China embarks on cutting industrial production, targeting polluters

Published by MAC on 2013-09-16
Source: China Daily, Xinhua, Global Times

19 industries to shed capacity

By Zheng Yangpeng

China Daily

27 July 2013

Move marks the government's determination to cut overcapacity, reform economy

The Ministry of Industry and Information Technology has ordered the closure of many factories in 19 industries where overproduction has led to price-cutting wars, affirming its determination to push ahead with a painful makeover of the economy.

More than 1,400 companies in 19 industries in China were told to cut production capacity, according to a statement by the ministry on Thursday.

Cement, steelmaking, ferroalloys, electrolytic aluminum, copper smelting, chemical fiber and papermaking are among industries required to cut excess capacity. Papermaking and cement are the two industries that involved the largest number of companies in the latest campaign.

Local governments and companies were ordered to stop production by the end of September. The deadline for elimination was set for the end of this year, the ministry's statement said.

Nineteen public companies were on the list. Shares in BBMG Corp, Inner Mongolia Baotou Steel Rare-Earth Hi-Tech Co and Shandong Chenming Paper Holdings Ltd slid more than 2 percent after they were cited on the list.

The benchmark Shanghai Composite Index slipped 0.51 percent to 2,010.85 on Friday. The SZSE Component Index dropped 0.65 percent to 7,843.36.

"This detailed list shows the government is serious in its efforts to restructure the economy and is prepared to tolerate the necessary pain," Zhang Zhiwei, chief China economist at Nomura Holdings Inc in Hong Kong, wrote in a note. "This reinforces our view that aggressive policy stimulus is unlikely in 2012 and that growth should trend down."

More than 92 million metric tons of excess cement capacity and about 7 million tons of excess steel production capacity are expected to be wiped out under the government's plan, Zhang said.

Several of the listed companies affected released announcements on Friday, declaring the shutting down of listed excess capacity had little effect on their business.

Xinxiang Bailu Chemical Fiber Co Ltd, one of the 19 public companies, said the shutting down of 20,000 tons of viscose capacity, as required by the ministry, had already been decided at an April meeting of the company. Revenue from the viscose capacity only accounted for 7 percent of the company's income. Its share price gained 3.66 percent by the end of trading on Friday.

Shandong Chenming Paper Holdings Ltd said on Friday that among the 284,200 tons of pulp capacity that was ordered to be cut, 220,000 tons belonged to Wuhan Chenming, a subsidiary of the parent company. This capacity had been eliminated by the end of last year and the production line was being dismantled. Other outdated facilities had either been halted or sold to local companies.

Lin Jian, a metallurgy industry analyst with Zheshang Securities Co Ltd, said the shutting down of lead- and copper-smelting capacity was beneficial for these businesses.

"The shutdown will help to reverse the over-supply situation in these industries. From a medium- to long-term perspective, it will stabilize metal prices and improve the profitability of leading companies in these industries," Lin said.

As much as 879,000 tons of lead smelting and 665,000 tons of copper smelting capacity were ordered to be cut, accounting for 19 percent and 11 percent of national capacity, respectively.

The ministry's decision to eliminate excess capacity was accompanied by efforts to foster emerging industries that are considered to be promising in the future.

A ministry news conference on Wednesday said it will strive to boost the demand for information technology and support the battle to fight air pollution.

China aims to boost spending on the IT industry at a rate of more than 20 percent annually through 2013 to 2015, according to a State Council meeting on July 12.

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China targets polluters with judicial action

Xinhua

18 June 2013

BEIJING - China's supreme court and procuratorate jointly issued a new judicial explanation Tuesday that imposes harsher punishments on polluters.

The new legal document, which will take effect on Wednesday, confronts difficulties in investigating environmental pollution cases and in convicting polluters, according to a statement issued by the two judicial departments.

With more precise criteria for convictions and sentencing, the document is expected to facilitate the work of judges and tighten punishments for polluters, it said.

The document lists 14 types of activity that will be considered "crimes of impairing the protection of the environment and resources."

For instance, discharging, dumping or treating radioactive waste or waste containing infectious disease pathogens or toxic substances into sources of drinking water and nature reserves will be seen as a crime.

Activities that result in pollution that forces more than 5,000 people to be evacuated or poisons more than 30 people will also be defined as crimes.

Those who pollute near hospitals, schools or large residential areas will be considered serious offenders.

According to the country's Criminal Law, those convicted of such crimes will face a maximum prison term of seven years and be subjected to fines.

Before the judicial explanation, the law had not clearly defined what activities could result in criminal charges, said Hu Yunteng, a senior researcher with the supreme court.

"Now it is clearer and easier for the judge to decide," he said.

The new document also lowers benchmarks for convicting and sentencing, he said.

According to the judicial explanation, a person can be convicted if he or she is responsible for pollution that seriously injures a person. Previously, the pollution would have to result in death in order to convict a person of this crime.

Under the current law, the sentence can only be increased if three or more people die from the pollution. Only one death will be required after the judicial explanation takes effect.

"The new document is stricter, since people can be convicted once they commit the crimes specified, even without proven consequences," Hu said.

More than 10 million hectares of farmland are polluted and heavy metals and pesticide residue that people ingest through food have greatly threatened public health, said Qian Guanlin, a senior national political advisor.

"Environmental pollution is a major reason for the high incidence of cancer in China," said Qian, vice director of the population, resources and environmental committee under the National Committee of the Chinese People's Political Consultative Conference (CPPCC).

Also on Tuesday, the Ministry of Public Security announced that police have detained 118 suspects involved in environmental pollution cases since January.

Police said most of the cases involved mines or petrochemical factories, including a number of large factories that pay significant taxes and thus have a great deal of support from local governments.

The new judicial explanation also targets organizations that are involved in polluting, said Sun Jungong, a supreme court spokesman.

Organizations can cause much worse environmental consequences than individuals if they do not abide by the law, Sun said.

The new document states that executives and other people directly responsible for an organization's polluting activities will be treated as individual offenders and the organization will be fined.

At a study session held with members of the Political Bureau of the Communist Party of China (CPC) Central Committee in late May, President Xi Jinping pledged that China will not sacrifice the environment for temporary economic growth.

Last week, the State Council, or China's cabinet, adopted a set of measures to counter air pollution, including restraining energy-consuming and polluting industries, transforming the country's energy structure and enhancing the transparency of environment-related government information.

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The jarring sounds of heavy metals

By Dong Fangyu

China Daily

16 July 2013

A joke that has gone viral online goes something like this: An air passenger is forced to take off all his clothes but still sets off an alarm while walking through a metal detector at a foreign airport. At first, the security personnel are puzzled, but then they realize that passenger is from China and thus has an unusually high concentration of heavy metals in his body. The joke reflects Chinese people's frustration with environmental pollution and the health risks it poses.

In fact, there is enough scientific evidence - as highlighted by many netizens - to show that Chinese people are indeed part of a "heavy metal band".

For instance, the New York Health Examination and Nutrition Survey reveals that immigrants from the Chinese mainland have "higher blood levels of lead, cadmium, and mercury than either reference group". The report published in the Journal of Immigrant & Refugee Studies also says that the high level of heavy metals in Chinese immigrants is probably associated with their diets, that is, the contaminated food they eat.

While the US report may not be applicable to people across the Chinese mainland, illegal dumping of untreated industrial effluents and the high concentration of heavy metals in some food products have indeed become public health hazards.

Earlier this month, a study found excessive amounts of thallium and cadmium, both carcinogenic heavy metals, in a section of the Hejiang River in Guangdong province, which is the source of drinking water for 30,000 people of Fengkai county. The sources of the contaminants, mining companies in the upper reaches of the river, were reportedly shut down.

The discovery of cadmium-tainted rice from Hunan province has prompted many people to shun the staple from China's top rice-growing province. About 28,000 hectares, or about 13 percent of paddy land, in Hunan is contaminated by heavy metals, according to official estimates. As a result, the sale of Hunan rice has plummeted and many rice mills in the province have closed down, rendering many people jobless.

Unfortunately, soil contamination is not a problem unique to Hunan. It is a problem facing the entire country. The Ministry of Land and Resources once said that every year about 12 million tons of grain - enough to feed more than 40 million people for one year - is contaminated with heavy metals. It also said that contaminated grain causes a direct economic loss of more than 20 billion yuan ($3.26 billion) a year.

The Ministry of Environmental Protection and Ministry of Land and Resources started a nationwide study on soil pollution in 2006 and have compiled a huge database of soil samples. However, the five-year national survey, which cost 1 billion yuan, has not been made public despite a Beijing lawyer's plea to disclose it in the interest of the people.

Given the severity and "secrecy" of heavy metal pollution, people are getting increasingly cautious about what they eat and drink. They fear that toxic effluents from industries are seeping into the soil and underground water table in many places in China.

Unlike smog and particulate matter that can be seen and readily felt, soil and water contamination has escaped public attention. Nevertheless, it has been threatening the safety of crops, drinking water, animals and plants for years, and thus putting humans, who are at the top of the food chain, at risk. Yet the public remains unaware of the real situation.

The good news is that the severity of the problem and repeated public enquiries prompted the Ministry of Land and Resources to announce in June that a detailed "nationwide pollution map" is being drawn up to gauge to what extent has soil been contaminated by heavy metals.

The detailed pollution map, however, should be accompanied by a thorough investigation to identify the sources of heavy metal pollution and determine whether local authorities are colluding with the industrial and mining sectors to conceal the real impact of soil and water contamination on the environment in their pursuit of economic gains.

For example, even after shoals of dead fish were found floating in the Hejiang River from July 1 to 5, the local environmental authorities did not detect the problem because they had "limited detection means". That dangerous chemicals had caused the death of the fish was known only after a higher environmental protection bureau launched a probe. Such delay and negligence could prove very costly.

Since the process of decontaminating soil is very expensive and could take years to execute, it is all the more important to prevent heavy metal-laced industrial wastes from flowing into rivers and lakes or being dumped on land without being properly treated.

Authorities at all levels have to work together to set up a comprehensive supervision and detection mechanism for heavy metal pollution, instead of waiting for a major environmental disaster before swinging into temporary action. Besides, it is the social responsibility of the authorities to inform the public of the level of soil and water pollution in time.

The author is a reporter with China Daily.

 

 

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Darkening prospects

Global Times

30 July 2013

Shenmu, a county in Northwest China's Shaanxi Province that is known for its coal output, once gained nationwide attention for its enviable free medical care. It has been in the headlines again recently, but this time because its local private lending market is reportedly on the verge of collapse.

In the past, the county had a range of financial services comparable with large cities, with more than 50 financial institutions operating there, according to a report Thursday by China National Radio (CNR).

But now, many of the small loan companies have closed and some debtors have fled.

On July 15, a crowd of Shenmu residents gathered in front of the county government building following messages online about the serious state of Shenmu's economy and rumors that the current leadership plans to stop providing free medical services as the county is facing a 30 billion yuan ($4.9 billion) financial deficit.

Local officials denied the news about the deficit and four people were arrested for spreading false rumors.

But people are still concerned about losing their life savings, and the tensions in Shenmu's private lending market will be hard to deal with.

Some analysts have even said the coal-driven county might follow in the footsteps of Ordos in North China's Inner Mongolia Autonomous Region. Ordos used to be one of the richest cities in China, but is now facing a sharp economic downturn due to the sluggish coal industry.

Coal crunch

In the 1980s, Shenmu was found to have coal deposits in an area of 4,500 square kilometers, 59 percent of the county's total land area, with more than 50 billion tons of reserves in total.

With the improvement of local transportation facilities and a surge in coal prices since 2001, Shenmu has seen robust economic growth over the last decade.

The period from 2001-11 was regarded as the golden age for the development of the domestic coal industry, with coal prices rising by 70 to 80 yuan per ton every year.

But since 2012, China's coal industry has suffered from a slide in demand amid the domestic economic slowdown and increasing competition from cheaper imported coal.

The current coal price is around 300 yuan per ton, similar to the level four or five years ago, the Oriental Morning Post reported Thursday.

As the nationwide economy keeps slowing, Shenmu will suffer more from stagnant coal prices, Tian Yun, editor-in-chief of Macro China Information Network, told the Global times Monday.

In the first quarter of this year, work was suspended at 42 of Shenmu's coal mines, leaving only seven in operation, according to an economic analysis report posted in April by the government of Yulin, which has jurisdiction over 11 counties including Shenmu.

The mire of debts

A number of billionaires were created amid the boom in Shenmu's coal industry, many of whom ploughed their extra funds into the private lending market.

Some of them became notorious, such as Gong Aiai, who was dubbed "house sister" as she accumulated 41 properties covering 9,667 square meters in Beijing. Her wealth was amassed via coal mine financing, using loopholes in the rules regarding transfers of State-owned assets and private lending.

Using private lending is a common method for domestic small and micro enterprises to raise funds. The business is legal in China as long as the highest interest rate is no more than four times the rate offered by commercial banks over the same period.

For instance, the current one-year loan interest rate in the banking sector is 6 percent, so the rate in the private lending sector can be up to 24 percent.

But in Shenmu, the rate can be as high as 36 percent, with many coal mine owners willing to pay higher interest because of their need for funds to expand their production capacity, according to the Oriental Morning Post report.

Inspired by the high returns and large demand, most of the county's residents entered the private lending market. Some not only put all their savings into it, but borrowed more private funds in order to offer more loans, the report said.

But given that private lending capital in Shenmu has largely been invested in the local coal sector, many lenders are now facing the risk of losing all their life savings and being left with debts as the industry is stumbling.

Liu Qiyun, director of Shenmu's finance office, said in an interview with the Oriental Morning Post that most of the private lending went to the coal sector, with less than 20 percent flowing into the real estate industry.

Now local people have stopped lending money and are busy demanding repayment of loans so they can pay back their own debts. This is not an easy job and many of them are resorting to legal action.

This year, the local court has accepted 2,771 lawsuits related to private lending disputes, 756 more than in 2012 and four times as many as in 2011, media reports said.

Regulation needed

In response to the turbulence in Shenmu's private lending market, the local government has set up a special team to crack down on illegal fund-raising.

Liu noted that the government also plans to establish a private loan registration center, which could increase transparency in the private lending market.

Ye Tan, an independent economic commentator, told CNR Friday that the local government should freeze all new loans temporarily, and then restructure debts carefully.

The private lending market needs more regulation, in order to create a safe and healthy financing environment for small enterprises, said Ye.

But this will not be enough to free Shenmu from its economic downturn. "The government should introduce new emerging industries to revive the county," she noted.

The local government has also realized that relying on the resources sector is not good for economic development in the long term, and it is making efforts to push for an industrial transformation.

Non-coal industries, including services, agriculture and new energy, will be encouraged in the future. For instance, two agricultural projects worth over 30 million yuan each will gain support from the government in 2013, according to its 2013 social development plan.

"Both Shenmu and Ordos used the development model of over-reliance on natural resources, which is not sustainable, so now they are suffering a painful transition," said Tian, noting that the case is a warning to other local governments and shows that a well-balanced industrial structure is vital.