China's Pledge to Go After Polluters Targets Firms Like Sinopec

TAIPEI, Taiwan (TheStreet) -- China plans to increase enforcement of pollution laws after earlier efforts failed -- likely putting pressure on the country's heavy industry, including U.S.-traded companies.

Petrochemical firms, steel makers and other manufacturers that foul air or water face seizure of property as well as the arrests of people contributing to pollution, state-owned media say. Those reprisals would follow a tough revision to the China Environmental Law earlier this year. Enforcement will increase in 2015, with costs too high to bear, Chinese Premier Li Keqiang told a news conference this month.

"No one is allowed to use their power to meddle with the enforcement of the law," Li said, as quoted by the official China Daily newspaper. "The environment protection law is an ultimate weapon instead of a cotton swab."

Laws haven't been enforced in the past because of the lack of specific measures, reluctance by local governments to punish major manufacturers and a hard-to-break dependence on coal as a source of fuel for the country's all-important factories.

But pollution poses public health problems and has soiled the government's image as smoke-like haze hangs over the capital, Beijing, where people routinely wear face masks, and rivers run red with sewage.

"It will take sweeping reform to put a dent in emissions, not just a revision of existing legislation," said Matthieu David-Experton, founder of market research firm Daxue Consulting in Beijing and Shanghai. But tougher laws are "a start," he said.

"As China shifts further and further away from manufacturing, we'll see more and more efforts towards addressing the pollution," David-Experton said.

Energy companies such as China-based, U.S.-traded Sinopec (SHI) and Petro China (PTR) may need to make changes if authorities proceed in enforcing the tougher law. The Chinese documentary Under the Dome says both interfered with the setting of gasoline quality standards. Neither company would talk to TheStreet.

American oil firm ConocoPhillips  (COP) might also be on alert to make sure its oil exploration and production activities comply with the laws. China sanctioned the company in 2011 over its apparent role in an offshore oil spill east of Beijing but later let drilling proceed. ConocoPhillips representatives in the Houston headquarters did not answer a request for comment.

Some analysts expect China to promote alternative fuel and clean-burning motor vehicles to ease pollution linked to oil and gas.

Steelmaking, another source of pollution in China, would also be targeted. Among the U.S.-traded giants active in China is South Korea-based POSCO  (PKX) , which agreed last year to run a joint venture plant in the western industrial city Chongqing and to sell automated crane equipment to another Chinese steelmaking facility.

Officials from POSCO did not reply to a request for comment about pollution.

Mechel OAO (MTL), a Russian mining and steel company that may be close to bankruptcy, could be affected as well by stricter pollution laws as it supplies coal to China-traded Baosteel Iron & Steel, the country's No. 1 steelmaker.

"I think they are taking [pollution] seriously, but are placing the emphasis on replacing black industries with green," said Wai Ho Leong, regional economist with Barclays in Singapore.

China has set numerous targets over the past five years to ease pollution, including a series of particulate matter reductions in major cities and a goal to slash coal consumption by more than 160 million tons by 2020. It has joined the U.S. in cutting carbon emissions after 2020.

"Progress still falls short of the expectation of our people," China's premier told the news conference. "Last year in the work report I said we have declared a war against smog. We are determined to carry out our efforts until we achieve our goal."

This article is commentary by an independent contributor. At the time of publication, the author held no position in the stocks mentioned.

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