# **Vested interests of the business sector**

Despite the central government’s push for tighter environmental regulations and restrictions, industry has various means of countering costly environmental measures. Many larger companies – especially oil and power companies – have continued to prioritize profit-making over fulfilling environmental standards. For instance, China’s oil companies have held up an improvement in diesel fuel for years.<sup>15</sup> As a result, the sulfur levels of diesel in China are at least 23 times that of the United States (Wong, 2013b). Power companies are also reported to violate government regulations on emissions from coal-burning plants and regularly ignore guidelines to upgrade coal-burning electricity plans (Wong, 2013b).

Vested business interests also hinder environmental efforts at local levels. Many local branches of central SOEs in central and western China violate environmental standards and local governments have few tools to compel them to comply. Moreover, in cities where only a small number of companies contribute the major share of tax revenue or employment, these few companies wield great bargaining power, making it particularly difficult for government officials to enforce unwelcome environmental regulation on them. In addition, pollution fines are still relatively low and are capped at around 100,000 RMB, failing to act as a real deterrent to polluting enterprises (Wang, 2013b).

Finally, local governments also have more authority to control (local-level) state-owned enterprises, since SOE managers are also part of the cadre evaluation system. However, enforcing compliance from private enterprises and SMEs has proven to be more difficult. For example, under the Top-1,000 Energy-Consuming Enterprises program, large energy-intensive enterprises have started to undertake substantial efficiency improvements, but the program needs to broaden its scope beyond targeting larger, predominantly state-owned, enterprises.<sup>16</sup> For instance, China’s industrial SME sector – which is largely privately owned – is one of the main energy-consuming segments of the economy (Kostka et al., 2013). According to a recent study by the IFC (2012), industrial SMEs account for 41% of the total energy consumption, followed by non-industrial enterprises (29%) and large industrial enterprises (17%) (IFC, 2012: 20). SMEs consume about 2.5 times the amount of energy in total as compared to large enterprises (IFC, 2012: 28). The SME sector is also not unimportant in terms of overall emissions and can have a particular damaging effect on health (Holloway, 2013: 7).

# **Limited role of the public and media**

The public has numerous ways to participate in environmental governance, but the scope and effectiveness of these practices have their limits.<sup>17</sup> By the early 1990s, China had already set up a complaints systems (the so- called letters and visits system) to assist in government accountability and in setting priorities in the field of environmental pollution mitigation. Public participation in these systems, and hence the number of visits and letters addressed to governmental authorities, has grown over the years. More recently, hotlines and digital complaint systems have further enhanced public participation in environmental enforcement of governmental agencies (Wu, 2013). Urban citizens also increasingly use social media like Weibo and online chat rooms to exchange opinions and alert fellow citizens to environmental

> 15 Over the past year, national oil companies (NOCs) have delayed issuing upgraded China IV diesel standards that are on par with European standards. Only in February 2013, after China reached hazardous levels of air pollution, did the State Council issue new guidelines that called for a nationwide adoption of the new China IV diesel standards by the end of 2014 (Wong, 2013b). It is yet to be seen whether NOCs will comply with these standards.

> 16 The scope of this program was recently expanded to a Top-10,000 program.

> 17 This section draws from Kostka and Mol (2013).

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