In Depth: Tackling China’s Heavy-Handed Environmental Pollution Penalties

China is developing its second legal codex, the Ecological Environment Code, after the landmark Civil Code. This new legislative project aims to consolidate the country’s numerous environmental regulations into a single, coherent legal framework. However, this codification has generated significant controversy among grassroots enforcers and legal scholars, particularly over whether the proposed code appropriately balances environmental accountability with fair and proportional punishment, especially when considering the impact on small businesses and individual operators who may be unduly burdened by high, mandatory fines[para. 1][para. 2][para. 3][para. 4].

The draft Ecological Environment Code comprises five sections and contains 1,188 articles. Its public comment period ended on June 13, and critics have since highlighted issues with the increasing severity of penalties for even minor environmental violations. The concern is that stricter penalties, a feature of China’s broader environmental reforms, may disproportionately affect smaller entities and discourage compliance or honest engagement[para. 3].

A major point of contention is Article 1080, derogatorily referred to as an administrative “death penalty clause.” This provision requires that if a company is criminally prosecuted for discharging pollutants by evading supervision, its pollutant discharge permit is revoked, mandating a permanent shutdown of the business. Critics argue this prescribes an excessively harsh, one-size-fits-all penalty, regardless of the actual severity or intent behind the violation. The broad definition of “evading supervision,” which includes any abnormal operation of pollution-prevention facilities, is also problematic: accidental malfunctions could trigger severe penalties even without any intent to deceive, making local enforcers hesitant and creating legal uncertainty[para. 5][para. 6][para. 7][para. 8][para. 9][para. 10].

Other articles promote “punishment stacking,” where companies can face multiple, overlapping penalties due to retained and outdated policies. For instance, Article 1082 sets fines of 1% to 5% of total project investment for those lacking necessary approvals, while Articles 1084 and 1077 establish minimum fines of 200,000 yuan ($27,890) for various violations. The result is that startups or small businesses could incur baseline penalties exceeding 450,000 yuan before even starting operations. Enforcement officials have criticized the retention of older policies such as the “three simultaneous” policy (requiring pollution control systems to be developed alongside production processes) alongside new permit regulations, creating redundant obligations and inflated penalties[para. 11][para. 12][para. 13][para. 14][para. 15].

This stringency has produced a chilling effect: enforcement officers often hesitate to impose the harshest penalties, and companies may close rather than attempt compliance. For example, a small business owner fined nearly 350,000 yuan chose to shut down operations, raising the question of whether such penalties achieve the law’s intended purpose. Data also indicates that as penalties have increased, the average environmental fine has doubled, while the number of enforced cases for specific violations drops significantly when thresholds are raised, as seen after a minimum penalty increase in 2017[para. 16][para. 17][para. 18][para. 19].

The codification process, underway since 2023 with a potential vote by 2026, has prompted calls within the legislature to recalibrate penalties to better distinguish between individuals and corporations and more closely adhere to the principle of proportionality. Some legal scholars defend stricter penalties as necessary for combating past leniency, while others suggest a more nuanced approach to resolve new dilemmas created by the reforms, balancing deterrence with fairness[para. 20][para. 21][para. 22][para. 23][para. 24][para. 25].