G20 Summit: Supply Chains Disrupted For Clear Blue Skies

In 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 minimize pollution before the arrival of world leaders for the event. So how will this impact global supply chains?

This year, the first ever G20 summit to be hosted by China will take place in Hangzhou, a city situated 150 miles southwest of Shanghai, where significant industrial, construction and residential emissions impact the air quality of its neighboring cities.

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

Shanghai and Hangzhou are home to several industries including petrochemical, 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 percent throughout the city, and by 80 percent in Jinshan District.

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

3. Production by coal-fired power stations will be reduced by 30 percent and all facilities must use only low-sulfur, 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 percent in Jinshan District.

8. Gas stations, oil storage facilities and oil tanker trucks that have not installed oil and gas 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 50% of its production. The company’s 150,000 tonne/year C5 separation unit; 100,00 tonne/year ethyl tertiary butyl ether (MTBE) unit; two 100,000 tonne/year polypropylene (PP) units; 230,000 tonne/year monoethylene glycol (MEG) plant; and 300,000 tonne/year polyester facility will be taken offline for 14 days.

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

Shanghai Pharmavan Medicine Development Co., Ltd., Shanghai Cezhen Automation Instrument Co., Ltd., Shanghai Qiangsheng Stainless Steel Wire Rod Co., Shanghai Jiyue Auto Components Co., Ltd., Shanghai Jingyinze Packing Machinery Co., Ltd among others, are also expected to either close their doors or cut down production.

The short-term measure is similar to those enacted by Beijing in 2014 ahead of a meeting of the Asia-Pacific Economic Cooperation, 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 China Center for International Economic Exchanges researcher Jing Chunmei.

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