Emission Reduction Stimulates the Rapid Development of the Environmental Protection Business Sector    

1.  Requirements for emission reduction drive a redistribution of industrial segments  

In the framework of energy conservation and emission reduction targets during the Eleventh Five-year Program period of China (2006-2010), the National Development and Reform Commission PRC (NDRC) has issued and implemented policies for industrial energy conservation and emission reduction one after another since 2006 and also taken them as important measures to adjust the distribution of the affected industries and a transformation of the economic growth mode.
    It can be seen that the increasing emission reduction pressure in 2007 has four impacts on high emissions sectors: (1) Small scale enterprises have been shut down and the industrial activity is concentrated in fewer sites. (2) The supply/demand relationship in sectors that had surplus capacity has better balance and product prices have picked up. (3) Enterprises have to increase their investment in environmental protection, but small enterprises can hardly sustain this, so the surviving firms are more stable on average than in the past. (4) Operating performance in large enterprises has recovered rapidly and more investment opportunities have been created.
   Judging from the recent status of the papermaking, pharmaceutical, dyestuff and calcium carbide sectors, changes made by increased pressure for emission reduction have been reflected in the market supply/demand and the product price. The collapse of small enterprises under the emission reduction pressure is a short-term phenomenon and the prospect for recovery in the medium and long-term is quite positive. Nevertheless, due to high standards for environmental protection, barriers for creating small enterprises will exist for many years and this new distribution of scale in the affected industries will be maintained. As there will be no impact from small enterprises in capacity and price, the prosperity of the chemical industry will be relatively constant. The situation is favorable for stabilization of profitability in the entire chemical industry.

Impact on the papermaking sector:
…the concentration of the production of printing paper has started to increase

Sewage emission volumes and the COD emission amount in the papermaking sector are the first places of any sector in China. According to the State Environmental Protection Administration (SEPA) in 2005, sewage from the papermaking sector accounted for 17% of the total national industrial sewage volume and the COD emissions accounted for 32% of the national total.
   The outdated papermaking capacity to be eliminated during the Eleventh Five-year Program period (2006 - 2010) is 6.5 million t/a - equivalent to 10% of the 2006 output. The papermaking capacity to be eliminated in 2007 alone is 2.3 million t/a - 3.5% of the 2006 output. Grass pulp units with a capacity of less than 34 000 t/a, chemical pulp-making production lines with a capacity of less than 17 000 t/a and waste paper based paper mills with a capacity of less than 10 000 t/a and not conforming to the pollutant emission standard are all among the units to be eliminated.
    The average annual compound growth of printing paper was 10.9% from 2000 to 2006. It was 7.57% in the past three years. If the average annual consumption growth is estimated to be 8%, and supposing there is no new capacity and the existing capacity is shut down according to the plan, the papermaking capacity will be reduced by 2.3 million t/a in 2007, 2.1 million t/a in 2008 and 2.1 million t/a in 2009. If 35% of the papermaking capacity to be shut down is the capacity of printing paper, the capacity of printing paper will be reduced by 805 000 t/a in 2007, 735 000 t/a in 2008 and 735 000 t/a in 2009. If the existing capacity can increase 10% through technical renovation, the supply shortage of printing paper will be roughly 550 000 tons in 2007, 1.15 million tons in 2008 and 1.79 million tons in 2009. This could be the reason the price of printing paper has recently increased considerably. We anticipate that some paper mills will expand their capacity to make printing paper.

Impact on the pharmaceutical sector:
... new standards will soon be implemented and large enterprises have the first opportunity
The Standard for Pollutant Emissions in the Pharmaceutical Industry formulated by the SEPA will soon be implemented. The document stiffens requirements on pharmaceutical enterprises to protect environment and reduce pollution. To meet the new standard, pharmaceutical enterprises will have to increase their efforts in environmental protection and the cost will be dramatic. Some medium and small enterprises will fold as they are unable to digest the high environmental protection cost. The pharmaceutical manufacturing sector will start a new round of reshuffling. The standard was issued in April this year and implementation will be started on January 1st, 2008. The cost of pollutant control will be almost RMB100 million in a typical large pharmaceutical enterprise and also several dozen million RMB in a medium - scale firm.
   The new policy has lowered the threshold for pollutant emissions. New pharmaceutical enterprises are required to make design and production according to the new standard. Existing pharmaceutical enterprises should adjust to meet the limits within the 3-year transition period. Some pharmaceutical enterprises have already used a great deal of funds to purchase environmental protection facilities. Nevertheless, many enterprises still do not conform to the new standard. If such enterprises discontinue production for renovation according to the requirements of environmental protection managing departments, their revenue will be reduced by around RMB20 million a month. The compulsory standard will force many small and medium producers of vitamin raw materials to discontinue production. It is reported that the limits for pollutant emissions from the processing of biological medicines and proprietary medicines defined in the standard are much stricter than in the present standard. For example, the limit for COD pre-emission in sewage in the production of proprietary medicines is reduced from 1000 COD to 500 COD and the limit for COD emission is also halved from 300 COD to 150 COD. Large pharmaceutical enterprises are increasing their input in environmental protection.

Impact on the dyestuffs sector:
... small enterprises have been shut down and the price of dyestuffs is going up

Major pollutants from the dyestuffs sector are contained in waste water. The average rate of waste water treatment in the dyestuffs sector of China is 70% and only 30% of discharged waste water meets the state standards. China has issued orders to shut down 15 types of heavy-polluting small enterprises, including small dyestuffs manufacturers with an annual output of less than 500 tons. China currently has around 100 such dyestuffs manufacturers.
   According to the National Bureau of Statistics of China, the output of dyestuffs in China was 1.28 million tons in 2006 (being 699 300 tons in the report of China Dyestuffs Industry Association) There were 55 enterprises whose output was more than 5 000 tons (the revenue being around RMB100 million), with a total output of 995 000 tons, accounting for 77.7% of the national total. The initial investment in the waste water treatment unit of a 5 000 t/a dyestuffs plant will be RMB8 million to RMB10 million. For dyestuffs enterprises with a capacity of less than 5 000 t/a, the financial strain of constructing sewage treatment units may be quite big. In the first half of 2007, some dyestuffs enterprises in some ar