Chinese Environmental Regulations Continue To Impact The Chemical Industry

- Jan 22, 2018-

It will soon be a year since China began countrywide environmental inspections of chemical factories, held regularly since the end of last Chinese New Year.

Conducted by special investigative teams that are part of the central government’s Ministry of Environmental Protection (MEP), the inspections target industrial parks in each region of the country. Companies not in accordance with environmental protection laws are required to suspend operations, and those without the funds to update their facilities are forced to completely withdraw and discontinue business.

The regulations came as a surprise to many local firms and have negatively impacted the chemical procurement systems of Japanese companies as well. The market for chemicals that are produced exclusively in China has continued at an all-time high, and one Japanese trading company insider said that the era of low-cost procurement is over.

The primary objective of the strict regulations is not simply to improve environmental pollution but to cut back overcapacity. Under the guise of environmental protection, China is conducting such inspections to weed out and reorganize the chemical sector in the country.

Already in effect are strict location provisions that, among other things, require that chemical plant sites be at least 1 kilometer away from surrounding residential areas. There is even the possibility that all related sites that are currently outside the central government’s jurisdiction could be shut down.

As environmental pollution worsens due to heating season, a number of main factories are suspending operations. Meanwhile, construction is being conducted to switch over to natural gas from coal as a source of heat in each region.

And while a number of factories are trying to resume operations once Chinese New Year ends, the trading insider said that it is uncertain exactly how many companies will survive, and that instability in procurement systems will remain for the time being. Such confusion in chemical supply chains from China is expected to continue.