"China Ministry of Industry and Information Technology considers relocation and revamp of pollution-discharging enterprises as a key component of China’s supply-side structural reform.

Early in 2018, the government of Jiangsu, the second-largest manufacturing province in China, announced a plan for large-scale shutting down and relocating pollution-discharging enterprises. But soon after that, the plan was questioned by China central government for being rigid uniformity without considering particularity of each plant. Jiangsu therefore stopped the plan, but remained rigorous in reducing pollution-discharging enterprises.

Early in 2019, after Tianjia Chemical explosion on 21 March, Jiangsu picked up its pollution-discharging enterprise reduction plan again. On 1 April, Jiangsu announced Draft Plan on Chemical Industry Reform and Improvement (“Draft Plan”), under which around 3000 plants are anticipated to be shut down or relocated. On 27 April, Jiangsu announced the final version, i.e. Chemical Industry Reform and Improvement Plan (“Plan”). Although without shut-down or relocation numbers, the message is clear that Jiangsu will clear out pollution-discharging enterprises.

Ⅰ. Implication of Foreign Investment Admission Regulations

In Feb 2019, National Development and Reform Commission and Ministry of Commerce combined Guiding Industry Catalogue for Foreign Investment and Guiding Catalogue for Foreign Investment in Encouraged Industries in Mid and West Areas into one single policy, i.e. Catalogue for Foreign Investment in Encouraged Industries. Joint venture requirement for restricted industries will gradually be lifted. A recent example is that BASF got approval for establishing the first wholly foreign-owned refinery and chemical complex in China.

According to the Plan, Jiangsu will reduce chemical plants, especially those close to Changjiang River, environmental sensitive areas and residential areas and those residing outside industrial parks. Non-chemical plants will also be impacted depending on pollution-discharging status.

Jiangsu, whose GDP is the second biggest in China, will not simply take pollution reduction as its final target. It actually targets to replace less good plants with high-end industry investment. That being said, the investment in agreement with guiding industry catalogues will certainly receive more incentives than other enterprises.

Ⅱ. Where Jiangsu Plants are relocating to

On 8 April 2019, National Development and Reform Commission circulated Draft Guiding Catalogue for Industry Structural Reform. Reading in conjunction with Guiding Catalogue for Industry movement, plant relocation path starts to be clear. East of China, focusing on high-end manufacture, moves less critical industry to mid and west areas. Coastal areas will develop major projects utilizing imported natural resources and technology. Mid and west areas then take advantage of domestic energy and mining resources.
At the end of 2016, Jiangsu launched “263” initiative which required shutting down, relocating, revamping and consolidating pollution-discharging companies. By the end of 2017, Jiangsu shut down 1421 plants, relocated 16 plants, revamped 461 plants and consolidated 99 plants. By the end of 2018, Jiangsu shut down 750 plants, relocated 54 plants, revamped 950 plants and consolidated 174 plants. In 2019, Jiangsu will evaluate all pollution-discharging enterprises. Unlike previous evaluation, enterprises are also requested to set target on resources recycling, failing which can be a cause for shutting-down or relocation. By the end of 2020, all plants that are not in agreement with industry guideline or pose environment and safety hazard should either shut down or relocate to mid or west areas.

The Plan also raises the project approval standard and applies a negative list, defining restrictive areas, encouraging environmental friendly or high-end industries, eliminating high-pollution industries and improving overall industry landscape.

Ⅲ. Development of Industrial Parks and Enterprises

In Feb 2018, six state-level ministries jointly circulated Announcement of China Industrial Parks Evaluation and Approval. In June 2018, Jiangsu circulated Notice on Reform of Coastal Chemical Industrial Parks (Areas). Accordingly, each industrial park must focus on a dominant industry. Thus, plant investment and relocation should match the industry focus of the industrial park. The existing plant which falls outside the industry focus and which has not developed its land as permitted under the project approval might lose the undeveloped land.
The chemical industrial park is differentiated from chemical industrial area. The chemical industrial park refers to the park that has sound industry supply chain, infrastructure, large-scope and good management. The chemical industrial area refers to the area with a number of chemical plants but less organized. This compare provides an important guideline for selecting site for new investment or relocation of a plant.

Moreover, the Plan sets high standard on development and management of industrial parks. The purpose is to reduce the number of those parks and make overall improvement, clearing out low-end, high energy consumption or high pollution plants.

Ⅳ. Responsibility of Plant Management

The Plan specifies the environmental and safety responsibility that the plant management should bear. The person who has actual control of the plant must take the position of legal representative as primary responsible person. Furthermore, a delegation of power must be put in place in case the legal representative is not onsite when an emergency happens. The Plan also puts forward requirements for management staffing and competency.

Also, the Plan also raises penalty for non-compliance. The legal representative needs to take personal liability for a non-compliant plant. A credibility rating system will keep record of non-compliance and management responsibility. Those management staff with bad credit will not be allowed to take management position anymore.

In order to implement the Plan, Jiangsu requests all districts within the province make implementing plans, one plan for each plant and one strategy for each industrial park. Before end of May 2019, all major municipal leadership must sign an acknowledgement and file such with the higher-level government.

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