China's first river law set to push green transition
China has drafted its first-ever river law for its largest river, the Yangtze. After passing the first-round review at the National People’s Congress, the draft is currently under public consultation until 26 January 2020. This is one of China’s latest actions to tackle resource constraints and environmental degradation and seek green transition of the economy.
The “Yangtze River Economic Belt” (YREB) was elevated into a national strategy in 2014. Ecological protection and green development along the river have been prioritised and placed at the core of multiple strategic policies. As China’s socioeconomic powerhouse, the YREB accounts for 44% of the nation’s population and 45% of its GDP. The region is home to manufacturing hubs that are key to global fashion and electronics supply chains, and a significant producer of some critical raw materials essential for a smart and high-tech future.[i]
However, environmental challenges, from industrial pollution to depleting fish resources, have posed risks for its future prospects. A 2017 government report found that 30% of environmentally risky companies were located within a 5km range of drinking water sources[ii]. As a result, any new build of heavy chemical industrial parks is banned within a 1km range from the banks of the river’s mainstream and major tributaries; new petrochemical and coal-to-chemical projects in the Middle and Upper Reaches are also strictly controlled[iii]. In 2019, 579 tailing ponds were closed, and 958 chemical companies were either relocated, shutdown or converted into other types of business.[iv]
Overall, local governments in the YREB are facing tighter environmental targets and deadlines. It has thus led the country in piloting multiple policy innovations such as trading of water and wastewater permits and inter provincial eco-compensation. Since 2019, provincial governments in this region have also finalised lists of “favoured” and “not favoured‟ industries based on ecological and environmental considerations.
The new draft Law, which includes clauses on penalties against actions that cause destruction of ecosystems and environmental pollution, will help enforce existing policies and regulations. It covers specific measures ranging from land use control, ecological environment restoration, water resources protection, green development, to legal compliance and supervision. This assures a regulatory risk in the long run for resource-intensive and polluting sectors and companies that have lower environmental performance than their peers. The increasing risks of large environmental fines and loss of licenses to operation could expedite industry consolidation and upgrading.
Alongside this draft Law, is also a 2019 national policy to implement a comprehensive fishing ban in 332 nature protection and fishery resource conservation zones along the river starting from 1 January 2020. By 1 January 2021, a 10-year fishing ban will also be introduced along the mainstream and 7 key tributaries as well as the Poyang and Dongting lakes.[v] However, the ban is unlikely to have significant impact on the fishery industry as aquaculture already dominates the current market supply. Nearly 280,000 fishermen are estimated to be affected, along with over 113,000 licensed boats. RMB9.2 billion central budgets have already been set aside to provide living allowance & job re-training. If successful, such programme might help lift overall income of affected people and potentially offset shrinking labour forces in manufacturing sectors.
Meanwhile, from 1 January 2020, all sea-going ships entering the mainstream of the Yangtze also need to comply with the 0.1%m/m sulphur content limit for their fuels[vi]. For riverboats, the limit has been in place since 1 January 2019[vii]. This sulphur cap is likely to increase the average cost of transporting goods, as the mainstream of the Yangtze accounts for over 39% of China’s inland waterborne freight transportation[viii],[ix]; but it also creates opportunities for relevant technological solution providers and infrastructure builders. By 2035, a network of LNG terminals is expected to be completed along the mainstream and major tributaries, according to the government plan[x]. In Hubei province alone, preliminary works of 5 LNG terminal projects have been started[xi].
Until November 2019, the central government had set aside RMB123.7 billion in supporting ecological protection and restoration along the YREB. This is echoed by green loans of RMB362.1 billion from China Development Bank and RMB152.9 billion from Agricultural Development Bank between January and November 2019. Nationally at the end of 2019 Q3, green loan balance represented 10.1% of total corporate loans. The percentage is probably higher in the YREB with more stringent regulation and the push for green transition. The region has also been active in green bond issuance, representing 44% of the national total by number and 32% by volume in 2019. At the beginning of 2020, a new policy was also introduced to strengthen green finance development, which may help ease credit challenges for companies and local governments that are aligned with various green lists and targets.
Finally, one important step that the draft Law will bring is the introduction of a mechanism at the State Council to supervise and coordinate different departments and provincial governments on all matters related to protection of the river. This will be a step further from the 2018 ministry reform and encourage more holistic and systematic decision making. It will also help improve the efficiency of local governments, which currently often work in silos and lack coordination between different departments not to mention between the upstream and downstream. The new Law should bring positive benefits to the local governments in the long term.