China’s crackdown on polluting factories is having an increasing impact on extended supply chains

Enforcement of the 2013 environment tax policy has forced raw material suppliers to scale down production, as teams led by ministerial-level officials inspect their environmental protection efforts, impacting on the availability of finished goods.

The teams, made up of officials from the Ministry of Environmental Protection, began the first of four rounds of inspections in July last year after an earlier pilot project in Hebei province.

The fourth round, which began last month, will complete coverage of mainland China’s 31 provincial-level regions.

Some 18,000 polluting companies have been penalised, with fines totalling more than 870 million yuan handed out.

In the latest round of factory audits enforcing the 2013 regulations, the clean-up campaign has shut down factories that have primarily impacted on trade to African areas. So far there has been minimal impact on European importers as their vendors have been compliant, or not targeted.

The factory closures are spread across China’s main manufacturing areas, from Jilin Province in the north to Zhejiang Province south of Shanghai, to the giant inland cities of Chongqing and Chengdu.

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Guangzhou factories are next on the Ministry of Environmental Protection’s crackdown list, starting in the fourth quarter ongoing into 2018.

The scope and severity of the crackdown on lax enforcement of environmental standards has been unprecedented, as has been the response from local governments, who have traditionally turned a blind eye to environmental violations as long as they contributed to local economic growth.

Environmental protection has become a key performance indicator for officials in recent years as the central government tries to address acute pollution caused by decades of unchecked economic growth.

The problem for shippers sourcing in China is that even if their manufacturers are in compliance with the strict new pollution regulations, the suppliers of the factories may not be.

This is a developing situation, so it is worth talking with your vendors to find out what their experience and situation is and what contingency planning they may have in place to replace key suppliers.