XInhua reports that Anhui Province shut down 379 enterprises over the last five years for excessive pollution. Today, the papers are running a story on the Chinese government’s publicly listing China’s 11 worst polluters and proclaiming those companies will be shut down if they do not soon change their ways. What does all this mean for business?
We previously blogged on how we view the service sector as one of the hottest sectors in China right now, and we listed environmental services as one of the leading service industries. China is slowly going green and we think this trend will accelerate. Just as was the case in Japan and Korea, as individual wealth increases in China, the number of people unwilling to accept filthy air and toxic water for the sake of jobs will decline and the pressure to clean up the environment will increase.
Foreign companies will be effected by China’s greening in two very different ways. First, there is a huge need in China right now for experienced, technologically advanced environmental services firms, particularly outside Shanghai. Companies are being shut down in large part because they lack environmentally sound options. Second, foreign manufacturers will need to become more cognizant of China’s current and proposed environmental laws.
We are aware of a Fortune 500 retail company that is opening units in China that meet or exceed the toughest United States environmental laws. I estimate this company’s environmental sensitivity will cost them at least an additional $25,000 per unit, yet I am firmly convinced this company is doing the right thing. This company’s actions make sense because the odds are good that China’s environmental laws and enforcement (particularly as against foreign companies) will get tougher over time, and building environmentally sound units now will almost certainly cost less than having to retrofit existing units a few years from now. On top of this, people often get very emotional about the environment and I can see Chinese citizens getting very angry at a foreign company whose units in China are less environmentally sound than their units in the United States or elsewhere. This is obviously even more likely to be the case if there were to be some sort of environmental disaster.
I expect we will be blogging frequently on China’s changing environmental enforcement.