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China’s revised Water Pollution Prevention and Control Law (the New Law) is now in effect.

The New Law, passed by the National People’s Congress this spring, is a major development in China’s battle against water pollution. It is designed to tackle the increasingly critical problems posed by water pollution, which are threatening not only public health but also the country's social stability and economic growth.

The law introduces new provisions for governmental supervision and far more severe penalties. Companies face penalties far tougher than before for violating the law. Importantly, the law also establishes an accountability system for government environmental officials. Such officials at and above county level will be evaluated for their performance in enforcing the law.

With this law, China has put in place regulations that require dischargers to meet definite standards regarding common water pollutants. It sets forth specific prohibitions regarding toxic wastes, heavy metals, effluents containing pathogens and radioactive waste, and contains provisions aiming to protect groundwater and promote clean manufacturing. It regulates water pollution caused by shipping. It imposes an obligation on enterprises to take preemptive measures that would forestall environmental accidents. Notably, it also requires companies to have in place a contingency plan for dealing with pollution incidents.

Alongside the change in the law, the State Environmental Protection Administration (SEPA) will be given the status of a ministry. Currently SEPA is responsible for developing and enforcing China's environmental policies and regulations. In the past, without the political clout needed to compel local authorities to cooperate, SEPA has had only limited success in tackling environmental abuses. With its elevated ministerial status, it is expected that SEPA will have the political muscle to take a tough stance against industrial polluters.

The penalties for violation will be far more severe under the New Law. In addition to corporate entities, company heads directly responsible for causing water pollution incidents will be targeted:

• For "medium" pollution incidents, the enterprise will be fined 20 percent of the direct damages caused by the pollution, with no maximum limit.
• For "serious" pollution incidents, the enterprise will be fined 30 percent of the direct damages caused by the pollution, with no maximum limit.
• For "serious" pollution incidents, the enterprise in question may be ordered to shut down, and the responsible officers may be fined up to 50 percent of their annual income from the previous year.

Furthermore, a class action can now be initiated against a polluter when the pollution creates a "large number"¹ of victims. This is the first time that an environmental law in China explicitly stipulates a situation in which a class action can be brought.

According to a study completed by the Organization for Economic Cooperation and Development, in 2007, 300 million people in China were drinking contaminated water every day, and 190 million suffer from water-related illnesses each year. The researchers looked at environmental damage of all sorts, but expressed the strongest concern about water pollution. One third of the length of all of China's rivers, as well as 75 percent of its major lakes and 25 percent of all its coastal rivers, are now "highly polluted." The country’s remarkable economic development coupled with feeble environmental standards, the report said, means the situation continues to deteriorate rapidly. The tougher approach embodied in the New Law demonstrates China’s understanding that the existing system had to be overhauled and a more stringent system of control and prevention put in its place.

Foreign Companies Will Likely Be Scrutinized First

Once the New Law comes into effect, there will likely be an increase in prosecutions, with higher fines being handed to both corporate and individual offenders.

In our view, foreign companies already operating in or looking to operate in China should pay particular attention to the potential impact of the New Law on their businesses. Because foreign companies are regarded as better resourced and better governed, and given China's unspoken practice of testing new laws on foreign enterprises, it is very likely that such companies will be the first targets of the regulators’ scrutiny.

International companies operating in China should, therefore, closely evaluate their pollution prevention practices to avoid potential breaches of the New Law and the penalties and adverse publicity that prosecution could bring.

To assist you in understanding the New Law, we set out below a table highlighting some of the major changes it implements.

Highlights of the New Law

	New Provisions	Commentary
Supervision and management of prevention and control of water pollution	The State Council will introduce a nationwide system for minimizing and controlling the acceptable volume of pollutants to be discharged. Provinces, autonomous regions and municipalities shall ensure that the system is implemented by the city and county governments, which in turn shall ensure that it is executed by the units responsible for handling pollutant disposal. In regions which exceed the allowed discharge volume, the environmental protection office of the people’s government shall suspend issuing environmental assessment documents to construction projects that increase the discharge volume. Any province, autonomous region or municipality which fails to reach the prescribed standard shall be publicized by SEPA. Any city or county which fails to reach the prescribed standard shall be publicized by the province, autonomous region or municipality. Any enterprise which fails to comply with the water pollution law shall be publicized by the environmental protection unit of the county government.	With the new system of control instilled by the State Council, each level of government would be compelled to conform strictly to the national standards and to take necessary enforcement actions. As a result, new construction projects may not be able to proceed for lack of the necessary environment assessment documents, due to the region's failure to meet the discharge standards. Furthermore, with the new system it is likely that higher environmental protection standards will be imposed. This may mean enterprises will have to pass more stringent tests in order to obtain the necessary license for operating any industrial undertakings that involve disposing pollutants.
Handling of pollution incidents	Enterprises which may potentially cause a pollution incident must have an emergency plan in place for dealing with environmental accidents; the plan must also include remediation procedures. In the event of a polluting incident, the enterprise must carry out the emergency plan and report the incident to the environmental protection unit of the provincial government. An enterprise may be fined RMB20,000 to RMB100,000 if it fails to put in place an emergency plan or to carry out the plan in the event of an incident.	In a number of recent incidents, industrial pollution caused devastation to major river systems that severely affected the water supply for millions of people. The new law imposes an obligation on enterprises to take preemptive measures that would forestall such incidents. This requirement did not exist under the old law.
Legal liability	An enterprise may be fined 2 to 5 times its sewage charges if it discharges pollutants above the prescribed standard. For "medium" pollution incidents, the enterprise will be fined 20% of the direct damages caused. There is no maximum limit to the fine. For "serious" pollution incidents, the enterprise will be fined 30% of the direct damages caused. There is no maximum limit to the fine. For "serious" pollution incidents, the responsible company officers may be fined up to 50% of their annual income for the previous year. Any person who suffers a loss as a result of the pollution can claim damages from the polluter. A class action can be initiated when there are a "large" number of victims.	The penalties for violation have been completely revised. Previously the penalty for a "medium" incident was simply a fine of 20% of the direct damages caused by the pollution, subject to a maximum of RMB200,000. In the case of "serious " incidents, the fine was 30% of the direct damages caused by the pollution, subject to a maximum of RMB1,000,000. In the past, the responsible company officers only faced administrative penalties. Under the old law, only a person who suffered a direct loss can claim damages, but this requirement has been removed.

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1 The New Law does not specify how many victims shall amount to a "large number", but according to China’s Civil Procedures Law, class actions can be brought if there are more than 10 victims.