China’s Environmental Market
15 September 2021
I. Market Overview
The development of China’s environmental industry has been slowed somewhat by the Covid-19 pandemic. National Bureau of Statistics data show that in 2020, investment in water conservation, environment and public-facilities management amounted to RMB8.75 trillion, an increase of 0.2% year-on-year. The green and energy conservation initiatives proposed in the 14th Five-Year Plan include energy-saving and emission reduction, environment governance, green and low-carbon transformation, circular economy and energy transition. Market consultancy Askci Corporation estimated the size of China’s environmental protection equipment market at RMB378.9 billion in 2020, and the figure is projected to reach RMB390.5 billion this year.
China’s environmental-protection sector encompasses equipment manufacturing, engineering and services in a wide range of technology areas. It includes the provision of equipment and services for environmental pollution control and monitoring, the removal of pollutants, waste treatment, and energy conservation; the provision of technology and equipment for clean production; and the collection, safe disposal, recycling and recovery of waste resources. It also covers services related to the protection of resources and the natural ecology. The sector can be broadly divided into the following areas:
- Environmental protection equipment manufacturing: Equipment produced in China for environmental protection is mainly used for the prevention and treatment of water and air pollution. Other Chinese-made equipment includes devices for the disposal and recycling of solid waste, noise control, the prevention of pollution from nuclear radiation and electromagnetic waves, and environmental monitoring.
- Waste-water treatment: The upstream segment of the waste-water treatment industry chain comprises R&D, planning and design. The mid-stream segment covers equipment manufacturing, sourcing as well as engineering and construction. The downstream segment deals with sewage-treatment projects or the operation and management, supervision and maintenance of facilities. As of the first half of 2021, nationwide, the percentage of surface water sections of above-average quality (Class I-III) increased by 0.4% from the same period last year, while the percentage of unusable water sections (Class V) decreased by 0.8%.
- Air-quality control and management: China is committed to achieving a peak in carbon dioxide emissions by 2030 and carbon neutrality before 2060. Figures from the Ministry of Ecology and Environment (MEE) indicate that, as of mid-2021, the State Council’s action plans on pollution prevention and control have already had some success. The percentage of excellent air quality days for the 339 cities at prefecture level or above is 85.5%. Nationwide, the average concentration level of PM2.5 particles has dropped 6.1% year-on-year to 31µg/m3. During the 14th Five-Year Plan period (2021-2025), the basic approach to treating and managing volatile organic compounds (VOC) will revolve around the improvement of air quality and focus on the concerted control of PM2.5 particles and ozone to achieve emission reduction synergically.
- Ecology restoration: According to Askci, the size of the ecology restoration market was RMB419.9 billion in 2020 and increasing. Companies are providing natural ecology protection services, including measures to protect the environment or to restore the damaged ecological environment. Special efforts are put into the protection of natural resources (e.g. forests), conservation works aimed at combating soil erosion, the prevention of desertification, cultivation of grassland and the development of eco-agriculture. Due to the Covid-19 outbreak, preliminary work on environmental restoration projects such as site investigation and risk assessment was not resumed until the second quarter of 2020. As of year-end 2020, some 30 provinces, municipalities and autonomous regions including Zhejiang, Sichuan, Shanghai, Beijing and Tianjin have already announced their respective lists of construction land plots subject to soil pollution risk management, control and restoration. More than 500 plots requiring restoration have been identified.
- Solid waste treatment: Domestic, industrial and hazardous waste are the main types of waste in China. The government is simultaneously emphasising the integrated utilisation of waste resources and their recovery, utilisation and renewal. Industry players are focusing on such key businesses as the integrated utilisation of solid waste. Specifically, the integrated utilisation of waste resources mainly covers the integrated development and utilisation of intergrown and associated ores in the mining process; the recycling and utilisation of solid waste, waste water, waste gases, residual heat and residual pressure generated in production processes; and the recovery, utilisation and renewal of various kinds of waste generated in the course of production and consumption.
- Energy conservation services: These mainly involve providing energy conservation equipment and services to users to reduce energy consumption, raise energy utilisation efficiency and lower pollution emissions. According to Askci, the size of China’s energy conservation service industry was RMB582.6 billion in 2020. There are 6,859 companies (a growth of 4.8% year-on-year) and 760,000 employees (an increase of 25.4% year-on-year) in the industry. In the wake of the pandemic, China’s expenditure on energy conservation and environmental protection was RMB631.7 billion, down 14.1% from the previous year.
In July 2020, China launched an implementation plan on the sorting of municipal solid waste and remedying the shortcomings in processing facilities. The plan envisages that by 2023, cities at prefecture level or above will be able to sort waste effectively and their waste-incineration capacity will be substantially raised. Meanwhile, the transport system for domestic waste in rural and township communities will also be improved. Askci projects that, by 2021, solid waste in China could reach 2.11 billion tons. According to official estimates, of the solid waste generated in China every year, agriculture accounts for about 47%, industry about 30% and construction about 18%.
The China Environmental Labelling Programme is a voluntary product certification scheme administered by the MEE. Products carrying this label comply with specific environmental requirements regarding their design, production, usage, handling and disposal, and have environmental advantages over similar products such as low toxicity, low hazard and resource conservation. With green consumerism on the rise, certified products are increasingly in demand, prompting more manufacturers to apply for environmental labels for their products.
By the first half of 2021, the total number of pollution control and green low-carbon projects in the PPP management database of the Ministry of Finance had reached 5,887, accounting for investment of some RMB5.7 trillion.
II. Market Competition
Studies by the China Association of Environmental Protection Industry (CAEPI) show that in China’s environmental industry, about 90% of enterprises are in the fields of prevention and control of water and air pollution and treatment and utilisation of solid waste resources. During the 14th Five-Year Plan period, it is expected that some enterprises will, through expansion or acquisition, extend their industry chain and broaden their business scope to become integrated environmental services providers while using smart technologies to lower costs and improve service quality.
As a whole, China’s environmental protection market is growing steadily. According to the report on China’s environmental protection industry in 2020, jointly published by the CAEPI and the MEE’s Chinese Academy of Environmental Planning (CAEP), in 2019 total revenue of the sector was up 11.3% year-on-year to RMB1,780 billion, of which revenue from environmental services was RMB1,120 billion, an increase of 23.2% from the previous year. It is expected that the size of the environmental protection sector could reach RMB2 trillion in 2021. Large and medium-sized enterprises constitute 3.4% and 24.3% of the sector, respectively, while small and micro-enterprises represent 72.2%. The number of people engaged in the environmental protection business is about 2.5 million, which is double the number from 10 years ago.
A study of the sector released by Forward Industry Research Institute indicates that the smaller the revenue of an enterprise, the higher the share of revenue from environmental protection business as a percentage of total revenue, and the higher its professionalism in environmental protection. Statistics from the China Environmental Protection Association reveal that 91.6% of the enterprises are engaged in four business areas: environment monitoring, water pollution prevention and control, solid waste disposal and utilisation as a resource, as well as air pollution prevention and control.
In view of the policies under the 14th Five-Year Plan, many traditional landscaping enterprises are seeking a breakthrough by switching to engaging in ecology restoration. Major ecological environment restoration projects generally involve the restoration of diverse scenic areas and have higher requirements for professionalism. This means that the enterprises concerned must be able to carry out specific system planning and provide integrated ecological restoration solutions.
The market for medical waste disposal has expanded because the Covid-19 outbreak has resulted in an accumulation of a large amount of medical waste. As of December 2020, China’s capacity for medical waste disposal had reached 6,200-plus tons a day, up 27% from pre-pandemic times. The market for medical waste disposal in 2020 has grown 15% from 2019 to RMB6.68 billion, and is projected to come close to RMB8.5 billion by the end of 2022.
As rural domestic waste is transferred gradually into the system for the collection, transportation and treatment of urban domestic waste, the quantity of domestic waste in urban areas is increasing exponentially, to the extent that existing collection and transportation facilities can no longer meet the demand. Just 50% of the cities in China are equipped with waste incineration facilities. Meanwhile, enterprises engaging in the recycling of domestic waste are still small-scaled, decentralised and unorganised. Moreover, their level of recycling is low – the rate of re-utilisation of resources is a mere 50%.
A development plan for sorting and disposal facilities for urban domestic waste during the 14th Five-Year Plan period issued by the National Development and Reform Commission (NDRC) in May 2021 has set specific targets to be achieved by the end of 2025. First, the utilisation rate of urban domestic waste resources should reach approximately 60% nationwide. Second, the capacity for the collection and transportation of domestic waste nationwide should reach 700,000 tons a day and the relevant sorting procedures should be completed. Third, the capacity for the incineration of domestic waste for urban areas across the country should reach 800,000 tons a day, with the corresponding capacity for cities accounting for 65% of the total. From this, it is apparent that waste sorting in China is still at a starting stage, and there are huge business opportunities to be had by the solid waste disposal industry.
According to a report by China National Resources Recycling Association, in 2019 there were about 100,000 renewable resources recycling enterprises in China that together provided work for about 15 million people. In the year, the total value of recycling for the whole country was about RMB900.38 billion, up 3.7% year-on-year. There are currently some 159,600 recycling outlets, 1,837 sorting centres, 266 terminal markets and 63 sorting cluster areas nationwide. With a recycling network taking shape, the use of hotline platforms, internet and mobile apps is making the network all the better.
Recycling enterprises in China are typically small-scale technology laggards heavily reliant on manual labour. As a result, recycling costs are high, making it more difficult for these small enterprises to make a breakthrough in their development. Because the entry barrier is low and regulation is wanting, the majority of small businesses in the industry are adopting guerrilla hit-and-run tactics in running their business. This can easily cause environmental pollution problems and also make government supervision difficult.
Under the Law on Preventing and Controlling Soil Pollution, which came into effect on 1 January 2019, soil restoration works initially came under the guidance of the government while a top-down approach to soil control and restoration was adopted. The Measures for the Administration of the Funds for the Prevention and Control of Soil Pollution (Chinese version only), which is meant for implementation in the 14th Five-Year Plan period, has established a system for regulating funds used for the prevention and control of soil pollution and has set up such funds at the central government and provincial levels. This may be able to make a change to the current competitive situation.
The number of enterprises engaging in the prevention and control of atmospheric pollution has increased by almost eight times from 2011 to 2016. With exponential growth in the number of enterprises, the blue ocean market has changed into a red ocean one. A considerable number of enterprises and teams in China are now developing and promoting their own technologies with a view to keeping abreast of overseas markets and building up their competitiveness.
Multinational companies have also been actively targeting the Chinese market through exports of their products, technology transfer and the establishment of joint ventures with local businesses. The majority of the processing equipment used in China is imported from overseas. One example of overseas involvement in China’s environmental industry is the partnership between France’s Suez Group and NWS Holdings of China, to provide services in hazardous waste incineration and waste-water treatment. Another example is the Veolia Group of France, which has established an office in China to offer environmental services. China is one of the key markets of the ALBA Group of Germany, which is engaged in the recycling and reutilisation of scrap cars and scrap metals, the third generation of domestic waste disposal technology and the disposal of kitchen waste and electronic waste, etc. The US environmental protection sector is also offering a wide range of preferential policies to promote the export of their technologies as a way to boost market share.
The environmental market in China is still in its development stage. Related exhibitions and expositions serve as business platforms for industry players to learn from one another, share experiences and explore business opportunities. The following are some of the upcoming exhibitions due to be held in major mainland cities:
Selected Environmental Exhibitions in 2021-2022
14-18 September 2021
China (Shanghai) International Clean Technology and Equipment Expo
National Exhibition and Convention Center, Shanghai
11-13 November 2021
Wuhan International Water Technology Expo
Wuhan International Expo Center
29 March - 1 April 2022
Expo Clean for Commercial Properties and Hotels (CCE) / Expo for International Indoor Air Purification (CIEQ)
Shanghai New International Expo Centre
20-22 April 2022
IE expo China - Shanghai
National Exhibition and Convention Center, Shanghai
IV. Import and Trade Regulations
Since the implementation of Supplement II to the Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA) in January 2006, all products of Hong Kong origin, including those related to environmental protection, can be imported into the mainland with zero tariffs. Hong Kong service providers can also set up wholly-owned enterprises on the mainland under CEPA to provide architectural design and engineering services, including environmental system engineering services. When Hong Kong service providers apply to set up construction engineering design enterprises in China, their track record in Hong Kong and on the mainland can be used by the authorities as the basis for assessing their application.
Also, under Supplement IV to CEPA, Hong Kong service providers may set up wholly-owned enterprises on the mainland to provide the following environmental services (not including environment quality monitoring and pollution source inspection):
- Sewage discharge services (CPC 9401)
- Solid waste treatment services (CPC 9402)
- Waste gas cleaning services (CPC 9404)
- Noise abatement services (CPC 9405)
- Nature and landscape protection services (CPC 9406)
- Other environmental protection services (CPC 9409)
- Sanitation and similar services (CPC 9403)
In Supplement V to CEPA, the mainland agreed that Guangdong is allowed to approve the qualification of Hong Kong service suppliers setting up enterprises to operate environmental pollution control facilities in the province. Also, under Supplement IX, Guangdong can approve Hong Kong service suppliers undertaking entrusted environmental monitoring activities in the province. These measures have greatly simplified the formalities involved when Hong Kong service companies apply to mainland authorities for permission to provide environmental services in Guangdong.
Under Supplement X to CEPA, the mainland agreed that substantive business undertaken by Hong Kong service suppliers in the operation of environmental pollution control facilities in both Hong Kong and the mainland can be taken into account when assessing their applications to operate environmental pollution control facilities on the mainland.
Under the Agreement Between the Mainland and Hong Kong on Achieving Basic Liberalisation of Trade in Services in Guangdong, Hong Kong service providers offering the environmental protection services mentioned in the list above in Guangdong are entitled to national treatment, while the Agreement on Trade in Services under CEPA signed on 27 November 2015 allows Hong Kong service providers to enjoy national treatment when providing the same services across the mainland.
China has implemented the Measures for the Administration of Pollution Control of Electronic Information Products (commonly called China RoHS) since 1 March 2007 and the Measures for the Administration of the Prevention and Control of Environmental Pollution by Electronic Wastes since February 2008 to control and reduce environmental pollution brought about by electronic products. The China WEEE came into force on 1 January 2011. In 2019, the Guidelines on Reviewing the Status of the Disassembling and Disposal of Waste Electrical and Electronic Products (Chinese version only) was issued to promote the proper recovery and disposal of waste electrical and electronic products and to ensure the secured usage of funds designated for such purposes.
The State Administration for Market Regulation and the Ministry of Industry and Information Technology have jointly issued the Implementation Arrangements for the Conformity Assessment System for the Restriction of Hazardous Substances in Electrical Appliances and Electronic Products. This aims to curb the environmental damage caused by discarded electrical and electronic products. The new policy obliges suppliers of any electrical appliances and electronic products that were manufactured/imported after 1 November 2019 and are listed in The Standard Achieving Management Catalogue, to complete a conformity assessment on either a voluntary certification or self-declaration basis.
The MEE has established various national environmental standards and related technical requirements, and amended existing ones in response to changes in actual situations. These industrial standards are directly related to the environmental industry and several of its related businesses, and include:
- The Environmental Protection Standard for Water
- The Environmental Protection Standard for Atmosphere
- The Environmental Noise and Vibration Standard
- The Environmental Protection Standard for Soil
- The Solid Waste and Chemical Pollution Control Standard
- The Environmental Protection Standard for Nuclear Radiation and Electromagnetic Radiation
- The Environmental Protection Standard for Ecology
- The Clean Production Standard
- The Technical Regulations for Environmental Protection Works
- The Technical Requirements for Environmental Protection Products
Since 11 July 2017, all mainland sewage and refuse treatment projects involving the government have been run under the PPP model. The government authorities and non-government investing parties concerned will enter into a PPP agreement in which equity distribution and risk-sharing mechanisms are clearly set out and the commercial risks of the project will be isolated by the setting up of a PPP project company with independent legal entity status.
The Ministry of Finance has issued the Announcement on Issues Concerning Income Tax Policies for Third-Party Enterprises Engaging in Pollution Prevention and Control in a bid to encourage enterprises to engage in pollution prevention and control. Between 1 January 2019 and 31 December 2021, third-party enterprises engaging in pollution prevention and control that meet seven relevant conditions will pay enterprise income tax at a reduced rate of 15%.
On 29 April 2020, the Standing Committee of the 13th National People’s Congress deliberated and approved the revised Law on the Prevention and Control of Environmental Pollution by Solid Waste. It states that China is going to implement a waste classification system and strengthen work on the prevention and control of environmental pollution by rural solid waste. It further refines the classification of solid waste types and the corresponding prevention and control systems. It lays down the responsibilities of the government, departments, individuals and organisations in supervising and carrying out solid waste disposal. It also imposes severe punishment for violation of its provisions.
In a bid to totally ban the entry of foreign refuse, advance the reform of the administration system for solid waste importation and promote the non-hazardous utilisation of domestic solid waste as a form of resources, the State Council launched the Implementing Program for Prohibiting the Entry of Foreign Refuse to Promote the Reform of the Solid Waste Import Management System on 1 April 2021. For details, please refer to MEE notice (in Chinese only).
The MEE and the State Administration for Market Regulation have jointly announced that the Standard for Pollution Control on Medical Waste Treatment and Disposal (Chinese version only), Standard for Pollution Control on Non-hazardous Industrial Solid Waste Storage and Landfill (Chinese version only) and the Standard for Pollution Control on Hazardous Waste Incineration (Chinese version only) have replaced the respective old standards since 1 July 2021 to boost ecological environment improvement efforts and to prevent and control environmental pollution.
- Environmental Protection
- Mainland China