs to be widely disseminated, with simultaneous consideration of the innovations and efficiencies discussed above. 

Based on these findings, it appears that any initiatives in this area require coordination between individual vendors, industry associations, and the U.S. government.

Maintenance and Equipment Servicing

Another breakdown in the industryone that heavily influences the efficiency of environmental protection expenditures and equipmentis poor operation and maintenance. This may be due to perceptions that equipment maintenance and servicing is merely another burdensome cost, or it may be due simply to a lack of awareness. Regardless, potentially strong market demand awaits investors who can successfully illustrate to enterprises that relatively small expenditures on maintenance can result in long-term efficiencies and revenues. Furthermore, technologies that require little maintenance or are self-maintaining (which are heavily marketed by Israeli industries in China) undoubtedly have additional competitive advantages.

The Issues

The three primary environmental priorities in China are water quality, air quality, and waste management. They will be the primary focus of environmental protection during the Tenth Five Year Plan and will therefore be the primary focus of this market survey. However, issues such as land degradation, ecological and biodiversity preservation, and other standard environmental concerns are getting attention and offer market potential.

Each of these issues is introduced below. For market analysis and discussion of market potential by sector, see the appropriate corresponding chapters.

Water

Statistics from 1991 to 1998 indicate improvements in river water quality in some limited areas but illustrate an overall trend suggesting significant deterioration as a whole. Forty percent of the country's river water is ranked as poor by domestic standards. Additionally, an estimated 25 percent of all Chinese lakes are affected by eutrophication, almost all of the coastal seas are moderately to highly polluted, and it is now being said that little or no groundwater in the country remains unpolluted.

Water sources in 50 percent of the major cities and towns cannot meet drinking water standards. Ten percent of urban and 80 percent of industrial wastewater receives some treatment, but most of that treatment is inadequate. Most Chinese cities and towns lack municipal wastewater treatment facilities, and many towns do not even have proper drainage systems.

Additionally, parts of the country are dramatically short of water. In some areas, water availability is as low as 355 cubic meters per head (the international definition of water scarcity is 1,000 cubic meters per head). In 2000, Beijing endured what many called its worst drought in decades.

The vast majority of water in China is biologically and chemically unsound, primarily as a result of

l  industrial wastewater discharge,

l  municipal wastewater discharge, and

l  non-point pollution (generated by agricultural     practices, livestock production, and so forth).

Air 

Of the three ambient air quality parameters consistently monitored in Chinasulfur dioxide (SO2), nitrogen oxides, and total suspended particulatesonly nitrogen oxides have increased concentration in medium and large Chinese cities in the past few years. However, all three pollutants remain formidable concerns for China's environment, and numerous other pollutants remain unmonitored. 

Ambient air quality in many large urban areas has shown optimistic trends, but air quality in more than 500 major Chinese cities remains below World Health Organization (WHO) standards.  Small cities have seen little or no improvement. Every Chinese city, large or small, faces serious total suspended particulate problems that pose significant threats to public health. The impact of acid rain has stabilized since the mid-1990s, but its influence is still widespread and destructive, affecting approximately 40 percent of China's landmass. Indoor air pollution resulting from fuel combustion is on the decline as briquettes and gaseous fuels replace raw coal for cooking and space heating. Nonetheless, it still poses a severe health risk, particularly for poorer, rural populations.

In keeping with the Montral Protocol, China was able to freeze increases in the production and consumption of ozone-depleting substances in 1999. However, the country still faces the task of completely phasing out such substances by 2010, a goal that may be difficult to achieve.

l  Coal consumption is far and away the most dominant source of air pollution in China, spanning the gamut from large- and small-scale industrial and commercial sources to residential space- and water-heating operations.

l  Motor vehicle emissions, in line with the increase of automobiles in most larger cities, are expected to continue rising over at least the next 10 years.

l  Non-combustion-related airborne particles resulting from construction and land degradation (e.g., desertification) are on the rise.

Waste

Over 200 of more than 650 cities surveyed in China are surrounded by hills of waste. As of August 1999, more than 6 billion tons of municipal refuse had accumulated and claimed 5.4 billion square feet of land in China. Between 600 million and 750 million tons of industrial solid waste was generated in 1999, and statistics on the generation of hazardous waste vary from 5 to 30 million tons annually. Hazardous wastes are often incinerated and disposed of improperly and are frequently mixed with non-hazardous waste in landfills and dumps. 

There is much discussion now of sustainable development through an integrated approach to waste management, including minimization of the production of waste materials and maximization of waste recycling and reuse. Composting, incineration, and landfilling all have roles in the management apparatus, each with its own host of pros and cons. Nonetheless, waste management remains a subpriority for Chinese planners, as air and water concerns take center stage.

l  Only 5 percent of household waste and 17 percent of industrial waste receive any treatment.

l  An adequate hazardous waste management system does not yet exist.

l  Market-based tools that would allow profitability and thereby generate private investment have not been successfully established.

Resource Management

About 20 percent of China's agricultural land has been lost to soil erosion and economic development over the last decade. Desertification in northern China is estimated at 70,000 square kilometers and is increasing by about 2,100 square kilometers per year. Salinization, reduction of pastureland, and loss of arable land are considerable, and the effects of widespread deforestation are having a strong impact. Land degradation is arguably the most critical rural environmental problem in China today.

Financing and Expenditures

China spent just under $10 billion on environmental protection in 1999, reaching 1 percent of GDP for the first time and accounting for an increase of 15 percent over expenditures in 1998. Certain localities, such as Beijing, Shanghai, Xiamen, and Dalian, are claiming expenditures in the range of 3 percent of local GDP. There has been considerable discussion about raising national expenditures over the next few years to the neighborhood of 1.3 percent to 1.5 percent of GDP; however, it is uncertain how soon that goal can be reached, what it will include, and to what extent it would be reflected in opportunities for various types of vendors.

In a year 2000 report, CRAES indicated that 11.4 percent of the $84 billion that will be spent during the Tenth Five Year Plan is expected to come from the central government, 34 percent is expected to come from provincial and local governments, and 55 percent from business enterprises themselves. A smaller amount ($4 billion) will be sought from foreign governments and international finance institutions. Whether or not business enterprises will be able to cover their 55 percent of the bill remains to be seen and is dependent upon location. In fact, the goals of the Ninth Five Year Plan placed a similar burden on enterprises, which was not fulfilled in most parts of the country. 

Nonetheless, enterprises in and around cities like Beijing, Shanghai, Shenzhen, and other relatively affluent coastal areas are quite up to the task. Last year in Beijing, over 55 percent of the spending on pollution control came from enterprises. However, increasing numbers of enterprises in much of China's antiquated rust bowl are in dire straits simply to pay out wages and keep operations running, making the possibility of upgrading pollution control a long-term goal for many of them.

Chapter 9 of this document provides further in-depth discussion of environmental protection financing in China.

Visualizing the Market

The Role of Policy and Enforcement

Although demand in China's environmental industry remains predominantly driven by financing through official assistance programs or through enterprise interests in efficiency, policy pressures are becoming increasingly influential. As China's environmental policies become more comprehensive and detailed, market niches will become more defined. Investors looking for key market-entry points need to keep a close watch on the development of policy and, of equal importance, on policy enforcement trends. 

However, unlike some countries in which policy is consistently and efficiently upheld through transparent and equitable enforcement, Chinese environmental policy can vary in its influence on market demand due to lapses in enforcement. Enforcement of policies is being stepped up, particularly in some of the more developed regions, and environmental policies are beginning to carry more weight.

There are currently several barriers to enforcement, which include conflicts of interest between environmental and development goals, a breakdown in the rule of law, lack of capacity on the part of local enforcement agencies, and weaknesses in monitoring systems. The prevalence of these and other barriers varies tremendously from region to region and should be considered in determining where to locate an operation or where to market products.

At the same time, however, it is not unheard of for local governments or other entities to respond to mandates and deadlines by paying cash to import required equipment such as compressed natural gas bus engines or air monitoring equipment. Such circumstances provide lucrative, albeit inconsistent, market opportunities, and, much like the market demand created by multilateral and untied bilateral assistance programs, these circumstances create a market environment quite unlike that in the U.S.

It is also advisable to monitor government policies pertaining to priority projects and goals and to consider incentives and preferential policies to encourage investment in that regard. However, before taking advantage of such policies, investors should critically review the circumstances. In some instances, whether the incentives and preferential treatment will make up for the difficulties and costs that could be faced is questionable (see Box 2).

In sum, it is not so much the regulatory pressures as the economic efficiencies and the availability of assistance funding that currently create market opportunities for foreign vendors. For now, most exporters will likely find market demand by offering efficiency solutions that either save money or generate revenues, or by exploiting the opportunities generated by multilateral and untied bilateral assistance programs. (See Chapter 10 for further discussion of positioning U.S. exporters in the market.)

Market-Based Incentives

Market-based incentives, or the setting of resource and service tariffs (such as those for water and waste management) at a level that legitimately represents the cost or value of those resources and services, is an idea that is only just beginning to gain a foothold in China. The Chinese government is reluctant to institute drastic tariff changes for fear that rapidly increasing the costs of resources and services, which have thus far been covered by the state, could stir social unrest. Yet the government appears well aware of the need to begin a process of instituting these tools, and potential investors would do well to watch closely, as changes could be instituted rather quickly.

Water is the first natural resource to have been affected by market-based incentives, with tariffs rising several times in 2000 alone. In December 2000, the Yellow River Water Commission raised irrigation water prices by 100 percent, hoping to encourage water conservation. Household water tariffs, although still quite low, are on the rise in some parts of the country, thereby introducing the idea that consumers will have to begin paying for the resources and services they use. As tariffs increase, consumers (particularly industries with high water consumption rates) will likely start looking for ways to reduce their costs.

Tariff liberalization trends are not altogether clear, but wastewater management is already being brought into the fold, and solid waste management will probably be affected in the near future. Additionally, there has been some experimentation with emissions trading as a market tool to influence air pollution management, an idea that the government is examining, and that may instigate increasing demand for monitoring devices and air pollution control technology. However, progress here is currently limited by the small number of participating enterprises and the lack of a free market for services such as electricity, in which individual enterprises are directly concerned with their own financial bottom lines. 

The WTO and the Environmental Industry 

The U.S.-China bilateral trade agreement that led up to China's accession to the World Trade Organization directly addressed the environmental sector only briefly and vaguely. In particular, it addressed China's commitments to environmental services, which include sewage services, solid waste disposal services, cleaning services for exhaust gases, noise abatement services, nature and landscape protection services, and other environmental protection services. However, environmental monitoring and pollution source inspection were not included. Additionally, foreign service suppliers could provide environmental consultation services via cross-border delivery, without establishing a presence in China; other service suppliers could operate in China through joint venture operations. Because the exact effects of the WTO's General Agreement on Trade in Services (GATS) on the sector are in fact quite vague, service providers are advised to consult a WTO specialist when considering the possibilities. 

In addition to its effects on trade in services, WTO accession is resulting in significant tariff reductions on machinery and other imports. Overall, average tariffs will be reduced to 10 percent within five to seven years of accession. For specific details on the agreement and tariff schedules or to inquire about tariff rates for a particular item, contact the U.S. Department of Commerce for a copy of the agreement, or obtain a copy of the Regulations on Import and Export Tariffs of the People's Republic of China, available for RMB 240 from the Publishing House of the General Customs Administration, No. 6 Jianguomennei Avenue, Beijing 100730, China, +86 (10) 6519-5616, 6519-5615.

Although the agreement contains very little that is directly associated with the environmental sector, WTO accession is generating significant, indirect impacts on the industry. Many of the changes that      benefit industries across the board, such as the dismantling of non-tariff barriers, the discouraging of import substitution policies, and (ideally) increased transparency, benefit the environmental industry. 

Agreements on distribution services are also benefiting environmental industry players, and agreements on commission agent services, wholesaling, retailing, and franchising may all be central to the plans of exporters developing a presence in the country. Foreign service suppliers are now allowed to provide all "subordinate services," including after-sales services. Once again, details in regard to these agreements are complex, and a WTO specialist should be consulted by service providers that are considering the possibilities. 

In consideration of the role state-owned enterprises play in China's economy, governmental influence on the decisions of SOEs regarding the purchase and sale of goods and services has been addressed by the bilateral agreement as well. Under the agreement, decisions by state-owned and state-invested enterprises are based on commercial considerations, and the enterprises of other WTO members have equal opportunity to compete for contracts with such enterprises. Although China has chosen not to sign the Government Procurement Agreement, all procurements for commercial and non-governmental purposes by state-owned and state-invested enterprises are considered non-governmental procurement. Additionally, the receipt of benefits, investment approvals, and so forth, are no longer contingent upon technology transfers encouraged or imposed by the government. Under the bilateral agreement, technology transfers and similar issues are decided upon solely by the involved parties, without interference by the state.

Yet another significant and influential aspect of WTO entry is the effect it is having on other Chinese industries, which in turn affects market opportunities for environmental technology providers. According to the World Bank, as WTO accession slowly opens Chinese markets, China is shifting its industrial base to industries in which it benefits from comparative advantages (labor-intensive sectors as opposed to land-intensive sectors). Following are some of the industries that           the World Bank expects to be affected by WTO accession, and the opportunities they may offer to environmental exporters:

l  Textiles. China's production of processed cotton products, including the dyeing of such products, is rising, resulting in increased industrial water consumption and wastewater generation. Water conservation, recycling and reuse methodologies, and wastewater treatment are important.

l  Livestock Production. As China's agricultural product markets (particularly non-rice grain product markets) open to less expensive international competitors, many farmers are switching production focus. Livestock production is increasing, which is causing, among other things, an increase in livestock wastes. If improperly handled, such wastes will pose serious water pollution threats. Water     pollution control and efficient waste management techniques with potential for reusing such wastes are important.

l  Increased Production of Leather and Fur Products. Increased livestock production is benefiting livestock producers by increasing income, but it is also causing increased water consumption and water pollution.

Foreign technology providers have reported difficulties in managing the wastes of some leather treatment facilities in China, as leather treatment processes have a great deal of impact and some Chinese facilities are primitive. Foreign technology providers have indicated that they lack the technology or know-how to manage pollution in such facilities because these types of facilities were transferred out of their countries before control technology was developed.

Water conservation methodologies and water pollution control are important, as are cleaner leather production techniques.

l  Increased Fruit and Vegetable Production and Processing. As a result of decreased grain production, there is an increase in the production of fruits and vegetables, causing an aggregate increase in the use of water and pesticides. Water conservation methodologies and irrigation techniques particular to fruit and vegetable production, improved pesticides, and the dissemination of sustainable agriculture and non-point pollution control methodologies are important.

l  Restructuring of Forestry and of Pulp and Paper Production. Massive restructuring in the forestry sector is phasing out small-scale pulp and paper production facilities. The development of new and more efficient production facilities offers opportunities for investment in cleaner production, water conservation, and water pollution control. Further-more, researchers at the World Bank have indicated that the paper industry, with its relatively high chemical-oxygen-demand (COD) discharges and low abatement costs, may be the most cost-effective target for reducing organic water pollution.

Generally speaking, WTO accession is increasing competition, spurring local industries to improve technology, management, and general know-how. Efficiencies that both affect and are affected by environmental performance are increasingly important, particularly as awareness of eco-efficiency principles becomes more widespread. Additionally, increased scrutiny by international communities with an eye on environmental protection is strengthening Chinese industries' commitment to environmental protection and increasing their demand for environmental technologies as they seek to become competitive players in international markets.

A number of WTO-associated Web sites are listed among the resources for further reading at the end of this chapter.

Structural Trends of Pollution Control Investment

The structure of total investment in pollution control (TIPC) has changed over time in regard to the three main categories receiving that investment: urban infrastructure construction, renovation and redevelopment of existing enterprises, and new projects (see Figure 1.2).

Investment in urban infrastructure has seen both the most overall growth and the largest increase in percentage of total investment. Investment in this sector was $1.8 billion during the Seventh Five Year Plan and reached $15.6 billion in the first four years of the Ninth Five Year Plan. In 1999, investment in this sector accounted for 58 percent of TIPC, while it accounted for only about one-third of TIPC during the seventh Five Year Plan.

Investment in renovation and redevelopment of existing enterprises has remained relatively constant since the seventh Five Year Plan but has declined as an overall percentage of TIPC. Investment in this sector as a proportion of TIPC fell from 41.2 percent during the seventh Five Year Plan to 16.9 percent and 18.5 percent, respectively, in 1998 and 1999.

Investment in new projects has increased consistently from year to year but has fluctuated in terms of TIPC percentage. It accounted for 26.6 percent of TIPC during the seventh Five Year Plan, rose by less than 1.5 percent in the eighth Five Year Plan, dipped to 19.7 percent in 1998, and rose to 23.3 percent in 1999. Overall, the share of investment in new projects has declined slightly since the seventh Five Year Plan.

Understanding China

Definitions of environmental protection vary from place to place, and China is no exception. In fact, because it lists initiatives such as urban beautification (i.e., fixing sidewalks and painting buildings) as environmental protection, China's definition may be one     of the broader examples known in the world. Therefore, it is important for investors to keep definition variances in mind, as they may positively or negatively affect things such as tax brackets, incentives, and market demand.

On a similar note, it is necessary for investors to understand the Chinese market and adapt themselves and their products to it rather than try to impose a change to create a more favorable investment climate for themselves. The Chinese environmental protection market is increasingly open to the technology, skills, and know-how of the foreign sector, but tolerance is limited for investors who insist on doing things their way, without considering the situation, needs, and desires of the Chinese. Thus, techniques and technologies that have proven successful elsewhere may not be appropriate in China. Investors should keep this in mind when establishing market-entry strategies and should work hard to adapt themselves to the particular demands of the country.

It must also be noted that the Chinese do not take kindly to being used as a testing ground for unproven environmental schemes, particularly when they are expected to provide the funding. If newly innovated, untested, but relatively promising technology or management schemes are presented to China, complete with funding, there is some possibility that the Chinese will allow a pilot project to be developed in the country. However, schemes that are considered suspect or require financing from the Chinese government will not be looked upon favorably.

Finally, many Chinese industries still view environmental protection as a significant financial burden. With policy changes and stepped-up enforcement poised to increase that burden, many industries may see environmental protection as more of a threat than a boon. For that reason it is critical to offer, whenever possible, technologies and innovations that can turn environmental protection into a profitable endeavor. In marketing technologies or consulting on management methodologies, it is vitally important to clearly and convincingly stress efficiency, recycling, and the fact that environmental protection need not incur long-term costs but can in fact be profitable if instituted properly.

Many upgrades that could initiate efficiency and profitability require heavy doses of capital investment. Much of China's industrial sector lacks that capital, and many of the businesses propped up by the SOE supporting apparatus have barely enough to get by, never mind invest. Thus, it is necessary to consider these factors at all points of strategy development and to keep in mind that some enterprises, in some regions, are far more likely to accept and benefit from eco-efficiency strategies than others.

Selected References and Web Sites

References

Policy and Regulation Department, General Customs Administration. Customs Import and Export Tariffs of the People's Republic of China. Beijing: Publishing House of Economic Management, 2001. (Available for RMB 220 from the Publishing House of Economic Management, tel. +86 (10) 6519-4173.)

State Environmental Protection Administration. China Environment Yearbook. Beijing: China Environment Yearbook Publishing House, 1999.

Wang Jinnan, Wu Shunze and Luo Hong. Integrating Economic Development and Environmental Protection in China During the Tenth Five Year Plan Period. CRAES: November 2000.

U.S. and Foreign Commercial Service, Beijing. Environmental Project Approval and Financing in China: A Perspective for U.S. Companies. Beijing: U.S. and Foreign Commercial Service, November 2000.

Web Sites

BuyUSA: 

www.buyusa.com

Central Intelligence Agency: 

www.cia.gov/cia/di/products/china_economy

ChinaOnline: 

www.chinaonline.com

Far Eastern Economic Review: 

www.feer.com

National Bureau of Asian Research.                       NBR Publications: 

www.nbr.org/publications

South China Morning Post: 

www.scmp.com

U.S.-China Business Council: 

www.uschina.org

U.S.-China Business Council: China and the WTO: www.uschina.org/public/wto

U.S. Department of Commerce:                www.doc.com, www.usatrade.gov

U.S. Department of Commerce,                 International Trade Administration, 

Office of Environmental Technologies Industries: www.environment.ita.doc.gov

U.S. Embassy, Beijing: 

www.usembassy-china.org.cn

U.S. Embassy, Beijing,                                    Country Commercial Guide: China: 

www.usatrade.gov

The World Bank Group in China Web site: www.worldbank.org.cn/English/home.asp

Chapter 2

Economic Overview

China's economy has seen consistent growth since Deng Xiaoping's policy of economic reform and opening began in 1978. For much of the 1980s and early 1990s, the nation enjoyed double-digit rates of GDP growth. That growth began to slow, however, in 1992, and remained in decline as a result of inflation, fallout from the Asian financial crises, sluggish domestic demand, rising unemployment, and eventually deflation (see Figure 2.1). In early 2001, the economy began to show preliminary signs of picking up, with GDP growth nearing 8 percent (the official target for 2000 was 7 percent), consumer prices slowly rising, and exports gaining strength as the rest of Asia began shedding the influence of the Asian financial crises.

Economic predictions for the coming years range from moderate to cautiously optimistic. Most predictions call for annual GDP growth of 7-plus percent over the next two to three years. Recent increases in domestic demand are viewed as potentially sustainable and may be a sign that the country's deflationary spiral has come to an end. Consumer spending on such substantial items as residential property rose an estimated 40 percent in 2000 and will likely continue to increase. Nonetheless, domestic demand remains sluggish and continues to present a macroeconomic concern. 

The most promising indicator that GDP growth will be sustained at over 7 percent is the current fiscal policy. Much of China's growth over the past several years has been heavily influenced by large amounts of government spending, and it is clear that this spending will continue. Since 1998, the country has issued RMB 360 billion ($43.5 billion) in government bonds to fund fiscal-stimulus spending on infrastructure development. A probability model developed by the State Information Center indicates that GDP growth for the year 1999 would have been 4.3 percent instead of 7.0 percent if the bonds had not been issued and the funds allocated as they were. 

Bonds funded 46 percent of government spending in 1998, whereas in 1993 they accounted for 3.8 percent of expenditure. Approximately 15 percent of 2001 government expenditure was earmarked for interest payments. The country's debt burden is currently considered sustainable; however, it is unclear how long this deficit spending will continue.

The Financial Burden

The assessment of China's finance and debt structure is somewhat different, however, if financial sector reforms, SOE reforms, pension reforms, and agricultural reforms are taken into account. The World Bank singles out these four sector reforms as the major financial burdens on China's economy, each of which requires creative macroeconomic management on the part of policy-makers. According to the World Bank, the one temporary reprieve is China's exceptionally large stockpile of personal savings, which equals around 40 percent of GDP. WTO entry is gradually opening the domestic banking sector up to foreign banks, which may draw some assets away from the state.

China's banks are burdened with tremendous amounts of non-performing loans paid out to SOEs that are based more on political interests than on commercial viability. According to the People's Bank of China, approximately 20 percent of outstanding loans in the biggest state-owned banks are non-performing, 75 percent of which can likely be recovered. Outsider estimates of non-performing loans vary (25-40 percent non-performing, with only about 15 percent recoverable, is not unreasonable), but the widespread consensus is that the People's Bank of China's estimate is significantly understated. In sum, non-performing loans are estimated at $180-360 billion, or 18-36 percent of 1999's GDP.

Recently, the central government instituted a debt-to-equity swap system by which banks were relieved of a percentage of their bad loans. Asset management companies have been established to acquire percentages of selected SOEs' debts and turn them into equity. These companies, which become part owners of any SOEs for whom they have acquired debt, are expected to restructure the enterprises, and make them profitable. Thus far, the scheme has done little more than relieve the banks and some SOEs of a degree of the strain resulting from the debt burden. Significant changes in management policy are necessary if reduced burdens are to improve financial management (on the part of the banks) as well as enterprise management, production efficiency, and profitability (on the part of the SOEs). So far there has been little sign of such changes. 

Significant downsizing is also underway in the state-owned sector. Under a strategy of "grasping the large and letting go of the small," the government is working to turn some of the larger SOEs around, hoping they will develop into self-sufficient, profit-oriented, giant international corporations. At the same time, many of the smaller SOEs have been left to the devices of local governments, resulting in significant closures and layoffs. 

SOE reform and low profitability in the sector have led to the functional disintegration of the SOE-based social security system, resulting in a growing implicit pension debt. Loss-making SOEs are no longer able to fund workers' housing, health care, education, and pensions, all of which are responsibilities that traditionally rested with SOEs and work units. Some of these funds, which are estimated at $240 billion, will need to materialize. The same holds true for money needed to support the country's rapidly aging population.

Finally, the agricultural sector, historically the country's primary economic sector, is now viewed as the economy's weak link. Farmers' incomes have risen slowly in comparison with incomes in other sectors and accession to the WTO may have negative effects that lead to even poorer overall performance.

Structural Changes 

It is the assessment of the World Bank that China is undergoing four types of structural change. Any one of these changes could result in a significant reallocation of resources or income distribution, affecting the economy as a whole. However, all four changes are occurring simultaneously:

l  A shift from a command economy to a market economy, which began after China's opening up in 1978 and is marked by progressively deregulated prices and resource allocation decisions as well as decreased state activity in the economy. The shares of retail, agricultural, and capital/industrial goods sold at prices fixed by the state fell from 97 percent to 5 percent, 94 percent to 23 percent, and 100 percent to 12 percent, respectively, between 1978 and 1999; the public sector's share of total fixed investment fell from 82 percent in 1980 to 53 percent in 1999; and direct investment funding from the government budget fell from 30 percent to 6 percent over the same period of time.

l  A shift from an agricultural-based economy to an economy predominantly based on manufacturing and services. Between 1980 and 1999, agriculture's percentage of total output declined from 30 percent to 18 percent, and the share of the work force in the agricultural sector fell from 69 percent to 47 percent. During the 1990s, jobs in the agricultural sector decreased by about 3.4 million per year, while jobs in the services sector increased by 8 million per year.

l  A demographic profile shift from high fertility and low longevity to low fertility and high longevity. The population growth rate has slowed from 1.9 percent per year in 1980 to 0.88 percent in 1999. Life expectancy rose from 67 years of age in 1980 to 69.5 years of age in 1997. The population's share of children (14 years of age and below) has fallen from 35.5 percent in 1980 to an estimated 24.9 percent in 2000, while the aged population (65 years of age and above) rose from 4.7 percent in 1980 to an estimated 6.7 percent in 2000.

l  A shift from a relatively closed to a relatively open economy. External trade in China is now conducted through over 200,000 direct import-export enterprises, as opposed to the 10-16 state trading firms that once controlled all import and export activities. Non-tariff trade barriers have fallen to an estimated tariff-equivalent level of 9.3 percent, affecting 33 percent of imports. The average weighted tariff rate for the economy is an estimated 18 percent. Approximately three-quarters of imports receive very low tariffs or none at all.

Other Factors of Influence

Other factors that influence the overall performance of the nation's economy should also be recognized: 

l  Despite the fact that most of the country's massive SOEs are loss making, they are the beneficiaries of most commercial lending and capital account investment. Large amounts of financial resources are being used to keep SOEs afloat. In some parts of the country, much of those resources are used to provide employees with only the most basic of necessities, such as housing and food, leaving little money for investments in production upgrades and the development of efficient production methods. Many SOEs are likely to remain unviable for the foreseeable future.

l  Non-state firms account for over two-thirds of the nation's industrial output and an estimated one-quarter to one-half of GDP, yet access to both bank loans and public equity markets is dominated by SOEs. Even under the best of circumstances over 80 percent of private-firm financing is self-generated. The government is aware of the important role that private enterprises will play in the future development of the country's economy, and institutional changes, although likely to be slow, are anticipated.

l  A tremendous development gap exists between the coastal regions and the western part of the country, as well as within isolated pockets of the east. 

l  Per capita GDP in Guizhou Province, one of the country's poorest, is only 8 percent of that in Shanghai, the country's richest city. With 16 million people, Shanghai accounts for little more than 1 percent of the country's population but accounts for 5 percent of its industrial output. 

l  Guangdong Province accounts for 10 percent of national GDP and 40 percent of foreign trade, yet it comprises only 5.8 percent of the country's population. The Pearl River Delta area, which accounts for 25 percent of Guangdong's provincial population, receives 80 percent of the province's foreign direct investment and accounts for 90 percent of its exports. 

l  The western region of China, which is the focus of the newly unveiled "Great Western Development Plan," accounts for 57 percent of the country's landmass, 23 percent of the population, and more than half of all verified natural resources, yet it contains 90 percent of the country's poorest people, with per capita GDP in the region registering at only 60 percent of the national average.

l  The country remains rife with corruption and unscrupulous enterprise management. News coverage of disciplinary action taken against corrupt officials is seen almost daily in the local media. Such corruption affects the national economy and local economies and creates tremendous sticking points for both foreign and domestic investors. Random audits of 159 companies by the Ministry of Finance in 1999 revealed that 157 companies had falsely reported their profit figures, 147 had falsified their asset accounts, and 155 had falsified their equity accounts. Each category was both over- and understated to cumulative amounts of $177 million to $299 million. Some enterprises kept duplicate records and provided different accounting statements to different authorities.

Economic Development and          Environmental Investment

Pollution Control Investment

According to CRAES, the leading SEPA think tank, national economic development and environmental investment in China have been closely related over the past 15 years. As GDP grew, so did rates of total investment in pollution control. In fact, TIPC's percentage of total GDP increased even as the GDP growth rate slowed (see Figure 2.2). Investment during the eighth Five Year Plan was 2.7 times that in the seventh Five Year Plan, and Ninth Five Year Plan expenditure exceeded that of the eighth. Environmental investment's average percentage of GDP rose from 0.6 percent in the seventh Five Year Plan to 0.77 percent in the eighth. By the end of the Ninth Five Year Plan, investment reached 1 percent of GDP. 

TIPC as a percentage of total national investment in fixed assets also showed overall growth. TIPC averaged 2.41 percent of total national investment in fixed assets during the seventh Five Year Plan, peaked in 1991 at 3.09 percent, dipped in the mid-1990s, and trended upward after 1995 to reach 2.76 percent in 1999 (see Figure 2.3).

Remarks attributed to Xie Zhenhua, the minister of SEPA, indicate that environmental investment reached 1 percent of GDP in 2000, and is expected to reach 1.3-1.5 percent over the next five years. Official forecasts are calling for RMB 700 billion ($84.6 billion) in environmental investment over the course of the Tenth Five Year Plan. In some major coastal cities such as Beijing, Shanghai, Dalian, Qingdao, and Xiamen, environmental spending has reached as high as 3 percent of GDP. However, it should be noted that the definition of environmental protection is quite broad and inconsistent in China. It may include urban beautification and other activities not normally categorized as environmental protection elsewhere. Thus, figures for annual environmental spending cited in various Chinese publications may vary as much as 15 percent depending on the sources of data and methods of calculation.

Macroeconomic Perceptions and Finance Tools

The steady development of China's economy has increased investor confidence in macroeconomic stability, opening up potential for the use of financial tools such as stocks and bonds. Although both stock and bond markets in China have a considerable way to go before they can be considered comprehensively developed, they are facilitating some degree of environmental investment.

State Development and Planning Commission (SDPC) reports indicate that a significant portion of the $43.5 billion in government bonds used for fiscal-stimulus spending on infrastructure development since 1998 has been directed toward environmental protection and the management of natural resources. The investments have reportedly increased daily wastewater treatment capacity by more than 8 million tons and solid waste treatment capacity by 31,000 tons. Centralized heating, flood control, forest management, and capacities to extract and use natural gas also reportedly benefited. 

Over 30 environmentally related companies are currently listed on China's stock exchange, with reportedly high degrees of success. Stock markets in China have become a tool for gaining quick infusions of financing from small-scale Chinese investors, particularly personal investors. However, the relatively underdeveloped and somewhat dubious nature of the country's stock markets prevents them from being more readily exploited for the purposes of environmental financing. (China's stock markets are discussed further later in this chapter.)

There is discussion within government think tanks regarding the development of bond markets, publicly traded investment funds, and other financial tools to be focused on environmental sector investment. The effective use of these tools would greatly reduce the financial burden currently shouldered by government budgets. However, a more developed and better regulated financial sector is required before such tools can reasonably be expected to perform in this capacity. Experts have suggested that the necessary climate for such tools will not develop during the Tenth Five Year Plan, and perhaps not even during the 11th. (See Chapter 9 for a discussion of finance programs and resources.)

Institutional Changes, Decision-Making, and Efficiency

China's gradual shift from a command and control economy to a market economy has caused a slow decentralization of decision-making power. The responsibilities of different stakeholders within the financial decision-making process (such as banks, local governments, and enterprise managers) are being increasingly clarified. Liability for performance outcome, and therefore financial and enterprise efficiency, is on the rise. 

Particularly among such high-profile and economically important SOEs as Sinopec and Baosteel (see Box 1), as well as among SOEs in some of the more economically and environmentally developed regions of the country, industrial efficiency and financial bottom lines are becoming more and more important. Reportedly, industries with progressively oriented management and the commercial potential for successful reform are being given increased flexibility to make investment and management decisions with decreased interference by the central government. Efforts to increase operational efficiency through cleaner production, improved management, and improved equipment maintenance are already being seen and are expected to increase.

Privately-owned enterprises, which by their very nature are more entrepreneurial and competitive than their state-owned counterparts, have a stronger vested interest in efficiency than even the most successful and personally responsible SOEs. The non-state sector is on the rise and is expected to grow significantly in the near term. Financial and investment tools remain out of reach for most private enterprises, making efficiency that much more important. (For a detailed analysis of China's private sector, see the International Finance Corporation's "China's Emerging Private Enterprises," available online at www.ifc.org/publications.)

Environmental Prospects for the State-Owned Sector

Unlike those SOEs with potential for commercial success, discussed in the previous section, many of the country's SOEs are caught in a downward spiral of poor viability and tremendous burden. Efforts to downsize and close large numbers of those SOEs that show little or no hope of reform and future profitability have been underway for some time; however, mass layoffs and severance of numerous benefits such as health care and housing carry significant social impact. Thus, smaller SOEs are being dissolved while many of the larger ones are being kept afloat not so much in hopes of turning them around but simply to prevent mass numbers of people from becoming disenfranchised.

Many SOEs, particularly those in China's northeastern "rust belt," rank as some of China's worst polluters. Some facilities in the area date as far back as the Japanese occupation of the 1930s and 1940s, and have efficiency capacities to match. Appropriate upgrades could benefit both the efficiency and the environmental performance of these enterprises significantly, and some degree of return would likely be seen relatively quickly. However, the required initial capital is extremely difficult to secure, and many such enterprises would face considerable difficulties in paying back loans from both public funds and commercial lenders even if they were to begin seeing improved financial outcomes as a result of increased efficiency.

Institutional Changes and Financial Liberalizations

Changes in China's economic and financial institutions are occurring rapidly and may have a tremendous impact upon the future development of the economy. No matter how committed the government is to environmental protection in China, there is little hope for success without the economic capacity to address the issues. What follows is a discussion of several influential factors in China's macroeconomy, the continued development of which will affect both environmental protection and the environmental industry. 

WTO Accession, Trade, and Investment

China's central planners are acutely aware of the effects WTO accession is having on the domestic economy, the pressures placed on Chinese enterprises, and thus the need to reform certain regulatory and institutional systems to increase efficiency in economic development. Already a number of changes are being seen, and they will increase and intensify in the coming years, partially as a result of regulations imposed upon the country by the WTO itself and partially as a result of the pressures imposed upon domestic enterprises by the presence of highly competitive foreign enterprises operating in China with fewer restrictions than ever before. 

Some of these changes may benefit foreign enterprises by leveling the playing field and breaking down barriers established to protect less-competitive domestic enterprises. Others, however, benefit domestic enterprises as much as foreign ones. Ultimately, the government expects WTO membership to rationalize the country's international trading apparatus and foster highly competitive Chinese enterprises.

The most significant changes anticipated within a decade of accession will be

l  increased regulatory transparency,

l  further development and rationalization of the financial sector,

l  intensified SOE reform, and

l  growth and development of the private sector.

Regulatory Transparency

The Ministry of Foreign Trade and Economic Cooperation (MOFTEC) has established a new agency specifically intended to clarify all rules and regulations associated with WTO entry and foreign trade laws and regulations. All foreign trade activities are governed by formally published laws and regulations. Any internal laws and regulations that have not been formally published will be void. The MOFTEC has made clear its intentions to overhaul regulations to bring them more in line with international standards and has mandated that any measures formulated and implemented by local authorities must be consistent with national laws and reported to MOFTEC. All foreign business laws and regulations are available to the public, and drafts of certain laws are available for review and consultation in the formulation phase. Generally, this is in keeping with the commitments China made leading up to WTO accession. WTO entry is catalyzing transparency of laws and regulations as well as the development of a rules-based system, thus ensuring some level of predictability and gradually improving the climate for foreign trade and investment.

Other issues of regulatory transparency could remain troublesome in China for some time to come, though. As a rule, the country keeps information on what it classifies as state secrets and matters of national security under tight wraps. The law defines these in a vague and broad manner. Foreign investors in environmental industries have reported serious problems with such issues in the past. Initiatives have been stalled and in some cases terminated for infractions of laws that have not been made available to the public. It is also not unheard of for such laws to be used as an excuse to stall an initiative even though the true issue of contention is entirely unrelated.

Development and Rationalization of the       Financial Sector

The Tenth Five Year Plan calls for a dramatic overhaul of the entire Chinese financial sector. Again, as a result of WTO accession, Chinese administrations are  attempting to bring domestic financial institutions up to international standards. The central bankPeople's Bank of Chinaand the China Securities Regulatory Commission (CSRC) are raising standards in both the banking system and the securities markets, to ensure the viability of the financial sector and increase international investor confidence. Several key components, such as an efficient and reliable credit rating system, are still lacking entirely. Other components are in need of further development and strengthening.

Banks. In November 2000, the National Bureau of Statistics reported that risks borne by the four state commercial banks had increased by 65 percent over the past eight years, resulting in a drop in their capital adequacy ratios to an average of 5.51 percent in 1999 (the internationally accepted critical rate of adequacy is 8 percent). Based on an unpublished internal rating index, risk assessments in the financial sector as a whole have risen by nearly 12 percent since 1991.

Administratively, political interference in commercial banking operations remains a stumbling block, and the independent and efficient promulgation of regulations is lacking. Meanwhile, competition within the banking sector is on the rise, placing increased performance pressures on the commercial banks. Two years after WTO accession, foreign banks will be allowed to make local currency loans to Chinese companies. Five years after accession, they will have unlimited access to the consumer market. 

There is adequate awareness within the pertinent administrations regarding the concerns and threats the banking system faces. Administrative changes are underway, but some analysts question how efficiently reforms can be carried out. The People's Bank of China is developing an index system to detect and evaluate financial risks. It will monitor operations within the banks, security markets, and other fundamental macroeconomic indicators. 

Stock Markets. China's stock markets are somewhat chaotic, thriving more on rumor and manipulation than on market-oriented standards. Regulations and qualifications for listing in the markets are strict, keeping many companies off the boards. Meanwhile, the stock exchange is partially used to fund ailing SOEs through public offerings, and investors often buy in believing that the government will not allow a listed SOE to go bankrupt. The Zhengzhou Baiwen Company nearly proved them wrong in late 2000 when speculation arose that the massive retailer would be allowed to go under, but instead the SOE was bailed out once again, only enforcing the belief. Regulators reportedly feared that allowing Baiwen to go bankrupt would decimate investor confidence and possibly drain financial support from the 1,000-plus listed companies. In April 2001, China's first delisting finally occurred, marking the demise of the Shanghai Narcissus Electric Appliance Company. The event was accompanied by warnings of possible future delistings of similarly troubled enterprises, as well as widespread accolades for a sound step toward the modernization of the Chinese economy.

Prior to the Narcissus event, government-supported investor confidence led China's A-shares market to rank as the world's second best performing market in terms of growth in 2000. There is much indication that changes will arise, making future stock market growth more quality based in coming years. If faithfully implemented, the initiatives listed below should increase competition, creating stronger links between stock prices and profits and thereby shifting capital to the stronger companies:

l  The CSRC has pledged to reduce interference in the setting of stock prices, slowly allowing market forces to determine rates of growth in order to reduce market price distortions and strengthen the market as a whole. 

l  Disclosure rules for listed companies are tightening, increasing transparency. Increased transparency limits the likelihood of accruing massive amounts of bad debt in the market, as has occurred in         the banks. 

l  Various market tools such as mutual funds are currently under development. Foreign experts are involved in the development of these tools; however, their capacity to invest directly in the market will remain extremely limited for some time. 

l  A slow opening of the A-shares market to foreign companies looking to list in China is expected to begin soon. The A-shares market is reserved for domestic investors and firms, and the B-shares market, previously reserved for foreign investors, has recently been made available to domestic buyers.

l  Listing policies are easing, and more enterprises (SOEs) are listing. 

l  Discussion regarding the development of a new technology-based market similar to the NASDAQ is ongoing. The bursting of the new economy bubble late in 2000 stirred speculation that such a new board may offer opportunities for smaller firms loosely related to the technology sector to list, as the resulting dearth of new-economy firms would fail to saturate the market. At the time of publication, the future of the new board was still uncertain.

Bond Markets. Currently, SDPC examines the issuance of all corporate bonds and sets limits on their volume. Each year less than $1.2 billion worth of corporate bonds are floated, as compared with $48 billion in treasury bonds. The CSRC controls the interest rates of both types of bonds. Corporate bond interest rates are routinely set below those for treasury bonds.

SOE Reform

In 1998, Premier Zhu Rongji set a goal to turn around loss-making SOEs within three years. While the time schedule has been relaxed somewhat, SOE reform policies since then have focused on enterprise restructuring, downsizing, and adjusting product output mixes. The government has also been focusing on a small number of what it calls "key" enterprises and major industries while deconstructing small and medium-sized SOEs and encouraging non-state capital to enter more sectors. During the Tenth Five Year Plan, reform will continue. The State Economic and Trade Commission (SETC) is expected to consolidate the state-owned sector into 50 to 100 giant SOEs.

By the end of 2000, proclamations of attaining Zhu Rongji's goal were numerous, even though the government was calling them questionable. The SETC proclaimed that 520 of the country's best-performing SOEs registered profits upward of $25 billion in the first 11 months of the year. However, a closer analysis indicates that 9 of the 14 major industries accounted for 93.6 percent of the total earnings and that petroleum and telecom alone accounted for 50 percent. One hundred fifty-eight of the 520 key SOEs registered 95.6 percent of the profits, and the top ten performing SOEs accounted for 74.2 percent of the total profits.

A number of factors such as high international oil prices, reduced debt burden as a result of debt-to-equity swaps, increased exports, and a number of IPOs on foreign exchanges are partially responsible for the profits. Varying degrees of sustainability among these and other factors indicate that a lot of work has yet to be done if the SOEs are to gain true overall profitability.

The Private Sector

Income tax payments from private enterprises in Beijing increased 110 times over the past six years, with their contribution to overall business income tax revenue in the municipality increasing from 0.3 percent in 1994 to 15.7 percent in 2000.

There remains little doubt that regulatory authorities recognize the importance of the private sector and are quietly condoning its support. The SETC is taking on the role of promoting the private sector's development, and drafting guidelines. The government has also expressed a desire for the private sector to participate in the western development plan, and the Ministry of Construction has indicated that the tightly controlled urban utility sector is gradually opening to private enterprise investment as well.

Nonetheless, a host of barriers continue to hinder the sector. It is extremely difficult for private enterprises to access funding from either banks or securities markets. Private enterprises, like foreign-invested enterprises, are restricted to certain sectors. State owned and private enterprises are not treated equally in regard to registration, taxation, government services, international trade, and access to financing. (For a detailed analysis of China's private sector, see the International Finance Corporation's "China's Emerging Private Enterprises," available online at www.ifc.org/publications.)

Selected References and Web Sites

References

Asian Development Bank. Country Economic Review: People's Republic of China. (Manila: Asian Development Bank, October 2000. Available online at www.adb.org/china/default.asp.) October 2000.

Bhattasali, Deepak, and Masahiro Kawai, "Implications of China's Accession to the World Trade Organization." (Paper presented at a conference sponsored by the German Institute for Japanese Studies and the Fujitsu Research Institute, Tokyo, January 18-19, 2001.)

Cao Dong and Sun Rongqing. Environmental Financing in China: A Review. CRAES/SEPA working paper presented at a conference sponsored by the OECD Center for Cooperation with Non-Members, Environment Policy Committee, November 2000.

CIA Directorate. China's Economy: 1995-97. December 1997. www.cia.gov/cia/di/products/china_economy/.

International Finance Corporation. China's Emerging Private Enterprises: Prospects for the New Century. September 2000. www.ifc.org/publications/.

Wang Jinnan, Wu Shunze, and Luo Hong. Integrating Economic Development and Environmental Protection in China During the 10th Five-Year Plan Period. Beijing: CRAES. November 2000.

Web Sites

BuyUSA: 

www.buyusa.com

ChinaOnline: 

www.chinaonline.com 

South China Morning Post: 

www.scmp.com

U.S.-China Business Council: 

www.uschina.org

U.S. Department of Commerce: 

www.doc.gov, www.usatrade.gov

U.S. Department of Commerce, Office of Environmental Technologies Industries: 

www.environment.ita.doc.gov

U.S. Embassy, Beijing:

www.usembassy-china.org.cn

U.S. Embassy, Beijing. Country Commercial        Guide: China: 

www.usatrade.gov

World Bank Group in China: www.worldbank.org.cn/English/home.asp

Chapter 3

Legal and Policy Review

Prior to the 1970s, few administrative measures were promulgated to facilitate the administration of water and soil conservation, forestation, health and safety in the workplace, or urban beautification, and no clear environmental protection goals, laws, or policies existed in China. This remained the case until after the Chinese government attended the 1972 United Nations Conference on the Human Environment (UNCHE) in Stockholm, which is regarded not only as a milestone in the development of international environmental protection but also as a turning point in the development of environmental protection in China. In 1973, the first National Environmental Protection Meeting was held in Beijing. Following the meeting the State Council promulgated its Guidelines on Environmental Protection and its Rules on Environmental Protection and Improvement, which are regarded as China's first environmental policies. At that time, these policies filled the role of the environmental protection law promulgated on a trial basis six years later. Since then, environmental protection has gained increasing prominence on the government agenda.

Following the first National Environmental Protection Meeting of 1973, the Environmental Protection Committee of the State Council was established in 1974, culminating in the development of a national-level environmental protection administration. Under this organization, several environmental protection regulations, as well as standards on pollution discharge and quality of municipal drinking water and food, were enacted between 1974 and 1978.

In 1978, the Constitution of the People's Republic of China was amended to include Article 11, marking for the first time an inclusion of environmental protection therein and providing a constitutional basis toward those means. The "trial" Environmental Protection Law of China was then promulgated in 1979, stipulating many of the basic components of environmental protection in China today. In 1989, the Environmental Protection Law of the PRC was promulgated, replacing the trial law of 1979. By the end of 2000, six laws, around 100 administrative regulations, and over 1,000 local regulations had been promulgated by the National People's Congress (NPC), the State Council, various ministries, and provincial and municipal governments. 

Legal Framework of Environmental Protection Laws and Regulations

China's legal system for environmental protection is based on a broad framework (at the constitutional level) that is filled in by laws and regulations stipulated by incrementally lower levels of law-making bodies.

The Constitution 

Article 11 of the Constitution, promulgated in 1978, initially gave a constitutional basis to the protection of the environment. Since the article's promulgation, the Constitution has undergone further reform, strengthening commitment to environmental protection. Nonetheless, the constitutional commitment to the environment is general, serving only as a base of legitimacy for the further development of environmental laws and regulations. 

Basic Law

The basic, or general, laws are those laws formulated by the NPC and its Standing Committee, and they rank second to the Constitution in terms of authority. These laws are more pointed than the components of the Constitution that support environmental protection, but they remain general in comparison with the regulations devised to carry out their directives. Currently, six such laws have been promulgated with regard to environmental protection. They are

1. the Environmental Protection Law of the PRC, 

2. the Marine Environmental Protection Law of               the PRC, 

3. the Water Pollution Prevention and Control Law of the PRC, 

4. the Air Pollution Prevention and Control Law of   the PRC, 

5. the Solid Waste Management Law of the PRC, and 

6. the Environmental Noise Pollution Prevention and Control Law of the PRC. 

Regulations

Administrative regulations of the State Council serve to implement the basic laws promulgated by the NPC and its Standing Committee. Basic laws rank higher in authority than regulations; however, regulations are more numerous, specific, and instrumental than basic laws. There are many regulations for environmental protection, including, for example, the Administrative Regulations for Environmental Protection of Construc-tion Projects, the Implementation Details of the Water Pollution Prevention and Control Law of the PRC, and the Implementation Details of the Air Pollution Prevention and Control Law of the PRC.

Ministerial administrative regulations rank next in the authoritative hierarchy, and again they exceed their superiors in number. SEPA is the major source of ministerial regulations with regard to environmental protection.  Several other ministries and commissions, such as SDPC and SETC, issue them as well. 

The People's Congresses at the provincial and municipal levels, as well as other local government bodies, issue local regulations limited in authority to their respective localities. It is at this point that China's legal structure becomes most specific. Local regulations, and thereby local implementation of national laws, can vary from locality to locality.

International Treaties

International treaties are a final component of China's environmental legal system. China is signatory to 73 international treaties particular to environmental protection, 50 of which are multilateral and 23 bilateral. 

Leading Principles of Environmental Protection Laws and Regulations

Four legal principles define China's environmental protection goals and serve as the broad guidelines of environmental protection legislation:

1. Harmonious Development stipulates that environmental protection must parallel economic and social development, so as to achieve economic, social, and environmental benefits in unison. Its ultimate goal is the realization of sustainable development, and it is interpreted by the law in that environmental protection must be incorporated into all social and economic development planning. 

2. Stressing Prevention While Strengthening Control places the emphasis of environmental protection on pollution prevention but recognizes that in most cases gradual improvements in pollution abatement efforts are all that can be expected. 

3. The Polluter Pays principle seeks to impose the costs of environmental degradation on those who are responsible for that degradation. In practice, these costs are imposed directly upon Chinese enterprises, in the form of pollution levies, and  only indirectly upon consumers, in the form of higher prices.

4. Public Participation is, theoretically, sought out in China's environmental protection legal apparatus. In many cases, the capacity for the public to influence environmental protection remains limited by the same factors that affect its impact on other public spheres, and public participation is largely excluded from the policy development process. However, many environmental protection bureaus (EPBs) at the municipal level accept and process public input and complaints in regard to environmental degradation.  Administrators are realizing that encouraging public voicing of dissatisfaction (within "the bounds of the law) may help to justify increased spending on environmental protection, and citizens are increasingly encouraged to support environmental protection.

National Measures Toward Environmental Planning and Protection 

The following is a broad-based description of the processes and measures through which national-level environmental protection is constituted and carried out. Although the environmental legal system in China is increasingly comprehensive and rationalized, it remains complex and in certain cases contradictory. Additionally, laws and regulations are sometimes revised and promulgated quite rapidly. 

Environmental protection planning establishes environmental protection targets and the measures needed to meet those targets. Local EPBs conduct preliminary surveys and establish plans that are then submitted to SEPA for national-level review and incorporation into the national Five Year Plans. The process takes years and requires repeated confirmation, evaluation, consulting, and coordination. 

The plan targets set for the year 2000 included the following: 

l  The development of a relatively well organized environmental management and legal system appropriate to the socialist market economy

l  The placing of environmental pollution and ecological damage "largely under control

l  The facilitation of environmental improvement for some cities and regions

l  The establishment of a number of demonstration cities and regions whose economies are in rapid development and whose environments and ecology are in sound condition

The plan for 2010 includes the following targets: 

l  A "fairly well implemented" sustainable development strategy 

l  The further establishment of an environmental legal system 

l  A "largely changed" situation of environmental pollution and ecological deterioration 

l  Sharply improved environmental quality 

l  The achievement, within a "large number of cities and regions," of rapidly developing economies with sound ecological and environmental conditions

Although the plan targets appear to be vague, general, and in some cases overly idealistic, they serve a fundamental purpose in setting goals to be achieved through the administrative capacities of lower-level governments. 

Environmental Planning During the Ninth Five Year Plan

Goals for the Ninth Five Year Plan sought to keep the year 2000 discharge rates of many pollutants near or below 1995 levels while increasing overall economic and productivity growth. Table 3.1 lists the official 1995 statistics for 21 major pollution categories and the corresponding goals for the year 2000. 

A number of programs, such as the One Control and Two Targets (Yi Kong Shuang Da Biao in Chinese), the 3321 Campaign, and the China Trans-century Green Engineering Program, have been established to facilitate the implementation of the plan.

One Control and Two Targets. One Control and Two Targets is intended to control pollution in terms of total emissions, thereby controlling discharge concentration at point sources of pollution and improving air and water quality. "One control" refers to the total emissions of a particular polluting discharge allowed nationwide. Under the plan, the total allotment for each pollutant is to be divided among the provinces, and then further divided within the provinces, all the way down to local EPBs and ultimately to each enterprise. Older facilities, which are usually state-owned, are generally given higher allocations for discharge, while newer facilities are seen as more capable of reducing overall discharge levels.

The "two targets" are to bring Chinese industries within local and national standards regarding all industrial pollutants and to improve air and water quality in municipalities, provincial capital cities, special economic zones, coastal development cities, and major tourist cities. In 1997, SEPA issued the Ninth Five Year Plan "total emissions control" (TEC) standards for 12 major pollutants (see Table 3.2). Enterprises unable to meet the requirements of One Control and Two Targets face closure. 

Official figures indicate that among 238,000 enterprises affected by the One Control and Two Targets program nationwide, 90 percent reached the targets by the end of 2000. Among those that did not reach the targets, 520 "key enterprises" identified by SETC were granted a grace period extending to Dec. 31, 2002. Those enterprises not identified by SETC as "key" will face strict measures formulated by their local governments, including requisite ceasing of production or closings. There is reason to believe that the figure of 90 percent is not entirely accurate, and issues of reversion raise questions regarding whether all enterprises that met the standards by the deadline are still operating within them.

The 3-3-2-1 Campaign. The 3-3-2-1 Campaign refers to the following targets, which have been selected as key pollution prevention and control zones: three rivers (the Huaihe, the Liaohe, and the Haihe); three lakes (Taihu, Chaohu, and Dianchi); two zones (an acid rain control zone and an SO2 control zone); and one municipality (Beijing). Most of these targets exist in or are affected by several provinces, thus making strong cooperation among provincial governments necessary. Each was selected because of serious pollution issues.

The acid rain control zone and SO2 control zone total 1.09 million square kilometers in area, which amounts to 11.4 percent of China's total territory. Within this, the acid rain control zone covers about 133 cities and counties in Shanghai, Jiangsu, Zhejiang, Anhui, Fujian, Jiangxi, Hubei, Hunan, Guangdong, Guangxi, Chongqing, Sichuan, Guizhou, and Yunnan. The total area reaches 0.8 million square kilometers, amounting to 8.4 percent of the total Chinese territory. The SO2 control zone covers about 125 cities and counties in Beijing, Tianjin, Hebei, Shaanxi, Inner Mongolia, Liaoning, Jilin, Jiangsu, Shandong, Henan, Shanxi, Gansu, Ningxia, and Xinjiang. The total area reaches 0.29 million square kilometers, amounting to 3 percent of the total territory. These regions constitute the most troublesome sources of SO2 and acid rain; therefore more stringent measures are being taken in them to address the problems.

The Trans-century Green Engineering Program. Initiated as part of the Ninth Five Year Plan for Environmental Protection, and under the auspices of Agenda 21, the Trans-century Green Engineering Program is composed of a series of environmental protection projects implemented in key locations and provided for through enhanced financial resources. The program's aim is to focus limited financial resources and manpower on serious pollution issues to bring environmental and ecological deterioration under control. The project has three phases, corresponding with the Ninth, Tenth, and Eleventh Five-Year Plans. 

Agenda 21. China's Agenda 21 is a direct result of the 1992 United Nations Conference on Environment and Development in Rio de Janeiro, and it was in fact the first national-level Agenda 21 formulated in the world. The program is now regarded as the country's blueprint for sustainable development and environmental protection. Agenda 21's primary focuses include capping industrial pollution at 1995 levels while maintaining rapid industrial growth; increasing pollution levies so as to equal or exceed waste-treatment costs; increasing and improving the use of market-based and financial tools for environmental protection; promoting clean production; and developing a large-scale plan for environmental protection known as the Trans-century Green Engineering Program.

The Center for Environmentally Sound Technology Transfer. The Center for Environmentally Sound Technology Transfer (CESTT) was established in 1997 with the intention of further developing China's Agenda 21. With support from the Ministry of Science and Technology, technical assistance via the Asian Development Bank, and under the direction of the administrative center for Agenda 21, CESTT assists small and medium-sized enterprises with accessing, developing, and applying environmentally sound technologies.

The Tenth Five Year Plan for Environmental Protection

SEPA completed its draft of the Tenth National Five Year Plan for Environmental Protection (2001-2005), which was incorporated into the Tenth National Five Year Plan for Economic and Social Development (the Tenth Five Year Plan) in March 2001. The plan stipulates environmental targets for the end of 2005, which are characteristically general in nature. They include the further establishment of environmental protection policy, law, and administrative systems appropriate to a socialist market economic system; a reduction in the tendency toward environmental pollution and ecological deterioration; the improvement of environmental quality in key cities and regions; and an increase in the number of cities and regions in which economic development is rapid while environmental and ecological conditions remain sound. 

Tasks for the Tenth Five Year Plan include the following: 

l  To continue total emission control and maintain a continuous decline in total pollution discharge

l  To direct economic restructuring toward the promotion of clean production

l  To promote municipal sustainable development focusing on the improvement of environmental quality

l  To emphasize ecological protection and pollution prevention and control equally

l  To launch a "three zone" ecological protection strategy to include special ecological function zones, key resource development zones, and ecologically sound zones

l  To strengthen environmental protection enforcement in rural areas and to control rural environmental pollution effectively

l  To develop the domestic environmental industry and to maintain an effective supply of environmental technologies and products

l  To strengthen the management of nuclear environmental safety and prevent and control radiation-associated issues actively

l  To accelerate the modernization of environmental management in the energy industry 

l  To protect national environmental safety and  participate actively in international environmental      initiatives

In augmentation of the 3321 Campaign of the Ninth Five Year Plan, key regions identified in the tenth plan will include the Yangtze River, the Yellow River, and the Bohai sea; the number of key cities for pollution control is to be expanded from 47 to 100.

Environmental Protection Standards

By the end of 1999, 426 environmental standards had been established throughout China, classified as national environmental standards, SEPA environmental standards, and local environmental standards. SEPA is in charge of the establishment of national environmental standards and SEPA environmental standards, both of which are in use nationwide. SEPA environmental standards function for categories for which national standards are not available. Once equivalent national environmental standards are formulated, SEPA environmental standards automatically become invalid. 

National environmental standards include the following:

l  National environmental quality standards, which regulate the concentration of toxic substances in a given environment and serve as the basis for other environmental standards

l  National emissions standards, which regulate the concentration of pollutants discharged into a      given environment

l  National environmental monitoring methods standards, which regulate techniques and methods used in sampling, testing, analyzing, and processing data collected for monitoring environmental quality and emissions

l  National environmental sampling standards, which are used for preparing solutions, adjusting and collating analysis and testing equipment, and regulating other aspects of sampling and analysis 

l  National environmental basic standards, which standardize items such as technical terms, symbols, abbreviations, graphics, and data indexes used in the environmental protection field 

When no national environmental quality standards or national emissions standards are available for a particular category, provincial governments may formulate local standards; provincial governments may also set more stringent standards than the equivalent national emissions standards. Local standards must be submitted to SEPA for record keeping.

Three Simultaneous Steps

The Three Simultaneous Steps policy stipulates that all environmental protection facilities must be designed, constructed, and operated simultaneously with the main construction project, as opposed to designing, building, and operating a facility with the intention of retrofitting the project with an environmental protection plan and facility at some stage after its completion. The Three Simultaneous Steps policy applies to all new, expansion, and renovation projects. For treatment facilities, the measure is generally applied to those components that are being expanded or renovated; however, it may apply to an entire facility once any portion is added, modified, or upgraded. 

The three steps for treatment facilities can be summarized as follows:

1. Design: The engineering design institution must ensure that the pollution measures recommended in the environmental impact assessment (EIA) and required under the Three Simultaneous Steps measure are included in the facility design. Technically, this process involves receiving approval from the same environmental regulatory entity that approved the project's initial EIA report (SEPA, the provincial EPB, or the local EPB, contingent on the scale of the project).  In reality it is often synonymous with registering the project.

2. Construction: The construction of environmental facilities must meet the requirements as specified in the EIA and should be undertaken simultaneously with the main construction component. 

3. Operation: Upon completion of construction, a trial operation period commences. Following the trial operation period, a thorough inspection of the technical, financial, health, safety, and environmental aspects of the completed project is implemented.      If a facility fails the inspection, the EPB requires upgrading and a further inspection within a specified time period.

Environmental Impact Assessment

The EIA concept was first introduced to China in the Environmental Protection Law of 1979. Beginning in the mid-1980s, the government began requiring EIAs for large-scale projects. The program has since developed steadily, incorporating the experiences of other countries with local practices and constraints and resulting in a system that in many ways is beginning to resemble EIA programs elsewhere. The Administrative Regulations for Environmental Protection of Construction Projects (1990) and the Technical Guidelines for Environmental Impact Assessment (1993) are key pieces of legislation strengthening the country's EIA program. Other laws, such as the Marine Environmental Protection Law, the Water Pollution Prevention and Control Law, and the Air Pollution Prevention and Control Law, include EIA requirements.

The scope of EIAs is presently restricted to construction projects, including expansion and renovation projects, and does not include major long-term planning, policy, or regional development considerations. A revised EIA law is currently undergoing review and, when promulgated, will reportedly require performance of the EIA at an earlier stage of the project approval process, increasingly comprehensive methods and protocols, cost-benefit analysis, fines for non-compliances, and legal liabilities.

Regulatory guidelines such as the Administrative Regulations for Environmental Protection of Construction Projects, the National Technical Guidelines for Environmental Impact Assessment, and the Administrative Provisions for the Inspection and Approval of Completed Environmental Protection Facilities of Construction Projects (1993) regulate the EIA process. The most recent EIA regulation is the 1998 Management Protocol. Significantly, the State Council itself issued this document, while the other regulations listed above were issued by SEPA. The 1998 Management Protocol is a detailed implementation document backed by the authority of the premier's office and is relatively well enforced. It includes existing overall policy goals such as mass loading targets and use of clean technology and provides greater detail on the regulation of EIAs and environmental facility construction, including specification of non-compliance fines.

Clean Production

The state encourages the adoption of clean production to reduce air and water pollution and the accumulation of solid waste. The SETC is authorized, in conjunction with other ministries, to list for elimination certain "backward" production techniques and technologies known to cause heavy air and water pollution or to result in the creation of significant amounts of solid waste. The production, sale, and use of the listed techniques and technologies are illegal. Similarly, SETC publishes listings of clean production technologies and techniques, the use of which is encouraged.

Emissions Registration and Emissions License

Emissions registration requires enterprises constituting a pollution source to register with local EPBs in regard to those pollutants being legally discharged. The purpose of the registration is to facilitate comprehensive accounting by local EPBs regarding emissions under their jurisdiction. Registration also enables further administrative action toward pollution prevention and control, monitoring, supervision, and compilation of statistics. Local EPBs have the right to inspect facilities to verify the information provided by registered enterprises.

Emissions registration must be filed with local EPBs following the inspection and approval of pollution prevention and control facilities and prior to official commencement of operation. The scope of registration includes type, quantity, and concentration of emissions, receptacle of emission discharge, process of emissions discharge, type of noise pollution sources, strength of noise pollution, general conditions of pollution prevention and control facilities, and general conditions of storage, utilization, and disposal facilities for solid and other types of waste.

If there are any significant changes to the registered items during the operation of a facility, including the removal or disuse of the facility, the enterprise must file an amending registration with the original EPB 15 days prior to the change. Enterprises ceasing operations must inform the original EPB. If emissions do not meet relevant national or local standards, enterprises must specify why and adopt measures to meet the standards. 

In addition to registering, the enterprise must submit an emissions license application to the local EPB. Upon successful application, an emissions license will be issued to the enterprise to serve as legal permission for the discharge of specified pollutants. This regulation does not apply to radioactive waste, which is subject to separate and more rigorous requirements. 

Emissions Fees

Emissions fees are levied on enterprises discharging pollutants in excess of state standards. Under new air and water laws, all emissions, even those not exceeding state standards, receive levies, with heavier levies, legal liabilities, and potential closure looming for those enterprises exceeding state standards. Local EPBs or their authorized monitoring institutions survey factors such as the type, quantity, and concentration of pollutants to determine the exact amount of the emissions fee, in accordance with pertinent regulations. 

Revenues collected via the emissions fee system are generally recycled into the environmental protection apparatus by servicing loans and grants for upgrading enterprises (as much as 80 percent of the fees paid by an enterprise can be returned to the enterprise to finance environmental upgrades), augmenting EPB budgets, and financing pollution treatment and the restoration of polluted environments. The fees do not, however, exempt enterprises from legal liabilities, compensation for personal injury or property losses, or other financial burdens associated with further pollution prevention and control measures.

The major weakness of the Chinese emissions fee system is that levies remain too low to provide an incentive for pollution control. Some enterprises find it more cost-effective to submit emissions fees than to develop or operate costly pollution control facilities or take other measures to prevent and control emissions. Additionally, local EPBs often prefer to maintain emissions fees at the current lower level rather than increase them and provide a stronger incentive to improve pollution control, because 20 percent of all collected emissions fees are used to augment EPB budgets; there has been recent discussion, however, regarding the elimination of this practice. There is also discussion of transforming the current emissions fee system into a more efficient and better-regulated taxation system, but such a change is not expected during the Tenth Five Year Plan. 

Coal consumption, which remains the principal energy source in China, reached 1.28 billion tons in 1995, and SO2 emissions resulting from coal burning reached 23.7 million tons, ranking as the world's highest. In early 1992, to tackle the problem, SEPA together with a number of other ministries and supported by the State Council initiated a trial SO2 emissions fee for coal burning in industrial sectors. Guizhou Province, Guangdong Province, and nine cities in other provinces were selected for the trial. Based on the experiences in these locales, the practice was expanded, eventually covering the entire acid rain control zone and SO2 control zone by Jan. 1, 1998. Unlike most other emissions fees, the SO2 emissions fee is collected regardless of whether the emissions exceeded standards; any emission of SO2 requires a fee, whereas the exceeding of standards constitutes a basis for heavier enforcement measures.

Environmental Monitoring

Under the Environmental Protection Law, monitoring systems must be established to conduct environmental monitoring in China. National and local monitoring stations are classified into four levels (national, provincial, municipal, and county) and are encompassed in a three-level monitoring network (national, provincial, and municipal). National monitoring stations are operated under SEPA, and local-level monitoring stations are operated under the relevant EPBs. Additionally, specialized environmental monitoring networks have been established for major river systems, marine areas, and agricultural environments. Every monitoring station must write monthly and yearly reports, as well as any other report requested by upper-level stations or superiors, and submit them to the directly superior monitoring station for inclusion in a more comprehensive report. Some large cities now provide daily environmental reports, made public via local media. 

On-the-Spot Inspection 

Both SEPA and local EPBs conduct on-the-spot inspections of pollution sources to supervise the implementation and enforcement of all requirements stipulated by the relevant laws and regulations. Supervision departments are established within both SEPA and local EPBs to conduct such inspections, levy fines for violations of laws and regulations, and collect emissions fees. Enterprises under inspection have expressed concern regarding the confidentiality of trade and enterprise secrets that may be discovered during the inspection process. Under the Tentative Procedures on Environmental Protection Supervision, inspectors are required to maintain confidentiality in regard to such secrets. 

Abatement Deadlines

Enterprises discharging pollutants in excess of relevant emissions standards over an extended period of time, as well as pollution sources located in or near natural reserves, historic sites, scenic spots, or other locations under special protection, may be required to carry out pollution control measures within a prescribed period. The directive to impose an "abatement deadline" can be handed down only by local governments, not by EPBs. However, EPBs are responsible for impact assessments, action plan evaluations, and implementation supervision. 

When considering the imposition of an abatement deadline, authorities take into account the seriousness of the pollution. If discharges in excess of standards do not cause serious pollution, enterprises may simply be required to pay heavier emissions fees. There are no detailed stipulations specifying what constitutes serious pollution; however, in practice, the following factors are generally considered when deciding upon        the issue:

l  Whether the total volume of the pollutants discharged continuously exceeds relevant emission standards 

l  Whether multiple types of pollutants are discharged, many of which do not easily degrade in nature

l  Whether discharged pollutants and discharge rates constitute a threat to public health

l  Whether discharged pollutants have become a public nuisance and have instigated dispute

Facilities located in or near natural reserves, historic sites, scenic spots, or other locations under special protection are less subject to flexibility based upon the seriousness of the pollution and are more likely to receive an abatement deadline as opposed to increased levies. In cases where adequate financial resources and technical capacity are unavailable, enterprises are generally shut down instead of receiving an abatement deadline. The time limits for abatement deadlines generally range from one to five years. 

Accident Reporting 

Environmental pollution accidents must be followed by measures to control the pollution, inform nearby communities that may be affected, and report to local EPBs. After an accident is reported, local EPBs must report to local governments regarding further pollution control and emergency response measures. Local EPBs must also conduct on-the-spot investigations and collect pertinent information to be applied to further prevention and control measures. Accidents are graded into four levels based on their seriousness; level three accidents must be reported to provincial EPBs, and level four accidents must be reported to SEPA. 

Incentives

Incentives such as tax deductions and waivers, special funds, and honorable awards and certifications, as well as certain disincentives, have been established both nationally and locally to encourage improved environmental protection. Several examples of such incentives and disincentives are introduced below.

Import Tax and Value-Added Import Tax Waiver. In an effort to accelerate foreign investment and promote the import of advanced technologies and equipment, import tax and value-added import tax on some pollution prevention and control products may be waived.

Income Tax Waiver. Enterprises using certain industrial waste products as major raw materials for new products may have their income tax on the sales of such products waived for five years.

Adjustment Tax on Investment in Fixed Assets Waiver. Enterprises investing in fixed assets for the reuse of the "three wastes" (air, water, and solid wastes) may have their adjustment tax on investment in fixed assets waived. 

Value-Added Tax Waiver. Enterprises using coal gangue, stone coal, coal ash, and certain other items as raw materials to produce building materials may have their value-added tax waived provided that the recycled products constitute no less than 30 percent of the raw materials in the production process. Enterprises using wastewater and solid waste to process gold and silver may have their value-added tax waived. 

Ban on Bank Loans for Outdated Products and Technologies. The SETC provides listings of outdated products and technologies that are heavily polluting or not energy efficient. Commercial banks bear legal liabilities for providing loans to facilities for the production or utilization of these listed items.

"Excellence in Environmental Protection Technology." Environmental protection technologies meeting a number of criteria may be considered for SEPA's "Excellence in Environmental Protection Technology" title. SEPA awards the title on a yearly basis, and local EPBs are charged with the popularization of the technologies. Enterprises must give priority to the utilization of these technologies if feasible; otherwise, their EIA or application for financial assistance will not be approved. 

Environmental Protection Certification. SEPA and provincial EPBs confer environmental protection certification on environmental protection equipment and facilities that are deemed suitable. SEPA issues, on an irregular basis, lists of equipment and facilities that are considered important in environmental protection and must acquire such certification. When conducting new, expansion, and renovation projects, enterprises must use certified equipment and facilities. The conferment is valid for three years and is renewable.

Environmental Labeling. In order to qualify for environmental labeling, a product must uphold environmental protection requirements throughout its life cycle, from production to consumption to disposal. Environ-mental labeling not only increases a product's competitiveness but also provides consumers with an opportunity to support environmental protection by purchasing such products. Environmental labels are valid for three years and may be renewed upon reevaluation. 

Main Regulators of Environmental Protection 

The National People's Congress

The National People's Congress is the country's highest legislative body and holds exclusive authority in enacting, amending, and interpreting the Constitution of China, as well as all laws and policies pertinent to major aspects of national social and economic development. Additionally, the NPC supervises the implementation of laws and policies and determines appointments to positions of central government leadership and the Supreme People's Court and Supreme People's Procuratorate. About 3,000 representatives from the provinces, municipalities, and autonomous regions are elected to the Congress every five years and convene in Beijing once a year. The Standing Committee of the National People's Congress is the working organization of the Congress and maintains its authority and responsibility while the Congress is not in session. 

Local people's congresses, which are maintained at the provincial, municipal, county, and township levels, constitute the local regulatory bodies, are in charge of local legislative issues, and determine the appointment of local government leaders. No standing congress committees are maintained at the township level. 

The Environmental and Resources Protection Commission, a subsidiary organization of the Standing Committee of the National People's Congress, is the highest authority in charge of drafting laws and regulations pertinent to environmental and natural resources protection and supports the National People's Congress in overseeing the implementation of relevant legislation. The commission has three divisions: the general affairs department, the legislation department, and the research department. Mr. Qu Geping, chairman of the commission, is currently a central player in regard to Chinese environmental law and policy.

The State Council

The State Council is the central government body charged with the implementation of all laws and policies and has authority over all sectors of national social and economic development. It is comprised of a premier, vice premiers, state councilors, ministers, a general secretary, and vice general secretaries. Leadership positions are filled by appointment and are approved by the National People's Congress every five years. The State Council formulates administrative regulations and policies based upon the Constitution and laws of China and maintains the leadership role over all levels of local government. 

In 1998, a large-scale restructuring of the State Council and its subsidiary ministries and commissions was carried out, followed one year later by the restructuring of all local governments. The restructuring was aimed at increasing government regulatory and administrative roles and decreasing government roles in specific business issues. Additionally, it was intended to reduce the bureaucracy and financial burdens that have long been a serious barrier to the development of the country. As a result of the restructuring, the number of subsidiary organizations under the State Council has decreased from 40 to 29. 

Under the leadership of the State Council, provincial and lower-level local governments function very much like the State Council in regard to local social and economic affairs. They must report to both the local people's congress and the government body operating at the next-highest level of administration. 

Ministries and Commissions Influencing Environmental Protection

The following ministries and commissions influence the environmental protection sector and administer environmental protection measures within their official jurisdictions on a daily basis. Like most other ministries in China, they are structured vertically, from the national level to the county and even the township level. Local bodies report to both the local government and their upper-level counterparts. 

The State Environmental Protection Administration (SEPA). The State Environmental Protection Administration is the highest strictly environmental administrative authority in China. Its responsibilities include the drafting of laws, the issuing of regulations and standards, the analysis and reporting of environmental indicators, the supervision of nationwide environmental legislation enforcement, and the development of pollution prevention policy and planning. In setting environmental protection targets and developing plans to meet those targets, SEPA works in collaboration with the Ministry of Construction, SDPC, and SETC, among others, and is responsible for overseeing the implementation and coordination of those targets in cooperation with the relevant institution and agencies.

As part of the 1998 government restructuring plan, SEPA was elevated to the ministry level, representing a theoretical strengthening of its authority. SEPA did relinquish much of its control over planning and policy for the environmental industry to SETC but is expected to increase its role in determining national policy and objectives. Nonetheless, a perceived conflict of interest between environmental protection and economic development remains among the ministries, and SEPA's lesser authority and financial capacity in comparison with the likes of SETC and SDPC remains something of a sticking point.

SEPA's vertical authoritative structure is also troublesome in that local governments exercise control over most administrative details within local EPBs. EPB financing, personnel, daily administration, and so forth are managed by local governments, while SEPA establishes broad operative goals and administrative directives. As a result, local governments have more leverage to see that EPBs act in accordance with local government interests as opposed to state-level SEPA directives. The administrative details of SEPA's operations are a constant topic of policy-making discussion, and further changes in administration, and possibly even structure, are to be expected.

The State Development and Planning Commission (SDPC). The State Development and Planning Commission develops medium- and long-term social and economic development plans (thereby defining the fundamental development goals for the country) and  supervises the implementation of those plans. Thus, SDPC exerts influence upon all social and economic sectors, including the environmental field. 

SDPC responsibilities include researching and advising on the formulation of state economic and social development strategies with an aim toward maintaining a development balance and structural optimization; planning for resource development, energy distribution, and ecological and environmental protection infrastructure development; gathering and analyzing development and economic indicators for the financial and banking sectors; and proposing allocations of public investment funds and foreign capital funds.

The SDPC maintains significant influence over specific projects in order to coordinate overall investment in various sectors of the economy. However, following government restructuring, the commission, like all ministries, is intended to assume a more regulatory and administrative role, becoming less involved in the determination and approval of specific projects and, from a macroeconomic planning position, assuming an increased role in encouraging investment and development by domestic and foreign institutions and companies. At the same time, the State Council appears to be increasing the relative authority of the State Economic and Trade Commission while slowly diminishing the authority of SDPC, which is viewed as a legacy of China's former planned economy. 

The State Economic and Trade Commission (SETC). The State Economic and Trade Commission is the most powerful regulator of daily national economic operations, particularly in regard to industrial aspects. The SETC influences most economic sectors directly or indirectly through implementing and supervising economic and social development plans. It is also responsible for supervising and analyzing national economic trends, adjusting daily economic operations, establishing short-term economic operational goals, policies, and measures, and carrying out international cooperation efforts.

Additionally, SETC oversees the drafting and implementation of state industrial policies, plans investment layout for competitive industries, drafts policy for reforming state-owned enterprises, promotes enterprise development, oversees project investment and financing, oversees resource use and application, and coordinates environmental protection and the development of environmental industry.

The Ministry of Finance. The Ministry of Finance is the primary organization under the State Council charged with issues pertinent to state revenues and expenditures, financial policies, and taxation policies (in conjunction with the State Taxation Administration). The Ministry of Finance, independently or in cooperation with other government organizations, formulates, implements, and supervises laws, regulations, strategies, policies, and planning pertinent to financial and taxation issues; conducts administration over the state's annual budget and expenditures, including the formulation and implementation of plans for the expenditure of state revenue, arrangements for state project investment, government purchase planning and policies, special financial accounts, and government foundations; conducts administration over state debts, including the planning and issuance of state debts, as well as relevant policies; conducts administration over the accounting and auditing sectors; conducts administration over international loans via foreign governments, the World Bank, the Asian Development Bank, and other such institutions; conducts administration over the taxation of foreign-related operations, such as the taxation of imports and exports; and carries out planning pertinent to financial research, education, and training. 

The Ministry of Foreign Trade and Economic Cooperation (MOFTEC). The Ministry of Foreign Trade and Economic Cooperation's primary function is the formulation and implementation of policies, laws, and regulations concerning foreign trade and economic cooperation, which includes analysis of international trade and economic climates and their impact on China, approval and issuance of international trade and business licenses, and regulation of the import-export markets. MOFTEC is also the main government channel for bilateral finance cooperation and plays a key role in the approval process for foreign investment.

The Ministry of Construction. The Ministry of Construction formulates regulations, policies, and planning with regard to municipal and township design and construction, the building industry, the residential housing industry, architectural designing and consultancy, and the municipal public works industry. Additionally, the ministry's responsibilities include, in cooperation with other ministries, the formulation of construction standards, construction budgets, and feasibility studies. Many aspects of infrastructure development, including transportation, energy, communications, water treatment and supply, and waste management, are directly or partially under the auspices of the Ministry of Construction.

The Ministry of Science and Technology. The Ministry of Science and Technology formulates policies, strategies, regulations, and planning with regard to the development of science and technology. Planning for and promotion of scientific and high-tech research, as well as the facilitation of financing for scientific and technological research, are included in its responsibilities. The ministry also plays a role in facilitating international cooperation in scientific advancement.

The Ministry of Science and Technology maintains an innovation fund for small technology-based firms, which is the only ministry-furnished support fund at least partially directed toward environmental protection. Aimed at facilitating the transformation of scientific research achievements into technological innovations to benefit economic growth, the fund is gaining in repute and capacity. 

The Ministry of Land Resources. The Ministry of Land Resources regulates natural resource administration and is responsible for the protection and rational utilization of land, mineral, marine (except fishery), and other natural resources, as well as the supervision and pollution prevention of groundwater resources. The ministry also develops technology standards, procedures, and solutions for land, mineral, and marine resource use; drafts and implements general and specific land application plans; and participates in preliminary city planning. 

The protection of landowners' and land users' legal rights and the investigation and resolution of land ownership and land use disputes fall under the jurisdiction of the Ministry of Land Resources, as does the development of international cooperation on land, mineral, and sea resources.

The Ministry of Communications. The Ministry of Communications formulates and implements strategies, policies, and regulations with regard to land and water transportation and shipping. The ministry is charged with the maintenance of the public roads, highways, and related facilities and fee collections. Similarly, the development and maintenance of the water transportation and shipping infrastructure and the collection of related fees fall within the ministry's jurisdiction. 

The Ministry of Communications also supervises water transport and shipping safety, the inspection of ships and marine facilities, the prevention and control of pollution caused by ships, and ocean emergency response. 

The Ministry of Water Resources. The Ministry of Water Resources' responsibilities entail the formulation and implementation of regulations, policies, and plans with regard to water resources and efficient water use. Water quality inspections, investment and management plans, pricing, taxation, and administration of national water and soil conservation, as well as flood and drought prevention, are included.

The State Forestry Administration. The State Forestry Administration formulates and implements regulations, policies, and development plans regarding forestry and ecological conservation. Its responsibilities include administration of the state forestation fund, forestation operations, soil erosion and desertification alleviation, surveying and monitoring of national forest resources, and the approval and supervision of forest resource utilization. Additionally, its jurisdiction enters the realm of biodiversity and endangered species. Administration over the protection and management of wild plant and animal species, including endangered plants and animals, is included. International trade in both endangered and non-endangered plant and animal species, international treaties in regard to such species, and other international treaties relevant to the State Forestry Administration are included among its responsibilities.

The Ministry of Agriculture. The Ministry of Agriculture formulates and implements development strategies, policies, and regulations with regard to agricultural development. Additionally, it coordinates with relevant ministries to promote sustainable agriculture, sustainable utilization and protection of fisheries, and protection for aquatic life, grasslands, and wetlands. Supervision of fertilizer quality, animal husbandry, and medicinal treatment of livestock is also carried out, in collaboration with other affiliated ministries. 

Township and village enterprises fall under the jurisdiction of the Ministry of Agriculture. Industrial enterprises within this category are significant contributors to environmental pollution but generally remain outside of the environmental protection apparatus. The few environmental statistics available on township and village industrial enterprises are compiled by the Ministry of Agriculture.

The State Taxation Administration. Taxation policies and procedures, including the development of favorable taxation policies to promote environmental protection, and import-export taxation with and without regard to environmental technologies and related incentive policies, all fall within the jurisdiction of the State Taxation Administration. There has been some discussion, as noted above, regarding the possibility of transforming pollution levies into environmental protection taxes and shifting the jurisdiction over such funds to the relatively authoritative and administratively better organized State Taxation Administration.

Major Environmental Protection Laws 

The Environmental Protection Law of the PRC

The Chinese government did not include environmental protection in the Constitution of the PRC until 1978, when it stipulated that the state protect and improve the ecological environment, remedy pollution and other public hazards, guarantee reasonable use of natural resources, and protect rare animals and plants. The 1978 alteration of the Constitution became the foundation of detailed environmental legislation. The NPC established the Environmental Protection Law on a trial basis in September 1979. The State Council further announced in 1983 that environmental protection was to become a strategic task in the process of modernizing China. Environmental protection was raised to the rank of national policy, second in importance only to family planning. However, environmental protection was not integrated systematically into politics, causing some policies to have contradictory impacts on the state of the environment.  An example was the household responsibility contract system, which stated that the right to use land belonged to farmers, while the state was owner of the land and rural collectives were in charge of public interests. The Environmental Protection Law of the PRC, effective on Dec. 26, 1989, helped to consolidate environmental directives in a more systematic way.

The Marine Environmental Protection Law of the PRC

The Marine Environmental Protection law defines   the respective roles of SEPA, the State Oceanic Administration, the State Maritime Affairs Administration (under the Ministry of Communications), the State Fishery Bureau (under the Ministry of Agriculture), and military environmental protection organizations with regard to marine environmental protection. SEPA is the central coordinator and supervisor of marine environmental protection, and oversees prevention and control of oceanic pollution caused by onshore sources. 

The law stipulates that measures to protect, restore, and preserve marine ecological systems and historic natural sites and landscapes must be taken. Natural marine reserves at the local and national level must be set up. Emergency response plans for marine pollution accidents, offshore oil leakages, and enterprise-related pollution issues are to be formulated, and implementation is carried out in accordance with such plans in case of accidents. Pollution discharges from onshore sources to ocean areas must be evaluated and approved by local EPBs, in consultation with local oceanic bureaus, maritime affairs bureaus, fishery bureaus, and military environmental protection organizations. Such facilities are not to be located within or in proximity to marine natural reserves, major fishery zones, coastal scenic spots, and other localities under special protection. Provisions and guidelines for EIAs related to both onshore and offshore marine-impacting construction, production, discharging, and so forth are outlined in the law.

Dumping standards and relevant evaluation procedures are the jurisdiction of the State Oceanic Administration. The State Maritime Affairs Administration has authority to enact compulsory measures to prevent and control pollution associated with maritime transport and shipping facilities and has authority regarding accidents associated with such facilities within PRC maritime territory. 

The Water Pollution Prevention and Control Law of the PRC

SEPA and local EPBs are in charge of the general administration of water pollution prevention and control. Organizations under the Ministry of Communications, charged with the administration of inland water and ocean transportation, have authority over water pollution caused by ships. The Ministry of Water Resources, the Ministry of Public Health, the Ministry of Land Resources, municipal public works bureaus, and water resources bureaus coordinate with SEPA and local EPBs regarding water pollution protection and control.

Regarding river protection, SEPA, in conjunction with other relevant government organizations, is charged with drafting pollution prevention and control plans for the major state-designated rivers. Based on these plans, provincial EPBs and other local government organizations draft pollution prevention and control plans for their respective sections of transprovincial and transcounty rivers. The plans are submitted to the State Council or provincial governments for approval. 

Local-level governments must incorporate the protection of municipal water resources, and pollution prevention and control, into municipal development plans. Focus is to be placed on the construction and improvement of water distribution and sewage systems and municipal wastewater facilities. 

Groundwater protection zones for drinking water are to be designated by provincial governments. The zones are separated into graded levels, the most strict of which disallows any wastewater discharge, tourism activities, swimming and other such activities, and new construction projects or expansion projects for non-water distribution or non-water protection purposes. Any facility producing emissions within such a zone must be removed or undergo abatement measures. 

The Air Pollution Prevention and Control Law of the PRC 

The Air Pollution Prevention and Control Law of the PRC outlines the incorporation of air pollution prevention and control into the state economic and social development plan. Total emissions control standards, air quality standards, and air emissions standards are established. Guidelines for the supervision and implementation of laws and regulations, comprehensive utilizations, scientific research on air pollution prevention and control, forestation, and municipal beautification are contained herein. 

The most recently amended version of the law provides more stringent guidelines in regard to emissions control, thereby making it illegal to exceed relevant national and local emissions standards. Previously, enterprises exceeding such standards were made to pay levies; under the new law such enterprises will be fined, abatement deadlines may be imposed, and closures are possible. 

The law also authorizes the State Council and SEPA to designate the following special regions for the implementation of more stringent measures:

l  Acid rain control and SO2 control zones

l  Total emissions control zones for air emissions

l  Key air pollution prevention and control cities (the number of which is mandated to rise to 100 during the Tenth Five Year Plan).

Crude lump coal containing high SO2 and soot concentrations must undergo a washing process before use. The sale of coal-burning devices unable to meet relevant emissions standards is banned. Newly designed urban structures depending on coal for fuel must include central heating facilities. Fireproof and dustproof coal storage facilities are requisite. 

The manufacture, sale, and importation of automobiles and ships failing to meet relevant emissions standards are banned. Provincial governments, when issuing new emissions standards for automobiles and ships, must get approval from the State Council. Provincial EPBs can authorize organizations to conduct air emissions checks for automobiles and ships, and local EPBs can conduct random examinations of automobile emissions systems in parking lots. 

Industrial enterprises discharging dust must take relevant preventive and control measures. Flammable gases must be reutilized if the relevant facilities are available; otherwise, gases must be processed to reduce pollutants prior to discharge. Measures to reduce sulfur, synthetic ammonia, and coal gas must be taken where applicable. Measures to control dust must be taken at construction sites. 

In keeping with China's commitment to the Montreal Protocol, measures to encourage the production and utilization of substitutes for ozone-depleting substances will be taken by central and local governments with the intention of phasing out the use of all ozone-depleting substances. 

The Solid Waste Management Law of the PRC

SEPA is charged with the general administration of solid waste management nationwide. Other ministries coordinate with SEPA and conduct administration of solid waste management within their official jurisdictions, and local EPBs and government bodies fill their respective roles on a local basis. The Ministry of Construction and local municipal public works bureaus are in charge of the administration of collecting, sorting, processing, storing, transporting, and disposing of municipal solid waste. 

Stipulations aim to minimize the production of solid waste, promote its reutilization, and, wherever possible, mitigate its harmful capacities. To do this, the state encourages and supports clean production, comprehensive resource utilization, scientific and technological research and development, and popularization of technologies suited to solid waste management.

To prevent and appropriately manage industrial solid waste, SETC in concert with other ministries must research, develop, and popularize techniques and equipment aimed at reducing the production of solid waste. Additionally, lists of "backward" techniques and equipment are published, and the production, sale, and use of such items are outlawed.

The Environmental Noise Pollution Prevention and Control Law of the PRC

The Environmental Noise Pollution Prevention and Control Law of the PRC charges government bodies with the establishment and enforcement of environmental noise pollution standards. The law includes provisions for the prevention and control of industrial noise pollution, construction noise pollution, traffic noise pollution, and noise pollution caused by social activities. In the cases of industrial and construction noise pollution, measures must be taken to reduce or dampen noise, and time frames are to be established to further regulate the allowance of varying levels of noise. In the case of traffic-caused noise pollution, all motor vehicles, including water vessels navigating inland bodies of water and rail-line locomotives, are to employ sound-dampening apparatus and restrict the use of horns and sirens within the limits of the law. It is required that sound-dampening barriers be built in instances where traffic-related or other sources of noise pollution cannot be brought within the limits of the law.

Environmental Protection Policies for Western Development

The Chinese government has defined five key priorities for the development of the poorer western regions. However, the development strategy is dichotomous in the sense that industrial and infrastructure development are being strongly pushed while at the same time environmental protection and sustainable development will be maintained. 

The potential for this development drive to cause problems for the already desertified and polluted western areas is significant. Most western provinces suffer severe water shortages, and Lanzhou, the capital of Gansu Province, is among the world's most polluted cities. 

Industry is the foremost contributor to western pollution. In comparison with industries in eastern and southern cities, western industries are outdated, inefficient, and highly polluting. In addition, as coastal regions attempt to clean up polluting factories by shutting them down or charging steep fines, these same industries are pushed to the west, where pollution regulation and enforcement are more difficult. The hope is that greater investment brings more efficiency to the region and that closer government attention eliminates the frontierlike attitudes that have so far contributed to its deterioration. 

The government places a high priority on environmental protection, investing large amounts in tree- and grass-planting schemes to stabilize soil and water resources. However, the western population consists mostly of rural farmers, among whom are China's poorest. Many of these people depend on farming as their primary source of income and on forest resources for cooking and heating.  Most of their practices of irrigation, agriculture, and forest resource use are highly inefficient and have a heavy impact. Tree felling for fuel contributes to massive desertification, poorly managed irrigation leads to salinization and inefficient water use, and improper use of fertilizer and pesticides causes untold non-point-source environmental complications. It remains to be seen how the agricultural sector will be "restructured" so that the members of the local population may retain their livelihood and in fact better their practices. 

The most pressing concern for the time being is the lack of water. Serious droughts afflict the region each year, and water management is practically unheard-of. Unsustainable farming practices have taken root, and multilateral irrigation projects have not been successful outside of project bounds. If western development goes as planned, the demand for water will soar. The government's solutionto divert water from the Yellow Rivercould have disastrous effects on regions of southeastern China.

Legal Trends in the Environmental Field 

As a result of amendments to the Air Pollution Prevention and Control Law, governments at all levels must now include measures for atmospheric protection in all economic and social development plans. Similarly, the awaited environmental impact assessment law will likely require EIAs to be included in the formulation of such plans. Thus, a more comprehensive approach to environmental monitoring and protection is developing within the legislation itself. At the same time, legal bases are being developed to promote and support cleaner production, emissions trading, and market-based incentives, and a growing recognition of the need for legislation regarding the comprehensive utilization of natural resources exists. Finally, a definitive shift from concentration-related regulations and end-of-pipe pollution control to a holistic approach to pollution control (manifested in TEC) is undoubtedly taking place.

Environmental Impact Assessment (EIA) Law 

Major issues expected to be addressed by this new law include expanding the activities that require an EIA to include the formulation of laws, the formulation and implementation of national economic and social development planning, and the formulation and implementation of economic and technological policies; conducting EIAs at an earlier stage of the approval process; carrying out post-EIAs to regulate activities with a potentially serious impact on the environment; and providing for public disclosure of EIAs.

Cleaner Production Law 

SETC is the leading authority regarding clean production and the Cleaner Production Law, which may have implications for new investment and facility upgrades. The latest draft (issued in July 2000) includes procedures concerning the formulation of clean production standards, requires that evaluations of clean production be incorporated into EIAs, established efforts for the promotion of clean production, and sets legal liabilities for violations of the law. The draft also provides for the identification of enterprises with large production potential but severe pollution problems and allows for special measures to assist such enterprises in the development of cleaner production. In the meantime, pilot activities have been carried out in several industries, among them petrochemicals and chemicals, steel and iron, and light industries in Beijing, Tianjin, Shenyang, Taiyuan, Jinan, Fuyang, Lanzhou, Shanghai, Chongqing, and Kunming.

Water Pollution Law 

The amended Water Pollution Law presently being discussed by the State Council will most likely facilitate proper exploitation, effective use, and unified management of water resources with particular emphasis on water shortage, water pollution, and flood prevention projects. It is also expected that the Water Pollution Law will be revised according to the same principles as the Air Pollution Law; however, details have not yet been published.

Selected References and Web Sites

References

Gan Shijun and Chen Yuxiang, eds., Sustainable DevelopmentA Trans-Century Decision (Beijing: Chinese Communist Party Training School Publishing House, 1997).

Li Zhou and Sun Yanmei, Environmental Issues In China (Henan: Henan People's Publishing House, 2001).

State Environmental Protection Administration, China Environmental Protection Agenda 21 (Beijing: China Environmental Science Publishing House, 1995).

State Environmental Protection Administration, China Environmental Protection Laws and Regulations Collection, Volume 1-4, (Beijing: Xueyuan Publishing House, 1997, 2000, 2001).

State Environmental Protection Administration, International Environmental Conventions and Treaties Collection China Entered (Beijing: Xueyuan Publishing House, 1999).

State Environmental Protection Administration, Local Environmental Protection Regulations Collection (Beijing: Xueyuan Publishing House, 1999).

Wang, Jin, The Principles of Chinese Environmental Law (Beijing: Beijing University Publishing House, 2000).

Web Sites

People's Republic of China, State Economic and Trade Commission (Chinese only): 

www.setc.gov.cn/

People's Republic of China, State Development Planning Commission (Chinese only): www.sdpc.gov.cn/

People's Republic of China, State Economic and Trade Commission (Chinese only): www.setc.gov.cn/bwlj/setc_bwlj.htm

Chapter 4

The Water Sector

Per capita water resources in China are equivalent to only 26 percent of the world average. The northern part of the country is plagued by severe water shortages and the widespread contamination of most surface water and groundwater. The southern part of the country, meanwhile, is subject to annual floods, in addition to its own widespread pollution. The Yangtze River clearly delineates water resource disparities between North and South China; south of the Yangtze, 81 percent of the country's total water resources face serious pollution from upstream contamination, while to the north heavy industrialization and urbanization contribute to the degradation and misuse of the remaining 19 percent. 

Water supply and quality constraints have prompted the government to begin discussion of an immense South to North water diversion scheme, intended to pump water from the Yangtze to drought-afflicted cities such as Beijing and Tianjin in the North. The project may offer opportunities to foreign technology exporters.  That such a major project is underway indicates the severity of water issues in the North.

Over half of the Chinese population does not have access to potable water, and recently the government conceded that there are no exploitable clean water resources left anywhere in the country. Overexploitation and misuse of groundwater in the North have caused widespread declines in the water table, and pollution often renders hazardous what is available. Although data are limited, it is thought that overflowing septic tanks and leaking sewers contribute to much of the deterioration. Similarly influential is the intrusion of pesticides and heavy metals from agriculture and industry. Aquifers in coastal areas are experiencing seawater intrusion and are becoming brackish as a result. 

The state intends to focus considerable public environment and resource protection spending over the next decade on water supply, water treatment, and water pollution problems. Enormous investments and changes in the enforcement of regulations can thus be expected in the next few years. As an example, a November 2000 State Council notice, the Notice on Strengthening Water Supply, Water Conservation and Water Pollution Prevention in Cities, stipulates that all cities must build sewage treatment plants during the Tenth Five Year Plan and that all cities should have at least 60 percent of their sewage undergoing treatment by 2010 (70 percent in provincial capitals and major tourist cities). Currently, according to recent statistics, urban sewage discharges equal 137 million tons per day across the country, as much as 90 percent of which goes untreated. 

Water-related exports in a number of subsectors have found markets in China, despite barriers. Table 4.1 lists dollar values for these, serving as some indication of current markets and future potential. Considering heightened awareness, the growing need for suitable water resources, and the increasing propensity toward the development of market-based tools and incentives, these numbers are likely to grow and the range of market opportunities will increase.

Policy Framework

Pricing and Market-Based Tools

According to the Notice on Increasing Wastewater Treatment Fees and Establishing an Urban Wastewater Treatment System, issued in October 1999 by SDPC, the Ministry of Construction, and SEPA, wastewater treatment fees shall be based on the operation and maintenance costs of wastewater treatment plants. Effective from Nov. 1, 1999, the wastewater treatment fee -- based on volume -- is combined with the water supply fee and collected centrally; the actual fee is still subject to the influence of local conditions. Urban public utility bureaus are in charge of fee collection, and wastewater treatment plants receive an appropriate allocation of funds each month. Table 4.2 reflects the price changes of November 1999 in three key cities. 

As these fees were still too low to establish an incentive-based environmental protection scheme, the year 2001 saw additional price hikes.

Current Concerns and Priorities

Discharge of industrial and municipal wastewater represents the top priority for the Chinese government. Non-point causes of water pollution such as the overuse of fertilizers and pesticides are increasingly pressing issues that need to be addressed.

All government officials contacted for this study stated that China is focusing the bulk of its environmental initiative over the next few years on water projects, specifically in the "three lakes, three rivers" areas (the Huaihe, Haihe, and Liaohe basins and the Taihu, Chaohu, and Dianchi Lakes). Changes in Chinese regulations include stepped-up requirements for water treatment capacity; however, few or no funds are provided to facilitate these, leaving municipalities and industries to search for creative means of financing requisite initiatives. 

In 1998, wastewater treatment projects accounted for 58 percent of pollution control spending, representing the largest allocation of the environmental budget to an individual sector. In 1999, overall environmental budget spending on wastewater projects was decreased to 52 percent, with an increase in air pollution treatment. The Tenth Five Year Plan (2001-2006) places more emphasis on water conservation methods and supply infrastructure, but the government continues to emphasize cleanup and antipollution measures. 

Although issues of poor enforcement remain, the power and acumen of local authorities are increasing. As an example, over 1,000 businesses in the Huai River area were forced by local governments to close for environmental non-compliance in late 2000. By some estimates, as many as 70 percent of those reopened within three to six months. However, new regulatory initiatives are increasing demand for management systems.

Water Pollution and Market Prospects

Ten years ago, central water pollution control concentrated on discharges by state-owned industrial enterprises. Now, private enterprise overshadows the state-owned sector. Industrial output has swollen, along with the wastewater output that goes largely untreated. Meanwhile, municipal wastewater, in terms of total pollution, has more than doubled. Agricultural pollution is a worrying contributor, affecting not only lakes and reservoirs but also groundwater and coastal areas. Control measures are often sporadic or ineffective. According to various sources, between 80 and 90 percent of wastewater still flows into China's rivers and lakes without any treatment at all. 

State targets aim for sewage treatment rates of 40 percent by 2010, with daily treatment capacity increasing by 50 million to 60 million tons. This will require investments of as much as RMB 200 billion to 300 billion ($24.2 billion to $36.2 billion), excluding operating costs.

Industrial Discharge

According to World Bank estimates, Chinese industries discharged over 20 billion tons of wastewater in 1999. Discharge rates rose sharply between 1990 and 1995 and then declined through 1999 due to the economic slowdown, restructuring, increased regulatory effectiveness, and new measures for protection. A major incident in the Huai River in 1994 prompted a series of emergency measures and several national regulations, including the closure of 15 categories of TVIEs throughout the country. 

Nevertheless, little progress in regard to more conventional approaches to industrial wastewater management was made during the 1990s. The enforcement efficacy of EPBs at the local level remains wanting, and Chinese industries continue to install treatment facilities to meet requirements and then shut them down when not monitored in order to save on operation costs.

In addition, although the proportion of treated industrial discharge rose considerably throughout the 1990s, the quality of that treatment declined, often falling below Chinese standards. This supports the conclusion that, although increasingly comprehensive regulations are in place regarding discharge treatment, facilities are often of low quality and management and operations skills are tremendously lacking. 

Municipal Discharge

In 1998, officials at SDPC estimated that the urban population of China comprises about 36 percent of the nation's citizens. In an effort to manage a host of environmental and resource-related issues, the government intends to increase that number to about 45 percent. However, current and planned municipal sewage systems lack the capacity to manage the accompanying increased waste. Upgrades in both capacity and quality of treatment are required, as are vast extensions and renewals of sewer pipelines and other support systems, many of which date from the 1950s. 

Interestingly, although the total sum of wastewater flows and COD loads (from industrial, municipal, and agricultural sources) increased only slightly in the past 10 years, municipal wastewater as a proportion of total discharges nearly doubled in volume and impact. In large urban centers, municipal wastewater surpassed industrial contributions for the first time in 1998.

The rate of municipal sewage treatment is estimated to be around 10 percent to 13 percent per annum, clearly an improvement over the rate of 4 percent in 1991 but still quite low. The World Bank notes that currently installed municipal treatment facilities are only used at about 70 percent of capacity, supporting the view that operators and municipalities need more training and management skills. The government plans to initiate rehabilitation programs and improve operation in many of these existing plants.

Market Opportunities. China began constructing large-scale municipal wastewater treatment plants in the 1980s. According to one industry authority, there are currently only 178 large-scale, modern municipal wastewater treatment plants in the country, with about 100 more under construction. The government hopes to increase the total number to 1,000 by 2010 and plans to invest over RMB 15 billion ($1.8 billion) in order to raise the rate of treated urban wastewater to at least 50 percent within the next decade. In key cities such as Beijing, the goal for the rate is set still higher, at 70 percent to 80 percent. 

According to several sources, the Ministry of Construction is restructuring the water treatment sector. Officials indicate that the state will sell operating licenses for city sewer systems, water distribution, and water treatment. Businesses will still be state regulated and state owned, but not majority owned. This should significantly increase foreign firms' access to profitability.

Late 2000 saw the approval of China's first domestic build-operate-transfer (BOT) municipal sewage treatment project. The Beijing Sangde Environmental Protection Industry Corporation will invest in, construct, and operate two sewage treatment plants in Xiaojiahe and Tongzhou. In mid-2001, the Beijing Sound Environmental Protection Enterprise Group committed to building sewage treatment plants in a dozen Chinese cities using the BOT model. Service fees paid to companies operating the plants following construction will service the debt incurred by the Sound Group, which expects to recoup investment and begin turning profits after the first 10 years of operation.

Foreign investors with both the financial resources and the capacity to enter long-term markets may be able to devise favorable arrangements for investment. A number of foreign companies are already engaged in water management projects, which, although they are not currently generating significant profits, are allowing for market entry, pilot project development, networking, and other key preliminary steps to large-scale      market entry.

Smaller-scale exporters, particularly those not looking to invest in the market long-term, might look to these investors for marketing opportunities. There is also reason to believe that domestic investors in water management (for instance, those mentioned above, or local governments in relatively affluent areas) may begin to provide increasingly viable markets for such exporters. As demand for water management increases and local budgets and central financing continually shrink, investors will seek better long-term values when making investments. According to one domestic expert in the field, some in the industry are finally waking up to the fact that an initial investment in more expensive but higher-quality equipment is more viable than purchasing poorer-quality domestic materials and then covering maintenance costs down the line.

Erosion, Agriculture, and Livestock Runoff

Non-point water pollution resulting from fertilizer and pesticide runoff, intensive livestock production, soil erosion, and other agriculture-related factors are exacting significant tolls on China's ecology and can be expected to increase in severity due to difficulties in prevention and enforcement. 

Nutrient-rich runoff, low-quality fertilizers, and soil erosion are contributing to the growing eutrophication of major water bodies. Overapplication of pesticides and the use of hazardous pesticides are responsible for significant contamination of groundwater, the detection of pesticides in a variety of Chinese foods, and the degradation of over 13 million hectares of cropland. Untreated livestock wastes already account for a disproportionate amount of industrial COD loads in some farming regions. A World Bank study estimated that livestock production in Chengde might account for 80 percent of its current industrial COD load. Unfortunately, little data exists on the issue of non-point pollution, and few prospects for an improved situation in the near future present themselves.

Market Opportunities. The government's role in directing farming activities appears to be declining, making agricultural and livestock runoff more difficult to control. Current efforts seem to focus on identifying the sources of problems, which will involve increased water quality monitoring and more elaborate and complete analyses of data. However, the current monitoring system is in disarray, and both SEPA and the Ministry of Water Resources maintain separate monitoring systems with little coordination. Additionally, the location of stations, the frequency of sampling, and issues involving other methods and standards must be overhauled in order to generate an accurate overview of the state of water within China. The government is hoping for a complete overhaul to upgrade existing monitoring capabilities, including extensive investments in technology and equipment. 

Additionally, the government is seeking innovative and large-scale solutions, such as prevention of soil loss and degradation, improved irrigation schemes, and reclamation of livestock wastes for fertilizer use. (See Chapter 8 for further details on management of resources.)

Water Supply and Market Prospects

According to 1999 statistics, the amount of groundwater extracted in China totals more than 100 billion tons annually, accounting for more than 20 percent of total water use in the country, in comparison with the 2 to 3 billion tons extracted per year in the 1960s. Serious overextraction of groundwater is resulting in significant effects such as subsidence at rates exceeding 25 to 40 millimeters per year in some cities. The groundwater tables of more than 100 cities are declining at a rate of 2 to 3 meters per year. In coastal cities of eastern China, the continued water table decline has caused more than 1,500 square kilometers of seawater intrusion into underground reserves.

Inefficient use of the limited water supply exacerbates the country's situation. China recycles only 20-30 percent of its industrial water, and consumption per industrial product is 13 times higher than in the United States. Similarly, only 25-30 percent of irrigation water is effectively utilized due to the inadequacy of most irrigation schemes. It is estimated that 2.5 million tons of potential grain yield are lost each year due to inefficient water usage.

Municipal End Users

Following the lead of cities such as Tianjin, Beijing introduced its first water conservation mandate, as well as a water resources committee headed by the mayor, in December 2000. Under the new regulations, retailers selling flush toilets with a volume of over nine liters are fined, as are car-washing facilities that do not install water-saving or water-reusing devices. Coupled with a water price hike, these measures have already helped boost sales of water-efficiency devices such as low-flow showerheads and taps. Nanjing, Guangdong, and a number of other municipalities announced water-saving rules in 2001. 

The services and equipment most needed by local and municipal governments are both high- and low-technology products, including monitoring systems, pumps, valves, detection devices, and aerators. Guangdong Province, for example, is installing a world-class water-monitoring system over the next 10 years with an investment of over RMB 450 million (about $54 million). Throughout China, small to medium-sized cities need technologies custom-tailored for size, economic, and logistical requirements. As investment opportunities increase, the ability to provide "total water management" is also important. 

Industrial End Users

Increasingly, industries find the water in their areas too polluted to use in manufacturing processes or for aquaculture purposes. The pharmaceutical, food-processing, and fish-farming industries are only a few of those affected by this development. On-site water purification systems are thus sought out, and demand is increasing. As both private and state-owned enterprises are increasingly subjected to the demands of intensifying market competition, Chinese industries investing in such systems may once again find it wise to acquire more expensive, higher-quality equipment rather than cover the costs of maintaining lesser-quality equipment over the long term.

According to Tenth Five Year Plan targets, industrial water use increases will be stabilized at 1.2 percent per annum, while the volume of industrial water that is recycled and reused will increase by 60 percent, again producing demand for both equipment and management skills. The government has also announced aggressive plans in the aquaculture sector to reduce waste, resulting in the implementation of water-saving and water-reuse technologies. Hotels and housing developments also need water treatment systems to service their       own needs.

Equipment suppliers should find the most receptivity to their products among multinationals, JVs, and WFOEs. While the importance of quality and the merits of foreign technology are increasingly important, cost differentials and local protectionism continue to influence a considerable percentage of Chinese end-user demand for some time to come. As stated throughout this report, there are indications that this is changing; nonetheless, the changes will be slow in coming.

Sales Prospects, Technology, and Equipment

Despite the fact that it is more expensive than that of domestic competitors, U.S. technology (along with that of Germany and France) is recognized throughout China as being high quality and state of the art. On a number of occasions, in implementing demonstrations of high-tech water treatment infrastructure and facilities, attempts have been made to secure as much U.S. or other foreign technology and equipment as possible. If this is any indication of future market trends, demand for foreign equipment may rise.

Water Monitoring Equipment 

The U.S. remains strong in the field of water monitoring equipment sales and operational training. China desperately needs methods to gauge the extent of its water problems accurately and to monitor the effectiveness of treatment and projects. Monitoring equipment and management remains a key sector for U.S. manufacturers, as Chinese production in this sector is lacking.

Turnkey Solutions to Large-Scale Water Treatment Problems

Many authorities and enterprises cite the need for "turnkey" solutions. Strong competitors in the water market must provide solutions tailored to the individual needs and requirements of the client, be it a municipality, an economic zone, or an industry. The most successful foreign companies in water infrastructure have invested heavily in China, are in the market for the long term, and maintain some degree of in-country presence. 

Home Water Filter Systems 

A plethora of home water treatment and filter systems exists in department stores and retail shops. However, quality treatment systems are not affordable or in some cases even available; thus, most home- or apartment-owning families purchase Chinese-made filters of low quality. Research indicates that the majority of Chinese families would pay more for a unit that was known to be first-rate if it was assured to stand up to several years of use with low-quality Chinese water and if replacement or servicing of core parts was available and affordable. 

U.S. Market Share in Large-Scale Investments and Foreign and Domestic Competition 

There is fierce competition in the Chinese water treatment and supply market. Leading companies, such as France's Degremont, utilize worldwide subsidiary networks to obtain projects involving bilateral financing.  These projects require a large initial investment, considerable time to generate returns, and significant experience in large-scale water infrastructure development. Similarly positioned operators include France's OTV, Holland's DHV, Germany's Siemens, Belgium's Seigas, and a number of other German, Austrian, and Spanish companies (see Table 4.4). 

Additionally, U.S.-based ITT Industries and its Chinese JV partners announced in November 2000 two contracts in different provinces to supply water pumps at a cost of almost $1.8 million. The operations of PACT (see Box 6) are also of significance for smaller-scale operations. 

Multilaterally financed projects represent the largest opportunity for U.S. firms. However, companies that want access to these opportunities must monitor developments long before project bids are announced. Most deals in the water industry, and for that matter in almost every industry in China, are the result of serious investigation and long-term pursuit. 

In addition to the major multilateral institutions, such as the World Bank and the Asian Development Bank, there are a variety of domestic and internationally supported programs that focus on water treatment infrastructure in China. Of particular interest to the water industry are the Trans-century Green Project Plan (1997-2012), in which approximately 50 percent of all projects are water-related, and the Center for Environmentally Sound Technology Transfer (CESTT), sponsored by China's Ministry of Science and Technology. 

Selected References and Web Sites

References

"China Will Establish Real-Time Water Monitoring System on Big Rivers." China News Service. Jan. 18, 2001. 

"Environmental Pollution Costs China RMB 283 billion per Year." Huasheng Monthly. Oct. 10, 2000. 

"First Water-Use Rights Deal Completed in Zhejiang." ChinaOnline, Feb. 22, 2001. 

"Mainland's Largest Wastewater Treatment Plant Starts Operation." ChinaOnline. Mar. 26, 2001. 

"Tapping into an Outside Source: UK to Give US$10.88M to Aid in Water Shortage." ChinaOnline. Sept. 15, 2000.

"Toxic Water Tragedy in Liaoning Province." Guangzhou Daily, Sept. 6, 1999. 

"Water Damaged: Pollution Ravages China Rivers: Urban Waterways Hardest Hit." ChinaOnline, Aug. 3, 2000. 

"Water Pollution Threatening Water Supplies in Cities." Beijing Youth Daily, July 3, 2000. 

Web Site

www.H20-china.com www.h2o-china.com. (Provides information, particularly news translations, related to water projects and the water treatment industry in China.) 

Chapter 5

The Solid Waste Sector

In general, Chinese municipal solid waste collection systems, although somewhat obsolete, are reliable and maintain a consistent level of sanitation. In contrast, transfer and disposal systems are inefficient and of poor quality, endanger public health, contaminate groundwater, and consume already scarce amounts of arable land.

Due to a combination of scarce funds, inadequate infrastructure, poor enforcement of disposal and treatment standards, a lack of skilled waste facility operators, and the inability of local companies to produce modern waste management equipment, the explosive growth of solid waste produced annually in China threatens to overwhelm the infrastructure and become a severe economic and environmental burden.

By the end of 1999, Chinese cities produced 940 pounds of trash per person annually, with that rate increasing by 8-10 percent each year. Disposal methods are so inadequate that over 200 of more than 650 cities surveyed are surrounded by hills of waste. As of August 1999, more than 6 billion tons of municipal refuse had accumulated and claimed 5.4 billion square feet of land in China.

Over half of the municipal solid waste in China is composed of organic content such as food wastes, and plastics and polystyrene compose the majority of the bulk, as most metals and other resalable materials are scavenged. 

China generated between 600 and 750 million tons of industrial solid waste in 1999. Hazardous waste statistics vary wildly, but estimates range between 5 and 30 million tons annually, much of which goes untreated. Hazardous wastes are often incinerated and disposed of improperly and are frequently mixed in with non-hazardous waste in landfills and dumps. China hopes to improve its management of hazardous wastes by developing facilities, training workers, increasing awareness, and at some point implementing international hazardous waste standards. 

Waste Management Legislation and Policy Priorities

Fundamental waste management legislation in the PRC consists primarily of the 1996 Solid Waste Management Law, pre-1996 municipal waste regulations, and the 1997 Hazardous Waste Management Regulations.

The responsibility for municipal solid waste collection and disposal rests primarily with municipal and district governments (districts are semi-autonomous subunits of a city). Municipal solid waste management administrators, refuse collectors, street sweepers, and refuse transportation and disposal personnel are all government employees. 

Municipal solid waste management is funded directly by the municipal government. A uniform tariff on waste collection and treatment has yet to be established, but in some cities residents are charged a fraction of a percentage of their monthly income for this service. Waste collection fees cover only a portion of the cost of managing the waste. Commercial waste is managed in conjunction with residential waste, while industrial waste is supposed to be managed separately by the industry that generates it. 

Several entities at the municipal level are responsible for solid waste treatment. These include municipal sanitation bureaus, EPBs, municipal construction bureaus, and municipal planning and development bureaus. 

The municipal sanitation bureaus are responsible for daily waste collection, transportation, and centralized garbage treatment including landfills and incineration plants. These bureaus control solid waste collection, transfer, and treatment technologies and equipment. The municipal EPBs are responsible for the issuing of local solid waste control regulations, compliance monitoring, and enforcement. Municipal construction bureaus plan and manage construction projects including the establishment of landfills and incineration plants. The municipal planning and development bureaus coordinate, evaluate, and approve solid waste treatment projects. 

Government Priorities and Trends

Since the second half of 1999, 10 cities and provinces have initiated tariff systems for waste disposal, among them Beijing, Chengdu (Sichuan Province), Nanjing (Jiangsu Province), Shenyang (Liaoning Province), and Zhuhai (Guangdong Province). In Beijing, for example, households with permanent residents must pay RMB 3 ($0.36) monthly, and households with non-permanent residents RMB 2 ($0.24) monthly.

The national government has also expressed support for the "polluter pays" scheme used in most developed countries. In line with this, China plans to levy an industrial solid waste generation and disposal fee on plants and enterprises and an urban domestic refuse treatment fee on citizens. These fees will be used to finance solid waste infrastructure. However, for the next few years, funding for waste projects will remain unavailable except through multilateral or bilateral agencies, as heavy priority is being placed on water and air pollution projects. 

The use of market-based instruments has not been sufficiently developed to make public utilities projects such as waste management economically feasible for municipalities or attractive for private investment. Thus, the domestic prioritization of air and water management has left local governments in perpetual search of foreign funding in order to meet their waste management needs. Until such measures as fee-based waste disposal become profitable, there will be little market for high-technology goods except through international projects, innovative schemes formulated by equipment suppliers, and possibly technology and financing consortia.

Although private investment remains unattractive into the near future, timely market positioning is key. Precisely because waste management services in China have not yet become mainstream, now may be the best time to begin a market positioning strategy. After this sector begins to become profitable, those companies that have been nudging the doors open for several years are likely to reap the greatest benefits, provided they have ample funding to wait out the market developments. This will certainly require active and persistent effort. 

Waste Reduction and Recycling

As is the case in many developing countries, China's best hopes for environmentally friendly and practical solutions to its immense waste management concerns lie largely in the reduction of waste. There is much discussion now of sustainable development through an integrated approach to waste management, including minimization of the production of wastes and maximization of waste recycling and reuse. Throughout China, cities have been formally practicing source separation and recycling for the past 10 years, and informally for a much longer period. 

With the exception of large cities, municipally-funded recycling systems are limited in most Chinese locales. Typically, however, the percentage of recyclable waste is lower than in developed cities of analogous size, due to lower consumption rates and a brisk trade in reusable and recyclable materials. 

Recyclable items are bought and sold in the streets of China. Refuse collection containers, drop-off points, and landfills are continuously scavenged for recyclables. Middlemen purchase recyclable items based on an established market value, then in turn sell the items to additional middlemen who deal in specific classes of items, such as glass. End buyers include recycling facilities and factories that can use the recyclables directly. 

China is also experiencing an upsurge in waste imports for recycling from other countries, including waste paper and scrap metals. However, recognizing that these imports are relatively expensive and often contaminated, policy-makers are determining that it would be more cost-effective and safer to recover domestic materials. Regardless, the recovery industry will soon be expected to cope with significant increases in recyclable materials; it may not be capable of decontaminating or reprocessing those materials due to a lack of capacity and possibly saturated markets. 

Municipally-Sponsored Recovery 

Waste recovery and recycling procedures are administratively supervised in both private and state-owned enterprises. Many major cities have large recovery companies that collect recyclables from offices, institutions, and factories. Neighborhood deposit/trade centers are often located at transfer stations, where people can sell recyclable bottles, paper, and clothes. State policies govern the trading of materials and prices, and these companies are often inefficient. 

Private enterprises, of which there are thousands, also participate in recycling, mostly in the southeastern provinces of Guangdong and Zhejiang. In the past few decades, there has been a shift to trading in mainly profitable recyclables, such as metals, rather than in most household wastes. Other materials are now collected and traded by private entrepreneurs, who may sell either to the government companies or directly to factories for reuse. 

The government encourages recycling but has not yet generated the momentum that could arise through awareness and a well-developed market. Tax incentives have been implemented to support enterprises engaged in recycling, and greater emphasis on source separation is considered desirable, particularly the separation of plastics from organic material, in order to make both composting and incineration of residuals more viable.

Best Sales Prospects

Battery Recycling. Management of products such as glass, paper, cardboard, drums, containers, and so forth is adequate, but there is a complete lack of know-how regarding battery recycling and that of other hazardous commodities. Chinese cities have launched battery-recycling programs and have collected millions of disposable batteries. However, there is no feasible recycling or disposal program for those batteries, which usually end up buried in disposal sites in order to limit the area of contamination. Since the most common batteries in China are still mercury-lead, the challenge and need for recycling is significant. 

Metals and Components. Recycling, compared with other waste management sectors, generates a quicker return on investments. However, as in developed countries, the truly profitable recycling enterprises are those such as metals and electronic components recycling. Larger recycling facilities with more financial resources may be able to purchase foreign equipment or form JVs to take full advantage of this, and larger manufacturers with the requisite financial resources may be able to establish in-house facilities to do so. Smaller enterprises and municipal recycling facilities might not be able to do this, and may have no choice but to rely on local equipment manufacturers to outfit their facilities due to both local protectionism and a lack of funds.

Materials Recovery. According to one multinational health, safety, and environment specialist, a considerable amount of reasonably useful industrial waste material is stockpiled throughout the country, and is neither moved nor disposed of. Companies do not wish to write these resources off, as this reduces earnings, but there is currently no opportunity or push to reuse the material or search out secondary markets. This may change as dumping regulations and fees become more stringent and enforcement is improved.

The recycling and materials recovery industry is one area that the Chinese government intends to foster. China has traditionally been successful with this concept despite the fact that the proliferation of plastics and polystyrene has done marked damage to the pre-1970s mentality of reuse. Nonetheless, due to funding problems and materials costs, China is always open to new methods of recycling that help achieve profitability or reduce costs.

Collection and Transfer Equipment

The process of waste collection in China's large cities is generally effective. In contrast, however, due to outdated equipment and a scarcity of vehicles, waste transfer processes are poor and inefficient.  Almost 10 million tons of urban domestic waste annually does not reach a waste disposal site. 

Urban waste is collected on a daily or twice-daily basis in China. The most common refuse collection systems in urban China are central drop-off spots in each neighborhood, often located at street corners. A drop-off spot may be as simple as a designated spot to pile garbage or as advanced as a transfer station. Residents either deliver their garbage to a drop-off spot or deposit it in a garbage chute, from which maintenance staff collect the refuse and deliver it to a transfer station.

Outside of urban centers, there is little controlled refuse collection, but there is a higher tendency to reuse and recycle materials prior to disposing of them. Unfortunately, particularly at the village level, refuse accumulates on any unused piece of land and often ends up in water sources. 

Locally-produced solid waste containers are generally of poor quality, and because they are uncovered and of low-grade materials, they must be replaced every six months to one year. Recently, municipalities such as Shanghai and Shenzhen, with an eye to saving money, have begun investing in higher-quality containers with longer life spans. 

Transfer and Treatment

Currently, all collection devices and locations, including three-wheeled bikes, trucks, and buildings, are owned by municipalities. The vehicle fleets are generally outdated and of insufficient size and capacity. Most collection vehicles are open, converted dump trucks that do not adequately contain waste. Authorities would like to upgrade and enlarge these fleets, but generally speaking there are no funds available for this. Until waste management fees are implemented profitably, this sector will remain unappealing to foreign investment outside of internationally-funded projects and direct aid. 

Other important areas are pre-treatment and waste processing. Before delivery to an incinerator or landfill, waste in most industrialized countries is sorted by type and then treated in order to maximize disposal efficiency. Most sorting in China today is performed at the disposal site by scavengers and workers, with little pre-treatment, making disposal not only inefficient but also hazardous. 

Street Sweeping

Most Chinese cities provide street-sweeping services on a daily basis, using everything from bamboo brooms to mechanized sweepers. Japanese companies that have been aggressively courting the waste industry for years dominate the market for equipment. 

However, the process of sweeping is hampered by inefficiency. Since the minimum-sized street sweeper must fit through the narrow alleyways that line the traditional housing complexes of Chinese cities, municipalities often purchase many street sweepers of just that size. A sound market-entry strategy might make use of a convincing argument to persuade decision-makers to purchase street-sweeping equipment in a variety of sizes and types in order to increase efficiency in cleaning up urban highways and construction sites. Market potential exists for a U.S. company that can demonstrate the efficacy of such a strategy and then provide the most cost-effective fleet of equipment to implement the strategy. 

In reality, refuse collection does not appear to present a whole host of opportunities for the near future, primarily due to a lack of funding and interest. One area of improvement may be in large-scale transfer stations capable of pre-sorting and some initial treatment; local governments have demonstrated some interest here. Street-sweeping and other service equipment sales may prove profitable if prospective exporters invest adequate time and resources in their market studies.

Management Strategies

Composting

Many cities in China have established simple in-vessel composting systems to process municipal solid waste. Mixed municipal solid waste is delivered to the facilities, and following hand sorting, the material is fed into digesters. After digestion, the compost is either sold as is or with the addition of supplemental chemical fertilizers. 

Overall, composting treats a very small percentage of the total municipal solid waste generated in China. Composting systems were initially set up to process municipal solid waste into compost and sell the compost at a profit. Experience in China has shown, however, that the value of the compost is less than the cost of producing it. Additionally, systems are plagued with operating problems and do not generally meet their processing objectives. As a result, the majority of composting facilities have shut down, and cities that were previously composting municipal solid waste have reverted to uncontrolled land filling. 

At present, composting seems to have fallen by the wayside. China's cities would profit, however, if they were to reinvestigate possibilities for regional or community composting facilities. China's solid waste, compared with that of developed countries, is high in food and organic waste content. This makes both land filling and incineration less efficient because of compaction problems and low BTU value. Add to this China's lack of arable land and land management problems in general, and composting begins to appear a promising alternative. Given the government's emphasis on incineration techniques, some pre-sorting of waste into organics and burnable materials would prove rewarding.

Until the technical expertise and investment necessary to demonstrate that composting may be profitable is introduced, authorities will continue to focus on expanding and improving incineration and landfill capacities. 

Incineration

In addition to strengthening the recycling industry, the construction of incineration facilities and landfills represents further priorities for Chinese authorities within the waste management sector. 

While presented as a panacea for the waste management problem, incineration remains a controversial subject in China. Among the various methods of dealing with municipal solid waste, the Chinese show great interest in expanding their incineration capacity despite the fact that the capital and operating requirements for such plants often surpass those for landfills. There have been several arguments raised against incineration (presenting integrated solid waste management as the alternative) for reasons such as the exacerbation of already critical air pollution and a lack of capacity for burning toxic wastes. Additionally, China has in the past been extremely successful in separating out paper, glass, and other recyclables from the stream of municipal solid waste so that the remaining waste, which may be more than 50 percent organic matter, is not highly combustible. Nonetheless, China insists on developing "cutting-edge technology," in the words of one sector specialist. Incineration is looked on favorably by many cities due to the small land requirement and the supposed potential for electricity generation.

Currently, incineration treats only 1 percent of municipal solid waste in China, although industries generally maintain their own incineration systems for in-house processing of wastes. There are only three types of incineration systems used: the most common is the smaller, often manually loaded, incinerator employed by industries, with no environmental protection controls in place (some efforts at cleaning these up are underway). The second is the municipal waste treatment incinerator, of which there are only a few throughout the entire country. Finally, China is experiencing an explosion in waste-to-energy plants. It should be noted that, despite the above distinctions, incineration has a very broad definition in China and may include the open burning of mixed wastes.

Since 1987, Shenzhen has operated a 300-to-450-ton-per-day incinerator for hazardous and medical wastes. However, data as to its effectiveness, costs, and hazards is not available. In January 2001, the first Chinese-made hazardous and industrial waste-to-energy incinerator opened in Wenzhou, with a capacity of 320 tons per day. One large-scale municipal solid waste incinerator in Shanghai was under construction at the time of writing and should be completed by 2002: its expected operating capacity is 1,000-1,500 tons per day (tpd). Guangzhou plans to build two waste-to-energy plants by 2005 that will convert half of the city's trash to electricity. Several small-scale incinerators are in the five-year pipeline. The coastal city of Tianjin has announced an agreement with France to build a 30-tpd hazardous waste incinerator, and Wuhan plans to build three 40-tpd hazardous waste plants using Swiss loans.

Emissions and Ash Management

The country bearing the distinguished reputation of having the world's worst air pollution has good reason to express concern over the implementation of incineration methods to treat solid and hazardous waste. Yet China tends to look to Japan, which incinerates the vast majority of its waste due to limited land resources, as a model for solving its domestic waste problems. China, however, has neither the funds nor the skills to implement Japanese processes with adequate control and precision and therefore risks further contamination of its air, land, and water. 

In an apparent contradiction, China seems intent on both reducing air pollution from its coal-burning industries and increasing its incineration capacity, which if poorly implemented will exacerbate air pollution issues. If this strategy is pursued, China will increasingly require methods of emissions reduction and ash management within the incineration industry that conform to the strictest standards. Incentive to do so may develop from the progress that has been made in expanding ash management abilities to facilitate the use of the ash for road building and other construction initiatives. 

Worst Sales Prospects

Large-Scale Incineration Technologies. Unfortunately, without the benefit of tied aid, U.S. companies often find the incinerator market saturated with cheap Chinese incineration materials and foreign-funded equipment financed by tied aid programs.

Best Sales Prospects

Monitoring Equipment. U.S. companies are well positioned to provide monitoring equipment and instrumentation, and this market continues to grow in China.

Ash Management and Emissions Technologies. Companies that provide technologies to capture ash, treat contaminated ash, and render the ash useful to other industries are sought after. Authorities within the transport and road-building industry and the recycling industry are pursuing incinerator-ash-use techniques.

Management and Consulting Services. Operating skills and training are required if China intends to keep incineration facilities safe. As in the wastewater treatment industry, many facilities deteriorate due to poor maintenance or lack of qualified staff. Opportunities exist through multilateral and some governmental projects for capacity building in these areas.

Due to a lack of tied aid from the United States, American companies in the incineration sector may have to content themselves with the provision of smaller technologies associated with that sector. Large projects facilitated through multilateral financing may present an area of opportunity, although the World Bank and other funding sources appear to be concentrating on landfills at present. 

Landfills

Land filling is the most common municipal solid waste management method used in China, and landfills are the final resting place of over 99 percent of all municipal solid waste. In general, Chinese landfills do not meet best practices from either a design or a management perspective. Although there is some dissemination of the available literature on land filling and a variety of regulations and standards, modern landfills suffer after the design phase from a lack of construction knowledge and implementation control. According to the World Bank, of all waste management facilities possible, China would profit most sustainably from the development of modern sanitary landfills.

Landfills fall into two categories in China. The most prevalent type is the "controlled dump site." These landfills allow scavengers on-site, have no leachate collection systems, employ infrequent or no cover systems, have limited or no compaction, have no gas control systems, keep few or no records, and have no waste-screening systems in place. It is not at all uncommon for untreated hazardous and medical wastes to be mixed in with municipal solid waste and industrial refuse. 

The second and far less common type consists of those landfills currently built near a number of urban centers according to more modern land-filling standards, and facilitated by outside financing and design. Although efforts are made to design and build these in line with high standards, it is still unclear how well they are operated.

Worst Sales Prospects

Because most waste projects in China are at least partially funded by multi- or bilateral sources, several factors affect the viability of landfill equipment sales. The following are examples of products that typically have no market access in China.

Compactors and Compacting Equipment. Steel-wheeled and other advanced compactors are rarely used in developing countries because of their prohibitive cost. Instead, cheap Chinese bulldozers perform compacting, sloping, and other functions. In addition, the high organic content of most Chinese solid waste makes compacting less effective, and the intense rains in some regions of China turn the waste into muck that traps compactors for the duration of the rainy season.

Liner Materials. As in most developing countries, liner materials are cheap and locally made. Clay liners, for example, are inexpensive and function relatively well if managed properly. Some of the multilateral landfill projects utilize foreign liners, but manufacturers prospecting in China are limited to such projects.

Leachate Collection Materials. Expensive leachate management technologies find no place in China's landfills. Typically, the most efficient method used is to collect leachate in concrete-lined holding ponds in order to evaporate as much as possible or to dilute it during rainy times. Some wastewater management techniques have been adapted to this function.

Best Sales Prospects

Monitoring Equipment. The United States excels in the production of cost-effective and reliable monitoring equipment. Equipment is required for gas, leachate, and groundwater contaminant measurements in order to enforce new regulations. 

Management Technologies. Often, a landfill is constructed with a modern and effective design but then left to "run itself," without proper supervision and controls in place. Corresponding to needs in the wastewater treatment industry, there is a need in the solid waste industry for landfill maintenance and operational know-how. A company with an innovative and cost-effective turnkey solution to landfill design and management that can be adapted to the various regions of China may be suited to market entry. 

Technology to Improve Existing Landfills. Landfill managers in smaller cities are often told to close open-area dumps and to construct controlled landfills. However, due to costs and lack of expertise, the dumps are more likely to be converted simply to conform to regulations. Hence, there is a need for firms that are equipped to provide low-cost equipment and expertise to enable this conversion under a variety of conditions. 

U.S. companies find it difficult to advance in China's solid waste sector for several reasons. First, the U.S. provides extremely limited development aid to China; hence, large landfill projects go to foreign competitors backed by bilateral programs. Second, the U.S. lags behind most developed countries in maintaining efficient and cost-effective landfill operations. Third, many U.S. companies suffer from an attitude of "watch and wait" as opposed to early market entry, which will render them uncompetitive at a later stage of market development.

Besides monitoring equipment and engineering expertise, U.S. vendors must present a unique and innovative land-filling solution particular to China's various problems, in order to have an impact on the landfill sector in the near future. The most promising areas of opportunity include multilaterally-financed projects and services such as consulting for the upgrading of landfills to conform to new regulations. 

U.S. Strengths and Opportunities

"Complete Package" Solutions

Within all sectors related to solid waste management, there is a tremendous need for engineering expertise, from financing and site selection to design, construction, and maintenance of facilities. Concepts that parallel innovations in the wastewater treatment industry, such as the BOT model, are even more valuable as waste management gradually becomes profitable. The Chinese eagerly seek solutions to their waste problems, and a company that is willing to provide experience and expertise in this area will discover a variety of interested parties, from municipalities to state-owned and private enterprises coping with their own waste concerns. 

Lack of funding and a lack of local knowledge in the waste disposal area mean that, as national government regulations tighten, every sector of society that produces solid waste feels pressure to manage waste in a well-planned and cost-effective manner. Some funding is available from multilateral and bilateral sources, as well as from various levels of Chinese government.  As the waste problem intensifies, individual entities are increasingly forced to seek out financing schemes that make waste management possible and profitable.

Knowledge Transfer and Training

Current facilities and ongoing projects already suffer from a lack of operational skills and management. Services in which U.S. companies excel, including consulting and engineering, are required not only for new projects but for completed and ongoing waste disposal projects for which funding has expired. The Chinese government cannot combat the waste explosion without maintaining or increasing current investments, and the pressure brought to bear by the deterioration of hastily planned facilities is increasingly felt. Needs include employee and managerial training for the operation of facilities as well as maintenance and monitoring services that local staff cannot provide. 

Trends and Conclusions

The solid waste management sector in China is currently in a stage of development similar to that of the wastewater treatment industry there three to five years ago. Current financing for solid waste projects is scarce. Competitors rely on bilateral aid or take bold investment steps in order to position themselves for the time when the waste industry in China becomes profitable. Considering the estimated growth rate of this industry over the next five years and the promulgation of additional regulations that will force municipalities and industries to take a closer look at their own pollution disposal strategies, U.S. companies would do well to investigate and enter the market in order to position themselves. According to CRAES, the total amount of waste generated increases by 25 million tons a year. Seventy-five percent of this waste must be treated. In order to do this China must increase its waste management capacity by 55 million tons a year. 

Selected References and Web Sites

References

"Beijing to Unify Waste Collection, Recycling System." ChinaOnline, June 14, 2001. 

"China's Mines Scheduled for Cleanup." ChinaOnline, Oct. 23, 2000. 

"Domestic Solid Waste Increased by 8-10 Percent in 2000." Guangming Daily, Dec. 8, 2000. 

"Guangzhou Trash-Burning Plant Blazes Trail for Private Environmental-Protection Projects." ChinaOnline, Aug. 17, 2000. 

Henderson, J. Paul, and Terrill J. Chang. "Solid Waste Management in China." Edited by H. Lanier Hickman, Jr. May 1997. Available at www.ecowaste.com/swanabc/papers. 

"Tianjin Begins to Levy Fee for Domestic Solid Waste Treatment." People's Daily, June 26, 2001. 

Web Sites

Human and Nature in Harmony: China Environment and Development Information (categories include: waste management, waste disposal/treatment. Site consists of a collection of articles pertinent to this subsector): www.enviroinfo.org.cn. 

United States Environment Program, Division of Technology, Industry, and Economics. Municipal solid waste management (an on-line technical publication provided by the United Nations Environment Program Web site. Includes Asia- and China-specific information): www.unep.or.jp/ietc/ESTdir/pub/MSW/index.asp. 

Chapter 6

Air Pollution

Air pollution in China represents the most serious threat to public health and to the continued economic development of the country. Half of the 322 largest Chinese cities have serious air pollution problems and total suspended particulate (TSP) concerns exist in every city in the country, causing an estimated $3.65 billion in losses each year. Air pollution in a number of Chinese cities is among the highest ever recorded worldwide, reaching more than 10 times WHO standards. Beijing itself ranks high on the national list of cities with excessive nitrogen oxide emissions, and Taiyuan, in Shanxi Province, and Lanzhou, in Gansu Province, rank among the 10 most polluted cities in the world. The threat to public health and welfare is significant: it is estimated that air pollution-related health problems are responsible for over 300,000 deaths and over 11 million emergency clinic and hospital visits annually in China. Similarly, air pollution is responsible for tremendous agricultural and other economic losses. At least 30 percent of China's total territory suffers from acid rain, most of it falling in the southern part of the country. 

Coal consumption remains a major contributor to poor air quality, but throughout the 1990s the profile of contaminants has been changing. After peaking in 1996, growth in energy demand turned negative, leading to current reports indicating that China's recent CO2 and SO2 discharges are lower than expected. Yet nitrogen oxide pollutants (of which automobiles are a significant contributor) are on the rise; barring significant changes in transport technology, Chinese oil demand could double in the next 20 years. Similarly, despite moderate reductions in the median TSP levels of many of China's largest cities over recent years, total TSP exposure has actually increased, as the numbers of exposed individuals have outpaced pollution reductions. Dust from construction sites and windblown soil are increasingly important TSP components. In addition to these parameters, a host of other equally important air pollution factors such as carbon monoxide, ozone, and lead are not systematically monitored, and therefore their prevalence and impact are unknown.

Large point sources remain key contributors to air pollution, which in some ways could ease the process of mitigation; the power sector, for example, could account for 50 percent or more of total coal use in the next 20 years.

Policy Framework

The Air Pollution Prevention and Control Law

China has made marked progress in the area of air pollution management since 1987, when the first Air Pollution Prevention and Control Law went into effect. Recent amendments of the law (which was first amended in 1995) illustrate the Chinese government's pursuit of increasingly sophisticated legislation. The most recent changes, effective on Sept. 1, 2000, substantially revised the law. In the law's newest form, its jurisdiction is extended beyond industrial enterprises and power plants to pollution sources such as automobiles, ships, construction dust, and domestic heating and cooking stoves. The new amendments also increase the number of regulated parameters, introduce total emissions control (TEC) to bolster concentration-based standards, provide for far more rigid penalties, and clarify the responsibilities of relevant authorities. The potential enhancement of enforcement capacity resulting from these final two changes may affect impact upon market demand for pollution-reducing technologies if they are faithfully carried through. 

If the amendments are fully implemented within the next 10 years, the law could reduce the total volume of air pollutants to 1995 levels, control sulfur dioxide emissions within the SO2 and acid rain control zones at 10 million tons, achieve national level II air quality standards in 34 of the 47 currently identified key cities selected by the State Council, and reduce dust emissions from construction sites in Beijing by as much as 70 percent. 

A notably significant amendment is the shift to TEC, an initiative attempted thus far on a limited scale in areas such as the Liao River and the SO2 and acid rain control zones. The policy shift clearly indicates a progression in regulation that moves from point-source and concentration-based approaches to a holistic, "ecologically based" regulatory framework. Additionally, TEC establishes a basis for market-based air pollution control tools such as emissions trading. 

Priority Issues

SO2 Emissions. China's national standards for allowable SO2 emissions are comparatively strict at 50 micrograms per cubic meter; the WHO standard is 60 micrograms, and the U.S. standard is 80 micrograms per cubic meter. From 1991 to 1998, levels of SO2 in some of the worst-polluted cities dropped due in part to increased regulation and control. Despite this, most cities experienced worsening pollution over the past decade due to the previously noted increases in pollutants such as nitrogen oxides. 

Revisions in the Air Pollution Prevention and Control Law aim to keep annual SO2 emissions at 10 million tons until 2010 in the acid rain and SO2 control zones. Three main policy measures in the acid deposition control program are directed toward SO2 emissions:

1. There will be a gradual phasing out of coal with sulfur content of 3 percent or more. Presently the extraction of such coal is restricted, although not forbidden, since the western regions of China have access only to low-quality coal. Thus, enterprises wishing to burn coal with sulfur content of over       3 percent must install environmental control      technologies. 

2. Newly built or renovated coal-fired power plants using coal with sulfur content of over 1 percent must install sulfur-scrubbing technology. Existing facilities must adopt SO2 reduction technology including flue gas desulfurization (FGD) by 2010. 

3. The current fee level of RMB 200 ($24) per metric ton of SO2 emissions represents a shift in policy from the former scheme, in which charges were imposed only on air emissions that exceeded standards. However, the margins remain far too low to encourage investment in abatement. 

These regulations face a number of criticisms and constraints. First, the prohibited use of coal with more than 3 percent sulfur content means that even facilities utilizing FGD technology cannot use low-quality coal, despite the fact that environmental requirements could be met in a cost-effective manner. Additionally, the installation of FGD equipment is considered prohibitively costly for China.

Second, improving the quality of the coal supplied to large power plants has actually increased the supply of high sulfur coal to industrial and residential facilities (as an alternative market), which are less likely to employ clean and efficient utilization systems, therefore maintaining high pollution outputs in urban areas. Issues of coal pricing must also be noted; in general, coal prices do not reflect coal quality and sulfur content.  Counterproductive subsidies are sometimes provided to power plants.

Finally, since mass-loading criteria are not yet effectively enforced in any city in China, ambient air quality in any given area may not be affected by the initiatives even if all industries and power plants conform to the standards. 

Indoor Air Pollution. Indoor air quality parameters are measurable in any environment, from rural domestic spaces to office buildings and industrial plants. In China, however, most concerns over indoor air quality arise from cooking and heating. Poor-quality fuels and a lack of electric and clean fuel facilities contribute to heavy concentrations of pollutants in domestic households, causing widespread health problems.

The severity of indoor air pollution and its resulting consequences are difficult to measure due to a lack of statistical data on both the national and local levels. According to the World Bank, in 1991 there were 40 million people using gaseous (i.e., non-solid) fuels for cooking and water heating; by 1998, that level had risen to 156 million. Additionally, the quality of combustible material rose considerably with the increased utilization of briquettes and gaseous fuels. 

Indoor air pollution is also exacerbated by China's rapid urban growth and widespread construction of high-rise buildings. In construction during winter months, urea is used in the concrete mix as a curing and anti-freeze agent. During the hot humid days of summer, the urea hydrolyzes, releasing high concentrations of ammonia into indoor areas and resulting in significant health concerns. 

Asbestos is yet another concern. Although asbestos was long considered an issue of little significance in China, heightened awareness is increasingly forcing mitigation and the use of alternative materials.

Auto Emissions. The number of vehicles nationwide grew to over 13 million by 1998, about 10-20 percent of which were private cars. That number has further increased in the past three years, resulting in significant congestion and air pollution. The emissions of motor vehicles in China are quite different from those in industrialized countries, due to obsolete manufacturing technologies utilized in the local automobile industry, inadequate auto maintenance, and poor fuel quality. SEPA and other agencies are currently working to develop effective strategies to reduce vehicle pollution and improve performance.

The State Council issued regulations forbidding the production, distribution, and utilization of leaded gasoline by September 1998, and it decided to consolidate the fuel market and close down small refineries that could not meet regulations. Leaded fuel production ceased on Jan. 1, 2000, and sales of leaded gas ceased on July 1, 2000. 

In January 2000, SEPA also issued emissions standards equivalent to EURO-1 standards for light-duty vehicles. Heavy-duty vehicles must conform to EURO-2 standards, and all new cars must have electric fuel injection and catalytic converters. According to the law, all vehicles must be inspected annually; however, enforcement capacities present a problem. More reductions could be accomplished with stricter supervision at all levels. 

Monitoring. Anecdotal evidence suggests that China's air quality monitoring network has not kept up with regulatory changes over the past 10 years. As the pattern of urban development has shifted, the number of stations and the location of most of them have not changed. For example, government efforts to push small industries outside of cities have led to a worsening of air quality on the outskirts of most urban areas, while the majority of monitoring centers remain in the city centers. Similarly, as noted above, the parameters monitored do not reflect the current profile of contaminants and are not widely established. Monitoring systems exist only in large cities and provide information on SO2, nitrogen oxides, particulates, and settled dust. Carbon monoxide is measured in a few cities, but pollutants such as hydrocarbons and ozone are not. 

As expressed in the Tenth Five Year Plan, SEPA plans to upgrade and expand the country's monitoring network. This is in order to monitor the effectiveness of specific environmental efforts and also to gain a more accurate and comprehensive analytical view of the state of China's environment. 

Policy Priorities

According to the Tenth Five Year Plan, SO2 emissions are to be reduced by 2.5 million tons. Achieving national air quality standards for the 100 key municipalities during the Tenth Five Year Plan requires RMB 200 billion of investment. According to CRAES, overall investment in air pollution requires at least RMB 300 billion. 

The monitoring network must be extended, upgraded, and better maintained. China has an enormous need for training toward these ends, as well as a need for effective analysis of monitoring data. Furthermore, to prove effective, monitoring must include SO2, TSP, PM10, PM2.5, ozone, volatile organics, and nitrogen oxides. These variables are likely to be addressed in future legislation.

Legislative Trends

China is increasingly aware of the steps that must be taken to reduce air pollution. Measures to guard against SO2 emissions, for instance, are widely seen as steps in the right direction, although current legislation needs to be refined to lower its concentrations effectively. In addition, there is concern that other factors such as nitrogen oxide are excluded from calculations, despite the fact that they play a large role in ambient air quality. 

Most regulations pertain to thermal power plants and industrial boilers, which constitute a sound first step in controlling emissions and improving air quality, but they do not comprehensively address the majority of harmful air emissions. For example, the drastic increase in TSP concentrations in Beijing in the 1990s seems to contradict the reduction of ground-level  emissions from coal-burning sources. Coal combustion contributes only a portion of urban pollution, whereas natural dust from sandstorms and fine dust from    unregulated construction sites around the city      requires attention. 

Jurisdictional Responsibilities and Enforcement

The national government has made swift progress in adopting air pollution control measures in the past six years. SEPA, through a variety of agencies and enforcers, is responsible for monitoring air quality and making recommendations. However, the responsibility of monitoring and enforcement ultimately falls upon local EPBs, the operations of which are plagued with structural problems. EPBs receive policy instruction through a vertical hierarchy at the top of which is SEPA. However, it is the local governments that currently administer day-to-day operations of the EPBs, such as budgets and personnel. Thus, if a local government views a SEPA policy as contradictory to local ambitions, a hindrance to economic growth, or likely to cause unemployment and similar issues that could affect social stability, it has far more capacity to influence the EPB than does SEPA. Similarly, as with other forms of pollution, EPBs often experience logistical difficulties in enforcing government mandates on air emissions. Insufficient inspection capacities, undertrained staff, shortage of personnel and requisite utilities, and numerous other barriers hinder their operations. Finally, reversion rates are high: although over 1,700 polluting enterprises were shut down at the end of 2000 to meet state targets, it is believed that as many as 70 percent of them restarted operations shortly thereafter. 

The Market 

The Chinese air pollution control market is exceptionally competitive. Japan maintains a distinct presence, accounting for over 30 percent of all imports. Foreign imports account for over 50 percent of all sales in this area because of two factors: local manufacturing capabilities are low, and air pollution control projects have traditionally been financed, at least in part, by multilateral or bilateral aid. 

While U.S. equipment is seen as very advanced, the price is often too high for use in all but multilaterally financed projects. Several manufacturers have nevertheless made progress in the Chinese air pollution control market due to a variety of factors (see U.S. Strengths and Opportunities). As the government places higher priority on air pollution control projects, U.S. firms will see more opportunities to win bids. 

SO2 Control

SO2 control equipment is a tough sell in the widespread Chinese market. There is a mandate for highly polluting coal-fired power plants to install waste gas treatment facilities or technology, but many plants are instead utilizing cleaner coal to avoid retrofitting or installing expensive equipment. 

With power demands increasing by a rate of 5-6 percent annually, the power market has been restructuring in order to improve efficiency and reduce pollution. Small thermal power plants are being closed, and priority is being given to clean coal-based pilot projects with single-generation capacity in excess of 300,000 kilowatts. 

Indoor Air Pollution 

Three factors determine levels of indoor air quality: fuel quality, burner technology, and ventilation. Studies indicate that even when solid fuels are used, improvements in flue gas ventilation can achieve a reduction of almost 90 percent in indoor air pollution levels. While cleaner fuels and cleaner-burning technology often provide the best reduction in indoor air pollution, the most cost-effective option has typically been adjustments in ventilation.

Auto Emissions

According to the World Bank, motor vehicle emissions are already a major source of pollutants in the cities of Beijing, Shanghai, and Guangzhou. It is estimated that vehicles contribute to over 60 percent of the air pollution in urban zones: they are the source of 45-60 percent of nitrogen oxide emissions and approximately 85 percent of carbon monoxide emissions. A number of factors contribute to the problem:

l  More vehicles. The number of vehicles on the road has nearly tripled since 1990, and the demand for new vehicles is growing by 13 percent per annum. 

l  Poor manufacturing techniques. Obsolete manufacturing techniques, while slowly advancing, have led to extremely poor fuel efficiency in most Chinese vehicles. The average emissions level of new domestic vehicles is almost 10 times greater than that in developed countries. 

l  Poor automobile maintenance. Most auto owners and manufacturers are careless about maintenance measures. Promotion of annual safety and maintenance procedures will lead to greater efficiency and fewer emissions.

l  Lack of infrastructure. A lack of planning and infrastructure has resulted in vehicle emissions levels comparable to those of industrialized countries 25 to 35 years ago. This lack can be redressed only by efficient policy measures designed to reduce and control the number of cars in key areas and manage traffic effectively. 

Air Monitoring

All 100 key cities already identified or to be identified in keeping with the Tenth Five Year Plan are expected to install automatic air quality monitoring systems and transmit this data by satellite to data bases and monitoring centers. According to conservative estimates, this project will require the importation of over $300 million in monitoring equipment and associated technology during its early stages. 

The equipment needed for both government (regulatory) and industrial use ranges from sampling and flow monitoring units to analysis equipment. Local manufacturers cannot compete in this market, as they lack the capacity to produce high-quality products. 

In addition, employees of monitoring centers require advanced training in the operation of monitoring and analytical equipment. Firms able to provide equipment, effective training, and after-sales service will see increasing demand. 

U.S. Strengths and Opportunities

SO2 Control

Achieving the targets of the Tenth Five Year Plan requires a minimum investment of RMB 100 billion ($12 billion) in desulfurization technology, broken down in the following manner:

l  RMB 55 billion ($6.6 billion) in desulfurization technology for thermal power plants

l  RMB 30 billion ($3.6 billion) in the control of domestic SO2 emissions

l  RMB 15 billion ($1.8 billion) in desulfurization technology for industrial furnaces

Approximately RMB 6.4 billion ($2 billion) of the RMB 55 billion ($6.6 billion) investment in FGD equipment for thermal plants will go toward installing this equipment on 51 coal-fired power plants within the acid rain control zones. 

Clean coal and scrubber technologies such as FGD and circulating fluidized bed (CFB) are prohibitively expensive for the Chinese end user. Often, despite mandates passed down from the central government, no funds or incentives are provided for the use of such advanced air pollution control technology. A key to increasing the use of such technology involves nurturing the capacity to manufacture a substantial portion of the technology within China. Technology acquisition and deployment through licensing agreements, JVs, and other avenues may be critical. 

Indoor Air Pollution

As China becomes more aware of the problems of poor air circulation and office building air quality problems, there are opportunities for air cleaners, filters, fans, and blowers of various types as well as coatings and chemical absorbers used for remediation efforts.

Auto Emissions

Several U.S. auto emissions control technology companies are demonstrating a strong presence in the Chinese auto emissions control market. Corning International, in April 2000, moved a large part of its catalytic converter ceramic substrate manufacturing operation to China. While raw materials for this operation are still imported from the U.S., a strong local presence and reduced production costs make Corning a tough competitor in the auto emissions control market. 

Air Monitoring

Some U.S. firms, such as Thermo Instrument Systems and Hewlett-Packard, are already well known by Chinese end users. Thermo Instrument Systems has a 70 percent share in the environmental air quality monitoring market in China. In March 2000, Dasibi Corporation, a much smaller player, arranged to install $13.4 million of air monitoring equipment in 33 key cities in China, with the help of the Export-Import Bank of the United States (Ex-Im) and commercial banks. Other active firms include Advanced Pollution Instruments and Environmental Systems Corporation. A strong U.S. capacity to produce high-quality monitoring equipment, coupled with weak capacities among domestic producers to do so, makes this a particularly promising market for U.S. companies. 

Foreign Competition, Market-Entry Strategies, and Success Rates

Many Japanese, German, Canadian, Australian, and other foreign firms have gained a solid foothold through numerous tied-aid projects funded by their respective governments. Such strong backing and incentives for export and financing are generally not available to small and medium-sized U.S. manufacturers. Meanwhile, for projects financed solely by the Chinese government, equipment and services will tend to be procured from local Chinese firmsdespite quality issuesdue to price differentials and protectionism. (As in other sectors, this is starting to change, but only very slowly.) 

Nonetheless, Chinese authorities and local decision-makers view U.S. air pollution control technologies as highly respectable. Thus, U.S. companies in the air pollution control field must keep in mind the importance of cutting costs. Outside of multilaterally financed projects, air pollution control technology engineered and manufactured in the United States will have an extremely difficult time penetrating the market in China, but reducing costs will assist in overcoming one of the two primary barriers and will prove vital to obtaining market opportunities as the budding trend of procuring foreign equipment continues to develop.

A Chinese project manager with the Environmental Defense Fund who deals specifically with air pollution has noted, however, the saturation level of the air pollution control market in China. He maintains that unless a foreign company has an innovative or cheap product that can be tailored to fit key policy goals and priorities, it will prove difficult to make headway at this time. 

A viable commercial strategy might involve an approach that capitalizes on relatively inexpensive local materials and low manufacturing costs. Of course, intellectual property rights (IPR) protection is a concern, as is quality control of locally-generated equipment, parts, and services. Additionally, as is the case in most Chinese markets, firms must consider the importance of maintaining good relations with Chinese authorities, buyers, and other market players. 

The World Bank and other multilaterally financed projects still provide the best opportunities for U.S. technology exports due to the availability of hard currency, an open bidding process, and a number of risk-mitigating factors. 

Selected References and Web sites

References

Hu Chengnan. "Development and Market Analysis of Control Technologies for Motor Exhaust Gas in China." ChinaEnvironment.

Lee Chyen Yee. "Smoggy China must do more to curb global warming." PlanetArk Nov. 10, 2000. www.planetark.org/dailynewsstory.cfm?newsid=8880&newsdate=10-Nov-2000.

Weisbrod, Roberta E. Solving China's Urban Crisis: China's Transportation Energy Future." Journal of Urban Technology 6, no. 1 (April 1999): 89-100.

Web Sites

Environmental Defense Fund: www.edf.org

World Health Organization: www.who.int (includes air pollution control standards and regional concerns).

Chapter 7

The Environmental Services Sector

The services sector is among the most challenging sectors in China's environmental market to enter successfully. To a great degree, the sector remains the territory of anointed domestic institutions, monopolies, and those with ties that can only be developed over a long period of time. All services requiring official approval at any point, such as EIAs and engineering services, must be conducted through an appropriately licensed institution; such licenses are not available to non-Chinese operators, making cooperative initiatives requisite for all foreign investors. Additionally, service providers, with the exception of consultants, are required to operate in-country, through either a JV or a WFOE. 

Likewise, the sector remains hostile to anyone without a sound, in-depth understanding of both Chinese business culture and China's environmental sector. Past business experiences in China clearly indicate the complications and barriers that all foreign investors doing business in China face. In the environmental services sector, many of these complications are compounded, making extensive in-country experience an arguably more valuable asset than extensive environmental industries experience. Environmental service providers who have been successful in other parts of the world are cautioned against believing that directly transferring service models from elsewhere to China will be categorically successful. It is not unreasonable to assume that non-environmental companies already operating in China that wish to expand their scope into environmental services may have more potential for success than foreign environmental service providers wishing to expand their operations into China.

Although China needs progressive, efficient, and innovative management, service providers offering standard, boilerplate initiatives will not be successful. Generally speaking, the Chinese have a well-founded understanding of basic environmental services; what are needed are high caliber solutions custom designed to meet the unique and complex needs of China. Providing such innovation requires an in-depth and accurate understanding of China's development goals, environmental situation, institutional and regulatory structures, and business culture, which again requires long-term and profound China experience.

While there is no formula for success in China's environmental services sector, several points should be considered: entering the sector is a long-term prospect, requiring years of experience and laboriously cultivated working relationships; innovation is an absolute must, and all innovation must take into account the particular needs of China's unique situation; successful navigation of China's bureaucratic apparatus can be difficultcertain players are to be avoided while others must be courtedan appropriate approach is critical yet difficult to determine; and it is easy to develop a bad reputation in China and difficult to mitigate the effects of a bad reputation after acquiring one, so service providers absolutely must deliver.

Institutional and Structural Points

Registration Requirements for Service Providers

Foreign service providers are able to establish operations in China through WFOEs, JVs, or representative offices. Normally, the lowest-risk and least costly option for small to medium-sized companies is to establish a representative office to oversee marketing and provide a base for operations until enough familiarity is gained to move toward a WFOE or JV. While representative offices have some disadvantages related to restrictions on the signing of contracts, on the direct provision of services, and on the exchange of currency, many small companies have been able to establish firm foundations by operating in China under this category and then moving on to other legal entities once they better understand the market conditions. Such entities have historically been either an equity JV, in which an international company forms a new Chinese-registered entity with a local partner, or a contractual JV, which is usually task or project specific and requires little financial investment. Both these types of legal entities have advantages and disadvantages that need to be thoroughly understood, with the assistance of competent legal counsel, before a decision is made. Finally, in recent years international companies have been able to establish service/consulting WFOEs in certain areas of China, thus circumventing the need to partner with a Chinese entity except for specific projects. While these legal entities make management simpler and more transparent, they are costly to establish and may be unable to obtain requisite professional licenses and permits that allow the direct provision of environmental services.

Registration of a WFOE, JV, or representative office is a routine, yet at times lengthy, legal process in most areas of China. The majority of the services that can be provided are for multinational companies or multilateral agencies that seek international services of a standard not yet available in China. However, any activity regulated by Chinese law that requires a specific permit, such as undertaking an EIA, laboratory services, engineering design, process fabrication, or equipment installation, requires teaming with a local entity holding an appropriate license. In some cases, even the services provided by a foreign entity in partnership with a local entity are not accepted; thus, the services need to be subordinated to and under the title of the local entity. Foreign consulting service providers are also allowed to offer consulting services via cross-border delivery, but all other service providers must operate in China or through a local partner.

For some services, such as those provided by analytical laboratories, it may be prudent to consider establishing a facility in a bonded zone. These zones, which were primarily developed as export-reprocessing zones that would create jobs and generate revenue without entangling operators in customs formalities, are being increasingly used as bases for certain categories of operations in China. For example, an analytical laboratory wishing to establish operations in China may find the barriers to importing the necessary specialized analytical instrumentation into China prohibitive. But by establishing a base in a bonded zone, the laboratory can bring analytical samples from the mainland into the zone, complete the analysis there, and generate results, avoiding the levies associated with bringing the equipment into the country and bypassing the cost and logistical difficulties of shipping samples overseas. (See Box 10 for further discussion of bonded zones.)

Market Profile

China's environmental services market potentially requires a very broad range of services. However, lack of awareness, protectionism, and opting for conventional engineering solutions currently make the reality of the market quite narrow and limited. As awareness progressively increases in the government and industry sectors, much of the initial need is filled by local environmental institutes and private companies that generally have good engineering skills but lack innovative solutions. Thus, the market is increasingly open to service providers in the fields of environmental impact assessment (in conjunction with local institutions), energy efficiency, water recycling and reuse, waste-to-energy solutions, integrated environmental systems, ecological water treatment methods, waste reutilization, and a range of services classified as cleaner production and sustainable development services.

The market for the above services has grown significantly in the past five years. While the body of environmental regulation has increased greatly, enforcement has not. Environmental protection in China is primarily driven by economic and profit considerations, not by regulation. Because of this, business development strategies must always focus on increased efficiency and profitability, with increased environmental protection as a side benefit. Because many of these solutions fall outside the bounds of normally recognized possibilities in China, the basic concepts must often be communicated and demonstrated in the form of case studies presented in seminars, so that detailed economic justifications are made. However, if approached properly, this strategy can be quite fruitful, as most Chinese managers see environmental protection as an added expense that is required to be put at the end of a dirty process. If an alternate vision of efficiency and process reengineering is presented, particularly in a scheduled format in which the initial investment is minimized, significant interest can be generated.

Generally, U.S. service providers and technologies are respected in China for their professional and timely delivery. A further recognized advantage is the robustness of U.S. technology and services compared with their European and Japanese counterparts. However, several barriers put U.S. service providers at a disadvantage. Foremost among the barriers is the lack of a meaningful U.S. bilateral aid program to China. While most other industrialized countries support their national environmental markets in China through provisions of tied aid, the lack of such a program from the U.S. normally disqualifies U.S. service providers in favor of those bringing bilateral aid with them. This problem is further exacerbated by the lower priority given to U.S. vendors and service providers in multilateral aid programs as a favor to providers from other bilateral aid donors. A further disadvantage often cited by Chinese decision-makers is the often tumultuous political relationship between China and the U.S.: when U.S. goods and services are procured, it is uncertain whether delivery can be completed or after-sales service can be guaranteed, in light of the frequent threats of sanctions.

Additionally, some barriers faced by U.S. companies and service providers are self-inflicted. A lack of understanding of Chinese business practices and sensitivities, unfamiliarity or impatience with the time-consuming process of relationship building, dependence on overseas Chinese expertise (which is often resented) rather than local professionals, and a lack of understanding of laws and regulations all contribute to the creation of misunderstandings and frustrations. 

Many of the barriers that U.S. investors face are the same ones that all foreign investors face, providing a relatively level playing field from the perspective of China-sourced complications. Many companies say that the single biggest barrier that limits U.S. competitiveness in relation to that of other foreign service providers is the lack of a U.S. government bilateral assistance program. Bilateral institutions such as the Canadian International Development Agency (CIDA) and Germany's GTZ can exploit mechanisms that allow them simultaneously to act as development consultants to the Chinese and to lay groundwork for private companies (from their respective countries) to win contracts; in some cases, they are able to tie large sums of multilaterally sourced funding to companies in their country by entering into co-financing operations (see Box 9). The return of the U.S. Trade and Development Agency to China is a positive first step; however, the absence of the U.S. Agency for International Development (USAID) is a glaring vacancy in the realm of bilateral operations in China. 

WTO and Environmental Services

With China's accession to the WTO, foreign service suppliers now may establish a commercial presence in China and provide environmental services in the form of joint ventures with foreign majority ownership permitted. Language in the U.S.-China bilateral agreement indicates that China's environmental services commitments cover sewage, solid waste disposal, cleaning for exhaust gases, noise abatement, nature and landscape protection, and other environmental protection services, yet they do not cover environmental monitoring or pollution source inspection. 

Although foreign service providers are generally kept out of environmental monitoring and pollution source inspection, foreign firms are contracted to provide such services on an ad hoc basis. CH2M Hill, the U.S. company that carried out air-monitoring operations in Sydney prior to the Olympic Games there, has been contracted to perform air-monitoring operations in Beijing as it prepares for the 2008 games.

Capacity and Awareness Building

One of the single biggest breakdowns in China's environmental protection apparatus today is a deficiency of capacity and awareness. As discussed elsewhere in this document, many local EPBs lack clarity regarding how best to approach the diverse and complex environmental problems within their jurisdictions, industrial leaders lack vision regarding the possibilities for clean production and eco-efficiency, and the dearth of comprehensive solutions that can benefit both the environment and the economy sometimes makes environmental protection a secondary priority after economic development. Foreign investors might want to consider marketing equipment and carrying out consulting operations in China through a method that disseminates information in regard to these deficiencies. Investment packages might also include components that seek to implement corporate and industrial training, eco-efficiency capacities, health and safety management, and other initiatives that cover both environmental and economic needs. A number of Chinese companies already recognize economic benefits through efficiency and sound management. As China's socialist market economy continues to develop, the need for such efficiencies is increasing, as are the demands for companies and consultants that can provide the means to achieve them.

Market-Entry Consulting

A successful strategy used by several service providers entering the Chinese market employs market-entry companies to introduce potential partners or projects to prospective service providers. This allows a foothold to be gained with a low financial commitment or risk. Conversely, several U.S.-based associations and market-entry groups have attempted to help their clients enter China with the aid of U.S.-based or U.S.-educated Chinese professionals. Overall, the success rate of such efforts has been low, as the value of market-entry consultants lies with their local presence and contact network.

Below, two specific approaches are presented that may be considered by a group of service providers working through an association or consortium with a well-established office in China.

Specialized Representation Associations

Foreign investors seeking to operate in China might benefit from the development of a number of specialized, privately operated associations that simultaneously function as monitors for business opportunities in China and as foreign technology and services sources. In addition to helping form partnerships between end users and suppliers, the associations might facilitate legal, administrative, and logistical consulting. Specialized associations might represent particular U.S. industries in China's environmental sector as a whole or direct attention toward particular industrial sectors in China with environmental needs. A strong need currently exists for an association that monitors opportunities and facilitates participation in multilateral and untied bilateral assistance operations. Such an association should not only monitor for opportunities and keep its constituents informed of potential projects at the very earliest stages of assessment and development, but should also develop the capacity to facilitate viable bidding for such projects, a task that is difficult, particularly for small operations and firms with no experience in doing so.

The Consortium Approach

Because of the logistical and financial constraints of operating in China, as well as the increased capacities resulting from the pooling of experiences and strengths, foreign investors may find it beneficial to enter the market via a consortium scenario. Consultants and other service providers can work together to offer complete packages of planning, design, financing, engineering, implementation, and long-term operation management and training. Service providers with a clear understanding of the needs discussed in the introduction of this chapter might be in a position to play the invaluable role of bringing together the most appropriate players for a particular project and then bridging the gap between those players and the domestic entities. It goes without saying that the central organizers of such a consortium must have extensive and profound experience not only in the environmental sector but in China as well.

Conclusion

The services sector in China presents many opportunities and challenges to U.S. service providers. On the one hand, U.S. services and technologies are respected, yet on the other, they are at a distinct disadvantage compared with many Western countries due to a lack of bilateral funding and the tumultuous political relationship between China and the United States.  A bilateral environmental program in China would help level the playing field with other Western countries and encourage Chinese entities to consider U.S. vendors for projects. U.S. companies also need to take a long-term view of the Chinese market and establish long-term representation that actively markets and builds alliances on their behalf. In the case of small and medium-sized companies unable to afford an in-country presence, associations or consortium relationships should be considered as a method of market entry.

Chapter 8

Resource Management

This section includes a number of resource management issues and technologies that have not been covered in other sections. Some subjects may not be appropriate for technology providers, but they may be appropriate for consultants and innovative management and protection systems providers. 

China's territory encompasses the third largest land area in the world, after Russia and Canada. However, land resources per capita fall far below world averages. According to the Food and Agriculture Organization, China accounts for 22 percent of the world's population but has only 10 percent of the world's arable land. The arable land totals about 130 million hectares, or only 0.1 hectare per person. Additionally, the quality of the arable land is generally poor, with almost 80 percent classified as low- or mid-yield land. Unsustainable agricultural and irrigation practices, water supply problems, severe degradation due to pollution, deforestation, erosion, and urbanization further exacerbate the problem. 

China is rich in grasslands of many varieties, which cover over 40 percent of its territory. A massive push to "improve" the grasslands for agriculture in the 1950s and 1960s led to rapid erosion and ultimately desertification. Intense livestock production, overgrazing, and permanent settlement of traditional nomads contributed to further deterioration. Over a third of the grasslands are overgrazed, and the desertified areas have doubled in size since the mid-20th century. 

According to China's fourth forest resources survey, "forested land" covers about 260 million hectares, although only about half of this is actually covered by forests. Forests in China suffer from overlogging, illegal logging, and conversion to agricultural use. The aftereffects of forest destruction are noticeable in the form of serious soil erosion and massive flooding in certain areas. Efforts are underway to arrest this situation. Since the 1970s, deforestation trends have been reversed due to major afforestation efforts. Because of this, the area of forested land has increased, but the state of forests in terms of biodiversity and age continued to decline right up until 1998, when the government imposed a logging ban. Even now, this ban is consistently violated.

The main concern regarding sustainable land management in China is food security. China has been experiencing a net loss of cultivatable land due to massive urbanization, especially in the fertile eastern regions where the majority of the population resides. Even worse, most additions to arable land resources have been made by the reclamation of fragile grassland, wetland and coastal ecosystems. Major land reclamation work, such as that in the desert region of Xinjiang, has generated an increased demand for irrigation water, but unsustainable water practices have led to the deterioration of nearby water-rich areas. 

Policy and Legislation

Environmental awareness has significantly increased since 1978, and higher priority has been placed on the strengthening of policies related to land management. Legislation, administrative research, institutional restructuring, and education have all contributed to a much stronger framework for conservation and land resource planning. Administrative actions have included merging the National Land Bureau and the Ministry of Geology into the Land and Natural Resources Ministry and reclassifying the Ministry of Forestry as the State Forestry Bureau. Since the implementation of these changes, SEPA has been the main entity responsible for the administration of rural ecology and conservation. However, at the ministry level, there is still some confusion: while SEPA is the highest authority relating to ecology, the Ministry of Water Resources is responsible for water and soil conservation, and the Ministry of Agriculture oversees farming and productive lands. There is no national parks service or the equivalent, and the setting aside of nature reserves is undertaken in a sporadic and quantity-driven manner. 

The government has expressed several ambitious goals concerning land use and management for the next 10 to 20 years. Priority is being placed on undoing the damage of the past half century by increasing and protecting forests and grasslands as well as restoring wetlands, halting the spread of desertification, and preventing further arable soil loss in order to maintain the current level of self-sufficiency in food production. 

Shortfalls of the Ninth Five Year Plan are not affecting the Tenth Five Year Plan. Goals stated in the Tenth plan cite an increase in percentages relative to the amounts and distribution of resources at 1995 levels; however, few 1995 baselines relevant to these percentages exist.  In addition, certain definitions are vague, as demonstrated by the overlap between "reduced farmland" and "eroded areas." 

Despite the policy advances of the past decade, many government organs and state mouthpieces remain confused, as illustrated by a recent statement issued by the minister of land and natural resources:

China will strengthen management of farmland and prevent the destruction of cultivated land; it will press ahead with improvement of land, intensify reclamation efforts, and appropriately exploit the reserve resources of cultivated land. Meanwhile, it will pursue the policy of tapping the potential of land for construction purpose and vigorously promote the intensive use of land. (People's Daily, Feb. 1, 2001. Emphasis added.)

The effectiveness of resource regulation and policy is hampered by conflicts of interest, often within and among the very entities that are responsible for regulation. The State Forestry Bureau, for example, is on the one hand responsible for protecting and monitoring the national forest reserves. The same bureau has traditionally been involved in the exploitation and use of national forest resources, often benefiting directly from the sale of licenses and contracts for such activities or indirectly from the formation of companies that conduct business using these resources. 

Additional and perhaps more dangerous constraints to resource management are coming into focus as the government restructures to meet the demands of a more deregulated and global economy. As the government relaxes control over economic activities, it needs to take steps to ensure firmer control over resource utilization, an outcome that seems unlikely given current efforts.

Desertification

Desert regions, which cover over a quarter of China, are expanding. This expansion accelerated with unsustainable land reclamation, agricultural practices, and livestock production that began in the 1960s and 1970s, as well as urban development and deforestation throughout the 1990s. Desertification affects two distinct regions in China; most notably, the northern plains of Inner Mongolia and several provinces to the south of it, but also the drainage basins in the West, mostly in Xinjiang and Gansu provinces (see the map at www.din.net.cn). 

Desertification contributes to a host of problems in China, in both rural settings and urban centers. Unfortunately, desertification is often caused by problems to which it contributes, forming a vicious cycle. These include:

l  Reductions in farmland. Heavy losses of arable land are devastating the economies of many communities, forcing them to increase their exploitation of marginal land. Overuse of water resources and overgrazing destroy the resources that many rural communities depend on.

l  Sandstorms. Dust storms and sandstorms throughout the country are noticeably increasing in both intensity and number. A series of sandstorms that struck Beijing in the springs of 2000 and 2001 caused millions of dollars' worth of property damage. A particularly ferocious sandstorm in 1993 killed 78 people in the western province of Xinjiang, and a sand-and-snow blizzard at the beginning of 2001 killed 39 people.

l  Soil erosion. Desertification in some parts of the country affects the resources of other regions. Desertification of the grasslands of the northern regions, for example, adversely affects the rivers of the south. The north also contains the headwaters for many of Asia's major rivers. As grasslands and other types of cover decrease, soil washes downstream, contributing to water pollution and floods farther down the Yangtze and Yellow Rivers. 

Anti-Desertification Efforts

Tree and grass planting seems to be the most       effective way to combat desertification for now. Reforestation and shelterbelt efforts are increasing. In December 2000, the chief of the State Forestry Bureau announced that $11.6 billion would be spent over the next 10 years on forest protection and reforestation efforts. However, the majority of reforestation consists of plantations of cedar in the South and poplar in the North, which do not adequately compensate for the loss of biodiversity and old-growth forests. 

Typical methods of preventing sand movement and stabilizing the advance of sand areas include the erection of barriers and the planting of scrub or grasses on the windward sides of dunes. 

One method to control desertification is the planting of seabuckthorn, a local economically valuable and hardy grass. United Nations Development Program (UNDP) and Food and Agriculture Organization efforts are concentrating on the viability of this plant as an economically profitable solution to the loss of farmland. 

Salinization and Irrigation

China is predisposed to heavily salinized lands, especially in its western regions. Furthermore, ongoing salinization in China results from poor irrigation and other water-use techniques in areas with scarce water resources. According to recent World Bank estimates, salinized land occupies about 80 to 100 million hectares, 10 percent of which are cultivated land. Salinized coastal zones in the east also serve as a source of sandstorms.

The Ministry of Water Resources estimates that the rate of salinization is actually decreasing due to prevention and remediation measures introduced in the late 1980s. 

Best Sales Prospects

Soil Reclamation Technology

In order to increase overall crop yields, the agricultural sector is in great need of innovative and low-cost equipment or technology that can improve the yield of highly alkaline soil. A Sino-Japanese cooperative project is underway to improve the quality of saline soil in North China's Shanxi Province by applying soil conditioners that are a byproduct of Shanxi power plants.

Soil Remediation Technology

Pollution caused by landfill leakage, pesticides, industry, and heavy mining has harmed over 13 million acres of farmland in China. Although soil remediation technology is typically expensive, innovative approaches may find a niche, as the government sees this as a high priority. 

Irrigation Technology

The key to alleviating China's flood and drought problems is water efficiency. Implementation of water-efficient irrigation systems does not require high technology or great expense. It does require a knowledge transfer in regard to system design, efficient use of resources, and the manufacture of parts that are designed for efficient purposes. Multilaterally financed irrigation projects use efficient equipment and design in isolated projects, but these techniques are not replicated and do not spread.

Selected References and Web Sites

References

Jiang Xueqin, "Standing Tall: Plantation Timber Products Overcomes the Odds to Succeed in China's Impoverished Interior." Far Eastern Economic Review, Sept. 7, 2000. 

 

"Pollution, Landfills Devouring Agriculture." ChinaOnline, June 9, 2000. 

"Sino-Japanese Project to Upgrade Saline Soil." People's Daily. June 22, 2000. 

"Sustainable Agriculture and Rural Development in China, Part 1: The Agro-Ecosystem and China's Rural Economy." Promotion of Sustainable Agriculture and Rural Development in China: Elements for a Policy Framework and a National Agenda 21 Action Program. (Beijing: FAO/UNDP/Ministry of Agriculture of the PRC, 1997.)

Web Sites

Hunan and Nature in Harmony; China Environment and Development Information: www.enviroinfo.org.cn (Categories include: land resources, land use, desertification, salinization, soil erosion, land degradation, sandstorms. Consists of a collection of articles pertinent to this subsector.)

ChinaOnline agriculture section: www.chinaonline.com/industry/agriculture/agriculture_center.asp 

United Nations Food and Agriculture Organization: www.fao.org 

(Contains project documents and publications of interest in the area of land resources.)

 

Chapter 9

Finance Programs and Resources

There are five financial sources pertinent to environmental investment in China today:

1. Government investment funds

2. Policy and commercial bank loans

3. Enterprise investment (SOEs, the domestic private sector, JVs, and WFOEs)

4. Multilateral and bilateral assistance programs

5. Securities

Government investment funds are capitalized primarily through central budget funds earmarked for a specific use, or through national and subnational governments and affiliated agencies via charges and levies on individuals and enterprises. Theoretically, these resources are available to all Chinese legal bodies, including JVs and WFOEs. However, in reality they are primarily reserved for SOEs and occasionally for high-profile JVs that authorities consider to be of special importance. Although these funds are rarely made available to foreign investors, they should be understood, as they constitute a significant source of funding for SOEs that may contract foreign-invested enterprises to service their needs.

The structure and availability of policy and commercial bank loans, like those of government investment funds, are important to foreign investors in terms of how they apply to the Chinese enterprises that may contract their services. Both policy and commercial banks continue to function as the tools of government-directed spending, but commercial banks are becoming increasingly independent in the decision-making process when extending loans to operations that have not been anointed by government planners. Both types of banks claim to be increasingly cognizant of commercial viability when making loan decisions, and at least in theory they are granting loans to those ends. Nonetheless, the ultimate function of Chinese banks is to service the financial needs of state and provincial planners. Very little in the way of preferential environmental loans is available. 

Enterprises themselves are expected to produce increasing amounts of money to furnish environmental protection investments. Pressure to do so stems both from government policies decreeing pollution abatement and from commercial competition, which necessitates increased production efficiency. Additionally, access to many governmental funds requires enterprise contributions.

As discussed further in Chapter 10, projects funded by multilateral and untied bilateral assistance offer the most secure point of market entry for foreign exporters and foreign-invested enterprises due to relatively strict assessment and implementation standards as well as guaranteed available hard currency. This chapter includes a brief introduction to the major assistance programs active in China, including points on how best to monitor their current affairs.

Although securities may one day play a significant role in environmental financing, the financial sector remains generally inaccessible to the environmental sector at this time. The securities markets of China are far too unregulated and immature to support creative environmental finance tools, and they are much too protected (i.e., reserved for the purposes of larger, anointed SOEs) to service capital demands for environmentally oriented startups (although a number of environmental enterprises are listed). There is some discussion regarding the development of a green investment fund in China; however, its implementation is still a long way off, and the financial climate requisite for its success is arguably even farther away. Because securities are not immediately applicable, there is no further discussion of them in this chapter. See Chapter 2 for more information on China's macroeconomy and economic issues.

Government Investment Funds

Local Environmental Funds

Local environmental funds are essentially rotating funds capitalized by pollution levies, or non-compliance charges, imposed upon enterprises discharging pollutants in excess of relevant national standards. Approximately 80 percent of the revenues generated by these funds are redirected to the polluting factories from which they came, in the form of grants (or loans in the case of the "special fund"), with the intention of financing pollution abatement projects. The remaining 20 percent augments EPB budgets and is theoretically aimed at enhancing capacity-building programs. Enterprises submitting proposals for grants from this source are required to match a proportion of the funds sought through means of their own. 

Various models for the collection and distribution of these funds exist throughout the country, but in each case procurement and disbursement responsibilities do not extend beyond the provincial government. In all cases, city, county, and provincial government bodies have various degrees of involvement in collecting and redistributing these finances; however, the central government neither receives a share of the revenues nor plays a role in determining how they are used. In most cases, the funds are jointly managed by environmental and financial agencies, and in some cases commercially-oriented investment corporations have been established. The corporations are not, however, completely independent, as they are established and monitored by the associated EPBs.

The Special Fund for Pollution Control

The efficiency of local environmental funds is low because: local environmental funds traditionally have been disbursed as grants; the finances are recycled to enterprises that initially capitalized the funds through levies (reportedly reinforcing a perception among the contributing enterprises that they own the funds); and, after environmental funds have been granted to enterprises, project selection is left mainly to the enterprises' discretion. In 1998, environmental investment policy began shifting from grants to loans and, in keeping with this shift, a special fund for pollution control was initiated.

The working mechanisms of the special pollution control fund are established by EPBs at provincial or municipal levels and remain entirely under the control of the EPB finance departments, except in some regions where semi-independent investment corporations have been established under EPBs to manage the accounts. The fund is capitalized by transfers of 20-30 percent of the revenue from pollution levy funds each year, interest payments on loans paid out through the fund, allocations from local governments, and so forth. Loans are provided at low interest rates (2.4-3.0 percent) to enterprises that previously paid pollution levies, are clearly capable of repaying the loan, can match a determined proportion of the loans from their own finances, and have project objectives (which must be clearly stated at the point of application) that are deemed feasible. 

Priority applications for loans through these funds include demonstration projects addressing key pollution issues and projects with eco-efficiency capacities, as well as the closure, revamping, or removal of major polluting enterprises.

Although finance use under the special fund provisions is reportedly more efficient, effective, and directed toward specified and appropriate uses, a number of issues are notable, including the fund's relatively small size, inaccessibility to enterprises that have not paid pollution levies, continued government intervention, and various other administrative issues.

The National Environmental Fund

There has been some discussion of the development of a national environmental fund, ostensibly to facilitate comprehensive, large-scale projects and to act as a high-level monitor of overall investment practices. SEPA has on several occasions solicited opinions from a number of domestic government bodies, as well as the World Bank and the Asian Development Bank, in regard to the merits of establishing such a fund, its feasibility, and what form it might take. There is little indication that such a fund might come into existence any time soon. Many national-level government bodies would need to collaborate and agree upon its form and function, something yet to be attempted or accomplished.

Other Levy-Based Funds

Two other government funds used to finance environmental protection, the levy for enterprise renovations and redevelopment and the levy for urban infrastructure projects, are capitalized through various fees and levies as well as government allocations. Only a small portion of the funds generated by the levy for enterprise renovations and redevelopment is focused on environmental protection (in 1998, 0.28 percent of the fund's total expenditure was environmentally oriented, down from 1.68 percent in 1991). The fund is a relatively small overall contributor to environmental investment and is viewed as an underachiever in this regard. 

Funds from the levy for urban infrastructure projects, on the other hand, have increasingly financed urban environmental infrastructure (see Figure 9.1). Local governments are directing more urban infrastructure development funds to environmentally-specific projects (such as water and waste management) and are increasing their own contributions. This fund accounted for 58 percent of domestically sourced investment in pollution control in 1999, as opposed to just over 32 percent in 1991. Nonetheless, urban environmental infrastructure remains woefully inadequate, with urban sewage treatment rates reaching only 30 percent and waste collection rates reaching only 60 percent in 1998. In both cases, the quality of treatment carried out was generally of lesser quality than is necessary to achieve notable results.

Government Support Funds for Environmental Enterprises

The only government ministry-furnished support fund in any way directed toward environmental technology development is the Ministry of Science and Technology's Innovation Fund for Small Technology-Based Firms. The fund's purpose is to facilitate the transformation of scientific research achievements into technological innovations, particularly those that can play a significant role in economic growth. Environmental protection innovations are eligible, and the fund is available to all registered legal bodies in China, including JVs and WFOEs. 

The Innovation Fund for Small Technology-Based Firms is gaining attention and is considered to be run relatively well, with accrued finances of over RMB 1 billion as of 1999. Proponents of the development of an environmental industry investment fund may use the Innovation Fund for Small Technology-Based Firms as a model upon which to base a fund specifically geared toward the support of environmental technology development.

A number of other funds and organizations exist, such as the China Foundation for Environmental Protection. However, their activities are minimal. Other than acting as showpieces and bureaucratic administrations, they serve little purpose for environmental protection.

Policy and Commercial Bank Loans

Policy Banks

Of China's three policy banks, the China Development Bank (CDB), the Export-Import Bank of China, and the Agricultural Development Bank of China, only the CDB works to facilitate investment directly associated with environmental protection. CDB loans for environmentally-related projects are generally long-term loans, and they are not offered at preferential interest rates. The China Ex-Im Bank finances environmentally-related investments, but it has no special program geared specifically toward environmental investment.

The CDB apparently intends to draw a balance between functioning as a tool to implement government mandates and granting loans based on commercial viability. All CDB loans undergo thorough feasibility studies that bear significant weight in the final decision to grant a loan. However, political pressure still exerts significant influence, and many loans are provided through the bank to facilitate programs that are deemed critical, despite poor commercial viability. CDB finances are domestically sourced, including a significant amount      of capital drawn through bonds issued directly by the bank.

The World Bank and the Asian Development Bank (ADB) work with the CDB in granting joint loans, which constitute a small percentage of the bank's lending. All joint loans are subject to the relatively strict assessment standards of the multilaterals, thereby increasing the assurance of commercial viability for projects that have received the loans. As a result, the likelihood for timely repayment of joint loans is increased. Because the loans are all long term, it is still difficult to determine the prognosis for their return rates. 

It is also difficult to assess the commercial viability of non-joint loans by CDB that do not undergo feasibility studies by the multilaterals. World Bank and ADB involvement in the CDB presumably affects the know-how and standards of the development bank, helping it to hone its future viability. In its current manifestation, the commercial intentions of the bank continue to be waylaid by political pressure from central and provincial planners.

Commercial Banks

China's commercial banks, like its policy banks, claim that increased attention is being paid to commercial standards. Particularly when extending loans to small operations, commercial banks increasingly look at the commercial viability of the projects at hand. Commercial banks are gaining more independence from central planners, particularly in relation to lending practices toward smaller operations. In this context, commercial banks are wary of financing environmental projects that are not government mandated, due to the long-term and low-yield nature of such loans. However, commercial banks, like policy banks, generally heed central and provincial government mandates for financial support of large projects requiring massive expenditure. 

For the most part, commercial banks do not offer preferential terms for environmental projects. Any firm that does manage to arrange a commercial bank loan for environmental investments pays the standard interest rate of approximately 5 percent. The exceptions are those initiatives with SDPC (or the appropriate lower-level development and planning commission) approval. Such initiatives qualify for a preferential interest payment program, at the discretion of the lending bank. Investors repay the loan at an interest rate of approximately 2 percent; the remaining percentage of the interest is furnished by budgetary finances from the local government most closely associated with the project. This scheme has not seen tremendous success, however, as local governments choose not to accept the burden, banks consider the extra steps of collecting interest from numerous sources troublesome, and commercial viability remains difficult to achieve.

The State Development and Planning Commission and Bank Loans

SDPC approval is necessary to obtain preferential commercial bank loans, policy bank loans, and bilateral or multilateral financing. Regional and local development and planning commissions must review all such projects for feasibility and approval. Any project over $30 million must be approved at the national level.

Enterprise Investment

About 55 percent of the $85 billion that CRAES expects is needed to achieve the environmental goals of the Tenth Five Year Plan is likely to be covered by business enterprises themselves. Most loan programs and preferential funding for enterprise development and upgrades require some degree of fund matching from the enterprises, and regulations, particularly the Three Simultaneous Steps policy, impose significant spending.

The Three Simultaneous Steps policy requires enterprises to take steps to prevent and control pollution simultaneously with the design, construction, and operation of projects, as opposed to addressing pollution issues after project implementation is completed. Revenues generated as a result of compliance with the policy have grown steadily since 1991 and have consistently represented about 4 percent of total expenditure on construction projects. However, the policy's share of total investment in environmental protection has trended down, suggesting increased performance on the part of other investment channels (see Figure 9.2).

Multilateral and Bilateral Assistance Programs

About 15 percent of environmental funding in China is sourced from multilateral and untied bilateral lending agencies. Aside from financial assistance, such lending programs aid Chinese development by guiding investment toward feasible and financially viable projects, by pressing for the development of stronger assessment and implementation standards, and by offering technical assistance, policy advice, seminars, and training.

The Project Cycle

Local or provincial governments initiate project proposals that need foreign financial assistance. Some projects are listed on the Agenda 21 or the Trans-century Green Projects list. MOFTEC screens all proposals and is responsible for ensuring that all loans associated with a particular project can be repaid. Ministry of Finance and SDPC approval are usually required at some point in the initial project cycle, and SEPA may screen projects as well. After clearing all domestic hurdles, a project is forwarded to the lending agencies for the lengthy review and approval processes.

The Ministry of Finance meets with donor agencies annually to discuss financing arrangements. Government and lending agencies then collaborate to analyze project details and feasibility further. Consulting firms should position themselves for future involvement in particular projects at this stage. Detailed feasibility studies are required and the borrowers, who are responsible for project preparation, often need to augment their in-house analytical capabilities. Contractors and equipment suppliers should create contacts at this point to determine whether or not their services or goods will be procured for the project. Once the project details are finalized, the lending institution and various Chinese government bodies must approve the final plan. Implementation generally begins within a few months of final approvals, by which time contractors and suppliers should already be in contact with the appropriate implementing agencies. 

Chinese implementing agencies, not lending organizations, are responsible for contracting goods and services. Firms that have identified projects suited to their capacities should approach the implementing agencies, not the lenders. This should be done as early on in the project assessment stage as possible, as waiting for projects to go out for bid before initiating contact will result in failure.

There are a number of ways to monitor business opportunities through multilateral and bilateral assistance programs:

l  Each institution maintains a Web site, many of which are conscientiously updated. However, not all sites provide information well enough in advance to keep potential bidders prepared to tender in a timely fashion. Firms need to contact these institutions proactively in order to keep a close eye on developments and should demonstrate interest in particular projects as early as possible.

l  UN Development Business, published by the United Nations Department of Public Information, is a comprehensive resource for enterprises providing goods and services to projects financed by the major multilateral institutions. It is available by subscription online or in hard copy. Subscription information is available at www.devbusiness.com/about.cfm. 

World Bank

As of June 2000, World Bank commitments to China were in excess of $34 billion, accounting for a total of 226 projects. About half are still under implementation. The bank's primary targets are poverty alleviation, infrastructure development, and human resource development. Aside from initiatives aimed specifically at environmental protection, many World Bank projects afford residual benefits to those ends; for example, all World Bank-assisted power projects aim to incorporate environmental sustainability in their design and therefore draw on environmental industries.

China's environmental protection sector has been the fastest-growing recipient of World Bank loans over recent years. In fiscal year 2000, the World Bank furnished $700 million in loans for three environmentally oriented projects: the $349 million Second Beijing Environment Project, aimed at air and water pollution alleviation in Beijing; the $150 million Hebei Urban Environmental Project, with a strong emphasis on wastewater management and a lesser focus on capacity building for industrial pollution control; and the $200 million Chongqing Urban Environment Project, with an emphasis on solid waste management, wastewater management, water supply and monitoring, and capacity building for urban management and environmental rehabilitation. The bank also works as an implementation agency for the Global Environment Facility (GEF) and the Montral Protocol.

Future environmental focuses will include air and water pollution, wastewater treatment, vehicle emissions control, and reduced coal use in urban areas. Focus is also shifting toward the poorer and institutionally weaker inland provinces. As of 2000, nearly 70 percent of recent and proposed World Bank lending targeted the nation's interior, as opposed to 50 percent several years earlier. One intention of this shift is to mitigate environmental impact as development in the region is pushed forward.

The structure of World Bank assistance to China is changing, drawing a mixed reaction from experts. The bank still categorizes China as a "developing country," but it is no longer considered one of the less-developed countries. Thus, China is increasingly being expected to fund its own development as its domestic economy continues to grow. Soft loans (i.e., low-interest loans) and grants are no longer being made available.

The World Bank Group maintains an extensive Web site (www.worldbank.org/) that contains a section particular to China (The World Bank Group in China, www.worldbank.org.cn/English/home.asp). Included on the site are numerous resources such as the World Bank Monthly Operational Summary, (www.worldbank.org/ html/opr/procure/MOS/contents.html), research papers, project descriptions, and statistics.

Asian Development Bank

The Asian Development Bank (ADB) is a development finance institution owned by 59 members. The bank's goals, which are effected through loans and technical assistance, are poverty reduction, economic growth, human development, improved status for women, and environmental protection. Only nationals of ADB member countries, of which the United States is one, are permitted to bid on service and procurement contracts for ADB-financed projects. The bank places considerable stock in the BOT and build-operate-own models, which are being put to use in the PRC with increasing support from the government (see Chapter 10).

The ADB's country assistance plan, available online at www.adb.org/China/default.asp, outlines the intended assistance program for the PRC. The social infrastructure and environment section of the plan defines urban development and environmental protection goals  including waste management; air and water quality issues; capacity building for and implementation of market-based instruments for environmental management; strengthening of institutions, policies, and management systems; promotion of cleaner technologies; and promotion of sustainable natural resource utilization. The plan also portends a shifting focus toward      the western regions, in keeping with China's Western Development Plan.

Guidelines for procurement and consulting services are available online at www.adb.org. The ADB publication Business Opportunities outlines opportunities for vendors and consultants, is updated regularly, and is available online and free of charge at www.adb.org/business/opportunities/default.asp. The bank also maintains two data banks, one each of consulting firms and individual consultants, known respectively as DACON and DICON. Bank staff refer to the data banks during the initial consultant selection process for ADB-financed projects. Registration qualifications and information are available online at www.adb.org/consulting/dacon.asp. The country assistance plan is available at www.adb.org/China/ default.asp.

International Finance Corporation

The International Finance Corporation (IFC) operates under the supposition that sustainable economic growth based on private investment and successful entrepreneurship is the cornerstone to poverty alleviation. Thus, it works to further the development of the non-state sector in developing countries, foster the development of financial institutions, and advise private companies and governments in achieving such ends. 

In fiscal year 2000, the IFC approved $95 million in financing to China. The current strategic emphasis includes enterprise reform and private sector development, increased involvement in financial sector development, continued involvement in western development, support for industry rationalization and SOE reform, increased private participation in infrastructure and social sector development, and continued limited recourse financing for projects bringing technology and management skills into China.

The IFC's Environmental Projects Unit (EPU) works to accelerate market acceptance of goods and services that benefit the environment and emphasize eco-efficiency by identifying and developing innovative private sector initiatives with environmental benefits and by integrating environmental opportunities into the project cycle wherever possible. The EPU draws on IFC resources and, when applicable, other sources such as the GEF. EPU projects, like all IFC projects, must be within the private sector, be technically sound, have good prospects for profitability, and benefit the local economy. The main sectors targeted by the EPU are biodiversity, climate change and greenhouse gas reduction, energy efficiency, technology development, pollution abatement, renewable energy, solid waste management, sustainable agriculture and forestry, sustainable tourism, water supply and wastewater treatment, and environmental investment fund development. The IFC office in Beijing has expressed a good deal of interest in carrying out environmentally-related projects and can assist investors in accessing the capacities of the EPU.

Enterprises seeking EPU assistance should submit applications via the IFC. There is no formal application process by which to do this. Both Chinese and U.S. companies can directly approach the IFC in Beijing or Washington, D.C. A preliminary review is required before the IFC decides whether a full feasibility study will be carried out.

The IFC's Web site can be accessed at www.ifc.org, where it is possible to link to the EPU's site, www. ifc.org/enviro/EPU/epu.htm. In addition, the IFC's "China's Emerging Private Enterprises," the first comprehensive analytical study of China's emerging private sector, is available online at www.ifc.org/publications/.

Multilateral Investment Guarantee Agency

The Multilateral Investment Guarantee Agency (MIGA) encourages foreign direct investment in developing countries by furnishing investors with political risk insurance against such possibilities as transfer restriction, expropriation, contract breach, civil disturbance, and war. The agency also helps developing countries promote private investment opportunities through its Investment Marketing Service (IMS). As of late 2000, MIGA had 18 contracts of guarantee, with liabilities totaling $130 million, benefiting infrastructure and manufacturing in China.

Current IMS projects include capacity building for attracting foreign direct investment in Guizhou as well as collaboration with UNDP China and the World Bank's Foreign Investment Advisory Service to promote investment in the Tumen River region, a common border zone delineated for economic cooperation among Russia, North Korea, and northeastern China.

MIGA's Investment Marketing Service manages an on-line information service called IPAnet, which offers information on investment opportunities worldwide. Nearly 300 China-based individuals and organizations participate in IPAnet, and the Web site contains over 200 documents related to business and investment conditions and potential projects as well as links to national and subnational investment promotion agencies.

Applications and other details regarding MIGA are available online at www.miga.org, and IPAnet's Web address is www.ipanet.net.

United Nations Development Program

The programs of the United Nations Development Program (UNDP) in China are funded via UNDP core resources, the GEF, and the Montral Protocol. Activities focus on sustainable energy development, air and water pollution, natural resource management, and environmental governance. UNDP activities in China can be monitored via UNDP-China's Web site (www.unchina.org/undp/). The site contains descriptions of past and current projects, with occasional brief descriptions of upcoming projects and calls for bidding. Specifics regarding these programs and the potential for business opportunities are generally not noted on the Web site and should be sought directly from UNDP or the implementing agency.

UNDP operational plans in China are laid out through the agency's country programs. CP4, also known as Country Cooperation Framework 1, was completed in 2000. The time is right for interested suppliers and consultants to begin interaction with UNDP and its various implementing agencies. SEPA, Agenda 21, and the China International Center for Economic and Technical Exchanges are UNDP implementation agencies (see Appendix B, China Contacts list).

UNDP's Web address is www.undp.org. China-specific UNDP information is available at www.unchina.org/un/undp.

United Nations Industrial Development Organization

The United Nations Industrial Development Organization (UNIDO) is a specialized UN program working for the development of sustainable and economically competitive industry in developing nations. Many of UNIDO's current operations in China have components that are directly or indirectly associated with environmental technology providers. Focuses include industrial pollution and waste management, cleaner production programs, the phasing out of ozone depleting substances, and institutional capacity building. Listings of current and past UNIDO programs in China are available online at www.unchina.org/unido. 

UNIDO is implementing a recently approved GEF-funded UNDP program to improve industrial efficiency in China's town and village industrial enterprises. TVIEs are generally small-scale collective or privately owned enterprises. They are significant contributors to industrial output and local economies, but they slip through many environmental protection regulatory apparatuses and are thus major contributors to overall pollution discharge as well. The project, currently aimed at small-scale brick, coke, cement, and foundry industries, is in its second phase. After identifying and prioritizing the barriers to energy efficiency in the sector in phase 1 and phase 2 seeks to initiate a market transformation and strengthen regulatory capacities to govern clean development in the sector as it grows. Equipment procurement begins in 2002. Interested parties are encouraged to contact UNIDO and the Ministry of Agriculture (the Chinese government implementing agency) as soon as possible.

Registration information for involvement in UNIDO programs, as well as the weekly informational newsletter UNIDOscope, are available online at www.unido.org. Reviews of China-specific UNIDO projects are available at www.unchina.org/unido. Unfortunately, prospects for the direct participation of U.S. companies in UNIDO projects are uncertain, as the U.S. no longer directly supports UNIDO.

Global Environment Facility

The Global Environment Facility (GEF) is a grant and concessional funding source for environmental and economic growth projects with global implications. Activities focus on climate change, biodiversity, international waters, and stratospheric ozone. Projects are generally implemented through UNDP, the United Nations Environment Program (UNEP), and the World Bank; however, GEF is an independent international institution. GEF financing is intended to cover only the incremental costs of activities with environmental benefits. Incremental costs are calculated by comparing the costs of environmentally superior operations with the costs of similar projects undertaken without additional expenditures to benefit the environment. UNDP manages GEF technical assistance projects in China, and the World Bank manages GEF investment projects. 

Project development funds (PDF) are also available through GEF for projects in the development phase that are expected to need partial GEF financing during implementation. Three PDF funding levels exist: PDF Block A grants, of no more than $25,000, are intended for initial pre-feasibility studies; PDF Block B grants, of no more than $350,000, fund specific project preparatory and feasibility studies; and PDF Block C grants, of no more than $1 million, can be used to fund detailed engineering design and complex technical and financial preparatory work. Matching funds from the sponsor are usually required for access to PDF.

For specific details on eligibility for GEF financing and documentation on pipeline processes, see the GEF Web site at www.gefweb.org.

Japan Bank for International Cooperation

In October 1999, Japan's Overseas Economic Cooperation Fund (OECF) and the Export-Import Bank of Japan (JEXIM) merged to form the Japan Bank for International Cooperation (JBIC). Previously the OECF was Japan's operative institution for extending Japanese donations, loans (including a considerable amount of untied loans), and technological cooperation to China. Under the JBIC, the operations that were previously within the jurisdiction of the OECF remain differentiated from those of JEXIM.

In fiscal year 1999, China was the second largest recipient of Japanese overseas development aid, receiving $1.22 billion in direct aid and soft loans. A considerable amount of those funds were spent on major infrastructure, such as airports, railways, and sewage treatment projects, yet of the 19 projects approved by the OECF itself, 14, or 74 percent, were related to environmental improvement, and 13, or 68 percent, were related to inland development. Unlike many bilateral aid programs, the Japanese program offers untied loans for infrastructure development and environmental protection, thereby opening the bidding for some JBIC-financed projects in China to non-Japanese contractors. 

However, Japanese domestic pressures to overhaul its financial aid practices, an increasing perception that China's growing economy warrants a more independent approach to the country's development financing, and concerns over Chinese military spending may begin to affect the JBIC's overseas development aid to China and its availability to non-Japanese contractors. Japan's plans for future financial aid to China remain unclear. Loan programs are evaluated on a project-to-project basis, and loans are no longer provided in lump sums of five years at a time. It is also now unclear to what degree JBIC loans are tied to Japanese contractors. A Foreign Ministry spokesman did tell media sources that JBIC aid policy is shifting from major infrastructure development to poverty reduction, technical cooperation to assist human resource development,      and environmental protection. Japanese financing for environmental protection may decrease overall.

The JBIC's Web address is www.jbic.go.jp. The OECF Web site is no longer available, but information pertaining to the OECF and its new manifestation is available via the JBIC site.

Export-Import Bank of the United States

For an overview of the Ex-Im's pertinent programs, see Chapter 10 or visit the Web site at www.exim.gov.

Selected References and Web Sites

References

Cao Dong and Sun Rongqing. Environmental Financing in China: A Review. CRAES, SEPA, November 2000.

Gao Shuting, Ge Chazhong, Yang Jintian, Wang Jinnan, Li Xiaoning. Environmental Funds in China: Past Experience and Future Prospects. Beijing: CRAES, Tianjin Industrial Pollution Control Fund Office, November 2000.

Stover, Jim, Justin Harris, and Christopher Adams. Hard Currency Financing for Environmental Projects in China: International Market Insight. U.S. and Foreign Commercial Service, August 1999.

U.S. and Foreign Commercial Service, Beijing. Environmental Project Approval and Financing in China: A Perspective for US Companies. Beijing: November 2000.

Wang Jinnan, Wu Shunze and Luo Hong. Integrating Economic Development and Environmental Protection in China During the 10th Five-Year Plan Period. Beijing: CRAES, November 2000.

Web Sites

Asian Development Bank: 

www.adb.org 

Asian Development Bank Business Opportunities: www.adb.org/business/opportunities/default.asp 

Asian Development Bank Country Assistance Plan: www.adb.org/China/default.asp

Export-Import Bank of the United States: www.exim.gov

Global Environment Facility: 

www.gefweb.org

International Finance Corporation: 

www.ifc.org

Japan Bank for International Cooperation: www.jbic.go.jp

Multilateral Investment Guarantee Agency: www.miga.org

United Nations Department of Public Information:   UN Development Business:

www.devbusiness.com

United Nations Development Program:

www.undp.org 

United Nations Development Program, China: www.unchina.org/un/undp.

United Nations Industrial Development Organization: www.unido.org

U.S. Embassy, Beijing: 

www.usembassy-china.org.cn

World Bank Group: 

www.worldbank.org

World Bank Group in China: www.worldbank.org.cn/English/home.asp

World Bank Monthly Operational Summary: www.worldbank.org/html/opr/procure/MOS/contents.html

Chapter 10

Positioning U.S. Exporters in the Market

China's environmental market is highly competitive, somewhat restricted, unwieldy, and not easily understood. Accurate data illustrating demand and market size is scarce, problems are large in scale, and the intricacies of how to address problems efficiently are not well understood by the domestic players, making it difficult for outsiders to determine where their services are needed and how access can be achieved. As a result, making sweeping strategic statements on market entry is unrealistic. Market potential exists for service and technology providers and for consultants with the capacity to gain a deep understanding of needs in specific localities and facilitate solutions that are both economically and logistically feasible.

Market access for foreign companies is further limited in that market demand remains largely aid driven. For U.S. companies, this poses further complications. The severe shortage of bilateral assistance from the U.S. eliminates possibilities for tied financial aid and leaves only the resources of multilateral agencies and the Trade and Development Agency (TDA). As indicated throughout this document, regulatory pressures, as well as the aims of increasing efficiency and positive corporate image, are increasingly contributing to market demand, but they do remain (to varying degrees) limited instigators. At the same time, the bulk of domestically-sourced spending on environmental protection is aimed at domestic suppliers. This, too, is changing (albeit on a small scale), as Chinese buyers realize the long-term benefits of spending more money up front on better equipment as opposed to covering the maintenance costs needed to keep mediocre, locally-produced equipment up and running. Nonetheless, price remains a strong determinant factor for many purchasers.

U.S. exporters also must consider in which sectors they can be most competitive vis--vis the strengths of third-country and local competitors. U.S. versus third-country competitor advantages are discussed in some detail in each of the sector analysis chapters; however, it should be restated that, although U.S. technology in a number of sectors is considered superior or of high caliber, prices may remain prohibitive. One sector in which the United States does excel is monitoring equipment, and the inabilities of local producers coupled with increasing mandates for stricter monitoring may play out to the advantage of exporters in this sector. Generally speaking, certain sector strengths (such as the French domination of the water sector) and tied assistance programs constitute advantages for third-country competitors. Various benefits associated with local production account for a large part of local competitor advantage.

Entering the Chinese market requires due diligence and feasibility analyses. Even more important, it requires a willingness to take risks and determined perseverance. This approach of informed risk taking combined with a strategy of starting modestly and allowing natural business growth has been proven in the Chinese market. Many large companies have entered the market with a reasonable budget and, as a result of engaging the government at the wrong level (usually too high), positioning a high-cost expatriate, or hiring an inexperienced Chinese national, have failed and pulled out. Personnel issues also account for the failure of many overseas businesses in China.

The formula for success could in fact be quite simple. A midlevel Western manager with a proven business sense and a desire to prove himself or herself is often the best solution for in-country management in the startup phase. Contrary to conventional wisdom, overseas Chinese and experienced managers from other Asian countries (even Hong Kong and Taiwan) are rarely a better option. Although they may know the language, cultural differences between Hong Kong and the mainland and between Taiwan and the mainland can be as significant as those between the U.S. and the mainland, and while Western-looking American managers are allotted a margin of error by Chinese business partners, non-Chinese Asians and overseas Chinese who purport to have a flawless cultural sense are not. Chinese nationals who were trained in the U.S. and lived abroad for extended periods fall into the same category, while Chinese nationals who were trained in American institutions of higher education but have not worked in the U.S. lack the necessary business experience. While Western-educated Chinese constitute the best of the overseas hiring options, care should be taken to train and immerse them fully in corporate culture, and when transferred to China they should remain under the management of a midlevel corporate manager until they are fully trained. In sum, the best option is typically a foreign, mid-level team player who knows the business well and hungers to prove his or her capabilities. High-level corporate executives demanding large salaries and first-class living accommodations are not ideal. Startup managers need a couple of years' time to fully enter the market before achieving financial viability.

To assist in this process, or if local representation is required, a variety of private consulting and law firms are available for consultation, and a growing number of environmentally-specialized firms exist. If a long-term entry plan is not feasible for a U.S. company, then a local representative with a proven track record, which may be a Chinese or a Western company, may be engaged to market on behalf of the U.S. firm. Alternatively, a general representative office serving the interests of environmental industries toward a particular state business or sector may be established to promote the interests of its constituents in-country. Again, the management of such an office should follow a pattern similar to that described above. In all cases, broad-based consultations with the U.S. Embassy, the American Chamber of Commerce's environment, health, and safety forum, and other businesses should be undertaken to achieve the broadest possible perspective before decisions are made.

A number of countries offer bilateral aid and assistance programs to guide environmental protection development while generating investment opportunities for their nation's industries. Although the United States offers very little along these lines, monitoring other programs may help in pinpointing market opportunities that are tangentially related. (See Box 12 for further discussion of U.S.-China bilateral assistance.)

The U.S. and Foreign Commercial Service in China provides environmentally specific market analysis services, works to bring potential Chinese and U.S. partners together, and maintains an informative Web site (www.usembassy-china.org.cn/english/commercial/ index.html) that contains links to a number of periodical briefs, resources, and statistics and to an introductory pamphlet guide to the Chinese market. The China Country Commercial Guide is available online at www.usatrade.gov, and further useful information can be found online at www.buyusa.com.

Monitoring the Market

Market Potential Versus Market Demand

Environmental conditions in China often lead investors to believe that opportunities in the environmental market are manifold and that increased legal and governmental pressures to improve the situation are causing even faster growth of market size. While these assessments are theoretically true, it is important to consider them in the context of market potential as opposed to market demand. A number of factors continue to prevent the market's potential from developing into demand. Several of these have been alluded to in other sections of this document; however, their importance cannot be overstated.

Market-Based Incentives. Fees and tariffs levied on services and resources in China still do not reflect their actual costs or values, making it difficult for service and resource providers to generate profits. Authorities have started to implement fees based on the costs of construction, operation, and maintenance of environmental infrastructure facilities and to establish new policies encouraging private investment. Yet, in many cases, these efforts do not constitute a real market approach and remain inefficient.

Enforcement of Legislation. China's environmental legislation has become quite complex and continues to grow more comprehensive. However, the ability to enforce this legislation and affect environmental protection in the localities varies considerably, primarily as a result of conflicts of interest, inadequate capacity and financial resources, and difficulties in locally interpreting and implementing national decrees. 

Conflicts of Interest.  Several conflicts of interest stymie environmental protection in China today. The primary conflict is between environmental protection and economic development. Officials and business leaders believe that environmental protection costs limit industrial profitability and development plans. A similar conflict of interest exists between various ministries and other administrative bodies within the central government, in which some of the more powerful ministries oriented toward economic and industry development trump the authority of SEPA in the overall implementation of development plans. 

A third conflict of interest exists in the administrative structure that governs the local EPBs. EPBs receive their regulatory directives from SEPA at the national level. SEPA has little means to enforce the implementation of those directives. Meanwhile, local government administrations control the budget, personnel, and other administrative details of the EPBs, giving them a vested interest in following the policy objectives of the local government as opposed to those of SEPA. Thus, if national environmental initiatives inhibit local government initiatives, the local government has more leverage to impose its preferences. 

Fourth, and most meaningful in terms of commercial interests, is the conflict within regulatory institutions, which usually have a "consulting" institute. Most EPBs are supported by a research institute that acts as both inspector and consultant. Because of this, the market for environmental services and technologies is distorted by the local monopolies of regulatory institutions. Where monopolies are seemingly neutralized, institutional corruption often fills the void. 

National Decrees and Local Implementation. There is an old adage in China, "Here, where the heavens are high and the emperor is far away."  That still rings true today. The EPB structure discussed above is only one of a number of issues that illustrate this. The ability to monitor local compliance with national standards effectively depends to a great degree on the local government's interest in complying. Similarly, the national government has trouble implementing local-level price, fee, and tax increases aimed at improving market-based incentives. Governments in some localities are apparently concerned that such increases affect industrial productivity and development and could stir social unrest.

Because of these factors, a regulation-driven market in China has yet to emerge, and the potential market remains more promising than actual market demand. In a number of instances, however, signs already exist that some of these factors are changing, particularly in the more progressive coastal areas. Optimistic speculation indicates that future changes will generally err toward the side of improved regulation, increased market demand, and increased liberalism. The timely establishment of a market presence is increasingly important. Nonetheless, it is critical to consider all factors and to assess the degree to which and the speed with which national policies are carried out within a given locality.

Regional Specificity

Because the factors addressed above vary considerably across the country and from locality to locality, it is critical that potential investors think not about the market as a whole but about the market climate of the particular region or locality in which they will be investing. Perhaps the most important aspect of regional specificity is overall development and the ability to finance environmental protection. As previously indicated, development in China has been skewed over     the years, resulting in a tremendous gap. This gap       continues to play out in the environmental sphere in two ways.

The more underdeveloped regions of the country suffer some of the most severe environmental degradation. Because production capacity, municipal and township infrastructure, and awareness regarding environmental protection all remain underdeveloped, degradation continues. Environmental needs in these areas are often basic but overwhelming in terms of scale. Additionally, these are often the areas that are most hard-pressed to finance their environmental protection.

More developed regions have more financial resources to invest in environmental protection.  As a result of relatively rapid development, a higher profile, and a relatively high degree of public awareness and pressure, they have managed to build better environmental protection capacities in recent years. These areas are often more attractive for foreign investors and are able to sustain stronger environmental protection measures. As a result, China's gaps increase.

In researching the market and considering market-entry strategies, technology and service providers need to consider where their strengths most suitably fit local needs. An obvious initial conclusion could be that the more developed and wealthier regions offer the best market opportunities. However, it should be remembered that, as pressure increases upon local governments to improve fundamental environmental quality, they look to experienced and capable technology and service providers for efficient solutions needed to make improvements affordable. Technology and service providers with innovative products and management techniques, who can profitably exploit large market bases with relatively inexpensive solutions, find an increasingly warm market climate. In such cases, selling in quantity and offering money-saving or revenue-generating management techniques is the key to profitability.

Policies and Priorities

China clearly expounds its environmental development priorities through policy initiatives such as its Five Year Plans, Agenda 21, the Trans-century Green Engineering Program, and other programs intended to decree or urge action for environmental investment. These policy drivers are good indicators regarding central priorities and should be consulted by foreign investors while investigating the market; however, they should not be viewed as the only or the ideal path to market access.

Foreign exporters should remember that these central priority plans are just that: centralized policy regarding widespread and intricate local problems. As indicated earlier in this chapter, central government commitment does not presuppose local government commitment, and any government commitment does not necessarily indicate commercial viability. Government assurances or state priorities are not a satisfactory substitute for standard due diligence. Furthermore, targeting the correct level of government decision-makers for information or permits is critical in order to reduce bureaucratic red tape and the risk of investment losses.

The Tenth Five Year Plan refers to the central economic development plan for the years 2001-2006 and in part refers directly to the environmental protection agenda during that period. Agenda 21 and the Trans-century Green Engineering Program are ongoing environmental development initiatives under the auspices of different and competing government ministries. The structures of these as well as other policies and priorities are outlined in Chapter 3, and contact information provided in the China Contacts list in Appendix B indicates channels for monitoring the most up-to-date developments in regard to these initiatives. 

As previously noted, laws and enforcement trends are also key indicators that should be considered by investors. 

Environmental Protection Bureaus

It is often stated that the best way to learn about local environmental needs is to contact the local Environmental Protection Bureaus (EPBs). EPBs are a primary inroad for assessing environmental stresses and thereby understanding protection and abatement demands. In theory, EPBs should have up-to-date statistics and indicators categorized by industrial sector on hand and should be knowledgeable about the specific needs of polluting industries under their jurisdiction. 

However, it is often the case that EPBs themselves, particularly those in the more backward and environmentally stressed regions, are as much in the dark about how to address local environmental problems effectively and efficiently as everyone else in China. Simply calling various EPBs and inquiring about local needs will yield few specifics of interest. The reply will often constitute an indication that all sectors are lacking and that there is a need to address all of the most basic pollutants. (Additionally, the EPBs often indicate that only affordable, even cheap, solutions are viable, as finances are tight and the scale of the issues quite large.)

This lack of clarity on the part of the EPBs opens yet another market opportunity to highly motivated and entrepreneurial environmental market analysts and consultants who can personally visit locales and gather firsthand insight into regional needs. By becoming well acquainted with the intricacies of issues within the jurisdictions of particular EPBs, such consultants can offer insights to the EPBs regarding efficient abatement schemes and can offer market-entry consulting for technology and service providers. (See the section on monitoring and consulting for market entry later in this chapter.)

Many EPBs maintain Web sites (of varying quality and usefulness) and have departments specifically oriented to working with international contacts. The China Contacts list in Appendix B contains updated contact information for EPBs. Where possible, the names and contact information of those members of each EPB who focus specifically on business affairs dealing with international parties and who can speak English have been provided.

Other Government Agencies

EPBs represent the first line of inquiry regarding environmental conditions and needs in an area. Agencies such as local economic and trade bureaus, planning bureaus, and bureaus of foreign trade and economic cooperation are often more knowledgeable and focused on servicing business needs. In many cases, local-level branches of these agencies outside the more developed regions may be unable to respond to international inquiries. In such cases, the next level (possibly the provincial level) of government must be consulted. Unless an extremely large investment is being considered, contact with national-level agencies is unnecessary and often inefficient.

For an overview of the various roles played by individual government agencies in the project cycle, see the section on market-entry procedures later in this chapter, as well as Chapter 3.

Special Zones and Industrial Parks

Special economic zones and industrial parks provide another channel for gaining insight into environmental protection needs. Administrators within the zones and parks may be interested in addressing the environmental needs of the zone as a whole (for example, through a common waste management facility), and many administrators have insights into the particular needs of the entities operating under their jurisdiction. (A list containing contact information for most Chinese development zones has been provided at the end of this document as Appendix F.)

Additionally, there are parks specializing in environmental industries (such as the Yixing Environmental Industry Park), acid rain and SO2 emissions control zones, and priority regions, rivers, and lakes and "key" cities, all of which can offer insights into what technology and services are needed, and where. 

Market Entry

Market-Entry Vehicles

There are essentially three general methods by which to enter the Chinese market, each with its own positive and negative aspects. Potential vendors must assess which market-entry strategy is best suited to their needs based on what services or technologies they provide, who their potential customers are, their financial constraints, and their various strengths and weaknesses. Investors should also be certain to understand the inherent benefits and complications of each market-entry method. Choosing one over another often constitutes exchanging one set of complications for another (see Table 10.1).

Local Presence. Foreign investors hoping to provide equipment, component parts, consulting, contracting, or engineering services should consider establishing a presence in China. Establishing a local presence, either through a JV with a Chinese company or through a WFOE offers a number of advantages: 

l  Due to high import tariffs and reduced labor and raw material costs in-country, local foreign-invested operations can provide goods at a lower cost than competitors that are importing foreign-produced goods into China.

l  Local foreign-invested operations can take advantage of the above-mentioned points and benefit from the local perception that American-made environmental protection  products (including those produced in China under the supervision of a Western company) are of a consistently higher caliber than wholly Chinese-produced goods.

l  Companies with a local presence can accept payment in renminbi, important because foreign currency is tightly controlled and domestic companies and government organizations are often hard-pressed to pay in U.S. dollars.

l  A local presence facilitates the development of personal relationship networks, which are vital for successful business operations in China. Ideal local partners have a relatively strong, established network.

l  China's regulatory environment is lacking in transparency. Although this is changing since WTO entry, a reliable and capable local partner well versed in the daily procedures of Chinese business is invaluable.

l  Chinese customs procedures are notoriously opaque and troublesome. Local producers that can minimize reliance on imported goods are able to reduce those complications.

It is to be noted that, in addition to the above-mentioned advantages, establishing a local presence may generate difficulties:

l  Locating and partnering with competent, trustworthy, and commercially viable Chinese counterparts can be difficult. Protecting intellectual property is a very real challenge, financial disclosure regulations for enterprises are minimal, bookkeeping is often creative, and potential partners are known to present themselves deceptively. 

l  Investors have reported complications as a result of conflicting interests between JV partners. Chinese counterparts have sometimes been described as unreliable in the long term and competitors in the short term. Furthermore, due to financial pressures, the local partner often views the overseas partner, not the success of the project, as the source of income.

l  Drafting the JV contract can be a trying experience, yet the frustrations may pale in comparison with the difficulties involved in seeing that the contract is honored in its entirety.

l  The opaque legal system previously discussed can also create difficulties for foreign JV partners. The lack of a rule of law makes contract disputes and other partner-related affairs difficult to manage, often leaving the foreign investor at a disadvantage.

l  Establishing a WFOE as opposed to a JV can alleviate some of the above issues, and with regulations easing, the establishment of a WFOE is becoming an increasingly popular option. However, WFOEs must make up for the relationship network gap that is not filled by a Chinese partner, making the recruiting of very capable and experienced local players requisite if the foreign players lack their own network.

l  In the past, foreign-invested companies have been urged to focus on producing for export unless they are bringing technologically-advanced production methods or products into the country. Priorities and policies are constantly changing, but it remains difficult to predict what might be expected of foreign-invested enterprises operating in various parts of the country.

Cross-Border Entry. Some investors considering the establishment of a local presence may be able to achieve their goals via cross-border entry. Others may want to enter the market initially through cross-border entry with the intention of establishing a local presence over time.

Technology and equipment providers can export directly to China, but they face high import tariffs, making it difficult to offer competitive pricing. Additionally, current industrial reform policies are aimed at developing domestic production capacities, placing exporters at a disadvantage. Such an approach does, however, open exporters up to certain preferential treatment by the Ex-Im (see the section in this chapter that discusses U.S. government programs facilitating environmental exports to China, on page 90) and eliminates the necessity of establishing a corporate body in the country. Nonetheless, a local representative office, local partner, or hired representative remains necessary to maintain a market presence. For those uninterested in establishing an office or partnership in China, an increasing number of market analysts and representatives are available. The well-established players in this field have a strong understanding of the China business climate, the ins and outs of day-to-day business, and pre-established relationship networks.  

An option that is increasingly being considered by overseas investors is the establishment of a base in one of the coastal bonded zones in China. These areas are designed for importation of parts for assembly and re-export without the encumbrance of duties and taxes. The benefits provided by this mechanism are that while a physical presence is established in China, in effect all activities are technically "cross-border." If the legal mechanisms for such a presence are properly understood (with the assistance of an experienced law firm) and properly utilized, significant operational flexibility and access can be achieved. (See Box 10.)

Chinese procurement agencies work to bring buyers and suppliers together. Traditionally these agencies, particularly those carrying out government procurement, have targeted domestic producers or unscrupulous agents of foreign companies (a strategy that may create difficulties for U.S. companies with regard to the Corrupt Foreign Practices Act). Although this entry method is still somewhat tight, insiders have noted that, as a slowly increasing number of domestic contracts are being opened to unrestricted bidding, opportunities are increasing for foreign producers offering unique products at competitive prices.

Foreign providers are also allowed to offer consulting services via cross-border delivery.  All other service providers must operate in China or through a local partner. Any foreign service provider requiring official approval at any stage of project execution needs a local partner. Some areas of activity, such as undertaking EIAs or providing engineering services, are severely restricted and require collaboration with a properly licensed local agency. To carry out baseline studies, EIAs, sample analysis, or other services in which final reports or designs require official approval, a foreign provider must establish either a permanent local presence or a contractual JV. Contractual JVs may be established for a prescribed period of time or may be project specific.

Foreign investors might also consider the direct needs of multinational and other large foreign enterprises operating in China. Such enterprises generally seek to outsource procedures that are not considered profit generating; however, they often have difficulty finding local service providers that can manage these procedures in accordance with their relatively strict internal standards.

Multilateral and Untied Bilateral Projects. Entering the Chinese market via multilaterally funded and untied bilaterally funded projects remains one of the most secure methods. These projects have available hard currency, undergo lengthy feasibility assessments, and are subject to the internal policies and standards of the implementing agency. Although bidding for some Chinese government-funded projects is opening up to foreign contractors, multilateral and untied bilateral projects have the further advantage of employing reasonably transparent and competitive bidding procedures.

Bidding for multilateral projects, however, is highly competitive and remains a difficult task for inexperienced vendors. Potential bidders that have no experience in tendering a multilateral project are best advised to work cooperatively with one that does. It is also necessary to monitor the development of projects from the earliest possible stage. Most competitors are usually quite well positioned for the bidding process long before the call for bids is issued.

The barriers to untied bilateral projects are similar to those mentioned above, but they are compounded by the scarcity of such projects. Essentially, the only consistent untied bilateral aid donor to China that has significant operations in this sector is Japan's JBIC (formerly the OECF; see Chapter 9). However, the country's overall aid to China may yet decrease, as pressure in Japan to review its China aid program has been mounting.

Most other bilateral aid programs of significance are tied to contractors within the country from which the aid stems. Tied bilateral aid has in fact helped many companies establish a very strong presence in China. U.S. companies complain they are at a decided disadvantage resulting from a lack of tied bilateral aid from the U.S. government (see Box 12). 

Public Private Partnerships and Build-Operate-Transfer Projects

Several large foreign companies have entered the Chinese environmental infrastructure market via models known as public private partnerships (PPPs) and build-operate-transfer (BOT) projects. Currently, most of these projects take the form of BOT and are water-management oriented. Although PPPs are less commonly seen in China, the possibilities for them also exist, and at least one clear example of a successfully initiated PPP is known. Official press coverage of infrastructure projects being developed through these models has been positive and outspoken, and insiders have indicated that the official sphere looks on them with increasing favor. As other infrastructure markets open up in China, these models, while challenging to implement, may grow in importance.

A BOT project differs from a PPP project in that, although it does constitute a relationship between the client (the public entity) and the supplier (the private entity), it is not a partnership in which the players cooperatively invest in and operate a facility. Rather, the building and operation of a facility in a BOT project is 100 percent funded and owned by the private investor prior to its transfer to the public entity at a pre-determined time. In contrast, a PPP project is a partnership in which both the public and private entities make equity investments in a facility, each maintaining a percentage of ownership. It is possible for a BOT facility to be included as part of a larger PPP project in which part of the private entity's agreement is to build a facility that is to be transferred at a pre-determined time in the future.

The current number of BOT and PPP projects in China amounts to little more than a handful.

BOT Projects in China. Currently, BOT projects in China are limited to the building, operation, and transfer of facilities whose specifications are defined by government planners prior to contracting the foreign investors. This approach limits the capacity of the contractor to develop a comprehensive service infrastructure and fails to take advantage of foreign expertise and know-how, thus affecting overall efficiency. Concession agreements, in which a firm is contracted to develop a comprehensive system to service a given geographical area in its entirety, are preferred by foreign investors because such agreements afford them the flexibility to develop an efficient system suited to the greater needs of the locality. Currently, contractors are rarely consulted in the planning of such projects, and product distribution, pricing, and billing remain under the control of the local government. Industry insiders have indicated that local governments are beginning to recognize the decreased efficiency resulting from these constraints, and they appear optimistic regarding the potential for more comprehensive BOT agreements in the future. 

Many of the foreign BOT operations in China have been funded through official aid programs, helping the involved firms to develop a strong market presence. Tied bilateral aid has been a significant contributor, but the ADB is also a strong proponent of the BOT model. The tied bilateral aid option is not available to U.S. companies; however, the potential markets are far from saturated in China. Companies seeking to enter them are well advised to establish a market presence sooner rather than later.

A number of domestically-generated BOTs were announced in the first half of 2001, indicating further acceptance of the model by both Chinese authorities and Chinese enterprises. Several proposed projects are quite large in scale; however, it is not at all clear what opportunities they might hold for foreign vendors. 

PPPs in China. PPPs are less commonly seen in China than BOTs. They have considerable potential to become important. In one instance of a true PPP in China, a subsidiary of a large multinational entered into what is essentially a JV with a state-owned municipal facility. The public entity contributed its previous facility for a lesser stake in the company, while the multinational subsidiary agreed to build, operate, and transfer additional facilities, establish sound management, and train local hires. Contract negotiations included agreements with the local government regarding pricing structures that the private entity deemed sufficient. The public entity viewed the training (including training modules based in the U.S.) and positioning of locally hired high-level managers as beneficial to the socioeconomic development of the locality.

The managing director of the private entity conceded that this operation has been fortunate in that the public sector partner is progressively oriented and willing to compromise. Additionally, the project is located in a relatively affluent region, thereby facilitating pricing structures that are sustainable. The director also explained that such a project would not have been possible at this time without funding from the parent multinational. The project is expected, however, to function as an influential pilot program that will attract other local government leaders in search of similar arrangements, and it has afforded the foreign investor a market presence without the assistance of any outside funding. As is the case in any partnering scheme in China, the compatibility of PPP partners and their goals is critical to success.

Potential Complications and Requisite Precautions

Whether foreign investors choose to enter the market via JV, WFOE, cross-border entry, or any of the various other methods, a number of potential complications exist. China remains a country with an underdeveloped rule of law, and investors have been victims of robbery, embezzlement, IPR infractions, and similar issues with little or no recourse to the law. Nearly all entry methods require some degree of partnering or interaction with local entities. Each method should be carefully screened and well understood.

Below is a list of some of the most commonly encountered complications to watch for. It is not, however, exhaustive, and investors considering entering the Chinese market are strongly urged to consult experts in the field. 

l  Partnering in China can be confusing. Expectations must be very clearly communicated and understood. The most common issue that arises is that overseas investors do not understand their partners well and do not nurture a trusting relationship over time. The agreements reached need to be simply stated and put in writing regardless of the goodwill that may exist in early negotiations. Seeking out progressively-oriented partners that have worked with foreign investors before or that have worked overseas is ideal.

l  Delinquent payment for goods and services is a serious problem faced by both exporters without an in-country presence and locally operating firms. It is advisable to seek out creative means by which to ensure delivery of payment.

l  Regulations governing business practices in-country can be restrictive and can vary from place to place. As an example, companies operating in the Suzhou Industrial Zone are required to hire only local Suzhou residents unless the employee is a university graduate. Some firms operating in the zone have expressed dissatisfaction with the restricted labor pool while competitors operating in a nearby zone are not hindered by such restrictions. Investors establishing operations in-country are advised to understand not only the intricacies of local policies where they will invest but the likelihood that those policies will remain consistent in the future.

l  Intellectual property rights are constantly infringed upon in China, resulting from a weak rule of law, enforcement difficulties, and a local failure to understand the importance of personal property rights as they apply to intellectual property. This problem continues to frustrate even the most seasoned investors in China. Those without creative means to protect themselves are advised to consider the costs of potential IPR infringements seriously and to determine whether the benefits of market entry justify the risk. (See Box 11 on page 88.)

l  Corruption in China is an unavoidable fact. Many investors have encountered situations in which progress cannot be made without delivery of "gifts," "favors," or expensive dinners. Some operations have been held up due to the absence of "suitable transportation," such as four-wheel-drive vehicles or new sedans. Few investors in China can honestly claim never to have encountered one type of corruption or another. Some try to fight or avoid it, while others accept varying degrees of it as a cost of doing business.

Market-Entry Procedures

Contracting in the Chinese market is best facilitated through a "bottom-up" approach, meaning that U.S. investors and suppliers should establish preliminary contact with local purchasers, partners, or government bodies as opposed to national-level ministries. Provincial- or municipal-level government offices directly or indirectly involved in potential projects are ideal places to begin. If possibilities for a project materialize, such partners are instrumental in facilitating various permitting processes and obtaining necessary authorization; foreign investors should take advantage of local partners' capacities to do so.

l  For industrial pollution control projects, local EPBs are the primary contact point (generally via a well-established consultant or market representative). Despite the lack of overall clarity alluded to earlier, EPBs are well situated to report on the state of affairs for individual point sources of pollution within their jurisdictions, and interaction with them is almost always requisite in one manner or another. SEPA is not involved in the implementation of such upgrade projects; however, national level approval from SEPA, SETC and SDPC is needed if overall expenditure exceeds a certain amount. The dollar level at which national-level authorization is needed varies among provinces and municipalities.

l  For municipal water, wastewater, and solid waste management projects, the Ministry of Construction and local construction bureaus are the primary contact points. The ministry may be useful in directing investors to local construction bureaus, through which project implementation is conducted. The Ministry of Construction should also be consulted as project plans materialize to verify that all national requirements are met throughout implementation.

l  For facilitation of partnerships with equipment producers, investors should seek advice from private consulting firms, the U.S. and Foreign Commercial Service in Beijing, and EPBs at various levels.

l  For facilitation of the sale of equipment, whether it consists of cross-border sales or sales of domestically produced JV or WFOE equipment, providers should proactively monitor the interactions of potential buyers with the Ministry of Finance, various-level development and planning commissions, and various-level economic and trade commissions. Projects that are preparing to procure equipment go through a series of approvals with each of these government bodies, and may apply for financing, before publicly announcing a call for bids. In reality, however, arrangements for procurement are likely to be firm before the call for bids is made. The best way to secure a contract is to interact cooperatively with project facilitators as they move through the bureaucratic processes and establish a solid working relationship. Those equipment providers lacking the capacity to do this should hire a consulting firm or market representative to do it for them. 

The Approval Process

The approval process for environmental and infrastructure projects in China is confusing and relatively opaque. All projects require approval at some level (state, provincial, or municipal) by SDPC, SETC or MOFTEC, as well as EIA approvals from SEPA. The required administrative level of approval is based upon the investment size of the project:

l  Investment of less than RMB 30 million ($3.6 million) requires approval at the municipal level.

l  Investment of RMB 30 million to RMB 200 million ($24.1 million) requires approval at the provincial level.

l  Investment of over RMB 200 million requires approval by SDPC or SETC and the State Council.

In some cases, coastal special economic zones and some municipalities have increased discretion when approving projects with investments of up to RMB 200 million. Ministries or bureaus that are directly sponsoring a particular project also have a considerable say in approval processes regarding that project. EPB approval is necessary for all projects, and national-level SEPA approval is required for projects with investments of more than RMB 200 million, transprovincial projects, projects with potential for causing transprovincial pollution, nuclear facility projects, and projects that involve a degree of state secrecy or state security concerns.

The approval processwhich can take from 12 to 24 months, contingent upon project complexity, financial sourcing, and requisite approvalsgenerally proceeds  as follows:

1. Project proposal and pre-feasibility study

2. Review meeting of all associated local officials

3. Initial approval by the appropriate-level planning commission, trade commission, or finance bureau

4. Completion of feasibility study and EIA

5. Second review meeting of all associated local officials

6. Feasibility study approval

7. Project implementation

For a detailed discussion of the approval process, as well as of project financing, see the U.S. and Foreign Commercial Service's Environmental Project Approval and Financing in China: A Perspective for U.S. Companies.

For up-to-date information on customs regulations and procedures, import documentation, finance regulations, economic and market information, laws and procedures for licensing and investment, and U.S. government regulations and restrictions, see the ChinaCountry Information section of the U.S. Department of Commerce's International Trade Administration Web site (www.trade.gov/td/tic/) and consult the U.S. Embassy's Country Commercial Guide available online at www.usatrade.gov.

The following three documents published by the General Customs Administration of the PRC provide comprehensive information on Chinese customs regulations:

1. The Practical Handbook for Custom Clearance (March 2002; price: RMB 240; includes CD; Chinese only)

2. Customs Import and Export Tariff of the People's Republic of China (December 2001; price: RMB 220; Chinese and English)

3. Administrative Measures for Tariff and Import/Export Trade (February 2002; price: RMB 240; Chinese only)

All three books are issued yearly. They can be purchased from the General Customs Administration Bookshop, No. 6 Jiannei Dajie, Dongcheng District, Beijing 100730; tel. +86 (10) 6519-4173.

Facilitating Market Entry

U.S. Government Programs Facilitating Environmental Exports to China

There are several U.S. government programs that specifically support environmental exports to China. The U.S. Ex-Im offers several applicable programs. In addition, the U.S. and Foreign Commercial Service in Beijing assists exporters and facilitates ad hoc arrangements with other federal- and state-level government agencies.

The Export-Import Bank of the United States. The Ex-Im has a number of non-environmentally specific short-, medium-, and long-term programs to support U.S. exports to China. Spare parts, raw materials, quasi-capital goods, consumer goods, and bulk agricultural commodities can be supported by the bank's short-term credit insurance policies, while capital goods and related services can be supported by medium- and long-term loan and guarantee programs. 

Operational agreements between the Ex-Im and both the Bank of China and the CDB are in place. Several other banks can and do work with Ex-Im, and loans to other entities are considered provided they meet all necessary standards to the satisfaction of the Ex-Im and PRC law. Prior to October 2000, Ex-Im lending and finance relationships were mainly restricted to government entities. The bank now allows U.S. exporters and Chinese buyers of U.S. goods to apply for financing of private sector transactions. 

The Ex-Im's Environmental Exports Program supports exporters of applicable goods and services as well as exporters involved in foreign environmental projects. The program includes the following elements:

l  A short-term environmental export insurance policy for small businesses, which offers as much as 95 percent commercial coverage and 100 percent political coverage with no deductible. 

l  Enhanced medium- and long-term support for environmental projects, products, and services, including local cost coverage equaling 15 percent of U.S. contract price, capitalization of interest during construction, and maximum repayment terms allowed under OECD guidelines.

Foreign currency-denominated debt through the Ex-Im's medium- and long-term programs requires Chinese government approval, and final Ex-Im approval is contingent upon proper documentation indicating that this approval has been granted. The Ex-Im Web site (www.exim.gov) contains all pertinent details, as well as standards for environmental qualifications. 

In March 1999, the Ex-Im, the U.S. Department of Energy, and the CDB signed a memorandum of understanding to initiate a $100 million clean energy program. Under the memorandum, the Department of Energy and Ex-Im encourage U.S. private industry to work cooperatively with Chinese planners in identifying, assessing, and implementing projects by which to showcase cost-effective and environmentally sound energy technologies. The terms associated with this fund are the most favorable that Ex-Im offers; however, it remains unused because local purchasers believe that the interest rates are too high.

Environmental Technologies Industries Office. The U.S. Department of Commerce's Environmental Technologies Industries (ETI) Office provides U.S. environmental technology enterprises with valuable resources and contact information pertinent to environmental markets around the world. ETI works collaboratively with the U.S. and Foreign Commercial Service in Beijing and other public and private organizations to monitor the market and to assist U.S. enterprises in market entry.

The ETI Office's China-specific resources are available online at www.environment.ita.doc.gov. The U.S. Department of Commerce's International Trade Administration offers assistance on more general aspects of trade. Information is available online at www.trade.gov/td/tic/.

U.S. Trade and Development Agency. In mid-January 2001, President Clinton lifted the suspension of TDA activities in China. TDA programs had been suspended in 1990 in line with the legislative reaction to the Tiananmen incident of 1989. The legislation permits the president to terminate the suspension if doing so is determined to be in the interests of the United States.

The TDA is an independent government agency charged with promoting U.S. private sector participation in projects based in developing and middle-income countries. The agency supports market development with pre-feasibility studies, orientation visits, training programs, and technical symposia focused on helping U.S. firms enter new markets. Prior to its suspension in 1990, the TDA committed approximately $24 million to projects in China. Over $1.4 billion in U.S. exports have been associated with those projects. Environmental protection is a focus for TDA in China.  Information about TDA projects and activities is available at www.tda.gov.

Monitoring and Consulting for Market Entry

Several consulting firms in China monitor market-entry potential and specialize in bringing technology and service providers together with clients. However, the consulting sector is not saturated, and given the potential for growth, an increasing number of knowledgeable, experienced, and innovative specialists are needed. Consulting firms can select from several specialized approaches as follows.

Monitoring Multilateral Opportunities for Small Manufacturers. As noted earlier, bidding for multilateral projects can be difficult, particularly for small manufacturers and companies with little experience in tendering for such projects. Part of the difficulty stems from the necessity to monitor projects and prepare to bid from the very earliest assessment stages of project development. Keeping close watch over all the opportunities can be difficult, particularly for small operations watching for opportunities in more than one country. Another difficulty stems from the logistical challenge of bidding successfully, something not easily overcome by small companies with no experience tendering for multilateral projects.

Small foreign manufacturers could benefit from the presence of a small manufacturers' association or private consultants that would simultaneously monitor multilateral project development and the capabilities of small manufacturers bidding for such projects. The consultants might not only work to match potential clients with business opportunities but also assist in the bidding process for those manufacturers lacking the experience to manage the bid on their own             successfully.

Local Assessments and Partner Facilitation. Given many EPBs' lack of clarity in assessing overall local environmental needs and efficient strategies to address them, ambitious and savvy consultants may find success by proactively approaching EPBs, comprehensively assessing the regional situation, and facilitating the implementation of environmental protection plans that can deliver the greatest impact possible, based on budgetary and social constraints. Such players would have the dual function of consulting for EPBs on the best overall abatement strategies and bringing appropriate technology and service providers into contact with the appropriate EPBs.

Consultants interested in such a scenario should look to various BOT and PPP projects currently existing in China as operational models, draw lessons from successful and unsuccessful implementation schemes, and consider undertaking pilot projects to illustrate their potential to local officials. Consideration should be given to which environmental issues in the region can be most effectively addressed for the lowest possible abatement costs. Efforts should be made to draw funding from diverse sources while simultaneously working to exploit opportunities presented by various programs (such as UNIDO's program to address the issues of town and village enterprises).

Consortium Development. Foreign investors might want to consider addressing potential projects through a consortium scenario. A consortium would ideally bring together planners, designers, engineers, managers, and financial support. Some European groups are currently experimenting with this model, with some degree of success. In effect, a consortium able to address issues within smaller cities travels to the cities (in the form of a traveling exhibition) andthrough consultations and demonstrationsprovides cost effective modular solutions, which include technology inputs as well as management tools.

Creating and Maintaining a Market Presence

Many foreign-invested environmental industries in China currently operate with small profit margins. Their initial purpose is to establish market presence and name recognition that facilitates future market expansion rather than to reap immediate profits. Creating and maintaining a market presence in China now could be vital to future success; however, it requires more than innovative products and a solid marketing plan. Firms without reasonable budgets, innovative personnel, patience, and solid relationships are unlikely to succeed. 

Timing Market Entry

Establishing a market presence sooner rather than later is important for several reasons:

l  Many large firms already maintain strong market presence in several sectors. Some claim to hold as much as 50 percent of market share in their respective sectors. Name recognition is important in the Chinese market, and a select few are well established. Few markets are saturated, and opportunities arise for those well positioned to exploit them.

l  Those hoping to introduce relatively innovative methodologies and technologies need to prove their feasibility to convince local planners and enterprises of their worth. Pilot projects can be useful in doing this; however, it takes considerable time and effort to establish a sound operation. Having a strong pilot program in operation may be invaluable as the market continues to open and planners begin looking for the most effective and efficient methodologies to address particular issues. However, attempts to introduce unproven technologies into China are not usually welcome.

l  Understanding the market and key relationships is critical to success in China. As in most business climates, personal relationships and networks can open doors that otherwise would remain closed. However, in China, relationships are arguably more important than in other markets. It takes time to develop the connections and trust that good relationships are based on. As market opportunities increase in the near- to medium-term future, those most able to capitalize on the opportunities will be companies that have established a presence and have the proper connections to exploit them. It must be clearly understood, however, that relationships do not necessarily need to be with powerful national figures or those who claim to be such figures. Rather, through proper research, government functionaries who are reliable decision-makers can be found. Such relationships need to be nurtured and used gently.

l  Chinese guanxi (relationships) can be stronger than foreign guanxi, regardless of the quality of particular operations and products. Chinese companies with little or no experience or name recognition have won contracts over foreign competitors, seemingly based on guanxi. Therefore, the role of reliable Chinese personnel in local operations is critical in order to understand the politics of such relationships, which appear totally mysterious to most U.S. businesspeople regardless of their experience or business acumen. A longer-term in-country presence provides ample time to bring such local players into an enterprise and fully train them in its intentions and operations.

Opening Doors

Those having difficulty breaking into the market or establishing a pilot program might consider donating a piece of equipment or services to a wholly Chinese-initiated project. Many Chinese environmental initiatives are hard-pressed for financing and equipment and could benefit greatly from financial and technical support. The Chinese partner's successes may in time open doors and help establish valuable connections for the foreign partner, particularly if the Chinese entity is contracted to implement its scheme on a larger scale and subcontracts the foreign entity as a supplier.

This approach, however, requires extreme caution. As a single example, one French company attempted the strategy by donating a piece of equipment to a Chinese firm establishing a pilot program. The expectation was that the French company would be contracted to provide the equipment if the Chinese firm developed a commercial project. Instead, the Chinese firm simply reverse-engineered the equipment and facilitated its delivery through other means.

Dispelling "Neocolonialism

Chinese planners are wary of anything resembling "neocolonialism," fearing that foreign investors will profit while not contributing to the overall advancement of the locality. Investors working with local planners may find that offering training and high-level positions with good wages to local hires, as well as various tangential initiatives such as the renewal of public space, supporting local education, and furthering overall social advancement, will ease such concerns.

Selected References and Web Sites

References

Cao Dong and Sun Rongqing. Environmental Financing in China: A Review. Beijing: CRAES, SEPA, November 2000.

U.S. Department of Commerce International Trade Administration, Environmental Technologies Industries Office. Partnering in China's Environmental Sector. Washington, D.C.: U.S. Department of Commerce, 2001.  (Also available online at   www.environment.ita.doc.gov link to "Market Research," "by country," "China.)

General Customs Administration. The Practical Handbook for Custom Clearance. Beijing: General Customs Administration, March 2002.

General Customs Administration. Customs Import     and Export Tariff of the People's Republic of China.  Beijing: General Customs Administration,       December 2001.

General Customs Administration. Administrative Measures for Tariff and Import/Export Trade. Beijing: General Customs Administration, February 2002.

Stover, Jim, Justin Harris, and Christopher Adams. Hard Currency Financing for Environmental Projects in China, International Market Insight. Beijing: U.S. and Foreign Commercial Service, August 1999.

Wang Jinnan, Wu Shunze, and Luo Hong. Integrating Economic Development and Environmental Protection in China During the 10th Five-Year Plan Period.  Beijing: CRAES; November 2000.

U.S. and Foreign Commercial Service, Beijing. Environmental Project Approval and Financing in China: A Perspective for US Companies. Beijing: November 2000

Web Sites

BuyUSA: 

www.buyusa.com

China Economic Information: 

www.cei.gov.cn

ChinaOnline: 

www.chinaonline.com

State Statistics Bureau: 

www.chinastatistics.com

U.S. Department of Commerce: 

www.doc.com, www.usatrade.gov

U.S. Department of Commerce, International Trade Administration, Office of Environmental Technologies Industries: 

www.environment.ita.doc.gov

U.S. Embassy, Beijing: 

www.usembassy-china.org.cn

U.S. Embassy, Beijing. Country Commercial Guide: China: 

www.usatrade.gov

Appendix B

China Contacts

Ministries and Agencies

State Environmental Protection Administration (SEPA)

Address: No. 115 Xizhimennei, Nanxiaojie

Beijing 100035, China

Tel: +86 (10) 6615-3366

Fax: +86 (10) 6615-1768

Web site: www.zhb.gov.cn

E-mail: miyichu@cenpok.net

SEPA Department of International Cooperation

Director: Wang Zhijia

Tel: +86 (10) 6615-1936/+86 (10) 6615-3366, ext. 5542

Fax: +86 (10) 6615-1762

Deputy Director: Zhang Shigang

Tel: +86 (10) 6615-9816/+86 (10) 6615-3366 ext. 5534

Fax: +86 (10) 6615-1762

Administrative Center for China's Agenda 21 (ACCA21)

Address: No. 109 Wanquanhe Road

Haidian District, Beijing 100089, China

Tel: +86 (10) 8263-6607

Fax: +86 (10) 8263-6017

Senior Advisor: Rolf Dietmar

Tel: +86 (10) 8263-5364

Fax: +86 (10) 8263-6017

E-mail: dietmar@acca21.edu.cn

Division of Resources and Environment Program Management

Director: Ke Bing

Tel: +86 (10) 8263-4438

Fax: +86 (10) 8263-6192

E-mail: kebing@acca21.edu.cn

Center for Environmentally Sound Technology Transfer (CESTT)

Address: No. 109 Wanquanhe Road

Haidian District, Beijing 100089, China

Director: Shi Han

Tel: +86 (10) 8263-6021

Fax: +86 (10) 8263-6607

E-mail: shihan@acca21.edu.cn

Ministry of Construction 

Address: No. 9 Sanlihe Road 

Beijing 100835, China

Tel: +86 (10) 6839-4053

Web site: www.cin.gov.cn

Department of Foreign Affairs

E-mail: lizhe@mail.cin.gov.vn

Director: Li Xiankui

Tel: +86 (10) 6839-3655

Fax: +86 (10) 6831-3669

Ministry of Water Resources

Address: No. 1 Ertiao Baiguang Road 

Xuanwu District, Beijing 100053, China

Tel: +86 (10) 6320-2114

Web site: www.mwr.gov.cn

E-mail: webmaster@mwr.gov.cn

Department of International Cooperation and Science and Technology 

Director: Dong Zheren

Tel: +86 (10) 6320-2821

Fax: +86 (10) 6320-2822

State Forestry Administration

Address: No. 18 Hepingli Dongjie 

Dongzheng District, Beijing 100714, China

Tel: +86 (10) 8423-8800

Web site: www.forestry.gov.cn

E-mail: webmaster@forestry.gov.cn

Department of International Cooperation

Director: Qu Guilin

Tel: +86 (10) 8423-8721

Fax: +86 (10) 8423-8749

Ministry of Agriculture

Address: No. 11 Nongzhanguan Nanli 

Chaoyang District, Beijing 100026, China

Tel: +86 (10) 6419-3366

Web site: www.agri.gov.cn

E-mail: webmaster@agri.gov.cn

Department of International Cooperation

Director: Tang Zhengpin

Tel: +86 (10) 6419-2484

Fax: +86 (10) 6419-2451

Ministry of Land and Resources

Address: No. 3 Guanyingyuan Xiqu 

Xicheng District, Beijing 100035, China

Tel: +86 (10) 6617-5371

Fax: +86 (10) 6617-5348

Web site: www.mlr.gov.cn/english/english.htm

Department of International Cooperation

Director: Sun Wensheng

Tel: +86 (10) 6612-7001

Fax: +86 (10) 6612-7005

Ministry of Communications

Address: No. 11 Jianguomennei Dajie 

Beijing 100736, China

Tel: +86 (10) 6529-2114

Web site: www.moc.gov.cn/

Department of International Cooperation

Director: Hu Jinglu

Tel: +86 (10) 6529-2202

Fax: +86 (10) 6529-2248

Ministry of Science and Technology

Address: No. B15 Fuxinglu

Xicheng District, Beijing 100038, China

Tel: +86 (10) 6851-5544

Fax: +86 (10) 6851-5004

Department of International Cooperation

Director: Wang Shaoqi

Tel: +86 (10) 6851-5048

Fax: +86 (10) 6851-5004

China Development Bank

Address: No. 29 Fuchengmenwai Dajie

Xichang District, Beijing 100037, China

Tel: +86 (10) 6830-6357

Fax: +86 (10) 6830-6350

Web site: www.cdb.com.cn 

Foreign Affairs Division of the International Finance Department

Director: Guo Lei

Tel: +86 (10) 6830-6568

Fax: +86 (10) 6835-8748

State Tax Bureau

Address: 5 Yangfangdian Xi Road,

Haidian District, Beijing 100038, China

Tel: +86 (10) 6341-7114

E-mail: master@chinatax.gov.cn

Department of International Cooperation

Director: Zheng Faguang

Tel: +86 (10) 6341-7114

Fax: +86 (10) 6341-7114

State Development Planning Commission (SDPC)

Address: No. 38 Yuetan Nanjie 

Beijing 100824, China

Web site: www.sdpc.gov.cn

Department of Foreign Investment

Director: Zhang Xiaoqiang

Tel: +86 (10) 6850-1621

Fax: +86 (10) 6850-2977

Department of Investment 

Director: Jiang Weixin

Tel: +86 (10) 6850-1780

Fax: +86 (10) 6850-1761

State Economic and Trade Commission (SETC)

Address: No. 26 Xuanwumen Xidajie 

Beijing 100053, China

Tel: +86 (10) 6319-2114

Web site: www.setc.gov.cn

Department of Resources Conservation and Comprehensive Utilization

E-mail: jmwbgt@setc.gov.cn

Director: Mrs. Zhao Jiarong 

Tel: +86 (10) 6319-3449

Fax: +86 (10) 6319-3460

Ministry of Foreign Trade and Economic Cooperation (MOFTEC)

Address: No. 2 Dong Chang'an Avenue

Beijing 100731, China 

Tel:  +86 (10) 6519-8114

Web site: www.moftec.gov.cn

E-mail: moftec@moftec.gov.cn

MOFTEC Department of Foreign Investment 

Fax: +86 (10) 6519-7322

E-mail: zhaohong@moftec.gov.cn

Director: Hu Jinyan 

Tel: +86 (10) 6519-7321

MOFTEC Division of Investment Promotion

Fax: +86 (10) 6519-7839

E-mail: tangxl@moftec.gov.cn

Director: Zhou Ming

Tel: +86 (10) 6519-7886

MOFTEC Department of Foreign Trade 

Fax: +86 (10) 6519-7952

E-mail: mgsbg3@moftec.gov.cn

Director: Guo Li 

Tel: +86 (10) 6519-7419

Imports Division

Fax: +86 (10) 6519-7952

E-mail: sqzhou@moftec.gov.cn

Director: Zhou Shanqing

Tel: +86 (10) 6519-7727

MOFTEC Department of Mechanical and Electronic Product Import and Export

Fax: +86 (10) 6519-8775

E-mail: jdxcw@moftec.gov.cn

Director: Chang Xiaochun

Tel: +86 (10) 6519-8771

Imports Division

Fax: +86 (10) 6519-8775

E-mail: jdjkc@moftec.gov.cn

Director: Jia Xiaozuo

Tel: +86 (10) 6519-8780

Institutes and Associations

China International Center for Economic and Technical Exchanges (CICETE)

Address: No. 18 Beisanhuan Zhonglu

Beijing, 100011, China

Tel: +86 (10) 6441-2438

Fax: +86 (10) 6441-2443

Web site: http://cicete-env.chinascape.cn.net

Chinese Research Academy of Environmental Sciences (CRAES)

Address: No. 8 Dayangfang Andingmenwai

Chaoyang District, Beijing 100012, China

Web site: www.craes.unep.net

International Cooperation Center

Director: Zhang Yutian

Tel: +86 (10) 8491-3949

Fax: +86 (10) 8491-5194

China Association of Environmental Protection Industries

Address: No. 9 Sanlihelu

Beijing 100835, China 

Director: Wu Sanjiang

Tel: +86 (10) 6839-3827

Fax: +86 (10) 6839-3748

Web site: www.caepi.com.cn

Regional Environmental Protection Bureaus

Anhui Provincial Environmental Protection Bureau

International Cooperation Division

Director: Yin Fucai

Address: No. 8 Changjiang Xilu 

Hefei, Anhui 230061, China

Tel: +86 (551) 282-9112

Fax: +86 (551) 282-2745

Web site: www.aepb.gov.cn

E-mail: xxzx@aepb.gov.cn

Beijing Environmental Protection Bureau 

Technology and Foreign Affairs Division

Director: Fan Jiansheng

Deputy Director: Wen Ying

Address: No. 14 West Chegongzhuang Road 

Handian District, Beijing 100044, China

Tel: +86 (10) 6842-8670

Fax: +86 (10) 6842-4576

Web site: www.bjepb.gov.cn

E-mail: webmaster@bjepb.gov.cn

Chongqing Environmental Protection Bureau

International Cooperation Division

Director: Huang Hong

Address: No. 212 Renmin Road 

Yuzhong District, Chongqing 400015, China

Tel: +86 (23) 6387-6166

Fax:+86 (23) 6387-6166/6385-0021

Web site: www.cepb.gov.cn

E-mail: eic@cepb.gov.cn

Fujian Provincial Environmental Protection Bureau

Planning and Finance Division

Director: Lin Junsheng

Address: No. 138 Fufei Road 

Fuzhou, Fujian 350003, China

Tel: +86 (591) 786 8018

Fax: +86 (591) 786 8398

Web site: fjepb.fj.cn.net

E-mail: fjepic@public.fz.fj.cn

Gansu Provincial Environmental Protection Bureau

Planning and Finance Division

Director: Ms. Qiao Caiyu

Address: No. 249 Gaolan Road 

Chengguan District, Lanzhou, Gansu 730030, China 

Tel: +86 (931) 886-9839/841-7170

Fax: +86 (931) 841-8970

Web site: http://gsep.gansu.gov.cn

Guangdong Provincial Environmental Protection Bureau

Science and Technology Division

Director: Li Zisen

Address: No. 335 Dongfengzhonglu 

Guangzhou, Guangdong 510045, China 

Tel: +86 (20) 8355-7483/8313-4685

Fax: +86 (20) 8354-9381

Web site: www.gdepb.gov.cn

E-mail: hbkjc@gdepdb.gov.cn

Guangxi Autonomous Region Environmental Protection Bureau

Planning and Finance Division

Director: Wu Xingwen

Address: No. 1 Minle Road 

Nanning, Guangxi 530012, China 

Tel: +86 (771) 283-0476

Fax: +86 (771) 283-0476

Web site: http://gxephb.nn.gx.cn

Guizhou Provincial Environmental Protection Bureau

Foreign Affairs, Trade, and Economy Division

Director: Yang Lingsheng 

Address: No. 83 Zunyi Road 

Guiyang, Guizhou 550002, China 

Tel: +86 (851) 586-7314

Fax: +86 (851) 586-7314/581-3414

Web site: www.gz.cninfo.net

E-mail: epbfaec@public/gy.gz.cn

Hainan Land and Ocean Environment and Resources Bureau

Planning, Finance, Science, and Technology Division

Director: He Shaoqun

Address: No. 59 Haifu Road 

Haikou, Hainan 570204, China 

Tel: +86 (898) 533-8010

Fax: +86 (898) 533-7757

Web site: www.8.silversand.net

Hebei Provincial Environmental Protection Bureau

Planning and Finance Division

Director: Wang Dechun

Address: No. 448 Yuhuaxilu 

Shijiazhuang, Hebei 050051, China

Tel: +86 (311) 399-5237

Fax: +86 (311) 303-6864

Web site: http://huanbao.hebei-window.com.cn

Helongjiang Provincial Environmental Protection Bureau

Foreign Cooperation Division

Director: Guo Yuan

Address: No. 6 Hengshan Road

Xiangfang District,

Harbin, Helongjiang 150036, China

Tel: +86 (451) 233-1019/234-4758

Fax: +86 (451) 233-1019

Web site: www.hl.cninfo.net

E-mail: dguo@mail.hrb.hl.cninfo.net

Henan Provincial Environmental Protection Bureau

Planning and International Cooperation Division

Director: Yi Xusheng

Deputy Director: Ding Xiaoyang 

Address: No. 1 Shunhe Road

Zhengzhou, Henan 450004, China

Tel: +86 (371) 632-2701/632-0284

Fax: +86 (371) 632-2701

Web site: www.henan-window.com

E-mail: hnpcpe@371.net

Hubei Provincial Environmental Protection Bureau

Science and Technology Division

Director: Sun Gongsheng

Address: No. 346 Nanchangbayi Road 

Wuhan, Hubei 430072, China 

Tel: +86 (27) 8987-0681

Fax: +86 (27) 8786-1455

Web site: www.whepb.gov.cn 

Hunan Provincial Environmental Protection Bureau

Planning and Finance Division

Director: Wang Huilong

Address: No. 75 Chennandonglu 

Changsha, Hunan 410007, China 

Tel: +86 (731) 549-5269/546-4944

Fax: +86 (731) 546-4923

Web site: http://grwy.online.ha.cn

E-mail: hnepa@public.cs.hn.cn

Inner Mongolia Autonomous Region Environmental Protection Bureau

Planning and Finance Division

Director: Wang Xiaoyi

Address: Building No. 5 Xinchengxijie, 

Hohhot, Inner Mongolia Autonomous Region 010010, China

Tel: +86 (471) 692-5254

Fax: +86 (471) 696-1772

E-mail: cht@public.hh.nm.cn

Jiangsu Provincial Environmental Protection Bureau

Foreign Affairs Division

Director: Huang Yibing

Address: No. 7 Xikang Road 

Nanjing, Jiangsu 210024, China

Tel: +86 (25) 663-8459

Fax: +86 (25) 331-2450

Web site: http://jshb.jlonline.com

E-mail: jseic@jlonline.com

Jiangxi Provincial Environmental Protection Bureau

Planning and Finance Division

Director: Zou Chengjun

Address: No. 16 Hubinnanlu 

Nanchang, Jiangxi 330006, China 

Tel: +86 (791) 850-9564/851-6177

Fax: +86 (791) 851-6195

Jilin Provincial Environmental Protection Bureau

Technology and Foreign Affairs Division 

Director: Zhang Yan

Address: No. 54 Renmindajie 

Changchun, Jilin 130051, China

Tel: +86 (431) 271-7436

Fax: +86 (431) 271-9168

Liaoning Provincial Environmental Protection Bureau

International Cooperation Division

Director: Sun Jiaming

Address: No. 34 Chongshandonglu

Shenyang, Liaoning 110032, China

Tel: +86 (24) 8689-0919

Fax: +86 (24) 8689-0919

Web site: www.lnepb.gov.cn

E-mail: gjhz@lnepb.gov.cn

Ningxia Hui Autonomous Region Environmental Protection Bureau

Regulations Division

Director: Jin Guoxing

Address: No. 79 Minzubeijie 

Yinchuan, Ningxia 750004, China 

Tel: +86 (951) 668-3354

Fax: +86 (951) 602-5596

Qinghai Provincial Environmental Protection Bureau

Planning and Finance Division

Director: Yin Dahai

Address: No. 116 Nanshandonglu 

Xining, Qinghai 810007, China 

Tel: +86 (971) 817-5650 

Fax: +86 (971) 813-5112

Shaanxi Provincial Environmental Protection Bureau

Planning and Investment Division

Director: Hao Yanwei

Address: Floor 10, Provincial Government Building 

Xincheng, Xi'an, Shaanxi 710004, China

Tel: +86 (29) 729-1440

Fax: +86 (29) 729-1327

Web site: http://sxhbj.shaanxi.gov.cn

E-mail: sxhbj@sei.sn.cn

Shandong Provincial Environmental Protection Bureau

International Cooperation Division

Director: Peng Zhenhua

Address: No. 12 Zhijinshijie 

Jinan, Shandong 250012, China

Tel: +86 (531) 692-5081, ext. 2308

Fax: +86 (531) 603-8443

Web site: www.sdein.gov.cn

E-mail: sdei@in-public.sd.cninfo.net

Shanghai Environmental Protection Bureau

International Cooperation Division

Director: Wu Chengjian

Address: No. 161, 1038 Nong, 

Huashan Road

Shanghai 200050, China

Tel:  +86 (21) 6226-2351

 +86 (21) 6226-2788, ext. 9015

Fax: +86 (21) 6211-7850

Web site: www.sepb.gov.cn

E-mail: sepbkicl@Mx2.sh.cei.gov.cn

Shanxi Provincial Environmental Protection Bureau

Planning and Finance Division

Director: Qu Zhongrang

Address: No. 10 Xijihuying

Taiyuan, Shanxi 030009, China

Tel: +86 (351) 304-8239

Fax: +86 (351) 304-8239

Web site: www.sxeic.public.ty.sx.cn

Sichuan Provincial Environmental Protection Bureau

International Cooperation Division

Director: Zhang Yong

Address: No. 31 Xiyujie 

Chengdu, Sichuan 610015, China 

Tel: +86 (28) 612-5462/611-2219

Fax: +86 (28) 611-2219

E-mail: epaghc@swww.com.cn

Tianjin Environmental Protection Bureau

International Cooperation Division

Director: Qiao Shousuo

Address: No. 17 Fukang Road 

Nankai District, Tianjin 300191, China

Tel:  +86 (22) 2336-2553

+86 (22) 2336-2558

Fax: +86 (22) 2366-8231

Web site: www.tjhb.gov.cn

E-mail: tjhb@nankai.net.cn

Tibet Autonomous Region Environmental Protection Bureau

General Office

Director: Huang Guojin

Address: No. 61 Jinzhuzhonglu 

Lhasa, Tibet 850002, China 

Tel: +86 (891) 681-1955

Fax: +86 (891) 683-5242

Xinjiang Uigur Autonomous Region Environmental Protection Bureau

Planning Division

Director: Wang Yijian

Address: No. 11 Jiankang Road 

Urumqi, Xinjiang 830002, China 

Tel: +86 (991) 281-3946

Fax: +86 (991) 281-9429

Web site: http://public.xj.cninfo.net

E-mail: xjeic@mail.xj.cninfo.net

Yunnan Provincial Environmental Protection Bureau

International Cooperation Division

Director: Yang Weimin

Address: No. 27 Xiyuannanlu 

Kunming, Yunnan 650034, China 

Tel: +86 (871) 410-4554/410-4963

Fax: +86 (871) 410-4963

E-mail: ftecd@public.km.yn.cn

Zhejiang Provincial Environmental Protection Bureau

International Cooperation Office

Deputy Director: Ge Weihua

Address: No. 43 Tianmushan Road

Hangzhou, Zhejiang 310007, China

Tel: +86 (571) 705-5411/705-5412

Fax: +86 (571) 705-5412

Web site: http//zepb.zj.cninfo.net

E-mail: gjhzb@zjepb.gov.cn

Appendix C

International Contacts

World Bank

World Bank Country Office in China

Tel: +86 (10) 6554-3361, ext. 2030 

Fax: +86 (10) 6554-1686 

E-mail: lli2@worldbank.org

Washington External Affairs Office

Jill Wilkins/Kimberly Versak 

Tel: (202) 473-1792/473-4919

Fax: (202) 522-3405 

E-mail: jwilkins@worldbank.org/kversak@worldbank.org 

World Bank Web site: www.worldbank.org

World Bank Group in China Web site: www.worldbank.org.cn/English/home.asp 

World Bank Monthly Operational Summary: www.worldbank.org/html/opr/procure/MOS/contents.html 

Asian Development Bank 

ADB Headquarters

Postal Address:

P.O. Box 789 Manila Central Post Office

0980 Manila, Philippines

Street Address:

6 ADB Avenue

0410 Mudaluyong City, Philippines

Tel: +63 (2) 632-4444

Fax: +63 (2) 636-2444

E-mail: information@mail.asiandevbank.org

ADB Liaison, U.S. and Foreign Commercial Service

Stewart Ballard, Senior Commercial Officer

E-mail: Stewart.Ballard@mail.doc.gov

ADB PRC Resident Mission

7th Floor, Tower D

Beijing International Financial Building

156 Fuxingmennei Dajie 

Xicheng District, Beijing 100031, China

Tel: +86 (10) 6642-6603/05/07

Fax: +86 (10) 6642-6601

Resident Representative: Bruce Murray

ADB Web site: www.adb.org

ADB PRC Resident Mission Web site: www.adb.org/PRCM

ADB Business Opportunities publication: www.adb.org/business/opportunities/default.asp

DACON and DICON data base information: www.adb.org/consulting/dacon.asp  

ADB Country Assistance Plan and other, China-specific information: www.adb.org/China/default.asp 

International Finance Corporation 

2121 Pennsylvania Avenue, N.W. 

Washington, DC 20433

East Asia and Pacific Department

2121 Pennsylvania Avenue, N.W. 

Washington, D.C. 20433

Tel: (202) 473-0400

Fax: (202) 974-4340

Director of East Asia and Pacific Department: Javed Hamid

China Office

9th Floor, Tower B

Fuhua Mansion

8 Chaoyangmen Beidajie

Beijing 100027, China

Tel: +86 (10) 6554-4191

Fax: +86 (10) 6554-4192

Resident Representative: Davin MacKenzie

IFC Web site: www.ifc.org

Environmental Projects Unit Web site: www.ifc.org/enviro/EPU/epu.htm 

Multilateral Investment Guarantee Agency 

Postal Address:

1818 H Street, N.W.

Washington, DC 20433

Street Address:

1800 G Street, N.W., Suite 1200

Washington, DC 20433

Guarantees

Tel: (202) 473-6167

Fax: (202) 522-2630

Investment Market Services

Tel: (202) 473-0394

Fax: (202) 522-2650

Marketing

Tel: (202) 473-6170

Fax: (202) 522-2630

MIGA Evaluations

Tel: (202) 473-2060

Fax: (202) 522-7458

Legal and Claims

Tel: (202) 473-5245

Fax: (202) 522-2640

MIGA Web site: www.miga.org 

IPAnet Web site: www.ipanet.net 

United Nations Development Program 

UNDP, China Office

No. 2 Liangmahe Nanlu

Chaoyang District, Beijing 100600, China

Tel: +86 (10) 6532-3731

Fax: +86 (10) 6532-2567

UNDP Web site: www.undp.org   

UNDP in China Web site: www.unchina.org/undp 

United Nations Industrial Development Organization 

UNIDO New York Office 

New York, NY 10017, USA 

Tel: (212) 963-6890 

Fax: (212) 964-4116

UNIDO, China Office

2 Liangmahe Nanlu 

Chaoyang District, Beijing 100600, China

Tel: +86 (10) 6532-4425

Fax: +86 (10) 6532-6315

E-mail: office.china@unido.org

Representative: Sergio M. Miranda Da Cruz 

(E-mail: smiranda-da-cruz@unido.org)

UNIDO, China Investment and Technology Promotion Office

No. 5-1-41 Yayuan Diplomatic Compound 

No. 1 Xin Dong Lu 

Beijing 100600, China

E-mail: ipschina@iuol.cn.net

Information on China Investment Promotion Service: www.unido.org/doc/50130.htmls

UNIDO Web site: www.unido.org   

UNIDO in China Web site: www.unchina.org/unido 

Global Environment Facility 

GEF Secretariat

1818 H Street, N.W.

Washington, DC 20433

Tel: (202) 473-0508

Fax: (202) 522-3240/3245

E-mail: gef@gefweb.org

Global Environmental Facility Web site: www.gefweb.org 

Japan Bank for International Cooperation 

Takebashi Godo Building, 4-1

Otemachi 1-chome, Chiyoda-ku

Tokyo, Japan 100-0004

Tel: +81 (3) 3215-1370

Fax: +81 (3) 3215-1597

Beijing Office

3102 China World Tower

No. 1 Jianguomenwai Dajie

Beijing 100004, China

Tel: +86 (10) 6505-3825/6/7/8

Fax: +86 (10) 6505-1198

JBIC Web site: www.jbic.go.jp 

Export-Import Bank of the United States

Washington, D.C., Office

811 Vermont Ave., N.W. 

Washington, DC 20571 

Tel: (800) 565-EXIM (3946)/(202) 565-EXIM (3946) 

Fax: (202) 565-3380

U.S. Ex-Im Bank Web site: www.exim.gov 

(Check Web site for regional offices)

Beijing Representative: Doug Lee

31st Floor, North Tower

Beijing Kerry Center

Beijing 100020, China

Tel: +86 (10) 8529-6655

Fax: +86 (10) 8529-6558/6559

International Trade Administration, Trade Information Center

U.S. Department of Commerce

Washington, DC 20230

Tel: 800-USA-TRADE

E-mail: TIC@ita.doc.gov

Web site: www.trade.gov/td/tic

International Trade Administration, Trade Development

Office of Environmental Technologies Industries

1401 Constitution Ave. N.W., Room 1003

Washington, DC 20230

Tel: (202) 482-5225

Fax: (202) 482-5665

Web site: www.environment.ita.doc.gov

International Trade Administration, U.S. and Foreign Commercial Service

Please visit the Web site (www.usatrade.gov) to determine the most suitable local contact, or see below. 

Beijing 

31st Floor, North Tower

Beijing Kerry Center

Beijing 100020, China

Tel: +86 (10) 8529-6655

Fax: +86 (10) 8529-6558/6559

Web site via www.usembassy-china.org.cn

Chengdu

No. 4 Lingshiguan Lu

Renmin Nanlu Section 4

Chengdu, Sichuan 610041, China

Tel: +86 (28) 558-3992

Fax: +86 (28) 558-9221

Web site via www.usembassy-china.org.cn

E-mail: chengdu.office.box@mail.doc.gov

Guangzhou

China Hotel Office Tower, #1461

Liuhua Lu

Guangzhou 510015, China

Tel: +86 (20) 8667-4011

Fax: +86 (20) 8666-6409

Web site via www.usembassy-china.org.cn

E-mail: guangzhou.office.box@mail.doc.gov

Hong Kong

26 Garden Road

Hong Kong

Tel: +85 2521-1467

Fax: +852 2845-9800

E-mail: hong.kong.office.box@mail.doc.gov

Shanghai

Shanghai Center, Suite 631

1376 Nanjing West Road

Shanghai 200040, China

Tel: +86 (21) 6279-7630

Fax: +86 (21) 6279-7639

Web site via www.usembassy-china.org.cn

E-mail: shanghai.office.box@mail.doc.gov

Shenyang

No. 52 Shisiweilu

Shenyang, Liaoning 110003, China

Tel: +86 (24) 2322-1198 ext. 189

Fax +86 (24) 2322-2206

Web site via www.usembassy-china.org.cn

American Chambers of Commerce in China

Beijing 

China Resources Building, Suite 1903

No. 8 Jianguomenbei Avenue

Beijing 100005, China

Tel: +86 (10) 8519-1920

Fax: +86 (10) 8519-1910

Web site: www.amcham-china.org.cn

Chengdu 

606 Hongchuan Mansion

17 Lingshiguan Lu

Section 4, Renmin Nanjie

Chengdu, Sichuan 610041, China

Tel: +86 (28) 524-2405

Fax: +86 (28) 524-8577

Web site: www.ecomchina.com

Guangdong 

Guangdong International Hotel, M-1115

339 Huanshi Donglu

Guangzhou 510098, China

Tel: +86 (20) 8335-1476/8331-1898

Fax: +86 (20) 8332-1642

E-mail: amcham@gitic.com.cn

Shanghai

Portman Ritz-Carlton Hotel, #435

1376 Nanjing Xilu

Shanghai 200040, China

Tel: +86 (21) 6279-7119/7180

Fax: +86 (21) 6279-7643

Web site: www.amcham-shanghai.org

Shenyang

City Plaza Shenyang, Tower 1, #1107

206 Nanjing Beijie, Heping District 

Shenyang 110001, China

Tel: +86 (24) 2334-1888, ext. 2117

Fax: +86 (24) 2334-1198

Tianjin

Sheraton Tianjin Hotel, Apt. 2205

Zijinshan Lu, Hexi District

Tianjin 300074, China

Tel: +86 (22) 2334-3388, ext. 2205

Fax: +86 (22) 2353-7765

E-mail: amchamtj@public.tpt.tj.cn

Wuhan

David Perry English Training Center, #302

32 Dazhi Lu

Wuhan, Hubei 430021, China

Tel: +86 (27) 8277-3508

Fax: +86 (27) 8284-2730

Hong Kong 

Bank of America Tower, #1904

12 Harcourt Road

Central, Hong Kong

Tel: +852 2526-0165

Fax: +852 2810-1289

Web site: www.amcham.org.hk

U.S.-China Business Council

Washington, D.C.

1818 N Street, N.W., Suite 200

Washington, DC 20036

Tel: (202) 429-0340

Fax: (202) 775-2476

Web site: www.uschina.org 

Beijing 

CITIC Building, Suite 902

19 Jianguomenwai Dajie

Beijing 100004, China

Tel: +86 (10) 6592-0727

Fax: +86 (10) 6512-5854

E-mail: USCBC@eastnet.com.cn

Shanghai 

Jinjiang Hotel

2312 West Building

59 Mao Ming Road

Shanghai 200020, China

Tel: +86 (21) 6415-2579

Fax: +86 (21) 6415-2584

E-mail: uscbc@uninet.com.cn 

Hong Kong 

2802 Admiralty Centre, Tower 1

18 Harcourt Road

Hong Kong, China

Tel: +852 2527-5397

Fax: +852 2527-1516

E-mail: uscbc@netvigator.com

Appendix D

Legal and Market Consultants

This list provides contact information for a small number of legal and market consultants specializing in China's environmental industry market. This list should not be considered comprehensive, and it does not imply the endorsement of the listed entities by the U.S. and Foreign Commercial Service.

Future Trends International (Group) Corporation

Web site: www.future-trends.org

Shanghai Office:

Central Plaza, Suite 801

227 North Huangpi Road

Shanghai 200003, China

Tel: +86 (21) 6375-8886

Fax: +86 (21) 6375-8887

E-mail: ftichina@public.sta.net.cn

Contact: Farzam Kamalabadi

Virginia -- USA:

13876 Park Center Road

Herndon, VA 20171

Tel: (703) 471-1984

Fax: (703) 471-1909

California -- USA: 

Coronada Plaza, Suite I

1085 N. Main Street

Orange, CA 92867

Tel: (714) 997-0120

Fax: (714) 997-1334

PACT Industrial Water and Wastewater Treatment Processes

Shanghai Office:

9E Aibang Building

585 Lingling Road

Shanghai 200030, China

Tel: +86 (21) 6481-2155/6481-2156/6439-9468

Fax: +86 (21) 6427-6210

Web site: www.pactchina.com

E-mail: pact@uninet.com.cn

Seattle -- USA:

5808 Princeton Avenue, N.E.

Seattle, WA 98105

Tel: (206) 524-5611

Fax: (206) 526-1588

E-mail: info@pactusa.com

Web site: www.pactusa.com

Sinosphere Corporation

Suite 1720, Sunflower Tower

37 Maizidian Street

Beijing 100026, China

Tel: +86 (10) 8527-5700

Fax: +86 (10) 8527-5701

Web site: www.sinosphere.com

E-mail: anwar@sinosphere.com

Contact: Husayn Anwar

Golden State

Suite B343 Sunshine Plaza

68 An Li Road

Chaoyang District, Beijing 100101, China

Tel: +86 (10) 6492-6688

Fax: +86 (10) 6492-9388

Web site: www.chinaenvironment.com 

E-mail: bjogsiee@public.bta.net.cn 

Environmental Resources Management (ERM)

Web site: www.ermchina.com

Beijing Office:

1603 Peng Run Mansion (B)

26 XiaoYun Road

Beijing 100016, China

Tel: +86 (10) 8458-4031/2/3

Fax: +86 (10) 8458-4030

E-mail: post@ermchina.com

Guangzhou Office:

37th Floor, Guangfa Finance Center

83 Nonglin Xia Road

Guangzhou 510083, China

Tel: +86 (20) 8731-0216

Fax: +86 (20) 8731-0199

E-mail: guangzhou@ermchina.com

Shanghai Office:

Suite 2401, Harbour Ring Plaza

18 Xizang Zhong Road

Shanghai 200001, China

Tel: +86 (21) 5385-3050/1/2

Fax: +86 (21) 6469-2185

E-mail: shanghai@ermchina.com

Beverage and Diamond

1350 I Street, N.W., Suite 700

Washington, DC 20005-3311

Tel: (202) 789-6000

Fax: (202) 789-6190

Contact: Richard J. Ferris, Jr.

Paul, Weiss, Rifkind, Wharton & Garrison

Beijing Representative Office

2918, China World Tower II

1 Jianguomenwai Dajie

Beijing 100004, China

Tel: +86 (10) 6505-6822

Fax: +86 (10) 6505-6830

Contact: Lester Ross

Appendix E

Web Sites

China Environmental Web Sites

SEPA English-language Web site: http://english.zhb.gov.cn

Chinese Agenda: 21 www.acca21.edu.cn

Center for Environmentally Sound Technology Transfer: www.cestt.org.cn

l  Asia-Pacific Economic Cooperation Virtual Center, information on environmental technologies: www.cestt.org.cn/apec-vc

l  List of Environmental Web Sites in China: www.cestt.org.cn/apec-vc/Web site.asp

"Sinosphere," a free on-line journal providing well-researched articles pertaining to Chinese environmental issues: www.chinaenvironment.net/sino

www.chinaenvironment.com 

l  Selection of reports and articles written by environmental specialists 

l  Articles classified according to main environmental issues: water treatment, air pollution

l  Lists of projects

www.enviroinfo.org.cn  

l  Selection of main Chinese newspaper articles        (in English translation) about environment;       updated daily

l  List of Chinese environmental technology companies and contact details

l  Environmental legislation

l  Forum and other services

www.ied.org.cn  

l  Links to other environmental Web sites

l  Case studies

l  Environmental research engines

l  NGO forums

l  China facts

www.environment.ita.doc.gov

l  U.S. Department of Commerce, Environmental Technologies Industries 

l  Analysis of Chinese environmental market by American experts

l  Description of environmental projects in China

l  Schedule of international exhibitions

l  News on the environment

l  Financing assistance

l  Detailed contacts of U.S. local bureaus for export of environmental technologies

www.ita.doc.gov 

l  U.S. Department of Commerce, International  Trade Administration 

l  Chinese trade relations working group report on China permanent trade relations

Golden State's home page: www.chinaenvironment.com/english/whorwe/index.html

German Embassy: www.ahk-china.com

World Resources Institute: www.wri.org

Ondeo Nalco Co.: www.nalco.com

Degremont: www.degremont.fr 

European delegation in China: www.delchn.cec.eu.int   

Links to Chinese newspapers (see selections in the "news" repertory) www.chinadaily.com.cn

l  Selected articles are inserted in "Newspapers and Magazines articles" chapter; to access them, go to repertory "News/China Daily Online" 

ChinaOnline: www.chinaonline.com

l  Specialized independent on-line source for business-related China news

www.eco-web.com 

l  Listing of environmental technologies companies, environmental organizations, and governmental institutions

l  Links to each body's country of origin

l  Classification by sector of activity (see listing of environmental technologies repartition per sector, which can be used as a data base reference)

l  "Green Pages Editorial," list of projects with contact details

l  Apparently has not been updated for a               long time

TUV: www.tuv.com  

China Quality Certification Enterprise Network: www.isochina.com

The U.S. Embassy, Beijing (connect to Environment, Science, Technology): www.usembassy-china.gov

Links to provincial and local environmental regulatory agencies including the SEPA's English-language reports on the state of the environment in China: www.usembassy-china.gov/english/chenvlnk.html

Reports of recent developments in China's environmental marketplace (including Hong Kong) via ETI's Web site at www.environment.ita.doc.gov (visit the "Market Plans" section)

Daily updates (in English translation) on water-related environmental projects: www.h2o-china.com

Search on China for trade-related information: www.tradeport.org

U.S. Department of Energy's "Energy Information Administration: www.eia.doe.gov

U.S. Department of Energy's "Energy Information Administration" analysis of, China: www.eia.doe.gov/emeu/cabs/china.html

U.S. Department of Commerce's International Trade Administration Trade Information Center; includes up-to-date tariff and tax information, resources, links, and assistance: www.trade.gov/td/tic 

UN Development Business, a comprehensive resource on business opportunities for enterprises providing goods and services to projects financed by the major multilateral institutions: www.devbusiness.com

U.S. Government Sites

Department of Commerce, Office of Environmental Technologies Exports: www.environment.ita.doc.gov 

Department of Energy, Energy Pollution Prevention Information Clearinghouse: http://epic.er.doe.gov/epic  

Energy Information Administration: www.eia.doe.gov/environment.html 

Department of State: www.state.gov

Bureau of Oceans and International Environment and Scientific Affairs: www.state.gov/www/global/oes

Environmental Protection Agency: www.epa.gov, www.epa.gov/oia/crp.htm

Envirofacts Database: www.epa.gov/enviro

Export-Import Bank of the United States: www.exim.gov 

Global Network for Environmental Technologies (GNET): www.gnet.org

National Technology Transfer Center (NTTC): www.nttc.edu

Overseas Private Investment Corporation: www.opic.gov

Small Business Administration: www.sbaonline.sba.gov 

Trade and Development Agency: www.tda.gov 

U.S. Bureau of Reclamation: http://usbr.gov 

United States Information Agency (USIA): www.usia.gov

Environmental Issues and Resources: www.usia.gov/topical/global/environ/content.htm 

USAID, Center for Trade and Investment Services www.info.usaid.gov/business/ctis/index.html 

Environmental Technologies Network for Asia/Americas (ETNA): www.info.usaid.gov/business/ctis/etna.html  

U.S. Business Advisor: www/business.gov 

U.S. House of Representatives Law Library: http://law.house.gov 

U.S. International Trade Commission: www.usitc.gov 

USDA Foreign Agricultural Service: www.fas.usda.gov

White House: www.whitehouse.gov 

President's Council for Sustainable Development: www2.whitehouse.gov/WH/EOP/pcsd/index.html 

State Government Environmental Sites

California EPA Envirotech Program: www.calepa.ca.gov/envtech.htm

California Environmental Exports: www.environmentalexports.com 

International Trade Council of New Mexico: www.itcnm.org

Wisconsin Environmental Industry Export Forum: www.dnr.state.wi.us/etef 

International Organizations/Foreign Government Sites

Asian Development Bank: www.asiandevbank.org 

Electronic Embassy: www.embassy.org   

Environment Canada (the Green Lane): www.doe.ca 

European Environment Agency: www.eea.eu.int 

International Atomic Energy Agency: www.iaea.or.at 

International Institute for Sustainable Development: http://iisd1.iisd.ca 

ISO (International Organization for Standardization): www.iso.ch/welcome.html 

Interamerican Development Bank: www.iadb.org 

United Kingdom Environment Agency: www.environment-agency.gov.uk 

World Bank: www.worldbank.org 

Global Environment Facility: www.worldbank.org/html/gef/gefgraph.htm 

World Trade Organization: www.wto.org/Welcome.html   

United Nations Sites

United Nations Environment Program (UNEP): www.unep.no 

CEDAR (Central European Data Request Facility): www.cedar.univie.ac.at 

INFOTERRA: www.cedar.univie.ac.at/unep/infoterra 

UNEP publications: www.cedar.univie.ac.at/unep 

United Nations Trade Leads Network: www.unicc.org/untpdc 

Business/Private Sector Sites

Environmental Industry Association: www.envasns.org 

Aqua Online: www.aquaonline.com 

EcoTradeNet: www.ecotradenet.com 

Eldis (Electronic Development and Environmental Information System): www.ids.ac.uk/eldis/eldis.html 

Envirolink Network: www.envirolink.org

Environment Expert: www.environmental-expert.com 

Environmental On-Line: www.cleanwater.com 

CNN Environmental News: www.cnn.com/EARTH/index.html 

Environmental Law:  www.webcom.com/staber/welcome.html 

Envirotech-Online: www.envirotech.org/index.html 

Global Recycling Network: grn.com/grn 

Great Lakes Information Network (GLIN): www.great-lakes.net 

Environmental Systems Corporation: www.envirosys.com/corp.html 

Envirobiz: www.envirobiz.com 

International Trade Law Monitor: http://itl.irv.uit.no/trade_law 

ISO 14000 Infocenter: www.iso14000.com 

MVTI Technologies: http://members.aol.com/mvti/mvti.html 

Water Online: www.wateronline.com 

Engineers Online: www.engineersonline.com 

Pollution Online: www.pollutiononline.com 

Public Works Online: www.publicworks.com 

Recycler's World: www.recycle.net/recycle/index.html

Rubber Waste Technology: www.interpublish.com/rwt/index.html 

Sedgwick Insurance: www.sedgwickna.com/infocen.htm 

Solid Waste Online: www.solidwaste.com 

U.S. Council for International Business: www.imex.com/uscib

Water and Wastewater Utilities: www.magicnet.net/~metzler/page4.html#WaterInterna-tional 

WaterWorld: http://waterworld.com 

World Trade Exchange: www.wte.net 

Yahoo: www.yahoo.com/Business/Corporations/Environment 

Associations

American Waterworks Association (AWWA): www.awwa.org 

WaterWiser: www.waterwiser.org 

Environmental Export Council: www.ecotradenet.com 

Environmental Industry Associations: www.envasns.org 

Hemispheric Center for Environmental Technology (HCET): www.hcet.fiu.edu 

International Environmental Liability Management Association: www.magic.ca/ielma/ielma.home.html 

International Tire and Rubber Association: www.itra.com/recycle.htm 

National Groundwater Association (NGHWA): www.h2o-ngwa.org   

Water Environment Federation: www.wef.org

Water and Wastewater Equipment Manufacturers Association: www.wwema.org 

World Resources Institute: www.wri.org 

Trade Show Information

Envirobiz: www.envirobiz.com 

Expoguide: www.expoguide.com 

Pollution Engineering: www.pollutioneng.com 

Trade Show Central: www.tscentral.com 

Magazines, Journals, and Periodicals

Asia Environmental Review: www.asianenviro.com 

Canadian Environmental Journal: www.greenware.ca/cejindex.htm 

Corporate Environmental Strategy: www.rpi.edu/dept/mgmt/SOM.pages/EMP/ces.html 

Electronic Newstand: www.enews.com

Pollution Engineering: wwwpollutioneng.com 

Riskworld: www.riskworld.com 

Soil and Groundwater Cleanup Online Magazine: www.sgcleanup.com

The Wall Street Journal: www.wsj.com 

Directories and Indexes

The Amazing Environmental Web Directory: www.webdirectory.com 

Biz Web: www.bizweb.com 

EcoTradeNet: www.ecotradenet.com 

Environmental Industry Web site: www.enviroindustry.com 

Environmental Route Net: www.csa.com/routenet 

IMEX Exchange: www.imex.com/imex/menu.html 

Infomanage -- International Trade Resources: http://infomanage.com/International/Trade 

International Business Network: www1.usa1.com/~ibnet 

International Trade Zone: www.std.com/intltrade 

Export Yellow Pages (includes Green Pages): www.export.uswest.com 

Trade Compass: www.tradecompass.com 

Yahoo Business and Economy Page: www.yahoo.com/Business_and_Economy 

Chinese Business, Economic, and Financial Web Sites

WTO and PNTR documents and information: www.pntrchina.gov

U.S.-China Business Council magazine: www.chinabusinessreview.com

China Country Commercial Guide: www.usatrade.gov

U.S. Embassy, Beijing: www.usembassy-china.org.cn

APEC, China meetings: www.apec-china.org.cn

U.S.-China Business Council WTO page: www.uschina.org/public/wto

National Bureau of Asian Research WTO page: www.nbr.org/publications

Singapore International Business Institute links: www.chinaupdates.com

Translated articles from Chinese sources: www.sinopolis.com/Archives/Focus/WTO.htm

Harvard University trade negotiations page: www.cid.harvard.cidtrade

China economic information, Hong Kong Trade Council: www.tdc.org.hk/mktprof/china.htm

Gallup survey on China: www.gallup.com/poll/reports/china.asp 

CNN news and information roundup: www.cnn.com/ASIANOW

Chinese stock information: www.stockstar.com

Official Chinese Xinhua news agency: www.xinhua.org

People's Daily Web site with government information: www.peopledaily.com.cn

China Daily business weekly: www.chinadaily.com.cn/bw/bw_cate1.html

Information on marketing and advertising on China: www.shanghai-ed.com/j-market.htm

China Council for Promotion of International Trade: www.ccpit.org/engVersion/index.html

China information: www.chinainfornet.com

Chinese Business World: www.chinesebusinessworld.com

U.S.-China Business Council: www.uschina.org/press

World Trade Data Base: www.wtdb.com/investment/ininvest.htm

China Web: www.comnex.com/stocks/stocks.htm

People's Bank of China: www.pbc.gov.cn

State Administration of Foreign Exchange (SAFE): www.safe.gov.cn

Bank of China: www.bank-of-china.com

Ministry of Foreign Trade and Economic Cooperation: www.moftec.gov.cn

PRC Embassy in Washington, D.C.: www.china-embassy.org

State Development Planning Commission: www.sdpc.gov.cn

China tax laws and news: www.chinatax.gov.cn

Soho: www.soho.com

Net Ease: www.netease.com

China Economic Information: www.cei.gov.cn

Beijing Economic Information: www.beinet.cn

State Statistics Bureau: www.chinastatistics.com

Icapital, China data service, Hong Kong:   www.statchina.com

China Pages directory: www.china.pages.com.cn

China Business Net: www.china-businessnet.com

Foreign Trade Cooperation Network: www.bcic.com

Beijing Business Administration Network: www.bigs.cn.net

China Business Resources: www.chinatrading.com

Chinabyte: www.chinabyte.com

Shanghai Stock Exchange: www.shstock.cn.net

UNIDO investment network: www.cci.com.cn

Securities Times: www.securitiestimes.com.cn 

South China Morning Post, China news: www.scmp.com/news/china/topchina.idc

China Market: www.chinamarket.com.cn

China Standard Service Net: www.cssn.net.cn

The Economist: www.economist.com

Far Eastern Economic Review: www.feer.com

China Big Yellow Pages: www.chinabig.com

Chinalaw Web: www.qis.net/chinalaw/index.html

Government White Papers: www.china.org.cn/WhitePapers 

China information: www.chinainfo.gov.cn

Industry Web Sites

Chemical sector e-commerce: www.chemease.com

Chemical sector e-commerce: www.chemross.com

Chemical trade information: www.chem-trade.net.cn

China Chamber of Commerce of Metals, Minerals and Chemicals Importers and Exporters: www.cccmc.org.cn

Capital Steel: www.shougang.com.cn

China copper market information (in Chinese): www.copperchina.com

Oil market news information (in Chinese): www.oilnews.com.cn

China Oil, Gas and Petrochemicals magazine: www.chinaogp-online.com

China Chemical Reporter (magazine): www.ccr.com.cn

Chemical Products Purchase Information: www.chem.sinobnet.com

Chemical Business Web Sites

Chemicals information: www.chempages.com

Chemicals information: www.cheminfo.gov.cn

Chemicals information: www.chemhot.com

General industry information: www.ChinaCCM.com

Chemicals information: www.chem-trade.net.cn

Chemicals information: www.chem.com

Chemical information in South China: www.qjy-chemonline.com 

Plastics: www.cpinfo.net 

Chemicals information: www.chchin.com

Chemicals information: www.chem.com.cn

Chemical Products: www.chemmarket.gov.cn

Chemical Policy Making Information: www.jcw.gov.cn 

Chemical Technology: www.techmarket.com.cn

China Chemical Week (English newspaper): www.chemweek.com.cn

China Chemical Daily: www.ccin.com.cn, www.chem35.com

Technology transfer information: www.chemmarket.gov.cn, www.techmarket.com.cn 

Chemical information: www.jcw.gov.cn, www.sinoproject.com

SINOPEC: www.sinopec-ec.com.cn  

China and Asia rubber information: www.asiarubbernet.com, www.asiarubber.com.cn 

Steel: www.chinasteel.com.cn

Copper: www.copperchina.com

Metals: www.worldmetal.com 

Coal: www.coalinfo.net.cn

China coal information: www.chinacoal.com

China coal information: www.coalnews.com.cn