Promoting Compliance in Non-Compliant Markets – A Chinese Perspective

The Chinese National environmental regulatory system is administered across the following five levels of government, each of which has specific roles and responsibilities:

• National – sets National environmental legislation and undertakes approval of major projects (i.e., projects of national significance)
• Provincial – administers most of the National environmental legislation and can set provincial legislation to complement the National legislation
• City/Prefecture – undertakes minor project environmental approvals, can be delegated as an operational environmental regulator and a provider of operational environmental monitoring services
• County/District – undertakes minor project environmental approvals, can be delegated as an operational environmental regulator and a provider of operational environmental monitoring services
• Town/Village – coordinates and resolves issues concerning local community/land compensation issues and generally resolves issues among final land users (key site closure stakeholders)

There is significant involvement in and delegation of environmental regulatory responsibilities between the Provincial Government level and the other three lower levels of Government.

Traditionally, the Chinese mining industry has operated under a culture of environmental non-compliance. It has been culturally acceptable for a mine operator to pay the fine and/or discharge fee for a project’s environmental emission, rather than address or resolve the cause of that emission. In addition, another key contributing factor to this culture of environmental non-compliance is that the regulatory advice and enforcement set out in the Chinese National environmental legislation is not consistent with enforcement actions occurring at the Provincial/City/County levels of Government.

In a new initiative, the Chinese mining industry is adopting the international technical due diligence process for stock exchange listing, acquisition and/or financing of projects. SRK China has completed over 200 Independent Technical Reviews (ITR) of Chinese mining projects since the process was established in 2005. The environmental component of these ITRs comprises reviews of:

• Project compliance with Chinese National environmental regulatory requirements
• Project conformance to World Bank/International Finance Corporation (IFC) environmental standards and guidelines, and internationally-recognised environmental management practices
By adopting the international ITR process, the Chinese mining industry can be seen as promoting a culture of environmental compliance. Specifically, the industry’s adoption of the international ITR process is producing the following environmental outcomes:
• Demonstrating an industry trend towards adopting international environmental management practices and systems.
• Developing an industry culture of environmental compliance by defining the environmental compliance gap and requiring the production of Action Plans to address identified non-compliance issues
• Increasing the awareness within the industry of international technical and management solutions to environmental issues
• Providing Chinese regulatory feedback by verifying regulatory advice/enforcement at the local level

In the view of SRK China, the adoption of international environmental management practices and systems by the Chinese mining industry is a cultural shift, and the promotion of environmental management awareness within the industry, through the international ITR process, is providing further impetus to change this industry culture.

Andrew Lewis: alewis@srk.cn

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