Stories from the summit

“We have cleaned up the air in the Olympics, and we need to keep going,” said Mallesons Stephen Jaques partner Christopher Tung at the 5th annual China Law & Practice China Summit.

The Chinese government's active approach on environmental protection means that investors need to be more cautious on the requirements of operating businesses in China. “Environmental components must now be taken into account when investors are buying stocks or obtaining an ownership interest in a Chinese entity,” said Charles McElwee of Squire, Sanders & Dempsey. It is important, he says, for investors to be aware of the standard environmental issues in the national and local level, and to comply with them.

“There are new policies now,” Tung said. “Since the beginning of this year, the vice-minister of the Ministry of Environmental Protection has made it clear that they will work on all environmental policies, dealing with green securities, green credit and green insurance, so it touches upon all industries,” he said at the Summit.

These policies are crucial according to Tung. Without them, environmental degradation could damage the economy, public health and the image of China abroad. Unsurprisingly, the Chinese government has been actively promoting the importance of environmental protection to raise investors' awareness. The Ministry for Environmental Protection (MEP), the China Banking Regulatory Commission, and China Insurance Regulatory Commission have jointly issued regulations stating that enterprises with bad environmental behaviors shouldn't be given granted loans.

While the Guiding Opinions on Environmental Pollution Liability Insurance¹《关于环境污染责任保险工作的指导意见》makes environmental liability insurance a legal requirement, the Guide to Strengthen the Environmental Regulation of Listed Companies prohibits IPO applications unless the company discloses the environmental performance information and has received MEP verification opinion.

“These are the realities of Chinese policy towards environmental protection,” said Nicolas Groffman, senior associate at Mallesons Stephen Jaques. “It doesn't do any good to simply outline what is not environmental friendly unless you explain the damage it will do.”

China's emphasis on environmental issues was particularly obvious in the National Eleventh Five-year Plan for Environmental Protection 2006-2010. The government has shifted its policy from economic growth to environmental protection, placing more attention on the reduction of carbon dioxide and sulphur dioxide emissions, as well as targeting improvement of air and water quality levels.

“Environmental concern has never been there before,” Groffman said. “Traditionally, the government would base its model around the economy, and important industries. But now within each industry, there is at least one environment issue to focus on,” he says.

The problem with enforcement

While environmental policies have been shaping investors' behavior, other legal concerns linger. Zhang Yuejiao, judge on the Appellate Body of the WTO Dispute Settlement Body, opened the China Law & Practice China Summit at the Shangri-la Hotel in Shanghai.

Zhang argued that the Anti-monopoly Law (AML)《中华人民共和国反垄断法》and the amendments of the PRC Civil Procedure Law《中华人民共和国民事诉讼法》are both milestones in China's legal history. While AML lays down the foundation of fair competition in China, the Civil Procedures Law regulates the practice of law firms and counsel.

Li Fu, deputy general of China International Economic and Trade Arbitration Commission, shared his insights on the arbitration in China.

He said that the amended Civil Procedure Law² has significantly strengthened enforcement in China's arbitration system. Meanwhile, Zhang argued that the government has taken active steps to unify legislations and to have better coordination between administrative departments.

But although the Civil Procedure Law illustrates the government's efforts to put enforcement in place, problems still linger. The AML's effectiveness and impact will all depend on enforcement, for instance. Other issues persist: deficiencies in the management capabilities of the authorities, technological constraints, and local protectionism have not only formed barriers to environmental protection but also have slowed down legal developments.

According to Chinese Academy for Environmental Planning in 2006, only half of the government funding dedicated to environmental protection between 2001 and 2005 was eventually used in environmental protection projects. No matter how many sophisticated policies and regulations the government promulgates, insufficient enforcement makes everything meaningless.

“Perhaps we should be focusing less on the policy and think about how we can ensure local authorities really enforce decisions,” Groffman said.

Endnotes

1. See State Environmental Protection Administration and China Insurance Regulatory Commission, Guiding Opinion on the Work of Environmental Pollution Liability Insurance in April 2008.

2. See PRC Civil Procedure Law (Revised) in CLP October 2007