China: Environmental Compliance Abroad: The China Conundrum

Last Updated: 31 March 2011
Article by Beverlee Silva, Sarah Babcock and Trudy Caraballo

In this era of economic globalization, American companies are increasingly looking to overseas markets for manufacturing and export opportunities. One of the largest of these markets is China. While China provides rich expansion opportunities for American companies, the regulatory landscape – particularly in the environmental arena – creates pitfalls for the unwary. China's myriad environmental regulations coupled with enforcement uncertainty present further challenges. Take, for example, an American car manufacturer (ACM) of solar powered cars seeking to open a new plant in China. ACM must comply with Chinese environmental laws on renewable energy, energy conservation, and clean production. Depending on where the plant is located within China, the degree to which these laws are enforced, and the level of risk associated with non-compliance, will vary. Once built, suppose ACM's Chinese plant accidentally releases hazardous substances into a nearby river. If the river and drinking water are contaminated, and residents suffer personal injuries as a result of the contamination, the manufacturer could face liability in both China and the United States. This article will highlight select areas of environmental regulation through which an American manufacturer, such as the fictional ACM, must navigate in order to do business in China.

Complying with Chinese Environmental Regulations

In the early 1970s, China, like the United States, experienced a surge in environmental regulation. The country's environmental law framework now includes regulations on renewable energy, oil and gas pipelines, water pollution, energy conservation, clean production, water and soil conservation, marine protection and noise pollution among other areas. Although promulgated at the central government level, many of these regulations are enforced by local governments. This oftentimes results in unpredictable and disparate enforcement. Local governments in industry-friendly districts may be less inclined to strictly regulate environmental compliance than local governments in other districts, which may impose harsh and severe penalties for non-compliance.

Consider ACM's hypothetical manufacturing plant in China. As a manufacturer of solar powered cars, ACM would be regulated by China's Renewable Energy Law, which regulates the exploitation of renewable energy. This law also requires uniform technical standards throughout China for "technology and products related to renewable energy." Therefore, ACM would need to ensure that its products and manufacturing processes are compliant with relevant technical standardization requirements.1

ACM would also need to consider Chinese energy conservation laws which could impact its manufacturing operations. China has banned the manufacture, sale, and import of certain energy-consuming products and equipment that do not comply with statutory standards for energy efficiency. The country also requires that energy consuming entities such as ACM establish an accountability system for energy conservation targets. Additionally, companies engaged in the manufacture, import, or sale of non-compliant energy-using products or equipment risk orders to cease production, confiscation of illegal energy-using products, fines of up to 500% of illegal proceeds and, in serious situations, business license revocation.2 On the other hand, China incentivizes manufacturers to utilize energy saving production technologies. Rewards include tax preferences, increased credit support and preferential loans from financial institutions.3

Along similar lines, China has established a system of rewards and commendation for cleaner production for companies and individuals who have made "conspicuous" achievements in cleaner production. Incentives include reduction or exemption from value-added tax regarding products produced from wastes and materials reclaimed from wastes. Companies are required to monitor resource consumption and water generation during the course of production and provision of services. They are also required to conduct cleaner production audits regarding production and service procedures. If ACM were to use or discharge toxic and hazardous materials in production it would be required to report these audit results to "relevant administrative departments for environmental protection and the relevant departments for economic (sic) and trade under the local people's government at or above county level."4

ACM would also be subject to China's anti-pollution laws. If, for example, the hypothetical plant were to discharge a hazardous substance into a local river, causing contamination, ACM could face liability for water contamination pursuant to Chinese water pollution laws. Under China's laws against water pollution, companies must adhere to national and local pollutant discharge standards. Companies must report and register the following to the local Environmental Protection Division: (i) existing facilities for discharging and treating pollutants, (ii) the categories quantities and concentrations of pollutants discharged under normal operating conditions and (iii) technical information concerning prevention and control of water pollution. A discharge fee is assessed against companies discharging pollutants into a water body. While an excess discharge fee is assessed if companies' discharge exceeds national or local standards, in such instances companies must also submit plans for conformance to discharge standards. And companies failing to eliminate water pollution within a time limit set by local authorities risk doubled fines for excess discharge, additional fines, suspension of operations and even orders to shut down operations.5

ACM could also face tort liability to individuals for its unpermitted discharges. Under Chinese tort law, ACM may also owe individual compensation to victims of harms caused by its pollution.6 Tort law in China mandates that polluter companies compensate victims of environmental pollution. The law allows for joint or several liability but places the burden on offending companies to shift and/or mitigate liability.7 Moreover, under anti-water pollution laws, in pollution accidents which lead to "heavy loss to public or private property or serious injury or death of persons" companies also face potential criminal liability.8

Impact of International Treaties and American Laws

International treaties and bilateral agreements are unlikely to create any compliance concerns for American companies operating in China. While China is a signatory to a number of international environmental treaties, such treaties have very little enforcement teeth, if any. In addition, enforcement action – to the extent it exists – generally takes the form of pressure on China to comply with its treaty obligations, not action against private companies. Even the Kyoto Protocol, which has an enforcement mechanism, applies its enforcement measures against the signatory country by requiring a compliance action plan to be implemented or mandating reduction of the country's emissions targets. Similarly, China and the United States have signed several Memoranda of Understanding, which establish cooperative programs between the two countries, but do not create any enforceable rights. Such bilateral agreements and international environmental treaties can drive policymaking at the national and local level, and therefore merit attention, but they are unlikely to play a direct role in environmental compliance in China.

American companies can, however, find themselves subject to liability in the United States for acts committed abroad. The Alien Tort Claims Act ("ATCA"), 28 U.S.C. § 1350, confers subject matter jurisdiction on federal district courts when "(1) an alien sues, (2) for a tort, (3) that was committed in violation of the 'law of nations' or a treaty of the United States."9 Environmental torts are among the claims alien plaintiffs have brought under the ATCA.10 While these claims are frequently dismissed for failure to demonstrate violation of the law of nations or on the grounds of forum non conveniens,11 American companies should nonetheless be aware of the potential for suit.

Thus, while the hypothetical ACM would be unlikely to face any liability for water contamination or personal injury under international treaties, the affected Chinese residents could seek redress in American courts under the ATCA. A successful claim would require the Chinese plaintiffs to prove that the manufacturer's acts violated "well-established, universally recognized norms of international law."12 To defeat these claims, ACM would want to argue that international law lacks any concrete standards regarding environmental torts, such that its conduct cannot represent a violation of the law of nations. In addition, the manufacturer could bring a motion for dismissal based on forum non conveniens, since the relevant acts took place in China and the evidence and witnesses are also located there.

Solving the Conundrum

As seen through the above discussion, environmental compliance in China is governed by an intricate network of laws compounded by variance in enforcement action at the local government level. International agreements to which China has subscribed and Chinese environmental laws such as those discussed in this article, offer a mere peephole view into the comprehensive regulatory environment facing companies operating in China. Nonetheless, American companies can take some affirmative steps to ensure compliance and reduce the risk of enforcement action or litigation. Consultation with local attorneys – particularly attorneys in the relevant province or city – to determine environmental compliance obligations is an essential first step. Understanding which industries have come under fire for environmental violations will inform risk management decisions and indicate the level of compliance that local officials may demand. Finally, continued monitoring of the legal and regulatory environment for changes in policy is key to maintaining compliance.


1. See Decision of the Standing Committee of the National People's Congress on Amending the Law of the People's Republic of China on Renewable Energy Resources (adopted by the Standing Comm. Nat'l People's Cong., Dec. 26, 2009, effective Apr. 1, 2010), available at (Chinese version) and (unofficial English translation); The Law of the People's Republic of China on Renewable Energy (adopted by the Standing Comm. Nat'l People's Cong., Feb. 28, 2005, effective Jan. 1, 2006), St. Council Gaz., Issue 11, Serial No. 1154, available at (Chinese version) and (unofficial English translation).

2. Renewable Energy Law of the People's Republic of China, (Adopted at the 14th Meeting of the Standing Committee of the Tenth National People's Congress on February 28, 2005) available at (unofficial English translation).

3. Id.

4. Law of the People's Republic of China on the Promotion of Clean Production (Adopted June 29, 2002. Effective January 1, 2003) available at c (unofficial English translation).

5. Law of the People's Republic of China on Prevention and Control of Water Pollution, (Adopted at the 5th meeting of the Standing Committee of the Sixth National People's Congress on May 11, 1984, amended pursuant to the Decision on Amending the Law of the People's Republic of China on Prevention and Control of Water Pollution adopted at the 19th meeting of the Standing Committee of the Eighth National People's Congress on May 15, 1996, and amended at the 32nd meeting of the Standing Committee of the Tenth National People's Congress on February 28, 2008) available at (unofficial English translation).

6. See id.; The Law of the People's Republic of China on Tort Liabilities adopted by the Standing Comm. Nat'l People's Cong., Dec. 26, 2009, effective Mar. 1, 2010), available at (Chinese version) and (unofficial English translation).

7. Id.

8. Supra at note 9.

9. Beanal v. Freeport-McMoran, Inc., 197 F.3d 161, 164-65 (5th Cir. 1999).

10. See id. at 166-67; Aguinda v. Texaco, Inc., 303 F.3d 470, 473 (2d Cir. 2002).

11. see Beanal, 197 F.3d at 166-67; Aguinda, 303 F.3d at 476-80

12. Filartiga v. Pena-Irala, 630 F.2d 876, 888 (2d Cir.1980).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions