strategy+business is published by PwC Strategy& LLC.
or, sign in with:
strategy and business
(originally published by Booz & Company)


The New Chinese Environment

All of these changes add up to business climate in which more environmental challenges — both real and perceived — are being posed in China than ever before. And yet there’s no mass exodus of multinationals from the country, despite rising labor costs and heightened competition from Vietnam, the Philippines, and other emerging markets. The sheer size of China’s labor force is likely to preserve the country’s position as the most important offshoring location for manufacturing for the foreseeable future. So, beginning with the assumption that your company is already in China or will be soon, here are some caveats about operating prudently there — and avoiding the kinds of environmental PR headaches (or bona fide accidents) that can cost plenty of energy, resources, time, and money to fix.

  • Don’t stretch the rules — even though you’d probably get away with it. This should go without saying but it needs to be said anyway: Don’t do anything in China you wouldn’t do in the U.S. or elsewhere. Few would admit it, of course, but lax enforcement of environmental rules and regulations were what attracted some foreign firms to China in the first place. Putting aside the dubious ethics for the moment, this is now simply bad business. “Double standards are not an option,” warns Ronald Haddock, a Shanghai-based partner with Booz & Company. You don’t necessarily need to go as far as Mattel Inc., which hired the corporate-accountability gadfly and Baruch College business professor Prakesh Sethi to monitor environmental and working conditions in China and other developing nations. But companies need to make sure their factories in Shanghai meet the same standards as the ones in Sheboygan.
  • Study the water. China has major environmental problems related to air pollution, soil erosion, and energy, but water poses far and away its most daunting challenge. There just isn’t enough clean water. According to Greenpeace, China’s industrial sector dumps more than 40 billion tons of untreated wastewater into rivers and lakes every year. As a result, only about 40 percent of the country’s surface water is suitable for drinking. (The IPEA maintains a digital map of the country’s water pollution; currently, multinationals with factories on the map include Samsung, Whirlpool, and Motorola.) What this means for manufacturers is that in the most polluted areas, such as Jiangsu, Jiangxi, and Chongqing, there may not be enough clean water to run factories. Companies can minimize this issue by focusing on water availability in a costly (but necessary) environmental audit — an engineer’s report that assesses the environmental issues and costs associated with a prospective factory site — which they should commission before deciding where to build. 
  • Consider China’s eco-cities. At the central and local levels, China’s government encourages multinationals to consider building in one of its so-called national model environmental cities. These are regions where the local government is making a concerted effort (for which it’s rewarded by the national government) to make it easier for companies to run clean factories. “These cities ostensibly — but not always — rank in the top of China’s environmental practices,” says Elizabeth Economy. “That means that there’s a commitment by the local government to doing the right thing. They’re more likely to have wastewater treatment facilities in place. They’re more likely to just, in general, have an enforcement capacity that is higher.” Roughly 10 percent of China’s cities have received the designation. 
  • Keep the government informed. In one sense, Chinese government officials are powerfully motivated to ignore any environmental regulations that hinder the key metric by which their performance is judged: GDP growth in their locality. (This applies at all five levels of China’s political system: national, provincial, municipal, county, and township.) Yet the national leadership is now focused on improving the environment (and selling that story to the world), so local officials are increasingly interested in demonstrating progress in their own jurisdictions. For this reason, it’s critical that multinationals work with the local government on shared goals while simultaneously making sure the regional and national leadership is aware of their efforts. Jean-Michel Dumont, a senior executive at public relations firm Ruder Finn who has represented major firms in China for more than 20 years, recalls the story of a major client who received local kudos for its environmental efforts, only to be later mistakenly placed on a national blacklist. Keeping the central government in the loop, Dumont says, would have spared his client the considerable headache of unwinding the error. 
Follow Us 
Facebook Twitter LinkedIn Google Plus YouTube RSS strategy+business Digital and Mobile products App Store



  1. Elizabeth C. Economy, The River Runs Black: The Environmental Challenge to China’s Future (Cornell University Press, 2004): If you’re going to read one book on China’s environmental crisis, make it this award-winning volume.
  2. Cost of Pollution in China: Economic Estimates of Physical Damages” (PDF)(The World Bank Environmental and Social Development Unit, February 2007): A broad overview of the economic impact of environmental degradation in China.
  3. China Ministry of Environmental Protection Model Cities Web site: A list of Chinese urban areas designated to safeguard air and water resources, even as they encourage new industry.
  4. Institute of Public and Environmental Affairs Web site: Created by Chinese environmental crusader Ma Jun, this online map charts water pollution in the country.
Sign up to receive s+b newsletters and get a FREE Strategy eBook

You will initially receive up to two newsletters/week. You can unsubscribe from any newsletter by using the link found in each newsletter.