SupplyChainSummit.jpgIn preparation for the upcoming G20 summit in China this September, the Shanghai Environmental Protection Bureau (SEPB) issued an order for an estimated 1 000 factories within a 300-km radius of Shanghai to cut down production.

This measure was enacted to reduce pollution before world leaders arrive for the event. So how will this affect global supply chains?

This year, China hosts its first-ever G20 summit in Hangzhou, a city situated 240 kilometres south-west of Shanghai, where significant industrial, construction and residential emissions affect the air quality of its neighbouring cities.

In 2015, Shanghai’s average pollution was double the recommended level listed by the World Health Organisation.

Shanghai and Hangzhou are home to several industries including petro-chemical, pharmaceutical, garment, food and equipment manufacturing. The following are the measures that will be implemented in the lead up to the summit:

1. Power, steel, chemical, and petrochemical operations must limit their air pollution by 70 per cent throughout the city, and by 80 percent in Jinshan District.

2. Petrochemical operations in Shanghai must reduce production with a target of 50 per cent.

3. Production by coal-fired power stations will be reduced by 30 per cent and all facilities must use only low-sulphur, high-quality coal.

4. All chemical plants in the Jinshan District, save for those operating out of Shanghai Chemical Industry Park, will be closed.

5. No new operations resulting in increased emissions at chemical and petrochemical facilities will be permitted.

6. “Highly polluting” vehicles – a term which the plan does not define– will be prohibited in Hangzhou.

7. The use of agricultural, forestry, and port equipment shall be reduced by 30 percent across Shanghai and by 50 per cent in Jinshan District.

8. Petrol stations, oil storage facilities and oil tanker trucks that have not installed oil and petrol reclamation and emissions control equipment must cease operations.

9. The plan allows for the adoption of additional measures if certain weather patterns are forecast that might increase air quality issues.

Among the companies affected is Shanghai Petrochemical, which has been ordered to reduce its production 50 per cent. The company’s 150 000-tons-a-year C5 separation unit; 100 000-tons-a-year ethyl tertiary butyl ether unit; two 100 000-tons-a-year polypropylene units; 230 000-tons-a-year monoethylene glycol plant; and 300 000-tons-a-year polyester facility will be taken offline for 14 days.

Meanwhile, Shanghai SECCO Petrochemical, will shut down one 260 000-tons-a-year acrylonitrile from mid-August. Other shutdowns include Huayi Polymer Co’s acrylonitrile-butadiene-syrene, Shanghai Chlor-Alkali Chemical’s ethylene dichloride and Oriental Petrochemical Shanghai’s purified terephthalic acid units ahead of the international summit.

Other companies expected to shut down or cut on production are Shanghai Pharmavan Medicine Development Co., Shanghai Cezhen Automation Instrument Co., Shanghai Qiangsheng Stainless Steel Wire Rod Co., Shanghai Jiyue Auto Components Co. and Shanghai Jingyinze Packing Machinery Co.

The short-term measure is similar to those enacted by Beijing in 2014 ahead of a meeting of the Asia-Pacific Economic Co-operation (APEC), where the rare blue skies were referred to as “APEC Blue”. Some observers and experts believe that it would be better if the government would develop a long-term solution to the problem instead.

"Longer term, China needs to work out a market-based approach to tackle pollution rather than an ad-hoc order. Apart from social responsibilities, business has its profit and loss to take care," said Jing Chunmei, researcher at China Center for International Economic Exchanges.

For now, though, Shanghai can expect “G20 blue” skies.

Article adapted from news.elementum.com