Due to its rapid economic growth, industrialization, and urbanization, China now ranks first in the world as the country that produces the most air pollutant and municipal solid waste. The country also faces serious water scarcity and water pollution problems. In order to solve such problems, China has strongly revised its Environmental Protection Law as well as strengthening pollution controls and industry promotion policy in various fields of environment including air, water, and waste sectors.
Considering the development experience of the environmental industries of some of the major countries in the world, the environmental industry of China ？ a country whose GDP per capita is expected to exceed 10,000 USD during the 13th Five-Year Plan (2016~2020) ？ is estimated to enter the phase of explosive growth of a j-curve. On the other hand, the level of development in China’s regional environmental industries and markets vary due to the fact that local governments, who are the main actors in promoting environmental policies, have different strategic orientations ranging from quantitative growth to environmental protection. This research analyzes the state of China’s environmental pollution and its regional distribution, sectoral environmental markets and its regional characteristics, China’s regional environmental policies according to sectors and China’s environmental projects and major companies. Based on the analysis, this research sought to present Korean environmental companies’ exports strategy to the regional environmental markets in China as well as measures to strengthen government cooperations.
The primary findings of this study can be summarized as follows: In Chapter 2, we study China’s environmental market. It looks into the regional distribution of major pollutants and the pollution source, according to air, water and waste management; it also looks at the size of the environmental market and regional structure for each sector. For China, air pollution is mainly generated from thermal power ？ which creates energy by burning up fuels ？ and manufacturing industry, including steel and chemistry. Because of this, regions that have the country’s primary coal fields or heavy industrial centers, such as Shandong, Inner Mongolia, Hebei, Shanxi, Henan and Liaoning, were found to have high levels of pollutant emissions. Wastewater emissions were high in regions with a large economy and population, such as Guangdong, Jiangsu, Shandong, Zhejiang, and Henan, but water pollution sources (e. g. lead, mercury, nitrogen, etc) differed according to regions. Industrial solid waste, which takes up more than 90% of China’s waste emissions, are mainly produced in regions such as Hebei, Shanxi, and Liaoning, which have rich mineral resources or are manufacturing hubs. But the recycling rate of waste materials, processing ratio of recycling, and the reclamation rate differed by regions. Guangdong, Jiangsu, Zhejiang and Shandong, which have large population and economic size, produced an overwhelmingly large amount of municipal household waste. During the 13th Five-Year Plan, investment size of environmental industries is expected to reach around 17 trillion yuan. In the sectors of air, water, and waste management, investment amounting to 1.8 trillion yuan, 4.6 trillion yuan, and 4.3 ~ 5.1 trillion yuan, respectively, is estimated to be alloted. Factors restricting the growth of environmental industries and markets include low level of emissions controls, low cost of pollution disposal, and lack of punitive measures.
Chapter 3 investigates China’s environmental laws and related regulations and institutions as well as analyze regional environmental policies. Setting the Environmental Protection Law as the basic law, China has various pollution laws and regulations according to each environmental sector. It is also possible for local governments to regulate pollution emissions at a higher level than the central government’s standard. As the revised Environmental Protection Law is enacted from 2015, some major changes in China’s environmental policies include strengthened pollution regulation and legal force of its policies, expanded environmental infrastructure, local government’s environmental evaluations, and improved policy effectiveness through PPP. The revised Environmental Protection Law (in force since 2015), with its stronger legal force and stricter standards is a testimony of such changes. China has announced Action Plan in air and water sectors. Local governments are required to report work plans including yearly targets and major tasks within the year 2015.
However, there is no significant policy change in the waste sector nor has a specific Action Plan been announced. Also, whereas standard for pollution emissions of air and water is expected to increase by more than twice the current level, the standards for the waste processing fee is undecided, meaning the demand for waste processing is unable to function as a demand in the market. Regions such as Beijing, Shanghai, Jiangsu, Shandong, and Hebei are actively setting and reaching the improvement target of improving air pollution, providing subsidies and collecting pollution fees. In water management sector, Zhejiang, Tianjin, Shanghai, Anhui, and Shandong announced related measures and a rise in the pollution fee. Hubei, especially, is actively pushing for new regulations in order to implement regional standards in water management.
Coastal regions such as Guangdong, Shanghai, Jiangsu, Zhejiang, Shandong, Liaoning are actively pushing for policies on managing and separating municipal household wastes, processing fees and those related to waste disposing plants. Chapter 4 examines the ways in which China’s environmental projects work and case studies of major companies and projects by environmental sectors in China. In order to have environmental infrastructure in a short period of time, China expands PPP by giving opportunities for private capital participations. However, foreign companies are facing risks because of a lack of evidences for legal foundations for foreign companies to participate in PPP projects and Guanxi. It is expected to have more than 80 percent of demands for investments in the growing fast environmental markets. Notwithstanding of the above-mentioned facts, it is important to participate in PPP projects for entering Chinese environmental markets.
Chapter 5 offers suggestions for measures to strengthen cooperations on the basis of the above-mentioned analysis with sectoral and regional characteristics and suggest implications for the Korean government and Korean environmental companies. Considering each sector’s market size, local governments’ policies, central government’s drive, major companies’ distribution, we analyze Jiangsu, Shandong, Hebei are promising for air sector, Jiangsu and Guangdong are promising markets for water sector, and Guangdong, Shanghai, and Zhejiang are promising for waster sector.
Analyzing Chinese central government’s focal points of policies and local government’s investment for environmental sectors, we conclude the followings: First, markets with first priority are Jiangsu, Guangdong, Shandong, and Zhejiang where have excellent conditions for the environmental industries. Second, the second phase markets include Beijing, Shanghai, Hebei, and Liaoning. Third phase markets include central and west inland regions with relative better environmental market conditions such as Shanxi, Xinjiang, Henan, and Hubei.
Jiangsu can be utilized as a comprehensive platform for the penetration of the Chinese environmental market. It has a good market size, a strong political will, a high level of firms agglomeration, and cooperations with foreign companies. Yixing, where exists the only environmental industrial complex of China, concentrates water management companies that account for more than 40 percent of the Chinese water management market. Taking the advantage of which Yixing actively engages cooperations with Korea, we should make cooperative strategies at the company, association, and government level. On the other hand, Shandong and Hebei are where the Korean and Chinese governments are pushing forward for cooperative projects in the steel industry and air pollution prevention. But, these provinces do not have leading companies in air sector. We should utilize government-to-government cooperations as a platform for entering the Chinese market. Also, we should do a continuos monitoring and look for opportunities to take the advantageous position first in the central and west promising markets such as Hubei, Shanxi, Hunan.
Companies which wish to enter the Chinese environmental markets need to understand risks in relation to ways and practices of the Chinese environmental sectors and local governments’ risks. In order to minimize such risks, Korean companies should consider cooperations with local Chinese companies. Similarly, it is important to choose local partners that may offer project information and financing and have Guanxi. By doing so, it is important to find out project opportunities by attending environmental exhibitions and government-led business exchange platforms. On the other hand, it is imperative to do a continuous monitoring for the changes of environmental policies including standards for pollution emission costs and for emerging industries for investment. Small and medium-led Korean environmental sectors need to actively utilize government-led cooperative projects and build a consortium with large companies or public agencies to enter the Chinese market. Korean environmental companies should consider measures to strengthen cooperations by offering environmental management and services to Korean manufactures.
Preparing for possible additional negotiations for Korea-China FTA in the environmental sector, the Korean government should make suggestions for emerging environmental markets (e. g. building and operating for incineration plants, waste markets, food waste, and rural household waste) and for the relaxation of foreign exchange at the level of Shanghai Free-Trade Pilot Zone. In particular, we should consider the Northeast region, where has inferior environmental infrastructure and maintains a good relation with Korea, as a pilot area for environmental cooperations with a package of energy-saving and environmental protection projects.
Also, we should set a solid foundation for Korean companies to participate in PPP projects at the pre-developmental stage of PPP. Both Korean and Chinese governments could select incineration projects that are profit-making and support financing development costs. It is important to strengthen cooperations with local governments for expanding local environmental networks. Thus, we should expand to set up Korea’s environmental representative offices in provinces like Guangdong and Shanxi and to expand cooperative channels with local Chinese governments. Finally, in linking with Chinese relevant institutions, we should consider loans and credit guaranty funding systems when small and medium environmental companies enter the Chinese market.