China’s 70th Anniversary: Impact of Tighter Emissions Controls
and Security on Supply Chains
- Over recent weeks, companies operating in China have been hit with tighter emissions controls, heightened security, and traffic congestions leading up to the National Day on October 1 which marks the 70th anniversary of the People’s Republic of China.
- Industrial firms from the steel, coking, and cement sectors are facing increasing pressure to reduce production outputs in a bid to improve emissions ahead of October 1.
- Regions that have already been hit by emissions controls and ground transportation restrictions include the Beijing-Tianjin-Hebei corridor as well as neighboring provinces in Shandong, Henan, Shanxi, and Jiangsu as Chinese authorities seek to minimize smog across northern parts of the country.
- Companies can expect customs clearance delays for domestic and international shipments (inbound and outbound) due to tighter security inspections, particularly at Beijing Capital International Airport (PEK), Tianjin Binhai International Airport (TSN), and Guangzhou Baiyun International Airport (CAN).
- Traffic controls can also be anticipated in downtown Beijing as Chinese authorities prepare for rehearsals ahead of a military parade planned on October 1.
Tighter Emissions Control
The build-up to the National Day on October 1, which marks the 70th anniversary of the People’s Republic of China, has brought about tighter emissions controls, heightened security, and traffic congestions that are already having major implications for companies operating in Mainland China.
Over recent weeks, industrial firms, particularly from the steel, coke, and cement sectors, are facing increasing regulatory pressure to tighten emissions controls ahead of October 1. Major industrial hotspots in the Beijing-Tianjin-Hebei corridor as well as in neighboring provinces such as Shandong, Henan, and Shanxi have already been hit with production cuts or suspensions as Beijing seeks to minimize smog across northern parts of the country.
Although most government notices do not explicitly mention the National Day celebrations, Chinese-media sources in late August cited that 28 cities north of the Yellow River in Hebei (Shijiazhuang, Tangshan, Langfang, Baoding, Cangzhou, Hengshui, Xingtai and Handan), Shanxi (Taiyuan, Yangquan, Changzhi, Jincheng), Shandong (Jinan, Zibo, Jining, Dezhou, Liaocheng, Binzhou, Heze), and Henan (Zhengzhou, Kaifeng, Anyang, Hebi, Xinxiang, Jiaozuo, Fuyang) could be hit with production restrictions.
Over the past week, several provinces have issued smog alert warnings and ordered industrial firms to reduce production outputs. Under a smog alert, pollutant sources are required to scale back operations or close entirely. The strengthened production cuts come as China’s Ministry of Ecology and Environment issued its draft 2019-2020 winter emissions control measures for “heavily polluted weather conditions.”
The report outlines major restrictions implemented in key provinces that may impact supply chains operations.
Beijing has issued an orange smog alert warning from September 25 until further notice. Production and tariff restrictions will also come into effect during this period. Chinese-language sources in late August indicated that local companies reportedly received a notice from government authorities that all trucks are prohibited from passing through the Sixth Ring Road in Beijing until October 10.
Tianjin has issued an orange weather warning and activated a Level II emergency response to heavy air pollution effective from September 25 at 00:00 local time, although it remains unclear when the measures will cease. Aluminum processors in Tianjin face a 50 percent output cut and several major steel enterprises have already been hit with production restrictions including Tiangang Group, Tianjin Pipe Group Company, Tianjin Rongcheng United Steel Group Company Ltd., Tianjin Metallurgical Group Rolling Steel Company Ltd., Tianjin Tianfeng Iron and Steel Company, and Tianjin Tiangang United Special Steel Company Ltd.
More than 30 steel mills operating in Tangshan – China’s largest steelmaking city in Hebei Province – have been hit with output restrictions through two phases from September 1-27 and September 28 – October 4 in a bid to improve air quality. For the first phase, sintering operations at steel mills have been cut between 20 and 50 percent and blast furnaces by 30 percent. For the second phase, sintering operations at mills and blast furnace outputs will be limited by 30 to 50 percent. For the period September 22-27, Tangshan issued additional pollution controls that require companies to reduce production by up to 50 percent and require the plants of Tangsteel, Tangyin Steel, and Tianzhu Group to run only one sintering machine. Transportation from and to the mills and port areas has also been restricted.
Major steelmaking districts in other parts of Hebei have also been ordered to cut production output in the last week of September leading up to October 1, citing that the province was facing a sustained period of ‘unfavorable’ weather that would make it more difficult to disperse smog. In addition, fourteen steelmakers in Wu’an – a county level city under Handan – face additional production limits of 25, 15, and 10 percent on top of restrictions adopted under a smog-control plan by Wu’an in August. On September 24, Handan ordered steel mills, cement plants, and coke producers in the district of Yongnian to impose deeper production cuts until October 10.
In Shandong Province, another steel production base in northern China, the provincial government issued an emergency response to tackle increasing air pollution ahead of the National Day holiday on October 1. The emissions control measures will be implemented for the period of September 24 to October 3, and include measures such as reduced output at steel mills and iron ore mines by as much as 40 percent as well as traffic restrictions.
Thirteen cities in Jiangsu including Jinan, Zibo, Zaozhuang, Dongying, Weifang, Jining, Taig, TaRizhao, Linyi, Dezhou, Liaocheng, Binzhou, and Heze have also issued orange weather warnings. Some industry sources report that the production shutdowns could last for 14 days, effectively longer than the officially indicated period up to October 3.
Shanxi Province, which is located southwest of Beijing, has issued an orange weather alert from September 25 to October 2 and local authorities have also activated emergency measures to curb air pollution in major industries cities such as Changzhi, Linfen, Luliang, Jinzhong, Jincheng, Yuncheng, and Taiyuan. The measures include production cutbacks at steelmaking and coke plants as well as coal processors.
Henan Province has activated an orange smog alert on September 24 which requires pollutant sources to scale back or shut down operations.
Jiaozuo City, which is noted for its machine construction industries and blast furnaces, has previously issued a red smog-alert level – the highest alert in a four-tier pollution alarm system – effective from September 23 and plans to remove the alert on October 3. Additionally, the city is implementing strict controls on aluminum processing, leading all aluminum mills to be shut down as of September 24, which in turn may impact local aluminum consumption by up to 10,000 metric tons.
Previously, lead smelters in Jiyuan City were required to cut pollutant emissions by 10 percent based on their daily average in August. Jiyuan Iron and Steel, with an annual production capacity of 4 million tons of steel, was also reportedly required to halve capacity of blast furnaces and close all capacity of sintering and pellet-making for five days from September 25 until October 1 when half of the suspended capacity will be allowed to resume. Producers of aluminum strip in Zhengzhou were reportedly not affected by environmental control measures; however, they did face shipment restrictions, which may lead to the increase of their finished product inventories.
Anyang – a major steel-producing city in Henan – has issued a red weather alert that will impose tougher restrictions on industrial activities and transportation from September 25 until further notice. According to a local government notice, Anyang has ordered small, independent sintering plants to close on September 25 and will shut down all steel production from September 26 in the evening local time.
Several cities in Jiangsu Province have been requested by environmental authorities to issue orange weather warning alerts and begin emergency measures in Xuzhou, Lianyungang, and Suqian from September 25 to October 1. In Xuzhou, sintering has been restricted as steel firms with only a single sintering machine will be required to stop production at 18:00 local time on September 26. Steel companies with more than two sintering machines will be required on September 25 to limit production to 50 percent from 00:00 local time and production will be stopped at 18:00 local time on September 26. Operations at coking firms that have already been suspended are not allowed to resume production during this period.
Six cities in Anhui Province have issued orange weather warnings and a Level II emergency response that will come into effect in Huaibei, Zhangzhou, Suzhou, Guizhou, Fuyang, and Huanan from September 25 to October 1.
Companies can expect to face heavy traffic congestion and customs clearance delays amid heightened security inspections for both inbound and outbound shipments across the country leading up to National Day.
On August 13, Chinese authorities issued a notice calling for tightened security for domestic and international shipments (inbound and outbound) ahead of the National Day on October 1. Companies will be required to handle shipments at its origin to prevent prohibited goods such as gas masks and laser pens – which have been common in the Hong Kong protests – as well as weapons, cash, drugs, dangerous goods, and other items from entering China.
An additional series of strengthened security controls imposed by Chinese authorities will also take place in Beijing and other cities from September 16 to October 2. More stringent security requirements for inbound and outbound shipments include: 100 percent X-Ray inspections at the Beijing Capital International Airport (PEK) for inbound shipments and “X-Ray” labels must be attached to the outer package of each shipment; domestic shipments to PEK must be x-rayed at origin service center and the PEK domestic hub; and collection for liquid, powder, lithium battery, and magnetic materials will be restricted in the PEK gateway and Tianjin Binhai International Airport (TSN) during this period.
Customs inspection rates for inbound and outbound shipments are also set to increase due to security concerns at the Guangzhou Baiyun International Airport (CAN) and companies can expect clearance delays of up to several days.
Heavy traffic congestion has been widely reported over recent weekends in September in Beijing where rehearsals are taking place for the National Day military parade. For instance, media reports cited major traffic restrictions on September 8 and 15 as all major roads near Tiananmen Square and along Chang’an Avenue were blocked for rehearsal activities. Drones and other flying activities that could affect flight safety have also been banned in seven of Beijing’s sixteen districts from September 15 to October 1.
The increase in emissions controls and heightened security threatens to create complications for companies sourcing from suppliers in China that are affected by the additional production halts and output restrictions ahead of October 1.
Everstream Analytics outlines several recommendations below on how companies can best mitigate the impact on their supply chains during the period leading up to and in the immediate aftermath of the National Day:
- To address production restrictions due to tighter emissions controls, companies should consider creating short-term contingency plans and identify whether alternative suppliers are necessary during this period. Organizations should assess if the materials required for the production of intermediary parts are impacted and determine the extent to which suppliers may experience financial stress as a result of these production halts.
- Customers are advised to work closely with logistics providers and carriers to ensure the accuracy of shipment details and that origins do not contain the aforementioned items from entering China to avoid potential customs delays.
- Organizations should also anticipate shipment delays caused by heightened traffic controls, in particular for heavy-weight vehicles in larger cities. This may reduce or effectively halt logistics flows between factories and ports, causing backlogs and delays.
Regulatory restrictions ahead of major political events in China, such as the National Day, should come as little surprise and tend to follow similar air quality controls that were adopted in 2015 for the 70th anniversary of the Second Sino-Japanese War. However, as the National Day will be followed by China’s Golden Week, a one-week holiday period, production will likely remain at a reduced level until at least October 8. In Shandong Province, some steel mills effectively expect output to remain reduced for 14 days, starting September 24-25.
Customers are advised to monitor Everstream Analytics for further developments leading up to the National Day on October 1.