Why Chinese firms don’t apologise

Unlike BP, China’s state-owned polluters have been allowed by friends in government to ignore the consequences of their actions, writes Tang Hao.

There is more than one BP in this world. On July 3, toxic waste from a Zijin Mining copper plant spilled into the Ting River in Fujian, south-east China, killing thousands of fish. On July 16, an explosion at an oil depot in Dalian, sent 1,500 tonnes of crude oil flowing into the sea off the north-east coast. On July 28, floods at Yongji in Jilin province swept 7,138 barrels of chemicals from two chemical plants into the Songhua River.

But China’s companies do not handle responsibility in the same way as their overseas counterparts. To date, BP has spent billions of dollars plugging the Gulf of Mexico leak and dealing with the spilled oil. It will also cover government clean-up bills, running to hundreds of millions of dollars, and it has been forced to establish a US$20 billion (136 billion yuan) compensation fund. In contrast, Zijin only got around to disclosing its pollution incident nine days after the event. Even then, its vice-president repeatedly stated that the leak “was largely a natural disaster and could not have been predicted”.

Meanwhile, the China National Petroleum Corporation (CNPC) has offered neither apology nor compensation for the oil that gushed from its Dalian facilities into the Bohai Sea. State-owned enterprises (SOEs) such as CNPC have a track record when it comes to this kind of behaviour: after polluting the Songhua River in 2005, CNPC paid a mere 5 million yuan to the local government and 1 million yuan in fines to the environmental authorities. Those living alongside the river received nothing.

So why are these state-owned firms – founded with taxpayer money – able to cover up their actions and behave so arrogantly after wreaking environmental havoc? They appear even more unflappable than richer, stronger businesses abroad. The answer is simple: they have back-up. Both CNPC and Zijin inhabit sectors that do not yet function according to market principles. Since the 1990s, central government’s market reforms have shifted in focus from “marketisation and privatisation” to eliminating weaker firms in sectors with overcapacity, such as coal mining, power generation and non-ferrous metals, thereby opening the door to SOE monopolies.

China’s market economy is a distorted one, and state-owned firms have grown up in an environment of unfair competition. There are numerous examples of such organisations enjoying monopolies, putting pressure on private firms and setting rules that favour their own. The refusal to pay environmental costs is simply one expression of these special privileges.

Moreover, the special relationship between the SOEs and local government is itself a root cause of environmental incidents. China’s GDP-obsessed local authorities prioritise growth over the environmental protection and, as a result, the country’s industrial sector has become a huge ecological hazard, presenting a degree of risk rarely seen elsewhere in the world.

Nothing demonstrates this more clearly than the locations of chemical plants on river banks – chosen for the sake of profit, with no thought given to the environment. Of China’s 7,555 chemical and petrochemical plants (with a combined capital cost of just over one trillion yuan) 81% are located in environmentally sensitive areas – by rivers, or in densely populated areas – and 45% are considered to pose major risks. In some areas, chemical plants are sited just 300 metres from rivers. Weng Lida, former head of the Yangtze River Water Resources Protection Bureau, has been quoted as saying: “Half of all China’s chemical industry is in the Yangtze basin. A Yellow River’s worth of domestic and industrial waste water flows into the Yangtze every day.”

China’s particular method of development and industrial structure have given rise to a chemical industry that poses a major threat to public safety. The frequent pollution incidents we have seen this year are merely a warning that similar, larger-scale accidents are yet to come. 

The environmental policy successes of western governments have been based on government transparency, honesty and the utilisation of civil powers. Corporate and individual environmental responsibilities are set out clearly in legislation; environmental information is easily accessible; the media can report on the issues freely; and the public is both concerned and engaged. These are all necessary conditions for environmental protection. In Europe, both governments and NGOs are environmentally active. In the United States, it was the pressure applied to BP by Barack Obama’s administration that ultimately prevented the environmental catastrophe from getting even worse.

But in China, the government – the natural safety valve – is itself flawed. Close links between the authorities and business, especially the SOE sector, have long been recognised as a problem. Against this background of tight relationships, state-owned firms are rarely punished for environmental breaches, even if they already have a poor record. According to an official survey, 36% of 3,486 state-controlled enterprises that release waste water were found to be breaching standards when inspected. And, out of 3,557 businesses releasing atmospheric pollution, 41% had breached all or some standards over the course of a year. But enforcing the law in such cases is extremely difficult. Pollution by SOEs is not, at root, an environmental issue – it is a problem of governmental will and commercial incentive.

In fact, Zijin Mining topped a list of 11 firms found to have severe environmental problems, published by China’s Ministry of Environmental Protection in May – two months before the Fujian disaster took place. The firm had already been named and shamed in this way several times previously, but local-government protection meant it was untouchable. In 2010, the firm was even awarded the title “Most Sincere Enterprise of China, 2009”. After it caused a major environmental catastrophe, an anonymous company employee said to Time Weekly magazine: “The government will not let us become a BP.”

In China, state-owned and government-controlled firms have even closer ties with government than private business, and so the environmental authorities have greater problems exercising oversight. In this context, it is easy to see why CNPC and Zijin did not promptly report their incidents to the environmental authorities or take measures to reduce the impacts, instead opting to cover up the events and refusing to pay compensation.

There needs to be a range of forces involved in environmental protection. Legislative and judicial bodies, the media, public opinion, NGOs and other civil society bodies and international organisations all have their role to play. But in China today, just as SOEs have monopolies in certain sectors, the government has a monopoly on power. Legislative bodies are weak, civil oversight is suppressed, and large state-controlled firms have formed tight alliances with government. There is no scope for these diverse forces to fulfil their rightful functions.

Faced with frequent environmental disasters, the typical reaction is to hope the government will actively intervene to change corporate behaviour. But when the dividing line between government and commerce is blurred, excessive power is concentrated in the hands of the authorities and other societal forces are helpless, environmental protection in China is in a quandary. If the powers of the government are increased so that it can intervene to a greater extent in the marketplace, then it will have further opportunity for rent-seeking behaviour, corruption will increase and environmental problems will become even harder to solve. But if government powers are weakened, then already brazen businesses will be even freer to do what they will to the environment. If the current monopoly on power is not broken, the environmental issue will, like other social problems, remain unsolvable.  

Judging by historical pollution patterns, it seems likely that China – three decades after the start of its manufacturing boom – is about to enter a period of frequent environmental disasters. During this period, large monopoly firms will be major polluters. Despite being built on taxpayers’ money, such firms, with their unique economic and political position, pose an even greater threat to the environment those taxpayers inhabit than private enterprises or foreign companies. To turn this situation around requires not so much a change in the relationship between government and business as the creation of a responsible government.

Tang Hao is an associate professor and a columnist. He is currently Fulbright scholar-in-residence at
 Randolph-Macon College in the United States.

Homepage image by Sygne.