China Update – How Strict Environmental & Safety Regulations Impact the Chinese Wood Market

By Ping-Lian Wu

The Chinese government’s environmental investigation is shaking the core of Chinese industry – small and medium size enterprises.

Starting in July 2016, the Chinese government’s national environmental investigation is reshaping many of China’s manufacturing sectors, including wood-based panels, furniture and building material. The targets are factories without proper measurement for waste or pollutant controlling, with a focus on illegal manufacturers, for example those who establish factories with no respect to city planning rules, without legal registration, or who emits pollutants that exceed the stipulated limits illegally (散乱污企业). Those illegal manufacturers usually using agricultural or residential buildings as factories. Most of them are small-medium size enterprises.

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The national environmental investigation has scanned through the entire country in the last 12 months. In each province or major city, during a 30-days investigation period a complaint hotline is open for citizens to report suspicious factories which might emit pollutants illegally. The non-compliant companies were forced to stop the production immediately by cutting down the electricity and water supply. If companies were still non-compliant with regulation by end of September 2017, all of them will be forced to terminate their business. Officers from local governments were also investigated by auditors.

This environmental investigation has been called the largest and most strict audit ever in China. Many criticized that “one-fits-all system” (一刀切). Shutting down non-compliant factories would resolve the serious pollution issue but since Chinese industry is largely formed by the small-medium size enterprises, closing factories without further support and guidance resulted in a significant number of workers facing unemployment. Reports also revealed reduced production in many sectors. The negative impact on the economy such as price rises on raw material or even shortages of supply would soon impact the entire supply chain. However, it is not the last step of Chinese government on reducing environmental impact.

Environmental protection taxes in China from 2018

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From first of January 2018, manufacturers will be required to pay environmental protection taxes on pollutant emissions for water, air, solid waste and noise. The new law introducing an environmental protection tax was approved in December 2016 for replacing former regulation which was not effective. Instead of charging a “fee” on pollutants, Chinese government will charge it as “tax”. Specific emissions are subject to tax. Depending on the local government, additional emissions will also be taxable.

The tax free structure will also be changed. Factories that emit less than 50% of the threshold will no longer be exempt from tax. From 2018, companies that emit less than half of the threshold pay 50% of the tax, companies that emit 30% less than the threshold will pay 75% of the tax. Tax of each emission unit will be also increased.

The full impact of the Chinese government’s environmental policies are not yet clear but certainly this drive to improve standards will increase the overall production cost in China.

More info for reference:

China Daily

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