China "EPA" Crackdown Shuts Down Tens of Thousands of Factories With No End in Sight

China “EPA” crackdown shuts down
tens of thousands of factories… with

no end in sight
A hard stance against “heavy polluters”
If your company is sourcing products from China then there is a major

disruption that may be flying under your radar. Since June of 2017, China’s
new Ministry of Environment is taking a hard stance against Chinese factories
that are “heavy polluters’. In fact in the most recent round of factory audits,
China’s environmental crackdown has shut down tens of thousands of
Chinese factories with no end in sight.
The effects of decades of massive manufacturing growth has taken its toll on
the environment. Now China has some of the most polluted cities in the
world. Air purifying equipment and anti-pollution masks sell out often.
Groundwater is polluted making safe drinking water a big concern. Now the
government is doing something about it.
What’s different this time is that a hard stance is being taken in making sure
that factories are compliant with environmental laws. Previously when
policies were passed there was little to no compliance. Many factories were
unaware or unwilling to comply so they continued operating in their old
polluting ways.
Now some factories are being forced to cease their production immediately
and indefinitely. And if they don’t comply their power could be shut off
leaving them in the dark.
Power trumps Guanxi
And in this case power trumps “guanxi”. Decisions are coming directly from
the top levels of government so it overrides any relationships factory owners
may have at the municipal levels. If they are noncompliant they will
definitely face the consequences if they are audited.
Lack of transparency with no end in sight
One of the issues the factories face is a lack of transparency. Government

policy details are quite opaque and many factories are not aware of the exact
policies that they must abide by so they may unknowingly continue to operate
in noncompliant ways and risk being shut down.
So they face an unpredictable and ongoing risk of being suddenly told to shut
down. And there is no clear timeline which means the factories don’t know
when or if they can resume production.
So all of this makes it a very challenging time if you are sourcing products
from China.
Who’s affected?
According to my research, affected industries include but may not be limited

to the following industries.
Affected Industries
Textiles
Rubber
Leather
Chemicals
Carbon
Metal
Coating
Plastic
Dying, Painting, and Printing processes
The environmental audits have been implemented in rollouts that have begun
in certain regions mostly centralized in and around Northern China. The later
phases will reach other regions. Again it’s difficult to pinpoint exact areas
due to lack of transparency.
So far we understand that factories in these regions

have been affected
Shandong
Henan
Hebei
Tianjin
Beijing
Zhejiang
Jilin
Jiangsu
Sichuan
Guandong
Why is the clampdown happening now?
In 2013, China passed the “10 Measures for Environmental Protection” which
outlined measures to improve China’s environment. This was monumental as
China began addressing admitting the environmental problems head-on
while in the past China was more focused on developing its economy with
manufacturing while paying a huge expense in air, water, and ground waste
pollution. My sources tell me that the newly appointed Minister of
Environment is demanding stricter compliance from the factories thus the
extensive auditing and review of these tens of thousands of factories.
Moreover if we look at the macro level, China has an important government

meeting in the 19th Plenum, the most important government meeting which
takes place every five years. Taking place on Oct 18th, 2017, the main
objectives are to select the top leaders and policies to put in place as a road
map for the country going forward.
Environmental Protection is one of the key issues to be examined. It would

make sense to do a bit of cleaning before the meeting to drum up the
numbers and also product some blue skies for them to take credit for.
Similar supply chain disruptions in China related to major economic, political,

and social events have happened in 2016 in the months preceding the G-20
meetings in Hangzhou as well as in 2008 before the Beijing Olympics.
Other speculators say that another reason is because of a major sporting event
and competition at the national level happening in north China in the fall. In
my opinion this is a less probable cause than the 19th Plenum which is the
most important event that will set the stage for the future of China in the
next five years.
What do you do if you are sourcing from China and

risk being affected?
If you’re factory has not been affected (yet) then now is the time to check
with them to ask if they will be affected.
It’d be smart to ask if their component suppliers are being or will be affected
as well.
Note that even if your factories themselves have been audited and approved
for production, their component subcontractors may not be so lucky. If their
component suppliers get shutdown then your factory will not be able to
follow the normal production process and your product may get delayed as
they are left scrambling to find a replacement. This makes it more difficult to
predict delivery lead times as these external factors may be out of their direct
control.
For example if you are manufacturing a mason jar and your glass factory
passed inspection but their metal lid subcontractor gets shut down then your
factory will have a hard time delivering your product on time as they will
need to search for a replacement. Remember you’re only as strong as your
weakest link!
Best practice: Be proactive in communicating with

your suppliers!
It’s important understand that Chinese culture doesn’t encourage people to

reveal bad news until it happens. Often bad news is swept under the carpet
until it absolutely has to be revealed. So it pays for you to be proactive to
communicate with your supplier and learn about and minimize the disruption
to your supply chain.
What if your factories are being affected now?

“Our production scheduling is in total disarray and our suppliers literarily
have no idea when they can re-start production.”
Case in point – A friend of mine who has 20+ years experience in China
sourcing from a deep base of suppliers is facing a huge headache. He sources
from Chinese suppliers who’s products fall under one of the monitored
industries and are based in the Shandong province. Even though they are
compliant, several of his suppliers have been shut down and they have not
received any word about the next steps nor when production can resume.
This makes it next to impossible to plan purchase orders for the 4th quarter
and pre-Chinese New Year period. His company headquarters is giving him a
lot heat for this. What can he do?
Going out of China
One solution is to go out of China. Since my friend’s industry is one of the

targeted ones in the new environmental policy regulations, he’s shifting his
production to India where their production has not been impacted by
environmental policies.
Depending on your industry, some products can be manufactured in other

countries such as India, Thailand, Vietnam, etc. This will circumvent the
problem until the the disruption passes. Also a general rule of thumb, it’s a
good idea to diversify your risk by not putting all your eggs in one basket in
China.
In summary, China can be a non-transparent place for doing business.

Social-economic and political events can and will affect your business here.
So it’s your responsibility to have a backup plan to reduce the impacts of
these events on your supply chain. Now would be a good time to talk to your
suppliers to find out the extend of the problem and work out solutions. And if
you’re facing the impact of these problems head-on, it may be time to
consider other countries so you don’t put all your eggs in one basket and have
them all break with one sudden jolt.
Have your suppliers been affected by the environmental audits in China? If

so, hit reply and let me know what happened and what you’re doing about it.
-Gary
Author: Gary
I work with many Amazon sellers to help them source from China. I’ve managed
multimillion dollar sourcing campaigns and have been sourcing from China since
2008. I also am an Amazon Private Label seller myself so I know what you’re going
through. My goal is to teach you how to source from China quickly and easily so you
can own a 7-figure online business. View all posts by Gary
Gary / Uncategorized
7 thoughts on “China “EPA” crackdown shuts down

tens of thousands of factories… with no end in sight”
David
September 7, 2017 at 4:24 am
Thanks for the info Gary, i’ll keep this in mind when sourcing new products,
will try to steer away from these areas.
tony
September 7, 2017 at 8:47 pm
good for environment but that’s a bummer for us
FENG DENGZHI
Its really good suggestion article for overseas sourcing colleague!
Pingback: Newsletter September 8, 2017 - FE International
Ting
September 12, 2017 at 1:27 pm
Our fty have not been impacted by pollution control, but mill have.
All the fabric delivery cannot be on time, this is the big problem.
Gary 
Hi Ting,
Thanks for sharing that insight. So since the mill was affected what will you
do about the delay? I’m curious where is that mill located?
Thanks,
Gary
Paul R Tougas
Very interesting and helpful
Thank you Gary
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China “EPA” crackdown shuts down

tens of thousands of factories… with

A hard stance against “heavy polluters”

If your company is sourcing products from China then there is a major

Power trumps Guanxi

Lack of transparency with no end in sight

One of the issues the factories face is a lack of transparency. Government

According to my research, affected industries include but may not be limited

So far we understand that factories in these regions

Moreover if we look at the macro level, China has an important government

Environmental Protection is one of the key issues to be examined. It would

Similar supply chain disruptions in China related to major economic, political,

What do you do if you are sourcing from China and

Best practice: Be proactive in communicating with

It’s important understand that Chinese culture doesn’t encourage people to

What if your factories are being affected now?

Going out of China

One solution is to go out of China. Since my friend’s industry is one of the

Depending on your industry, some products can be manufactured in other

In summary, China can be a non-transparent place for doing business.

Have your suppliers been affected by the environmental audits in China? If

7 thoughts on “China “EPA” crackdown shuts down

Its really good suggestion article for overseas sourcing colleague!

Pingback: Newsletter September 8, 2017 - FE International

Powered by WishList Member - Membership Software

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