China’s Water Pollution Prevention and Control Law was amended on February 28 by the Standing Committee of the NPC (Chinese version here; English translation of Penalty section here; full English translation on its way). I’ve only had a chance to briefly skim it, but new penalty provisions are getting the most press, so I’ll give you my first take. Three penalty changes merit comment. First, a provision (in Article 83) has been added (it was not in the draft law submitted for public comment) which is translated by Xinhua as: “Enterprise heads directly responsible for causing severe water pollution incidents and others with direct responsibility will be fined up to half of their income of the previous year.” My read is that it is not “enterprise heads,” but those “directly responsible” (对直接负责的主管人员和其他直接责任人员) for an accident which causes water pollution who risk the salary hit. Thus, rather than the CEO, it can be some lower level employee who takes the rap (it’s possible a non-penalty provision of the act imposes “responsibility” upon CEO’s for water pollution matters, if so, I’ll update). In addition, as a number of my Chinese colleagues and others have pointed out, the actual booked salary for many employees (upon which this penalty will presumably be based) may not be, how shall I put it, a significant percentage of an employee’s total compensation. Foreign invested company employees will be more vulnerable on this one. It should also be noted that Xinhua’s “incident” (事故) really translates as “accident.” In other words, salary penalization could come into play for a Songhua River type spill, but it will not apply to the day-in, day-out normal operational exceedance of applicable water limits.
This brings me to the second point, Article 83 also provides: “In the event of any insignificant or relatively large water pollution accident, a fine equal to 20% of the direct losses caused by such water pollution accident shall be imposed. In the event of any serious or exceptional serious pollution accident, a fine equal to 30% of the direct losses caused by such water pollution accident shall be imposed.” This provision was in the draft released for comments. Note again it only applies to “accidents,” not routine exceedances. In the case of the Songhua River spill a fine equal to 30% of the direct losses would have been huge, so this provision, if applied, could have some bite. One caveat, it is unclear what is exactly meant by “direct losses.” Are the drafters trying to exclude “consequential” damages? Hard to say. I think it is fair to conclude that the provision excludes what would be considered “natural resource damages” under US Superfund law. In other words, the “value” of fish and birds, for instance, killed as a result of the pollution accident will not be considered part of the “direct loss” base amount unless someone can claim he made his livelihood catching them and that livelihood has been harmed. Unlike the US, fish and birds have no inherent monetizable value in China.
Third, the maximum quantified penalty set forth in the amendment is RMB1,000,000 (Article 75) (which is pointed to as a great leap forward), but it only applies to the most obdurate of polluters. The entity must illegally discharge into a “drinking water source protection zone” and fail to heed the orders of regulators to stop. Then and only then do the RMB1,000,000 penalties kick in. For the chronic violator who discharges into an ordinary receiving water, the penalties are as follows: Article 73 provides for “fines equal to 100% and 300% of the payable waste discharge fee” for failure to use installed pollution control equipment; and Article 74 provides for “fines equal to 200% and 500% of the payable waste discharge fee” who exceed applicable categorical or water quality standards. These penalties represent a change from the comment draft which applied fixed penalties of from RMB50,000 to RMB500,000 for the Article 73 situation, and from RMB100,000 to RMB1,000,000 for the Article 74 situation. Although I will have to do some cipherin’ and make some assumptions to know for sure, my sense is that on average the enacted versions penalties will be lower than those proposed in the comment version. More anon. . .