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RR RUEHCN RUEHGH RUEHVC
DE RUEHGZ #0165/01 2610324
ZNR UUUUU ZZH
R 180324Z SEP 06
FM AMCONSUL GUANGZHOU
TO RUEHC/SECSTATE WASHDC 3403
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUCPDOC/USDOC WASHDC
RHMCSUU/DEPT OF ENERGY WASHINGTON DC
RUEAWJA/DOJ WASHDC
RUEAIIA/CIA WASHDC
RUEKJCS/DIA WASHDC
RUEAEPA/HQ EPA WASHDC
RHHMUNA/HQ USPACOM HONOLULU HI

UNCLAS SECTION 01 OF 05 GUANGZHOU 030165 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EAP/CM 
STATE FOR EB/TPP FELSING, MASSINGA 
USDOC FOR 4420/ITA/MAC/MCQUEEN, DAS LEVINE 
STATE PASS USTR - STRATFORD, CELICO 
USPACOM FOR FPA 
STATE FOR OES/OGC, OES/ENV AND OES/PCI/STEWART 
DOE FOR INTERNATIONAL/PUMPHREY 
DOE ALSO FOR EERE/DIXON 
USDOC FOR NOAA/OFFICE OF GLOBAL PROGRAMS/BUIZER 
EPA FOR OFFICE OF AIR AND RADIATION/MCLEAN 
EPA ALSO FOR INTERNATIONAL/THOMPSON 
 
E.O. 12958: N/A 
TAGS: SENV TBIO CH SOCI PGOV
SUBJECT:  Waiting to Inhale:  Important First Steps in South China's 
Pollution Control Efforts (Part Two of Two) 
 
(U) THIS DOCUMENT IS SENSITIVE BUT UNCLASSIFIED.  PLEASE PROTECT 
ACCORDINGLY.  NOT FOR RELEASE OUTSIDE U.S. GOVERNMENT CHANNELS.  NOT 
FOR INTERNET PUBLICATION. 
 
REF: A) Guangzhou 27482 
      B) Hong Kong 3633 
 
¶1. (SBU) SUMMARY:  Provincial and municipal governments have 
implemented many pollution-control measures, most notably installing 
desulfurization equipment, closing factories, developing an 
emissions trading scheme, implementing a "credit system," and 
increasing regional cooperation.  Despite these efforts, however, 
the enforcement of control measures remains a major obstacle due to 
a lack of funding, personnel, and a perceived conflict between 
environmental enforcement and economic development.  However, the 
local Environmental Protection Bureau (EPB) officials with whom 
Congenoffs met appear to be dedicated to their efforts, despite the 
overwhelming task ahead.  Now that the central government has 
brought environmental protection forward as a priority, EPB 
officials may finally have the political backing to effectively 
enforce environmental regulations.  END SUMMARY. 
 
Unprecedented Policy Measures Taken by Beijing 
--------------------------------------------- - 
 
¶2. (SBU) Because of the mounting economic and health costs 
attributed to pollution, the Chinese government at the national 
level has pledged to spend 1.6% of its GDP annually over the next 
five years to clean up the environment and to prevent further 
degradation, according to a National People's Congress official.  In 
China's 11th Five-year Plan, a target was set to reduce major 
pollutant emissions by 10% over the next five years.  For the first 
time, "pollution reduction" was included along with "economic 
growth" to serve as an indicator of provincial and local 
governments' performance.  The central government is also setting 
ambitious targets for energy conservation, has tightened 
fuel-economy standards for vehicles, and has encouraged construction 
of more energy-efficient buildings.  China is striving to develop 
alternative energy sources such as wind, geo-thermal, and solar 
power. 
 
So What is South China Doing About the Problem? 
--------------------------------------------- -- 
 
¶3. (SBU) According to South China EPB officials and media reports, 
several initiatives are being undertaken to fight pollution.  The 
following programs are illustrative of South China's efforts. 
 
GUANGDONG-HONG KONG COOPERATION 
 
¶4. (U) Hong Kong and Guangdong officials met on August 2 for a 
cross-border conference on joint cooperation to discuss, among other 
issues, efforts by both sides to set regional emission reduction 
targets.  Under emission and effluent quotas assigned to individual 
provinces by the State Council, Guangdong should lower its sulfur 
dioxide emissions from 1.29 million tons in 2005 to 1.1 million tons 
by 2010. 
 
¶5. (U) Guangdong and Hong Kong officials have pledged to review the 
progress and effectiveness of the control measures laid out in 2003 
in the Pearl River Delta (PRD) regional air quality management plan. 
 In a joint statement issued in April 2002, the two sides pledged to 
put in place additional measures to reduce the regional emissions of 
sulfur dioxide (SO2), nitrogen oxides (NOx), respirable suspended 
particulate matter (PM) and volatile organic compounds (VOC) by 40%, 
20%, 55%, and 55% respectively by 2010, using 1997 as the base year. 
 Environmental groups, however, have criticized these standards for 
being too low.  The two sides have also publicly pledged to enhance 
cross-border cooperation on environmental protection and agreed to 
continue both the operation of the PRD Regional Air Quality 
Monitoring Network and the daily release of the Regional Air Quality 
 
GUANGZHOU 00030165  002 OF 005 
 
 
Index (RAQI) to the public. 
 
¶6. (SBU) The South China Morning Post reported on August 15 that 
Hong Kong and Guangdong are using different calculations to measure 
emissions reduction.  As a result, Guangdong has set pollution 
emission targets that are significantly higher than Hong Kong's 
targets.  The 2002 cross-border agreement sets the 2010 target 
mainland SO2 emissions at 312,000 tons, but in 2005 the Guangdong 
Government set the target at 398,000 tons, a difference of 27.6%. 
Guangdong's target for NOx is 16.1% higher than the 2002 agreement, 
and the target for PM is 154% higher.  This has angered Hong Kong 
lawmakers and will decrease the likelihood of effective cooperation 
on an emissions trading scheme.  Hong Kong Environmental Protection 
Department officials explained that Guangdong has a different way of 
estimating emissions.  Guangdong authorities have not disclosed in 
what way their methods of estimating emissions differ from Hong 
Kong's.  It is more likely that Guangdong will be unable to meet the 
target emission levels as agreed in 2002, and is attempting to 
readjust its targets accordingly. 
 
FACTORY CLOSURES 
 
¶7. (U) Guangdong EPB Director, Li Qing, said that over the past 
three years more than 1,500 factories in South China, mainly 
concrete manufacturers and small-scale power plants, have been 
closed because of the pollution and environmental hazards they 
posed.  These closures create a framework for future environmental 
enforcement efforts and represent a significant step in the right 
direction. 
 
DESULFURIZATION EQUIPMENT 
 
¶8. (U) Li also said authorities are offering subsidies to power 
plants in the region for installing devices that remove sulfur from 
flue gas.  (Note: A Hong Kong academic explained that subsidies are 
necessary because the devices decrease the power generation of a 
plant by roughly 10%.  Since power plants cannot independently raise 
rates to cover this loss, they have no incentive to install the 
devices without a subsidy.  End note.)  Academics estimate that 
installing these devices could reduce emissions of sulfur dioxide 
(SO2) by up to 90%.  Only 18% of factories in the region are 
currently using these devices, which have helped to reduce emissions 
by up to 200,000 tons a year, according to Hong Kong press reports. 
At least half of Guangdong's large power plants are expected to be 
equipped with the devices by the end of next year, according to 
environmental officials.  Wu Qianchao, the chief engineer of the 
Guangzhou EPB, told Congenoffs that while Guangzhou is promoting 
desulfurization technologies, more funding is needed to purchase 
advanced pollution control equipment. 
 
¶9. (U) The Shajiao C power plant in Humen, operated by Guangdong 
Yudean Power Company, pledged to install sulfur-reduction devices by 
the end of 2006.  It is estimated that these devices will cost RMB 
600 million (approximately USD 75 million). 
 
EMISSIONS TRADING PILOT SCHEME 
 
¶10. (SBU) Hong Kong and Guangdong officials have also agreed to 
finalize later this year an emissions trading scheme for thermal 
power plants in the Pearl River Delta (PRD).  Under the scheme, 
emitters would be allowed to buy the rights to pollute, or sell 
rights if their emissions are lower than their quotas.  The scheme 
would allow trading in three main types of pollutants:  sulfur 
dioxide (SO2), nitrogen dioxide (NO2), and particulate matter (PM). 
The extent of trade will be largely determined by the emissions caps 
imposed on power plants.  The trading deals will be reached 
privately between the parties, and they will not be obliged to 
publicly disclose the details of these deals.  Wu Qianchao from the 
Guangzhou EPB told Congenoffs that the scheme is a sensitive issue 
in the region, in part because private industries want to protect 
their emissions data.  Wu noted that the Guangzhou EPB has agreed 
 
GUANGZHOU 00030165  003 OF 005 
 
 
not to publicly release this data.  Emissions data will be monitored 
by regulatory bodies in Guangdong and Hong Kong. 
 
¶11. (U) Guangdong's largest power producer, the Yudean Group, said 
it would consider joining the scheme.  Hong Kong power companies CLP 
Power and Hong Kong Electric, however, have recently expressed 
reservations about the scheme, which is not mandatory. 
 
¶12. (U) Guangdong officials have expressed hope that this scheme can 
help them reach emissions reduction targets by 2010, as scheduled in 
the PRD Regional Air Quality Management Plan.  Guangdong and Hong 
Kong plan to release details of this scheme in the third quarter of 
2006 for presentation to power plants on both sides of the border so 
that prospective participants can identify trading partners and draw 
up emission trading agreements. 
 
CREDIT SYSTEM 
 
¶13. (U) On 1 January 2006, the Guangdong EPB implemented a "credit 
system" to target enterprises with high pollutant emissions, 
according to the EPB website.  The EPB selected approximately 200 
Guangdong enterprises to monitor under this system, including large 
coal and fossil fuel-fired power plants, as well as other key 
industrial polluters.  Under the credit system, the Guangdong EPB 
evaluates enterprises on 13 indicators, including pollution control, 
enforcement of environmental laws and regulations, and public 
supervision, then issues a color-coded card based on the results.  A 
green card indicates an "honest" enterprise, a yellow card signifies 
a "warning," and a red card means the company requires "strict 
management."  To encourage the public to participate in the system, 
the EPB publicizes the evaluation information on the Guangdong and 
Guangzhou EPB websites, as well as in other public media outlets. 
The public can then call a hot line to register complaints about an 
enterprise's pollution. 
 
ON-LINE MONITORING SYSTEM 
 
¶14. (U) Concurrent with the implementation of the credit system, 
Guangdong also plans to invest RMB 12 million (USD 1.5 million) by 
the end of 2006 to set up an on-line monitoring system covering 120 
key pollution sources.  This system would provide regulatory 
agencies real-time information about the volume of discharged 
sewage, the density of primary pollutants, and the operating 
conditions of the pollution prevention equipment.  The system 
reportedly will raise an alarm if an enterprise illegally discharges 
pollutants, and enforcement personnel would be dispatched to the 
site to investigate. 
 
RELOCATION 
 
¶15. (U) In late July, officials from the Guangzhou EPB released the 
Environment Protection Standards and Requirements for "Tuier" 
Enterprises in Guangzhou. (Note:  The term "tuier" refers to seven 
types of polluting industrial enterprises located in old districts 
of Guangzhou which do not meet environmental protection standards 
and are slated to be moved out gradually by 2010.  End Note.)  The 
plan, in the works since 2005, will soon be submitted to the 
Municipal Government for approval.  According to EPB officials, a 
list of the companies to be included in the program is being drawn 
up and contains 151 enterprises so far.  According to an EPB 
official, Mayor Zhang Guangning said that moving the enterprises 
does not mean that pollution will merely move to another place; it 
means that the companies will also undergo industrial upgrades and 
technological reforms. 
 
¶16. (U) The Guangdong Government has also published guidelines 
requesting that new projects in the electro-plating, chemical, and 
paper industries be located in designated industrial parks.  The 
Guangdong EPB is also investigating 10 major polluting industries, 
including the dyeing and chemical industries, to incorporate them 
into a database of heavily polluting industries.  The EPB hopes to 
 
GUANGZHOU 00030165  004 OF 005 
 
 
establish a plan to locate these industries in designated industrial 
zones in order to more easily monitor and control environmental 
damage. 
 
CLEANER ENGINES AND FUEL 
 
¶17. (U) Beginning September 1, newly registered cars must now have 
engines that meet Euro III standards.  While this is a positive step 
to reduce future vehicular emissions, older cars and trucks still on 
the road will prevent significant reductions in vehicle emissions in 
the short-term.  The sale of leaded gasoline was banned in Beijing, 
Shanghai, and Guangzhou in 1999.  In July 2000, its sale was banned 
throughout the country.  At the same time, the government introduced 
new unleaded gasoline quality standards.  Diesel fuel must now meet 
the Euro III standard in Beijing, Shanghai, and Guangzhou.  There 
are plans to extend this to the rest of China in 2008, by which time 
the Chinese Government is aiming for Euro IV fuel standards in the 
three major cities.  However, according to a Hong Kong think-tank 
report, it appears that manufacturers are able to buy non-standard, 
higher-pollution fuel oil from local private refineries.  One 
estimate suggested these private refineries supplied as much as 40% 
of the fuel oil in the Guangdong market in 2004-2005. 
 
FIELD STUDY 
 
¶18. (U) A field study called Campaign of Air Quality Research 
Experiment (CARE-PRD) studied the formation and transport of key 
pollutants that make up the photochemical smog in the PRD region. 
This study, led by Peking University and the Guangdong Environmental 
Monitoring Center (EMC), was funded by China's National Science 
Foundation (NSF).  More than 100 Chinese and foreign scientists 
participated in this study throughout the month of July.  Three 
"super sites" were set up in Guangzhou, Qingyuan, and Panyu to 
measure the key photochemical pollutants, particulate matter, and 
ozone (and their precursors), as well as meteorological data.  More 
than 20 local EPBs in the PRD participated in the study.  The 
results of this study are expected to be published in international 
journals in 2007.  The same team of scientists planned a similar 
campaign in Beijing (CARE-Beijing) for the month of August. 
 
PAN-PEARL RIVER DELTA COOPERATION 
 
¶19. (U) Since 2004, annual conferences regarding Pan-Pearl River 
Delta (PPRD) regional environmental protection cooperation have been 
held to discuss issues related to air and water pollution 
prevention, information sharing, public outreach and education.  In 
addition, "environmental protection" has been included as a key 
element under the framework of the PPRD regional cooperative 
protocol. 
 
Comment:  Slow Start? 
--------------------- 
 
¶20. (SBU) Most EPB officials with whom Congenoffs have met appear to 
be very dedicated to their jobs and committed to cleaning up the 
environment.  They are, however, hamstrung by a lack of funding and 
personnel.  In addition, our academic contacts in this field are 
willing to voice their disagreement with certain policy issues to 
Congenoffs and to Chinese officials, but they believe that their 
views are often ignored by officials.  They have eagerly responded 
to efforts by post's Science Fellow to increase bilateral 
communication and cooperation.  Post is seeking new EPA Science 
Fellows for FY '07 to continue this communication and cooperation. 
 
¶21. (SBU) While these efforts are an important first step, they do 
not seem designed to effect any notable reductions in pollution 
levels in the near term.  Moreover, the temptation to overlook 
environmental concerns in favor of economic development is stronger 
in this region, the showcase of economic reform and opening, than 
any pollution abatement efforts.  Guangdong authorities, for 
example, recently took an unusually hard-line in demanding that big 
 
GUANGZHOU 00030165  005 OF 005 
 
 
polluters who did not meet standards for waste water treatment 
comply or risk being shut down.  While the original compliance 
deadline was the end of June, authorities relented just before the 
deadline and postponed compliance checks until the end of the year. 
While the reasons behind the postponement are not entirely clear, 
the backpedaling does not project an image of a government willing 
to require tough action at any cost.  South China cannot politically 
afford to set standards it cannot hope to meet.  As a result, it 
must set lower standards that it may be able to achieve in the near 
future, implementing stricter standards as its enforcement capacity 
improves and the political will for such enforcement strengthens. 
 
GOLDBERG