China Esquire

Just got an email that Haas School of Business at UC Berkeley is hosting an event, sponsored by BERC and Global Initiatives called “Can China Go Green?”

Speaker is going to be Peggy Liu, the chairperson of JUCCCE, the Joint US-China Cooperation on Clean Energy.  (a non-profit accelerating the greening of China through international collaboration on impactful programs)

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With the 2008 Olympics only days away, Beijing’s air quality is under close international scrutiny. But despite efforts to clean it up, air pollution still poses a serious issue for both China and the world.

Got an email from Asia Society Online about their new collaboration between the Center on US-China Relations.  Asia Society’s project is entitled “ Clearing the Air: China’s Environmental Challenge” and covers:

the overall causes of the problem and what can be done about it.  The multimedia project includes Longing for Blue Skies, a video narrated by Asia Society’sOrville Schell which features the work of 12 leading photojournalists, a daily Beijing photo diary documenting “blue sky days,” as well as statistics and other resources.

Looks very interesting, and it has an online comment/forum section as well.

The Monterey Bay Int’l Trade Association (MBITA) is hosting their first annual Green Trade Network Summit, entitled “ When You Think Greek, You Must Think Global“.  It will be in Santa Cruz, CA, and is an all day event that runs from 8:30am – 5:30pm.  From their website, here is some interesting intro language:

The Green revolution commands a global effort from both business and government. Cleaning the air in China is just as important as it is in California. As all countries are connected through our environment, we also need to collaborate with our Green technologies, products, services and resources to meet the challenge of global warming. This global strategy will grow our companies and at the same time improve our respective economies.

The lunch presentation film also focuses on China:

. . . the Green Dragon Film, will be presented and shown by Max Perelman of Green Dragon. This documentary sheds light on the barriers and opportunities expanding China’s green building movement – one of the biggest untold stories of China’s environmental challenge.

And of course, for the lawyers, the third panel is entitled “License Green Technology in Foreign Markets and Protect Your Intellectual Property”.  Crystal Zarpas of Mann & Zarpas, LLP, will be explaining “the complicated process of protecting your intellectual property through the foreign registration process of your product’s trademark”.  Yes, it’s not earth shattering, but should be a good practice lesson for anyone dealing with China trademarks.

Registration is here.

Today is another break from the usual law and business stuff because of the quake, and also, I just needed a day to relax. The BBC ran an article last week entitled “Wild times in changing China” that talks about the natural treasures of China’s environment. However, with the rural migration to the cities, it seems like rice paddies may get wiped out and greater industrialization will jeopardize the environment.

China is a country that in some peoples’ minds has become synonymous with industrial pollution, rigid political control and spectacular economic expansion.

But behind this image lies another world which is the real, essential China – a place of vast shifting deserts, tropical coral reefs, steaming jungles, snow-capped peaks, evergreen forests and smoking volcanoes.

And surviving, tucked away within this incredibly diverse landscape, is a wealth of animal and plant life.

China is home to 534 species of mammals – one eighth of the world’s total, of which more than a hundred, including iconic creatures such as the giant panda, are endemic.

The country’s birdlife is also extremely rich, with more than 1,300 species, whilst there are more than 2,200 species of fishes.

China’s plant life is equally spectacular, with an amazing 32,800 species of higher plants, making China the third richest country in these terms after Malaysia and Brazil.

Rural demands

Experts are forecasting that in the next couple of decades, more than 300 million rural people will migrate to China’s Eastern seaboard in search of better-paid jobs.

Traditional farming systems, like the terraced rice paddies which cover the hillsides of southern China, require a huge amount of manual labour for planting, upkeep and harvesting.

As wage levels rise, such work is bound to become uneconomic, and without intensive management, the paddies will not survive the annual onslaught of monsoon rains for long.

At the same time, pressures to increase food production to meet increasing demands from a growing urban population, and to cope with the effluent produced by massive industrialisation and vast urban conurbations, will inevitably pose serious environmental challenges.

I have a feeling this is a tragic, but rather inevitable part of a growing economy. Why else would America put so much focus on natural parks and wildlife preserves if industry didn’t wipe out large chunks of the environment? I am actually not much of an environmentalist, so don’t get me wrong here. I am not saying let’s go back to pre-historic, pre-industrial society like a Luddite. I am just making an observation that it’s bound to happen, but am somewhat sad that the beautiful landscapes of China may be threatened by this. I hope green tech reaches China early enough to make a dent on this problem. But we can never really be certain it will.

And for all those who are only interested in touring/visiting China, make sure to check out the natural scenery while it is still beautiful.

Charlie McElwee followed up with a post at China Environmental Law Blog, which I want to quote in full:

In a story entitled “ Arming up in the battle for a greener future,” China Daily today provides some additional information about the new MEP’s authority and initial priorities.

Money quotes:

While the ministry’s new responsibilities have not yet been announced in detail, Zhou summed them up by saying that it was going “to deal with mounting environmental woes caused by previously rapid growth, and to try innovative means and tools to curb new problems”. The solution, Zhou said, lay in measures including law enforcement and market mechanisms. . . . Giving top priority to law enforcement, Zhou said the MEP will have greater authority to crack down on environmental crimes by including the expansion of enforcement and monitoring teams.

The new MEP has also said it will put the quality of drinking and waterway resources as one of its top priorities. A new requirement for pollutants discharged into the Taihu Lake basin in Jiangsu province aimed at reducing and eliminating blue-green algae outbreaks in the region will be published soon, an MEP source said.

The ministry is also working to rid itself of the friction from other ministries. The old administration, for example, reportedly faced such difficulties in water pollution control. While several agencies, including the water resources, construction and agriculture ministries, had been involved in water management, the MEP is now expected to take full responsibility dealing with water pollution, sources close to the government reshuffle have said. Similarly, the MEP’s extended duties now include biodiversity management such as the approval and assessment of national ecological protection zones, the sources said.

And as part of its broader strategy to ensure that the country attains a balance of economic growth and environmental protection, the MEP is setting out to have local leadership and the public discard the idea that “development is king” – widely viewed as the main contributor of environmental degradation and a shortage of resources following the 30 years of the country’s rapid development.

Take away points:

1. The Ministry has been granted some new responsibilities (all of which have not yet been revealed), including, having apparently wrested primary authority for water pollution from the water resources, construction and agriculture ministries. Good.
2. More carrot and stick: increased resources devoted to enforcement and more market mechanisms to encourage environmental compliance. Good.
3. A green public relations offensive is on the way to topple the “development is king” mentality among cadres and the masses. OK, but let’s hope it’s more successful than recent public relations efforts.

No disagreement from me on this part, just some skepticism. Why? Because enforcement is hard. We have been assuming that the the U.S. is a paragon of enforcement of its laws. While probably better than China, it is hardly virtuous in this area. Reading and thinking about this reminded me a lot of a case that I read while working at a class-action law firm, where Presiding Justice Sills of the California Court of Appeal noted that a particular tax statute actually had some teeth with a note of irony and sarcasm. (I can’t remember the case citation to save my life) I think that tells you a lot–that the U.S. is pretty decent at enforcement, but still has problems.

A number of areas are opened up for civil liability that might normally be within the scope of government enforcement: elder abuse, qui tam actions, securities fraud and insider trading suits, etc. Why? Because opening up enforcement to a mixture of government agencies (the EPA, SEC, etc.) and private civil actions brings in a separate beast: the plaintiff’s bar.

Before you sit back and think to yourself, “this guy is a left-wing liberal nutcase”, let me clarify and say that (1) I am not, and (2) the function of the plaintiff’s bar is essential to proper enforcement of the law in the U.S. As I stated in a comment to Charlie:

In addition to something like a scorecard, I also see the lack of an established plaintiff’s bar, which is encouraged to be private watch dogs. I know that my former chemical clients were far more careful because of the lawsuits. (major chemical companies back when I was doing environmental and toxic tort law) Yes, they did respect the law. But it was that fear of losing even more money to plaintiffs (and their lawyers) that made them very careful to be compliant. China seems to be far from having such a plaintiff’s bar, but if it ever learned to embrace and encourage such activity, I could see that having as much effect as strong regulatory enforcement, if not even greater effect.

And if you look at the track record of some the good plaintiff’s firms, you can see why companies in the U.S. both despise and fear the plaintiff’s bar. (albeit more despising than fearing)

My old firm lists on their website some examples: (1) “The California State Teachers’ Retirement System (CalSTRS) reached securities fraud settlements totaling $151.5 million with AOL Time Warner and Qwest Communications”, (2) “McCarthy also served as national co-lead counsel in a predatory lending suit against Household International, Inc. that resulted in a $150 million settlement”, (3) “CP&M prosecuted the class action suit against Household in U.S. District Court in Oakland, California. McCarthy and Joseph W. Cotchett served as national co-lead counsel in fourth predatory lending lawsuit against Citigroup and its affiliates that resulted in a $240 million settlement.”

If I were a business, I would hate to see these guys bringing a law suit. Now imagine that there are many lawfirms like this that specialize in plaintiff’s side work and I think you get the picture.

In the U.S., there are plaintiff’s attorneys that go after environmental polluters. In fact, one of them scored something to the tune of $75 million off of an old client (I already left the firm before trial came around) and $100 million off of our co-defendant. And some of the jury members actually admitted to attorneys later that though the law was actually in support of the defendants, the jury felt that someone needed to pay for the groundwater contamination in Modesto, CA.

Charlie argued in a comment:

we are unlikely to see the growth of a significant plaintiff’s bar in the near future. If the MEP can’t get its laws and regulations enforced at the local level, the private lawyer is going to have an even harder time getting and keeping his action in court. And, as Brad notes most Chinese do not yet consider lawsuits as viable remedial options for any number of reasons. Things will change, but slowly. Now if we could just figure out a way to encourage civil lawsuits in China without creating plaintiff’s lawyers. . . .

I agree that we are a long way off from plaintiff’s attorneys. And I know the Chinese mindset doesn’t mesh well with the concept of plaintiff’s lawyers and that litigious type of society. But I hope that as the rule of law progresses, so will a plaintiff’s bar. I am a little less biased because I’ve worked on both sides of the litigation bar. (It will take at least a generation or two before this will ever happen though!)

So if China is willing to enforce its laws on its own, great. But if China wants to see wider spread enforcement, then its time to empower plaintiff’s attorneys.

Charlie McElwee posted the other day about the Ministry of Environmental Protection ( MEP), and what the new head of the MEP has been saying. I thought it interesting but wanted to think about it for a day or two before I made any comments. His post:

The new Minister of the Ministry of Environmental Protection, who was the old Minister of SEPA, Zhou Shengxian, announced yesterday that setting up a law enforcement system of “iron and steel” is at the top of his agenda. A China Daily article reports as follows:

“The new ministry will have greater authority to crack down on environmental crime, and we will expand our enforcement and surveillance teams,” he said.

Regular meetings, and joint enforcement, surveillance and information sharing systems will be set up not only among environmental protection departments of all levels, but also with law enforcement and judicial bodies, Zhou said.

I’m not sure where the new authority Minister Zhou refers to is coming from, but the words are encouraging.

I would agree that this could be very encouraging news: the new MEP is ready to crack down on environmental crimes. And note in the article that Zhou Shengxian did say he wanted to work with judicial bodies. This means that China is about to get serious about environmental regulation and law.

I think China’s new candor about its environmental needs and policy is a breath of fresh air. For example, the government officials in charge of the Three Gorges Dam finally admitted that this dam has the potential for environmental disaster. (see article here, h/t to CDT) I think this sort of candor will help fuel the rise of environmental regulation in China. The laws have been on the books, but now it seems like there are governmental directives to clean up China’s environment.

So is the rule of law about to grow through this new-found initiative? Maybe. If China cracks down on violators equally, then I think the rule of law will grow through this. Improved enforcement and applied at all levels, especially against Chinese companies, will help people learn to respect the law and submit to it. And hopefully in the long run, appreciate it too.

Why am I skeptical? Because China’s enforcement, aside from some enforcement against Chinese companies like SEPA’s interference with companies trying to go public and have their IPO’s, has largely targeted foreign companies for environmental violations and crimes. Yes, it is unfair. But unfortunately, that’s the track record so far. If China continues to do this, then I am not sure rule of law will get very far though the MEP stance is encouraging and sounds good. China must crack down on both foreign and domestic companies if its wants to get anywhere: both in the rule of law context, and also trying to curb environmental problems down the line. It is the only way.

Will China do it? Maybe not. But for your clients, the foreign MNC’s who have Chinese operations, make sure that you are complying with all environmental regulations. I have a feeling that if you do not, this new motivated MEP will be knocking on your door.

UPDATE: Charlie added some more about MEP enforcement here.  This actually may be worth another post on my part over the weekend…

Up until recently, environmental regulations had nothing to do with your Chinese IPO. They had plenty to do with your business practices, compliance with existing laws, and hiring of environmental consultants. They had even more to do if you were a foreign company doing business in China because the regulators were targeting you and not your Chinese domestic competition. (which was polluting like there was no tomorrow) At least, that’s what the standard business person would’ve thought until recently. Not any more. It appears the Chinese government has decreed that companies going public need to pass environmental regulations. And guess what? This affects Chinese companies.

So if you thought going public was hard enough already to go public, it just got a bit harder. (okay, maybe it isn’t that hard to go public when the economy is still booming) Here is a translation from China Digital Times from a 21st Century Herald article that is all in Chinese:

The State Environmental Protection Administration on Feb. 25 issued an official regulation on environmental monitoring of public companies, placing a hurdle for firms that plan to go public that must be overcome along with their applications to the securities regulator. The law also requires public companies to disclose important information about their environmental performance; environmental failings will have significant consequences. The law will target heavily polluting and energy intensive sectors with an annual listing of environmental performance index and ranking.

Since the second half of 2007, SEPA has finished an environmental review of 37 companies and said “no” to 10 public listing applications or reapplications on their prospectuses. On Feb. 25, an official with the SEPA pollution control department said that eight of the ten firms have passed the environmental review reassessment.

Vice Minister Pan Yue of SEPA notes that environmental monitoring on public companies in China is still weak and the result has been that heavily polluting and energy intensive firms have been able to expanded their operations without delivering their environmental promises after going public. We still need to see how effective the “green securities act” will be in cleaning up the records of China’s major public company polluters.

Below is a list of companies whose applications or reapplications to go public failed SEPA’s first environmental review:

1. Hebei Weiyuan Biochemicals Holding Ltd.
2. Guangdong Wanxing Inorganic Pigments Holding Ltd.
3. Guangdong Ta Brand Group
4. Shandong Chenming Paper Group
5. Gansu Qilian Mountains Cement Group
6. Longyuan Construction Group
7. China Central Coal Energy Holding Ltd.
8. Sichuan Northern Nitrocellulose Holding Ltd.
9. Purple Gold Mining Holding Ltd.
10. Anhui Conch Cement Co. Ltd.

What does this mean? On top of your team of Chinese accountants, bankers/finance people, and lawyers, you will now need an environmental consultant/scientist to help you go public in China. Yes, it is more costly in the long run, but hopefully will be less costly on your life expectancy if pollution levels go down as a result of such regulations. I have a feeling those who will benefit most from this change are the environmental consultants in China.