A manufacturing client of ours for whom we are in the process of setting up a WFOE in China sent me this article and asked me what I thought of it. You regular readers just need to read the article to know.

The article comes from the AFP wire and is appropriately entitled China warns foreign polluters. The thrust of the article is that China issued a warning to foreign companies in China that “it will impose equally harsh penalties on domestic and foreign” polluters. This warning came after inspections “earlier this year found “Unilever China and the China branch of Hitachi Construction Machinery Co. were discharging wastewater with higher chemical content than permitted.” An official with China’s State Environmental Protection Administration expressed his surprise at finding “both companies had environmental pollution problems since they were the only two foreign companies selected at random for the inspection” and he vowed to “strengthen our supervision.”

The article quotes “analysts” as saying “such a warning was likely to be driven by rising domestic concerns that foreign polluting industries were finding their way to China, thanks to lower costs and the country’s pressing need to create jobs.” Andy Xie, a well known economist out of Shanghai, is then quoted as saying, “There is a widespread concern that international polluting industries are moving to China.” Xie goes on to say “it is no longer an urgent priority to attract foreign funds, just as the need to create jobs is felt less keenly, and therefore China now is able to say no to this type of industry if the cost is deemed too high.” Xie sees these recent actions as a “signal that China no longer welcomes foreign industries which provide only limited job opportunity or low technology.”

I completely agree with Mr. Xie.

China has always and will always (at least for the foreseeable future) enforce its laws more strictly against foreign companies than against domestic companies. I am constantly writing about this not to complain about it, but simply to point out the reality. Just because your Chinese domestic competitors are getting away with something does not in any way mean you as a foreign company will be allowed to do so.

Beijing is also now at the stage where it is pretty much neutral about all but the largest foreign companies remaining in China. I am not saying it is neutral about foreign direct investment (FDI) in general, but I am saying that it really could not care less about whether your individual business stays in China or goes. And if your business is a polluter, it actually would probably rather see you leave.
Lastly, going after foreign companies is politically popular.

A year and a half ago, I did a post, entitled Is China Going Green? in which I noted the following:

We are aware of a large 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 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.

Bottom Line: If you are doing business in China, you should obey China’s laws, its environmental laws.