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An Analysis to the Pattern of Pollution and the Approaches of Control for Small and Medium-sized Enterprises

LI Huifeng, ZHANG Xuanwei Management School Beijing Union University glthuifeng@buu.edu.cn Abstract: With the rapid development of small and medium-sized enterprises (SMEs), emissions of pollutants from them have become the dominant factor of China's environmental pollution. The distribution of pollution sources is changing from the past isolated points to the so far compound and complicated urban-rural areas. Pollution control of SMEs has become, under the stage, the focus and a problem of industrial pollution control. Based on the analysis to the characteristics and causes of pollution for SMEs, two models of pollution control for SMEs, i.e. "into the treatment garden and centralized treatment" model and "circular economy" model are analyzed. Keywords: pollution of small and medium-sized enterprise into the treatment garden model circular economy model

1 Introduction
Since the economic reform and opening up, China's small and medium-sized enterprises (SMEs) have been developing very rapidly. With the competitive advantages of diverse products and flexible and dynamic mechanism in the market, SMEs have shown great vitality. According to statistics, so far 4.3 million SMEs are registered, accounting for 99% of the total number of enterprises and have created 60% of the total GDP, 50% of revenue, 68% of exports, and absorbed 75% of employment. SMEs have become an important part in China's economic development. However, with the rapid development of SMEs, their pollutant emissions are also growing very rapidly. SMEs proportion in the country's total pollutant emissions is also increasing rapidly. 80% of manufacturing SMEs are facing pollution problems, which produce 60% of pollution sources in China and have been becoming the dominant factor of China's environmental pollution. The distribution of pollution sources is changing from the past isolated points to the so far compound and complicated urban-rural areas. SMEs have disadvantage in pollution control and environment management relative to large enterprises. Though China has taken a series of major response to industrial pollution since the 90's of last century, such as "the Huaihe River, Taihu Lake Zero-Point Action", "One Control and Two Standards" and "Shutting Down 15 Types of Small Enterprises", and such pollution control actions have basically reached the intended target in a superficial view, but the considerable part of emission reductions depends mainly not on pollution control measures but on directly shutting down SMEs, for example, during the "Ninth Five-Year Plan" period, in Huaihe River Basin nearly 70% of emissions reduction of the industrial wastewater COD (Chemical-Oxygen-Demand) came from the shutting down of SMEs. In consideration of the real situation in China's economic development, such a measure has hardly any sustainable potential. Pollution control of SMEs has become, under the stage, the focus and a problem of industrial pollution control.

2 An Analysis to the Characteristics and Causes of Pollution from SMEs

2.1 The characteristics of pollution from SMEs At present, SMEs in China mainly concentrated in industries with low level of technology and difficult in pollution control such as paper-making, tanning, electroplating, printing and dyeing, cement, bricks, coal, non-ferrous metals, ferrous metals and non-metallic mineral mining etc.. The distribution of SMEs


industrial pollutant emissions is relatively concentrated in the above several industries. Water pollution mainly comes from organic pollutants and wastewater COD emissions are the main indicators. The total amount of COD emissions is highly concentrated in such industrial sectors as paper and paper products, which accounts for nearly 70% of total pollutant emissions, and food processing (mainly brewing-oriented), the textiles industry (mainly in printing and dyeing), chemical raw materials and leather products industry. In these industries, SMEs have a larger proportion in the output. Township enterprises in some industries even become the main body, for example, 80 percent of straw pulp production comes from the village and township enterprises. In non-metallic mineral products industry, such as cement and brick., 50% of the country's total cement production comes from township enterprises and most of them are technologically backward. Comparing to that of urban industrial structure, the characteristics of industrial pollution by SMEs is very clear both in industry distribution and in geography distribution: an outstanding structural pollution, a dispersion of pollution sources. And with their short life-expectancy and frequent shift of business, their pollutant type, and the corresponding pollution treatment process are also considerably variable. 2.2 The causes of pollution from SMEs The proportion of emission by SMEs in the total national emissions increases rapidly, and pollution form SMEs has become the dominant factor of China's environmental pollution. The three main causes are as follows: 2.2.1 SMEs face dual dilemma of economic and technical difficulties in pollution control In the 80's of last century, China began to implement the "polluter controls and pays " policy, that is, the industrial enterprises themselves should be in charge of their own pollution control problems and pay the treatment costs. In the past, this policy for large-scale enterprises is applicable. But for SMEs, the implementation of this policy is difficult. Because, first, the "polluter pays" model not only resulted in the serious problem of uneconomic in scale, but also did not take into account of the difference in the marginal pollution control costs of the SMEs. Under this model, in current technical condition, the appliances of pollution control facilities should meet the stringent requirements of emission scale, for example, according to the regulation of " policy for wastewater pollution control technology in straw paper making industry ", jointly promulgated by the State Environmental Protection Administration and the former State Economic and Trade Commission, the straw paper-making wastewater treatment has a key requirement of the alkali recycling use amount of Q 10000 tons / day; and in another regulation of " policy for wastewater pollution control technology in printing and dyeing industry ", jointly promulgated by the above two ministries, the economic scale for wastewater treatment in the printing and dyeing industry is Q 1000 tons / day. It is clear that for majority SMEs, the emission scale of a single one has a large gap with the economic size of treatment facilities appliance. At the same time, the average survival time of a SME is very short and with a frequent product-shift so its pollution control equipment has far more depreciate cost than the large-scale enterprises. For example, water pollution control facilities in general has a life span of 20-year, in the case of accelerated depreciation, 10 years, while the average life expectancy of the Chinese SMES is less than 7 years. In this way, even if the government invests in every polluting SME, the result must be: not until the full discount of the old facilities, their business will no longer exist. Second, it is difficult for SMEs to raise the funds for pollution control, and as a result of supervision difficulties, the raised funds are also very difficult to be used for its own purposes. Third, more than half of SMEs owned very old facilities, 50% of which were produced in the 70-80s of last century and more than 20% of SMES are still using the facilities produced before 70s of last century. Old equipments result in a low utilization rate of resources and a high emission rate. For these reasons SMEs face double economic and technical difficulties, which make them tend to strongly avoid assuming responsibility for pollution control. 2.2.2 Large in amount and dispersion of SMEs result in high regulatory cost Large-size enterprises, which though only account for a small proportion, may have large amount of pollutant emissions, so are highly vulnerable to the concern of Government and the public. So, the


supervision on those big companies is usually very strict and relatively easy. As for SMEs, especially those township enterprises which are dispersed in various villages and towns, bring more serious structural pollution problems and more sources of pollutants. And because of their usually frequent-shift of business and relatively short life span, which make some uncertainties in pollutant type, emission amount and treatment method, it is difficult for the SMEs themselves to manage their environmental problems. Information asymmetry between enterprises and the government makes it difficult for the corresponding administration departments to carry out effective monitoring and to accurately assess the tax and fees, so the management cost is very high. The corresponding administrative penalties on excessive emission are much lower than the cost of pollution control, and which makes the SMEs reluctant to control pollution. Take the sewage treatment as an example, a daily capacity of 150 tons of recycling works in paper industry needs nearly one hundred million Yuan of onetime investment which accounts 1/2 of the total environmental asset of the firm and the daily running cost accounts for more than 10% of its sales revenues. And because of China's low emission-charge standard and inadequate administrative penalties, some enterprises prefer the fine to taking active measures to prevent and control pollution. For example, the net profit of illegal emission per day can reach several hundred thousand Yuan, while the maximum fine amount reaches only 100 thousands. In short, with relatively high pollution control costs, the SMEs have a strong motive for illegal discharges and the government's inadequate monitoring capacity on environmental management, inadequate laws and regulations, as well as the lack of effective supervision all contributed to the popular behavior, among SMEs, of the chance-taking, illegal emission and/or excessive discharge pollutants in order to increasing profits. 2.2.3 Local governments are often associated, in economic interests, with SMEs which resulted in deregulation, negligence of illegal discharge of pollutants and/or excessive emission Most SMEs are located in rural towns with relatively backward economic condition, making them an important source of local government revenues. The local economy, to some extent, depends on the development of SMEs. Most of them are labor-intensive, and have greater absorption of workforce than larger enterprises. Because of the existence of large amount of surplus labor in most small and medium-sized cities and towns, SMEs are viewed as the important means of employment. Because of the lack of economies of scale and high cost in pollution control, SMEs, especially those highly polluting SMEs in chemical industry and paper industry, once required to pay for the high cost for pollution, will surely tend to reduce output or even withdraw from the industry for the lowering of profit. All levels of government bear the responsibility of the region's economy development, which makes them depend, at a large degree, on SMEs contribution to GDP and tax increase. With the conflict between economic interests and public responsibility and also because of the difficulties in supervision, local governments usually tend to prefer short-term economic interests to long-term environmental conditions and even become the accomplice of illegal discharge and excessive emission, contrary to the local governments environment policies.

3 Two Modes of Pollution Control for SMEs - the "into the Treatment Garden model" and the "Circular Economy Model."
So far there are two relatively successful and representative models in pollution control for SMEs, i.e. the centralized "into the treatment garden model" and the "circular economy model". The centralized "into the treatment garden model" refers to the introduction of SMEs into the centralized industrial gardens and the delivering of specialized pollution control services to SMEs, as represented in Zhejiang Province. In addressing the issue of pollution control for SMEs, governments in Zhejiang Province have changed the pollution control policies from the "polluter pays" to "controller gains". By the centralized introduction of SMEs into industrial gardens and the operation of the pollution control facility by a qualified professional company in environment governance and pollution control, SMEs need only pay a fee for the pollution treatment service and thus the problem of economic scale and high

cost of operation in pollution control by themselves are no longer exist. This, in fact, is a market-oriented pollution control solution for SMEs. SMEs also do not need to invest in pollution control equipment and pollution control technology development, which save them a large amount of money. Meanwhile, emission rights trading can be introduced in the region, even though they frequently switch their business, pre-paid cost of pollution control can be a way to make up for the loss of business through the transfer of emission rights. If the centralized "into the treatment garden model" is to function, the following two pre-conditions are needed: First, there exist quite an amount of SMEs in similar industries; Second, an effective financing and property rights trading system is the established. Due to the long payback period for the construction of sewage treatment plants and the large variation of SMEs in their business, only the implementation of an emissions trading system, on which the emission rights can be traded and inherited, can guarantee the rights and interests of fund raising enterprises and reduce their operation risks. Currently, limitations still exist in Zhejiang Model. The use of end-treatment in highly-polluting industries often still can not meet the environmental needs. "Circular economy model" refers to the comprehensive utilization of polluting wastes by a group of enterprises on the supply chain surrounding a central business enterprise to form a wastes reuse circle between the upstream and downstream enterprises, as represented in Guizhou. In Guizhou Province, some resource-based industries are using the concept of circular economy in pollution control for SMEs. First, enterprises which have reached certain scale begin the comprehensive utilization of resources by themselves; Second, in the center of areas with natural concentration of resources-based small industries, the professional market-oriented enterprises are set up to specialize in the centralized comprehensive utilization of the "three wastes" resources and the problem of scale on small business is thus solved; Third, support the construction of comprehensive utilization facilities through loans to larger enterprises in the center of areas with natural concentration of resources-based small industries, and then absorb the three wastes from the surrounding SMEs to fulfill the task of centralized comprehensive utilization in pollution control and then the circular economy model is formed. The "circular economy model" in pollution control also needs certain pre-conditions: First, under the existing technical and economic conditions there exist certain usable upstream and downstream industries in which the wastes of upstream industries are the raw materials of downstream industries. Second, the upstream and downstream industries must have a certain degree of concentration. Although this does not require that the enterprises be centralized in the industrial gardens, but the logistics cost must be controllable to a certain extent, this is the only way to ensure that the comprehensive utilization can be achieved under the current market conditions.

4 Conclusion
Both of the above modes in pollution control for SMEs have fully considered the real situation of its local area and successfully solved the problem of pollution control for SMEs on a market basis. Whereas, either of these models requires certain specific conditions. All other regions can learn from their successful experiences, and also invent new pollution control models basing on the characteristics of their own local areas. Though centralized pollution control model has certain advantages over the decentralized pollution control model, but the decentralized model can also be implemented when conditions are suitable. Therefore, different regions, different industries and different enterprises should take a different and combined line of thought in pollution control. If conditions are suitable, medium-sized enterprises can take the decentralized pollution control by themselves. Small-scale enterprises can choose to control their pollution through the construction of industrial parks or through the practice of recycling economy. And, the "the large helps the Small model can also be considered, in which wastes from small enterprises can be centralized by surrounding larger enterprises for comprehensive utilization. SMEs should be given the right of choice in their adoption of pollution control measures. The freedom of choice, on a market basis, between fees and pollution license, between centralized and decentralized pollution control measures can be a good incentive for the improvement in

pollution control initiative for SMEs.

[1]. SU Yang, LIN Jiabin, "techno-economic analysis and policy recommendations for China's pollution control of small and medium-sized enterprises" China Science and Technology Forum 2004 5 (in Chinese) [2]. HE Ying, HE Aiying, "an analysis to the characteristics of small and medium-sized enterprises and the impact on and solution to pollution control" Economist, 2007 1 (in Chinese) [3]. HAN Yu, "an analysis to pollution control of our small and medium-sized enterprises and the economic and taxation policies" Fujian Forum Humanities & Social Sciences 2007, 11 (in Chinese) About the author: Li Huifeng: Beijing Union University, Associate Professor, research direction: the economic analysis of environmental pollution control. Zhang Xuanwei: Beijing Union university, lecturer, research direction: information and its evaluation, marketing science, methods for value of assessment