General Biologic's  Instablog

By Sisi Yang, GBI Analyst

On June 5th, World Environment Day, CCTV broadcast a report on pollution emanating from Harbin Pharmaceutical Group’s General Factory. According to the report, the major antibiotics producer is pouring waste directly into adjacent streams and threatening the health of local residents with airborne concentrations of hydrogen sulfide that are a thousand times higher than the legal limit.

In fact, this is not Harbin Pharma’s first turn in the media spotlight for pollution-related issues. Local residents have been complaining about foul odors since 2005, all while the factory received successive GMP certifications. According to the parent company’s website, all manufacturing subsidiaries are GMP accredited.

How could the local environmental authorities be so blind? It may have something to do with the large tax contribution that a company with annual sales of RMB 5 billion makes annually to local coffers. Moreover, it’s common knowledge that regional economic growth outweighs environmental stewardship in evaluating the performance of local government officials. An industry insider remarked that “It’s a severe issue, but it involves more than Harbin Pharmaceutical Group alone. Fewer than 20% of API manufacturers can meet environmental standards.” Although API manufacturers generate hundreds of thousands of tons of waste every day, they fail to spend commensurately on waste treatment, ostensibly because they operate on such thin profit margins, especially the smaller players, but also because there seems to be so little outside pressure to do so.

Harbin Pharma’s 2009 annual report appears to itemize a RMB 40 million budget for waste treatment and recycling at its General Pharmaceutical Factory. However, the 2010 report mentions only a RMB 19.6 million increase in pollution management spending, notably without referencing the overall budget. Whatever Harbin Pharma’s actual pollution control expenditures may have been, they are dwarfed by the RMB 542 million the company spent on advertising in the same period. One would have to assume that return-on-investment (ROI) considerations drove that resource allocation process.

On June 14, 2011, the company signed a contract with the local government to move the questionable API units to a new factory, 23 kilometers northeast of central Harbin. Although the move had been planned for four years, no final decision had yet been made, since many parties were seeking input. Although this might have soothed the local residents’ rage, whether it would have dealt with the long-term pollution issue is another matter. CCTV’s broadcast seems to suggest that the government has begun to grasp the severity of the problem and may be moving decisively to solve it. It remains to be seen whether local government officials and API manufacturers, including Harbin Pharma, will be sufficiently incentivized – with either carrots or sticks – to finally take the steps necessary to deal effectively with the pollution scourge.