Any large business today has significant exposure to China as a manufacturing base, market for your products and/or technology development partner China’s industrial landscape is being reshaped by environmental policy priorities and a central government that is stronger now than at any time in the last 200 years. These changes will force many production sites to close or relocate at great expense, and with associated supply chain disruptions. Impacts will vary according to regional sensitivities and cross-checking is necessary to get reliable impact assessments. Being a multinational manufacturer in or sourcing from China remains a solid business proposition, but critical business decisions may be required to sustain your advantage. The first step is assessing site-specific vulnerability to China’s policy changes.

1. G Beyond Compliance
Weathering China’s Environmental Storm
Presented at AmCham Shanghai's Environmental Committee
AmCham Shanghai Conference Center, April 17th, 2018

2. Executive Summary
1. Any large business today has significant exposure to China as a manufacturing base, market for
your products and/or technology development partner
2. China’s industrial landscape is being reshaped by environmental policy priorities and a central
government that is stronger now than at any time in the last 200 years. These changes will
force many production sites to close or relocate at great expense, and with associated supply chain
disruptions.
3. Impacts will vary according to regional sensitivities and cross-checking is necessary to get reliable
impact assessments.
4. Being a multinational manufacturer in or sourcing from China remains a solid business proposition,
but critical business decisions may be required to sustain your advantage.
5. The first step is assessing site-specific vulnerability to China’s policy changes.

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Personal Introduction

4. 4
GREENMENT originated in 2012 when Fortune 500 Company CH2M Hill decided to
localise their environmental Business Unit, their operational procedures are
embedded in our operations. GREENMENT now is owned and managed by China’s
pioneers in Environmental Management, serving MNC’s since the early nineties.
We are the largest environmental consultancy in China with close to 100 staff and
have offices in Shanghai, Beijing, Guangzhou and satellite offices in US
Sacramento and Europe Antwerp and delivery partners in 36 countries.
We also offer EHS due diligence and permitting services via local delivery partners
in several other countries, both for foreign and Chinese companies.
Clients include 80% of Fortune 100 manufacturers.
Company Origin and Locations

5. Transaction
Services
Impact Assessment
and permitting
Contaminated Site
Management
Sustainable
Operations and
Supply Chains
From investment
over operation to
divestiture
Areas of Expertise

6. Outline
1
2
3
Change of Environmental Policy
Business Impact
Choices to Make
4 Case Studies

7. Part 01 Change of Environmental Policy

8. The New Environmental Era in China
China started organizing environmental sweeps, closing, relocating & upgrading factories in
line with the 13th 5-year plan & China’s 2020 Milestone to become a " " (*)
Compliance with regulations is no longer enough.
Local Government KPI and new Environmental Initiatives all focus on:
– Improving "regional environmental quality"
– Reducing industrial impact until "regional environmental quality" goals are achieved
– Taking environmental "emergency response measures", e.g. at times of heavily-polluting weather
– Closely monitor companies that are published in the "Supervision Lists for Key Polluting Enterprises"
(*) : the 13th Five-Year Plan aims to build a moderately prosperous society in all aspects. In this document, President Xi Jinping
focused on “three tough battles”: preventing and defusing financial risks, targeted poverty alleviation and pollution control.

9. Part 02 Business Impact

10. Companies are Expected to Participate
Unexpected requirements from local governments
to reduce environmental impacts, and to reduce,
relocate or even close operations.
Sharp increase in local initiatives that require companies to
upgrade, move reduce or even close operations
" Shandong Chemical Industry Special Action " moving factories
" Suzhou 263 & 4 batches " upgrading SME
" Nanjing Two reductions " reducing chemical and coal industries
" Six Uprisings " cleaning black rivers and Taihu Lake & …..
" Zhejiang 61 Entreprise License Cancellations "
" Sichuan and Hubei relocations of Dangerous Chemical Factories " and many more…
This is linked with a bigger plan of addressing over-capacity,
re-organizing the industrial landscape (old – new industry)
and other more local motives (tax, land use…)
The Good News:
Policies instruct a planned approach,with
disclosure, compensation and even financial
support, BUT companies are often unaware
(for example: " Instruction 77 " )
And the country is getting rid of " old, polluted, messy, and scattered " factories…

11. Instruction 77, from the General Office of the
State Council to local governments (Sept. 2017)
Streamline the relocation of hazardous chemical enterprises from heavily populated areas to
specialised locations
Timeline
– Develop plan to relocate and improve hazardous enterprises by the end of 2017
– Improve and relocate small, medium-sized and large enterprises with significant potential risks between 2018 and 2020
– Improve and relocate other large enterprises between 2020 and 2025
Objectives
– Make inventory and shut down those who refuse
– Develop relocation plan with scope, objectives, schedule and arrangements for industrial parks, workers, security…
– Solicit opinions from related enterprises, disclose relocation plan to the public before implementation
Support
– Fiscal Support
– Financing and investment

12. Part 03 Choices to Make

13. Environment:
sensitivity
Policy/planning:
conformance
Site:
compliance
First: Understand Your Vulnerability
Environmental risk results from 3 dimensions:
§ The factory/site itself (compliance) - S
§ Its surrounding environment (sensitivity) - E
§ Industrial and regional policies (conformity) - P
Targeting compliance (S) is NOT enough to protect yourself. Requirements
that come from (E) and (P) are dynamic and go “BEYOND COMPLIANCE”

14. Be Aware of Sensitivity (E) & Conformity (P)
Key considerations include:
Is your industry in that part of the country still in line with updated industrial planning?
Is your industry still on China’s preferred investment list?
How is your site affected by Urban & Ecological Development and Planning?
Example relevant policies
Example relevant policies
Example relevant policies

15. Understand Your Assets
§ MNC’s have led EHS in China over the last 30
years
§ Industrial Best Practices and Technical Solutions
Your solution for your wastewater or your waste
or air emissions etc. may be valued much more
than you realize…especially if you are willing to
move inland and become a leader in the
industrial upgrade

16. When the Inspector Knocks At Your Door
§ Show your " compliance " status and implementation plan
§ Be confident and constructive, ask detailed feedback & advice
§ Offer support to help implement new policies and solve
China’s (and also the Inspector’s) challenges
§ Balance relations to cross-verify what you hear, abide with the
national interest, but don’t be abused by the local interest
§ Be ready to negotiate, based on what you have and whom
you are dealing with, leverage your assets
§ Ensure you know enough to take tactical measures and make
strategic decisions (see cases below)

17. Part 04 Case Studies

18. Cases are illustrated using GREENMENT’s
Dynamic Risk Management Tool (DRMT)
STRATEGIC
ADVANCED
DYNAMIC RISK MANAGEMENT
COMPLIANCE MANAGEMENT
PRIMARY RISK MANAGEMENT
Green-brand building road map design
Permitting and field verification
Stakeholder survey and communication
Strategic service and brand building
Specific focus beyond the compliance
Best practices
Customized service
“Big” Data processing multiple information sources comprising
regulations, violations, policies, planning, … using an “Intelligent”
evaluation of dynamic business criteria
Dynamic Risk Management Tool
Thorough identification of compliance issues (specific)
Root cause diagnosis
On-site testing and follow-up
Supply chain risk identification and solutions
High risk screening
Applicable regulations identification
Risk screening and emergency management

19. 19
Compliance &
Violations
Regional
Environmental Quality
Emissions &
Discharges
Policies & Permits
Industrial Policies
Key Monitoring
Enterprises
Input
Cross-checking
Violations
Regulatory Compliance
Regional Policies
Industrial Planning
Land Planning
Regional Sensitivity
Local Initiatives
Emergency Measures
Without visiting the site, DRMT allows to foresee where to expect what next and allows to:
- identify, categorize sites that are at risk, and tactically mitigate key risks
- Re-evaluate the China business and take strategic business decisions
Processing OutIn
S-E-P- scoring
DRMT helps to ensure that your sites and
supply chain keeps operating

20. 2017
-
2018
Global Manufacturer
• Lost one Key Supplier
• Could not meet business orders
ü
ü
ü
Illustration – case 1

21. City/Industry Electroplating Painting Steel
xxx E2P2 E4P3 E4P5
xxx E1P1 E2P1 E2P1
xxx E6P6 E5P6 E5P6
xxx E2P2 E3P2 E3P2
xxx E5P5 E5P4 E6P5
xxx E2P1 E2P2 E3P3
xxx E4P3 E4P3 E5P4
xxx E3P2 E3P2 E3P3
xxx E6P5 E4P4 E4P6
xxx E6P6 E5P4 E3P2
xxx E6P6 E5P6 E5P5
xxx E2P1 E2P1 E3P1
For each industrial activity
Risk Level Score Color
High 9~12 Red
Medium 5~8 Yellow
Low 1~4 Green
DRMT Screened about 200 sites in 80 Chinese
cities for related industrial activities (extract below)
Upon request, findings were made based on
the cities where the sites are located without
revealing specific suppliers details (EP scoring).
Sites in 15 cities were identified at “high risk”,
meaning factories and suppliers are likely to
phase out over time.
Sites in 6 provinces were categorized as “safe”
places, which means they are preferential
locations for this type of industry and will
support.
City names omitted for
confidentiality reasons
E (sensitivity)
P (conformity)–see slide 13

22. Evaluation and regional visualization of operational
sites and suppliers Key Outcomes
The company quickly got an overall picture of
their suppliers and operational sites without
visiting them. Sites with a <2 year high risk
outlook were identified and categorized.
Tactical Mitigation of Supply Chain Risks
ü Find alternatives for 4 high risk sole suppliers
to avoid interruption of the business
ü Find and pre-negotiate additional suppliers
for 12 high risk suppliers to prevent costs
impacts.
Strategic Considerations for the Business
ü Moving part of business activities from one
site to another site in a safe zone closer to a
long term secure supply chain will save costs.
ü Moving to a specialized zone instead of
upgrading one of their factories in line with
government planning and leveraging
company assets creates fiscal and financial
benefits subsidizing transformation of the
China business.
Safe!
Low Risk
At Risk
Challenge
No future
Note: information on this map was modified to
protect confidentiality

23. 2018
Pulp & Paper Manufacturer
• Increasing compliance pressure
• Increasing operational costs
• Decreasing local support
ü
ü
ü
Illustration – case 2
Requested Support
ü Compliance auditing and compliance support
for 10 factories in China
ü Regulatory development review to evaluate
future requirements for business in China
Key Findings
ü Compliance issues related to wastewater, air
and waste expected to grow, no matter how
much investment is made, because…
ü All factories are located in cities where
replacement of old and traditional industry
with new value or high tech industry is
happening.
Strategic Recommendations
ü Evaluate options for moving / upgrading
considering regional and national policies
ü Develop stakeholder analysis, engagement
and compensation planning and obtaining
guarantees for future business.

24. 2017
Automotive Manufacturer
• Important suppliers shut down
• Serious impacts on profits
ü
ü
ü
Illustration – case 3
Requested Support
ü Audit 40 suppliers within a month
ü Screen and categorize risks according to S-
E-P.
Key Findings
ü 4 suppliers were categorized “High Risk”
ü 2 weeks after the client received the report, 2
out of these 4 suppliers were closed down,
Tactical Mitigation of Supply Chain Risks
ü Company adapted overall supplier purchase
program to avoid future losses and delays in
the operations.

25. 2015
-
2018
Electronics Brand Company
• Increasing reputational pressure
because of supplier environmental
issues
• Business Sales Figures down
ü
ü
ü
Illustration – case 4
Requested Support
ü Existing client for EHS Compliance auditing
and Performance Improvement support
ü Asked support to develop Environmental
Risk Factors to add into the company’s
Sourcing Strategy.
Outcomes
ü Supply Chain EHS performance improved
and environmental violations reduced.
Business Benefits
ü Company reputation and government
relations improved.
ü Sales figures went up again.

26. Key Takeaways
1) A 3-year environmental storm started which is reshaping the industrial landscape in China
2) The storm will impact your sites, and likely even more so your local supply chain
3) The impact will be very different for different locations, depending on regional sensitivities
4) You will have to abide with national interests but can/should protect against local interests
5) It requires cross-checking various data sources to truly understand your situation
6) Tactical actions may suffice to mitigate risks, critical business decisions may be required
7) Planning is required to minimize damages and maximize benefits
8) Using DRMT, the vulnerability of your site can be assessed by its address, without visiting

27. Weathering the environmental storm
1) Don’t fight the storm
2) If you need to fight, fight the right battle, only start a fight if you can win
3) Take shelter for the rain, prepare for sunshine after rain
4) Playing fields will be much more levelled after the storm

28. Johnny Browaeys
Mobile / Wechat: +86 137 6189 4720
Email: johnny.Browaeys@greenment.net
Profile: https://www.linkedin.com/in/johnnybrowaeys/

29. Backup slides

30. 30
1. High level - which way the wind blows : slogans about the future and official
newspapers announce what the government wants you to know and act upon
2. Medium level
– Notifications and measures announce you regulations and laws to be expected and actions to be
taken (timelines mostly in line with framework policies such as the 5-year plans)
– Don’t wait for the laws & regulations to come out, China tests new policies on the way (“
)
– Instructions from central to local governments show you action plans and timelines for execution
and enforcement (the amount of time given mostly depends on how critical the issue is being
considered)
3. Ground level
– Your trusted local government contacts often know ahead of time what is coming as they often
are the ones having to get it done – they also often have to « learn on the job », helping them is
a good approach.
How could I have seen this coming?

31. 31
1. “Notification” of the Comprehensive Management Plan on Safety of Hazardous
Chemicals (Dec. 2016)
2. Objectives
– Investigate and control safety risks and major hazardous sources of hazardous chemical industry
– Prepare relocation of hazardous chemical enterprise in the heavily populated areas
– Establish information sharing mechanism of hazardous chemicals
– Consolidate the results for potential safety risks
3. General Timeline and Working Arrangement (Dec 2016 – Nov 2019)
4. December 2016: Deployment
5. Jan 2017 – Oct 2019: Renovation: conduct regular supervision and inspection,
promptly solve identified issues
– Jan 2017 – March 2018: in depth rectification and achieve periodic results
– Apr 2018 – Oct 2019: Deepen and enhance the results
6. Nov 2019: submit summary report to the Office of the State Council’s Security
Committee
“Notification” – example

32. 32
“Measures” of Soil Environmental Management for Contaminated Sites, announced
by MEP on Dec. 31 2016 & valid since July 2017
1. Get overview of contaminated plots of land and the environmental risk
conditions from key industries and enterprises’ land before the end of 2020
2. Focus on non-ferrous metal mining, non-ferrous metal smelting, oil extraction,
petroleum processing, chemical, coking, electroplating, tanning and other
industries
3. Regions should determine a list of key enterprises to be supervised, open to
public, enterprises must conduct soil environmental monitoring every year,
before the end of 2017
“Measures” – example

33. 33
“Notification” of publication of Pollution Prevention Plan and Control of VOCs during
the 13th FYP (Sept. 14th 2017)
1. Make inventory of “scattered, messy and polluted factories” in 28 cities by the
end of 2017 (Beijing, Tianjin and Hebei by the end of September)
2. Focus on petrochemical, chemical, packaging, printing and industrial coatings,
as well as the prevention and control of VOCs pollution of transportation
sources such as motor vehicles, storage and transportation of oil products
3. Details e.g. By the end of 2017, complete issuance of the VOCs discharge
permit for petrochemical industries located in the key areas of Beijing, Tianjin,
Hebei, Shandong, Yangtze River Delta and Pearl River Delta; b) by the end of
2018, complete issuance of the VOCs discharge permit for pharmaceuticals and
pesticides industries; c) By the end of 2020, complete issuance of the VOCs
discharge permit for electronics, packaging, printing and automobile
manufacturing industries.
“Notification” - another example

34. 1st round
2nd round
3rd round
4th round
pilot
Distribution of Environmental Protection Inspections

35. Timeline of Environmental Protection Inspections
2015.7.1
2016.1-2016.2
2016.7-2016.8
2016.11-2016.12
2017.4-2017.5
Release
‘Environmental
Protection
Inspection Plan
(trial)’
1st round
pilot 2nd round
2017.8-2017.9
3rd round
4th round

36. Result of Environmental Protection Inspections
Round Total Case
Assigned
Case
Completed
Number
Rectification
Required
Number
Punishment
Number
Fine (ten-
thousand
yuan)
Investigation
Number
Detention
(person)
Interview
(person)
Account
ability
(person)
Pilot not found 2856 not found 123 65 366
First 11474 9163 6738 1927 13502 192 219 1602 3048
Second 5462 1893 2425 1479 6614.16 213 112 1100 687
Third 28966 23599 20359 7086 33587.86 354 355 6079 4018
Fourth 39586 35039 32602 9181 46583.84 297 364 4210 5763

37. 37
1. The information presented in this document is not specific legal advice and is not to be acted on
as such.
2. Furthermore, it shall not be quoted, distributed, broadcasted, reproduced, published, transferred
or sold partially or completely without prior written agreement.
3. Use for self-study purposes and quoting with reference to the Author are permitted.
4. This document aims to support and facilitate the process for everyone involved.
Contributors: Ma LiQiang (SEP methodology, Dr. Liu (cross-reference data processing), Jian Qiao (DMRT visualization), Irene
Xu, Pluex Peng, Jack Liu, John Yang and Xu YongPan (Environmental Inspection Policies), Feng WeiQing and Liu Yang (data
sourcing)
Johnny Browaeys
Disclaimer and Credits