The environmental requirements for listing on the New Third Board are based on Article 2 Paragraph 2 of the Basic Standard Guidelines for Applying to List on the National Equities Exchange and Quotations System (for Trial Implementation) (hereafter the “Guidelines”). Paragraph 2 states “the company shall comply with laws, administrative regulations and rules, satisfying national industry policy and the requirements of environmental protection, quality and safety.” This, however, was not a clear enough guideline in practice and brokers tended to refer to IPO guidelines so the National Equities Exchange and Quotation Co. provided more detailed requirements in a newly published Q&A (hereafter the “NEEQ Q&A”). The NEEQ Q&A touches on five sub-stipulations that serve as both criteria and a checklist. 

Is a listing company a heavily polluting industry?

The NEEQ Q&A states that brokers must decide whether a company seeking to list (the “Applicant”) falls within the heavy pollution industry category. The assessment is based on national and local laws, but if they are not applicable, then reference is to be made to regulations of the Ministry of Environmental Protection (MEP), China Securities Regulatory Commission (CSRC), or other relevant authorities instead. This procedure entails a two-step approach, first to consideration of the national and local rules[1], and then to the MEP and CSRC rules[2]that supplement them.

Heavily polluting industries defined under both national and MEP law include: thermal power plants, steel, cement, electrolytic aluminum, coal, metallurgy, building materials, mining, chemicals, petro-chemicals, pharmaceuticals, paper, fermentation, sugar, vegetable oil processing, brewing, textile, leather, and other heavily polluting industries (18+X). However local laws may have different definitions. For instance, Zhejiang province categorizes lead-acid battery, electroplating, dyeing, paper making and chemistry as heavily polluting industries. Guangdong, on the other hand, classifies electroplating, paper making, dyeing, leather, chemicals (including petro-chemicals), building materials, metallurgy, fermentation, general industrial solid wastes and disposal of dangerous wastes as heavily polluting industries. Therefore in Zhejiang, the list of heavily polluting industries includes 18+X plus lead-acid battery, electroplating and dyeing facilities; while in Guangdong, industries categorized as heavily polluting include 18+X plus electroplating, dyeing, general industrial solid wastes and disposing of dangerous wastes. The differences in local policies (including the regulations of municipalities with independent planning status) entail consideration by legal counsel when categorizing an industry. 

Minimum requirements for listing applications involving an industry causing heavy pollution.

Under the NEEQ Q&A, an industry with heavy pollution status is required, before listing, to obtain an EIA Approval, a Certificate of Environmental Protection Inspection and a Pollutant Discharge Permit. It must install pollution treatment equipment. Projects still being completed must be formally assessed as at their stage of construction and be in compliance with environmental protection laws.

Environmental Impact Assessment Approval is a form of administrative license. The Law on Appraising Environment Impacts specifies the competent organ, the procedure, and the content of the appraisal. The circumstances when an EIA Approval is needed are set out in numerous laws -- Law on Prevention and Control of Radioactive Pollution, Management Regulations on Safety and Protection of Usage of Radioisotopes and Rays Generating Devices, Law on Prevention and Control of Water Pollution, Law on the Prevention and Control of Atmospheric Pollution, Law on the Prevention and Control of Environmental Pollution by Solid Waste, Law on Prevention and Control of Pollution From Environmental Noise, Marine Environment Protection Law, and Regulations on Environmental Protection Issues During Exploration of Offshore Oil.

Environmental Protection Inspection and Acceptance is an on-site inspection by competent state departments to determine whether the constructed project meets environmental protection standards. It is based on monitoring data or the result of investigation, in accordance with the Management Measures for Checking and Accepting Environmental Protection Measures for Completed Construction Projects. The inspection is an administrative licensing procedure applied to all completed facilities that have received an EIA Approval.

Pollutant Discharge Permit is a permission to discharge waste gas, waste water, noise, and solid wastes into the environment. These are administrative licenses which are specified in the Environmental Protection Law, Law on the Prevention and Control of Atmospheric Pollution, Law on Prevention and Control of Water Pollution, and Law on the Prevention and Control of Environmental Pollution by Solid Waste.

The installation of pollutant treatment equipment is the addition of new pollution treatment facilities required in the EIA report as part of the procedure of inspection and acceptance. This is an important aspect of EIA Approval and the Environmental Protection Inspection. It is required under the Environmental Protection Law, Law on the Prevention and Control of Atmospheric Pollution, Law on Prevention and Control of Water Pollution, and Law on the Prevention and Control of Environmental Pollution by Solid Waste, and Law on Prevention and Control of Pollution from Environmental Noise. Its inclusion in the NEEQ Q&A emphasizes the need for compliance whenever construction is undertaken, referred to as the “Three Simultaneities” system. The three simultaneities refer to construction of new facilities, or additions or renovations and they are all subject to the same permitting system. Therefore treatment equipment may need to be installed during construction of the project to prevent any unauthorized discharges or otherwise breach environmental laws.

Generally speaking, the approvals required for a construction project involve the following steps: (a) Before completion of construction, an EIA Approval must be obtained; (b) After completion, an Application for Trial Production must be filed; (c) After the trial production, the project must be inspected and accepted (including the “three simultaneities” inspections); (d) After acceptance, applications for Pollutant Discharge Permits must be filed. If the project is still under construction when the company files to list it must have approvals that match the stage of its construction. 

The basic environmental requirements for non-heavily polluting companies

Under the NEEQ Q&A, Applicants not categorized as heavily polluting but which are legally required to have Pollutant Discharge Permits or pollutant treatment equipment must do so before applying to list. These Applicants for listing need only have Pollutant Discharge Permits and an inspection 1 permit and 1 system, rather than the more onerous, 3 permits and 1 system needed for heavily polluting Applicants. However, non-heavily polluting companies still need EIA Approval and a Certificate of Environmental Protection Inspection. Because the environmental impact of non-heavily polluting companies is relatively smaller than heavily polluting companies, the law allows non-heavily polluting companies to get EIA Approval and an Inspection Certificate at a later point in time after it has received a Pollutant Discharge Permit and installed pollutant treatment equipment. Although such companies do not need the other two approvals when applying for listing, counsel must still state the status of approval in the due diligence report. 

The establishment of the company’s environmental protection policy and information disclosure requirement

An Applicant may be required by law to have an environmental protection policy or to disclose environment-related information to the public. The core of environmental protection policy is a responsibility system.[3] China’s Environmental Protection Law[4], Law on thePrevention and Control of Pollution by Solid Waste[5], and other laws and regulations require that companies which discharge pollutants into the environment must take responsibility for its protection and ensure their staff understand their roles in protecting the environment. When listing, companies are obliged to disclose information about the environmental impact of their activities to the public. In practice, their lawyers will conduct an environmental due diligence so as to describe and verify the status of impacts and protection systems. Legal counsel must verify the disclosure pursuant to Art. 55, Art. 56[6]of the Environmental Protection Law, and Art. 20, 21 of the Measures for the Disclosure of Environmental Information[7]

Restrictions for violation of law

The NEEQ Q&A requires that an Applicant must not have any grave violation of environmental protection laws or regulations in the period 24 months before the application. The Guidelines define a grave violation as any conduct that violates a law or administrative rule in the preceding 24 months and may result in a criminal penalty or an administrative penalty due to a severe rule breach.

In the case of a criminal penalty there must not have been any conduct in the preceding 24 months that is suspected of being a criminal violation which might lead to an official charge by law enforcement.

Administrative penalties due to a severe rule breach are those that may result in the confiscation of illegal gains, unlawful property or things of value, or more severe penalties, unless the conduct is excluded from this category by the organ imposing the administrative penalty. It also includes “any conduct that may result in a fine…, unless the prime broker and counsel can give a reasonable explanation or the conduct is excluded from this category by the organ imposing the administrative penalty.”

To sum up, there are two types of grave violations: one is criminal and the other administrative. In relation to criminal matters, if an Applicant is being, or has been officially investigated in the preceding 24 months, it is considered a grave violation, unless the investigation has been concluded and found that no offence had been committed. In practice, enterprises are charged usually because their conduct may be considered to have caused environmental damage under Art. 338 to Art. 345 of the Criminal Law.

Once a criminal penalty has been imposed or may be ensue, there is no room for bargaining, so an Applicant who has or may have committed a crime is strictly forbidden from listing. On the other hand the types of administrative penalty which constitute “grave violation” are defined and even if an administrative penalty is a defined grave violation, there may be room for negotiating a solution with authorities. In practice, listing companies may obtain a certificate issued by a competent authority stating their conduct is not a grave violation, however sponsors and counsel may need to justify this with detailed analysis. 


The five environmental requirements provide specific guidelines for companies seeking to list on the New Third Board and help to facilitate the application procedure. They are both requirements and provide a checking and verification procedure. First companies must decide on their classification by their degree of pollution, together with their compliance in their particular category. Then make clear their environmental protection policy and complete their information disclosure, and finally consider whether they have been in violation of the law in the preceding 24 months.