On 1 January 2019, the PRC Law on the Prevention and Control of Soil Contamination (“Law on Prevention of Soil Contamination”) entered into effect—the first specific law on prevention and control of soil contamination. Before the promulgation, prevention and control on soil contamination was regulated under the umbrella of general provisions on environmental protection. The purpose of this law is to carry out the agenda set out by the Circular of the State Council on Issuing the Action Plan for Soil Contamination Control promulgated on 28 May 2016 (“Circular on the Action Plan”) which aims to develop an ecological civilization and sets out a major and strategic plan for systematic pollution control.

The Law on Prevention of Soil Contamination established the principles of prevention first, prioritizing protection, category-based nuanced administration, managing and controlling risks, “who pollutes who remediates” and advocating public participation. This law filled in the legislation blank of soil contamination prevention and control. Different measures are adopted to manage agricultural land and industrial land. This article will only focus on industrial land.

I. Key Contents of the Law on Prevention of Soil Contamination

The Law on Prevention of Soil Contamination defines soil contamination as situation where changes to chemical, physical or biological characteristics of soil, attributed to the permeation of certain substances into the land surface soil due to human factors, affect the functions and effective use of soil and jeopardize public health or damage the ecological environment.

1. Prevention First and Prioritizing Protection Principle

In comparison with air and water pollution, soil pollution is difficult to be observed and accumulates over time. Once damages are done, restoration of the ecology and environment will be hard to achieve. Hence, prevention is imperative to soil environment protection. Thus, the Law on Prevention of Soil Contamination provides for a basic management system which comprises governmental accountability and assessment mechanisms regarding the objectives of prevention of soil contamination.

As an addition to routine environmental impact assessment and approval procedures, the Law on Prevention of Soil Contamination imposes prevention responsibilities on both administrative supervision authorities and private entities. In terms of administrative supervision, it explicitly stipulates that the competent authority of ecology and the environment of the State Council shall, in cooperation with other competent authorities, formulate, publish and update in due time the catalogue of hazardous and harmful soil substances as well as a list of entities under major supervision regarding soil contamination. For private entities, the law requires proper measures to be adopted by private entities to prevent soil contamination, especially for those entities dealing with hazardous substances in their ordinary course of business.

2. List of Entities under Major Supervision

The Law on Prevention of Soil Contamination officially introduced a new administrative managing mechanism—list of entities under major supervision. The competent authorities of ecology and the environment, at the level of a city with districts and above, shall work in line with the provisions of the competent authority of ecology and the environment of the State Council, and formulate a list of entities under major supervision regarding soil contamination within their administrative regions. Entities on such list are subject to stricter obligations and liabilities, e.g., a plan on prevention and control of soil pollution shall be made and soil status investigation must be carried out before transfer or take-back of the concerned land use right. Where an entity under major supervision intends to dismantle facilities, equipment, buildings or structures, aside from formulating a contingency plan, the entity must also file such contingency plan with the competent authority of ecology and the environment and the authority of industry and information technology of the local government. Violators who fail to comply with the aforementioned provisions which causes severe consequences will be subject to a fine of up to RMB 2 million and even suspension of business depending on the seriousness.

According to the Circular on the Action Plan, nonferrous metal metallurgy, oil processing, chemical engineering, coal carbonization, electroplating and tanning industries are most likely to be under the first and the strictest scrutiny.

3. Strengthening Soil Contamination Risk Control and Remediation

The competent authority of ecology and the environment of the State Council shall formulate national standards for the management and control of soil pollution risks according to the purpose of the land (i.e., agricultural land, construction land and unutilized-land). For construction land, the Law on Prevention of Soil Contamination established a system comprising soil contamination risk control and remediation. Further, the provincial government may formulate supplementary or stricter local standards. Such standards are mandatory.

At state level, the currently effective standards are the Soil Environmental Quality—Risk Control Standard for Soil Contamination of Construction Land (Trial) and Soil Environmental Quality—Risk Control Standard for Soil Contamination of Agriculture Land (Trial) both effective on 1 August 2018. For local regulations, take Shanghai as an example, the Shanghai Municipal Ecology and Environment Bureau and the Shanghai Municipal Planning and Natural Resources Bureau issued several notices on the works of soil environment investigation, risk assessment and effect evaluation of construction land. The First List of Shanghai Soil Contamination Risk Control and Remediation was published in 5 September 2019. The parcels of land listed in the aforesaid list are prohibited from any use other than remediation. These prohibitions may be relieved only when such parcels of land have been duly restored for safe use.

4. Adding Land Use Right Holder as Liable Party

Soil contamination is generally hard to be perceived through human senses. Besides, soil contamination is usually caused by multiple factors over time which makes identifying the polluter difficult. The Law on Prevention of Soil Contamination, at the first time, stipulates that the holder of the land use right shall carry out risk control and remediation of soil contamination where the polluter cannot be identified. However, the Law on Prevention of Soil Contamination does not specify what methods shall be adopted for identifying the liable party. The only solution to such dispute is applying for governmental decision by the ecology and environment authority as well as the natural resources administrative authority. Under such circumstances, land use right holders are at great risks of being imposed with such obligations simply because they are easy to be held accountable in reality. To avoid abuse of administrative power, detailed provisions on how to identify liable parties are much needed. In practice, anybody acquiring land use right is well advised to conduct a soil investigation before acquiring land use right regardless whether acquiring a new parcel of land or purchasing existing buildings and the land use right of the underlying building.

5. Soil Environmental Information Sharing System

The Law on Prevention of Soil Contamination explicitly stipulates that ecology and environment authorities shall establish a basic soil environmental database, develop the national soil environment information platform, and realize dynamic data updating and information sharing. The national soil environmental information platform will share information of, among others, qualified investigating and evaluating institutions, parties liable to restore soil environment and post restoration management. In case of violations of laws and regulations on prevention and control of soil contamination, such violations will be recorded and published on the National Credit Information Sharing Platform and the National Enterprise Credit Information Publicity System. By the date of this article, the national soil environmental information platform has not been launched yet.

We noted that administrative penalties for violations of environmental protection laws are usually promptly updated on the National Credit Information Sharing Platform and the National Enterprise Credit Information Publicity System. However, updates of remediation or rectification of such violations are often long overdue. Companies need to keep an eye on such information sharing platforms and apply for timely updates to avoid unjustified reputational damage.

II. Stringent Enforcement and National Environmental Inspection Campaign

Driven by seeking economic growth, local governments used to be lenient towards polluting enterprises. Since the central government now prioritizes environmental protection, environmental enforcement has now gone to the other extreme.

Upon implementation of the Law on Prevention of Soil Contamination in 2019, the Ministry of Ecology and Environment of the PRC (“MEE”) initiated a second-round inspection campaign right thereafter. The aim of this campaign is to complete the routine inspection nationwide within 3 years. The central inspection team has inspected 6 provinces and cities as of July 2019. Under such campaign associated with soil survey on soil contamination conditions nationwide, in practice, enterprises have faced and will face more environmental inspection and will be exposed to increased risk of environmental administrative penalties.

According to the information published on the PRC Central Government’s official website, during the period of 10 July 2018 to 15 August 2019, 8 central inspection teams had inspected Shanghai, Fujian, Hainan, Chongqing, Gansu and Qinghai which resulted in 1901 established-cases of environmental violations, RMB 113.08 million administrative fines and 56 individuals in detention.

As a result, companies should adopt corresponding measures to deal with intensified inspections. For instance, companies may train their staff from security guards at the workshop entrance to environment, health and safety (“EHS”) managers on how to answer frequently asked questions and direct inspectors to the right resource in the company. For construction or dismantling projects, environmental protection measures and contingency plans shall be duly made or filed to meet statutory requirements.

III. Challenges to Business

Stringent policy and enforcement, to some extent, gives companies with advanced environmental compliance standards an edge over their competitors because of a more leveled playing field. However, rapid change of statutes and intensified enforcement also have brought uncertainty to business.

1. Intensified Environmental Enforcement

As the second-round inspection campaign is going on and the implementation of the new Law on Prevention of Soil Contamination is in progress, an overall increasing environmental enforcement will foreseeably remain at its historical high.

Since the central government heightened the benchmark for local authorities’ supervision duties, local authorities are in fear of being held accountable for missteps. Thus, many have opted to take a “wait and see” or “one case one review” approach. Companies noted challenges to obtain approvals or even disruptive suspension of granting approvals on environmental impact assessment which are statutory pre-condition for adding a new production line or expansion of production. In other cases, companies encountered inconsistent orders from authorities due to the pressure from the central government. In order to keep up with the changes to the implementing policies from authority perspective, it is advisable to engage with regulators proactively on a regular basis. Especially, where an abrupt change of policy occurs, such approach can help companies to identify risks in current operations and make corresponding plans.

2. Updates of Environmental Compliance Standard

Keeping an up-to-date checklist for regulatory requirements is of the essence for environmental compliance. After a company obtained the environmental approval and/or pollutant discharge permit, it cannot simply rest on such approval and permit. Where there is any change to law or update of mandatory industry standards, the responsibility to keep up with such change and update is on the company’s side. Failure to do so will result in adverse impact like administrative penalties and stop of production in the worst-case scenario. For companies under major supervision, s self-monitoring plan, among other obligations, should be made and filed accordingly according to the Law on Prevention of Soil Contamination.

In addition to the above-mentioned list, companies may entrust third parties to do EHS (environment, health and safety) audit reports or inspections to identify issues in advance. The combined internal and external risk self-assessments may also serve as an additional verification mechanism.

3. Response to Administrative Decisions and Penalties

Where a violation of environmental law occurs, the competent authority of ecology and environment shall order rectification and impose a penalty. Where an administrative fine over RMB 50,000, suspension or revocation of an administrative permit or order to stop business against an enterprise is intended to be made, such enterprise shall be informed of its right to an administrative hearing before such administrative penalty is actually made. If there is substantial or procedural error in administrative decisions, companies can apply for administrative hearing, reconsideration or litigation to set the record straight. Otherwise, such administrative decisions will be published on several national information sharing platforms which will adversely affect the company’s credit and reputation. Even worse, such administrative decisions may be used as evidence to prove the company’s wrongdoing in environmental related lawsuits. Thus, companies should respond actively in in order to avoid missing the opportunity to exercise their statutory remedial rights.