Rebooting ecological governance

  • Bureaucratic shake-up: At the National People’s Congress (NPC), the Chinese leadership approved a massive shake-up in the central government’s bureaucracy, which included a huge overhaul of China’s environmental governance. This revamp of state institutions saw the creation of two new super-ministries – the Ministry of Ecological Environment (MEE) and the Ministry of Natural Resources (MNR) – that will hold major implications for the country’s environmental future as well as global efforts to address climate change, particularly the MEE. In particular, the structural rearrangement sent a strong signal that China’s push its’ strengthen its environmental performance will continue unabated.
  • One dominant regulatory greenhouse: By rewriting the environmental regime, the Chinese leadership intends to consolidate the multitude of environmental duties that are scattered across disparate ministries and government agencies – essentially housing them predominantly under one regulatory greenhouse, the MEE, and correct what has been a somewhat fragmented approach to green governance. The new management structure aims to iron out a more coordinated and efficient agenda by reducing bureaucratic red tape, duplicative responsibilities, and turf struggles, removing the key bottlenecks to effective policy formulation and implementation. And it looks to empower environmental policymakers – who in the past occupied one of the less authoritative positions within the Party-state hierarchy – with a far stronger hand to wage China’s “critical battle” to control pollution in the coming years.
  • But consolidation is not a cakewalk: The logic behind this huge drawing together of regulatory powers is sound. However, the success of the MEE and MNR will ultimately hinge on how effectively they manage to integrate the daunting scope of duties being bundled together under their frameworks and how well they work together as well as with other government bodies.

Intensifying environmental crackdown

  • Escalating costs for running afoul of the rules: As the leadership pursues its vision of a “Beautiful China,” there has been a major crackdown on companies and officials who have fallen afoul of environmental regulations. Environmental enforcement now has the same prioritization as anti-graft efforts on the government agenda, and the corruption watchdog has been muscled behind the green clampdown, giving it real teeth against those who are non-compliant. In President Xi’s second term, the application of green laws can be expected to continue to intensify. And those who stand on the wrong side of them will not only face escalating costs – they may even jeopardize their future in China.
  • Red alert on green compliance: Both Chinese and foreign companies have been affected by the green crackdown. Neither are immune and ensuring environmental compliance is now essential for all businesses. Executives would be well-advised to consider the following:

    • Internal environmental audits: Carry out more frequent and rigorous internal environmental audits and ensure strict compliance policies are in place
    • Supply chain management: Engage with their supply chains over green compliance and assess where their companies may be indirectly vulnerable as well as prepare for the possibility of some of their suppliers being forced to close in the future
    • Green targets for Chinese authorities: Evaluate how their companies can help officials meet their targets vis-à-vis environmental performance, which is now one of the key determining factors for career advancement – and, above all, make certain they are not an obstacle standing in the way of achieving those goals.
    • Stakeholder mapping: Be aware that the personnel make-up of China’s environmental regime will be in transition during the structural shake-up – businesses may need to remap their key government stakeholders to ensure that they still have the right relationships with the right authorities
  • Enormous market potential for green products and services: The accelerating shift towards a more sustainable development model may weigh on China’s headline GDP growth. However, companies need to be aware that economic rebalancing will almost certainly also create huge potential for green markets. As China moves away from its smokestack industries, expanded investment in environmental protection will no doubt see more and more Chinese companies emerge as first movers in innovative new products and services and leapfrog over their foreign counterparts in everything from electric vehicles to renewable energy to carbon trading.

*The below sections provide further details about the specific responsibilities and leadership of the two new super-ministries.

Ministry of Ecological Environment (MEE)

  • Portfolio: The newly-established MEE will succeed the old Ministry of Environmental Protection (MEP) and absorb a wide slate of environmental duties from other ministries and government agencies, including the agriculture, land, and water resources ministries as well as the National Development and Reform Commission (NDRC). In particular, the enlarged environmental watchdog will unify oversight of air, water, soil, and maritime pollution and take the lead on China’s climate change and emissions reduction policies.
  • Leadership: Li Ganjie, China’s environment minister, was appointed as the head of the MEE. Before being tapped to lead the former MEP last summer, Li served as deputy Party secretary of Hebei province, one of the major battle fronts in China’s war on pollution. He also spent nearly a decade as a vice minister responsible for nuclear safety at the environment ministry.
  • Looking ahead: Speaking at a media briefing on the sidelines of the NPC, Li shared some of the first details about what to look out for under the new MEE. Several of the highlights included the following:

    • More active role in global governance related to sustainability: Li said that the structural reforms reflect President Xi’s call to build an “ecological civilization,” emphasizing that part of this effort would see China continue to assume a more active role in global governance related to sustainability. With the NDRC having ceded responsibility for fighting climate change and curbing emissions to the MEE, the new environmental watchdog will likely emerge as China’s new lead actor at international climate negotiations.
    • New three-year plan for improving air quality: Li touched upon China’s preparations to set more stringent targets for improving air quality, noting that, “We are making a three-year plan to win the battle for blue skies.” The details are currently being hammered out, but Li stressed that the main focus is to “control pollution in key areas and from heavy industries.” Following its release, companies should take a close look at the new blueprint, ensure their compliance with tougher emissions rules, and assess how they may contribute to achieving its goals.
    • Upcoming nationwide inspection system: This year, the MEE will establish a new nationwide inspection system under which local authorities will be empowered to carry out regular checks on polluting companies and factories. Li also emphasized that the central government will punish local officials who do not enforce the regulations properly. Heightening corporate and official accountability for environmental malfeasance will be a major focus of the MEE.
    • Ban on foreign waste imports: Commenting on China’s newly enacted prohibition on foreign waste imports, Li underscored the domestic environmental damage that had been caused due to the processing of such waste. He said, “All countries must deal with their own generation of hazardous waste, reduce this on their own, and process this on their own; only with this understanding…can we build a clean and beautiful world.” China is fully committed to enforcing its new ban on overseas garbage, and major waste-exporting nations and regions, such as Europe, Japan, and the U.S., now urgently need to find alternative destinations or expand their own domestic disposal and recycling infrastructure following the loss of the vast China market.

Ministry of Natural Resources (MNR)

  • Portfolio: The MNR will replace the Ministry of Land and Resources, the State Oceanic Administration, and the National Administration of Surveying, Mapping, and Geoinformation and also absorb certain area planning responsibilities from the NDRC. Overseeing the development and protection of China’s natural resources, the new entity will manage the allocation of rights to forests, grasslands, wetlands, and water and maritime resources as well as handle urban and township planning.

  • Leadership: Lu Hao, the governor of Heilongjiang province in the northeast, was tapped to lead the MNR. At the time of his promotion to Heilongjiang governor in 2013, the rising political star became China’s youngest provincial governor. Earlier in his career, Lu also stood out for having served as Beijing’s youngest vice mayor in the 2000s.

H+K’s Government and Public Affairs (GPA) Team will be publishing a series of Lianghui Cheatsheets covering the key outcomes from the “Two Sessions” and their implications for businesses – available online on our “Two Sessions” Analysis Hub or by contacting us directly at GPABeijing@hkstrategies.com.

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