China Environmental Law

I’ve been meaning to do a post on the labor and environmental records of China’s “green” poster companies, but haven’t had the time to devote to it yet.  My supposition is that many of those companies in the vanguard of China’s green revolution are no better than the average Guangdong toy manufacture when it comes to compliance with labor and environmental laws.

Here’s one data point to support my thesis.  Shanghai’s Chaori Solar Energy Science & Technology Company recently applied to float an IPO on the Shanghai Exchange to fund a solar battery plant in Henan Province.  The application was rejected by the China Securities Regulatory Commission because the “company’s record of environment penalties” Caijing Magazine reports. Chaori was fined 100,000 RMB in 2007 for “importing banned photosensitive semiconductors” (companies must be violation free for three years prior to the proposed IPO) and there were also concerns that the company did not have sufficient assets since its “factories were found to be mostly rented from third parties.” [rule on violation free period]

Chaori isn’t making solar panels because of its commitment to China’s renewable energy goals.  It’s making solar panels to make a buck (most of which will come from exporting the panels).  There is nothing wrong with that, of course, but it does mean that there is no reason to suppose that such a company will perform any better than the average when it comes to treating its workers well and protecting the environment from the impacts of its manufacturing process.  Companies that source from “green” suppliers in China should not lower their auditing standards just because the company operates in an industry which is considered environmentally beneficial.

I think the Chaori case itself can be chalked up as a China success story.  The security rules were designed to encourage environmentally compliant behavior.  Stopping an IPO is a pretty drastic remedy, and it should continue (this isn’t the first time a listing has been rejected) to send a signal to others in this space that they need to ensure they have clean environmental records.