ANALYSIS - China Metal Firms Feeling Heat on Environment

ANALYSIS - China Metal Firms Feeling Heat on Environment

23th December 2005

SHANGHAI - China's burgeoning metals industry is facing increased policing of air and water pollution, which authorities hope will help push the sector toward consolidation and better technology.

But while environmental protection could force some metals plants to merge or upgrade, it could also have the perverse effect of encouraging the worst offenders to bring their old practices to new areas.

Pollution has become a hot topic in China, as newspapers feel freer to report and citizens demand more from their local governments. After an initial cover-up, the nation has followed a toxic benzene slick as it wends its way along north eastern rivers that provide drinking water to Chinese and Russian cities.

The Shaoguan smelter, China's third-largest zinc smelter owned by Shenzhen Zhongjin Lingnan Non-ferrous Metal Co. Ltd, shut temporarily this week after the local government found high levels of cadmium in river water.

"If you think environmental matters don't matter, take another look. There's an environmental agency office right inside the Zhuzhou smelter," Wang Jianjun, import and export manager for Zhuye Torch Metals Co. Ltd, told a conference this month.

Beijing believes that larger plants will allow for better pollution control, and is pushing smaller, less disciplined plants and mines to close.

The deaths of an average of 20 coal miners a day last year, and a similar series of large mine accidents this year, has forced provincial governments to crack down on corruption and lax standards that plague the industry.

And city planners in Beijing, Shanghai and Guangdong are moving steel plants far from the city centre - giving Shougang Group and Guangdong Iron & Steel Group a chance to upgrade facilities, but inconveniencing ThyssenKrupp's plans for its stainless steel plant on Shanghai's Huangpu River.

Environmental officials say they hope performance targets for "Green GDP" - which accounts for the damage caused by industrial development - will help steer local officials away from approving every project that promises to lift the local economy.

But consistent enforcement, and actually using fines to help mitigate the damage caused, are also necessary for China to make environmental progress, they say.

CARRIED AWAY

Hunan Province provides a good example of the eddies and cross-currents in Beijing's overall push to upgrade its polluting industries.

The Xiang River carries away waste-water from paper mills, zinc and indium smelters. It is the second largest river to flow into Dongting Lake, which China is rehabilitating to control floods along the Yangtze.

In the middle is the provincial capital of Changsha, a city of more than 6 million that installed a sewage treatment system a few years ago and is now developing a second source of drinking water. The provincial People's Congress, a party representative body, takes the state of the Xiang very seriously.

"It's gotten a lot cleaner since they changed policies and stopped flushing city water into the river," said a local resident surnamed Hua, who wandered over to the riverside to drop in a line on a foggy December afternoon.

The river smelled fresh, and fishing families sell turtles, catfish and carp from sanpans pulled up on its sandy banks.

Last winter, low water levels raised pollutants beyond permitted levels, spurring the provincial and city environmental bureaus to shut indium plants in Zhuzhou, a small city about an hour upstream from Changsha. The closures helped push indium prices to historic highs.

But new indium plants have popped up in Chenzhou, an even smaller city further from the regulators in Changsha. Others have moved to the poorer province of Yunnan, where local governments are unlikely to say no to a new investor who comes knocking at their door.

"We don't approve projects that raise pollution above the permitted levels. But sometimes there are illegal projects, that open furtively," said Shang Shouguo, department head for Hunan Environmental Bureau's anti-pollution department, in an interview this month.

"If we can find them, then we will shut them, but sometimes they aren't easy to find."

Story by Lucy Hornby

REUTERS NEWS SERVICE