China’s environmental protection company Jindalai has filed a lawsuit against the Wan’an County government, seeking to recover overdue project compensation payments for over five years. The case has been accepted by the court, shedding light on the challenges of contract fulfillment in government-enterprise cooperation projects amid China’s local financial difficulties.
Jindalai’s holding subsidiary Wan’an County Jinyuan Water Industry Co., Ltd. recently brought an administrative lawsuit against the Wan’an County government at the Intermediate People’s Court of Ji’an City, claiming the outstanding compensation of 40.8 million yuan for the project.
Currently, the Intermediate People’s Court of Ji’an City has formally accepted the case. The dispute stems from the “Wastewater Treatment Plant Franchise Agreement” signed by both parties in December 2016. According to the agreement, Wan’an County government authorized Wan’an Jinyuan to be responsible for the investment, construction, and operation of the PCB wastewater treatment project in the Jintaiyuan Industrial Park. The agreement explicitly stipulates that if Wan’an Jinyuan incurs annual losses due to insufficient wastewater treatment volume during the franchise period, the Wan’an County government will compensate for the costs.
Yet, Jindalai alleges that since 2019, the Wan’an County government has failed to fully honor this commitment. It was disclosed that the government only paid the full compensation for 2017 and 2018 and a portion for 2019, with the remaining payments from 2019 to 2024 still outstanding, becoming the core dispute in this lawsuit.
As the first environmental protection company listed on Jiangxi Province’s science and technology innovation board, Jindalai has been deeply involved in water environmental governance for many years but has recently faced severe operational challenges. The company’s 2024 financial report showed an operating income of 409 million yuan, a 19% year-on-year decline, and a net profit attributable to shareholders of 137 million yuan, down by 25.3%.
The company’s major challenge lies in its high receivables. As of the end of 2024, Jindalai’s total receivables amounted to a staggering 1.192 billion yuan, with over 800 million yuan in receivables aged over one year, for which the company has made provisions for bad debts amounting to 341 million yuan. In its annual report, Jindalai admitted that the environmental protection industry faces challenges such as slowing investment growth and difficulty in collecting receivables.
To address the increasing collection risks, Jindalai has taken several measures: strengthening accounts receivable management, controlling project processes, and actively seeking legal remedies for key overdue receivables. These efforts have begun to show results – the company recorded revenue of 84.7032 million yuan in the first quarter of 2025, a 1.55% year-on-year increase; thanks to improved collections, net operating cash flow surged by 171.62% to 88.5848 million yuan.
The lawsuit against the Wan’an County government is a significant move by Jindalai to safeguard its rights through legal means and resolve receivables issues. The outcome of the case will not only directly impact Jindalai’s financial situation but may also have far-reaching effects on the fulfillment of government-enterprise cooperation projects in the environmental protection industry.
It is noteworthy that the Wan’an County government began failing to fully honor its compensation commitments in 2019, coinciding with multiple directives from the Communist authorities urging governments at all levels to tighten belts and prepare for lean times. A year later, mainland China was hit by a massive pandemic outbreak.
According to local government annual budget reports, Chinese provinces spent at least 352 billion yuan in 2022 alone on epidemic prevention and control. Compounding the situation, the tax reduction policies implemented by the Communist Party to stimulate the economy further reduced local government revenue.
In March 2023, the Chinese Communist Party’s Minister of Finance, Liu Kun, emphasized at a press conference, “Government frugality is not a short-term measure but a long-term policy that should be adhered to.”
Furthermore, the Party’s control measures on real estate developers led to a nationwide adjustment in the real estate market, severely impacting local government revenue. Income related to land sales usually accounts for over 30% of local government revenue, and between 2019 and 2021, it was about 40%. However, land sales revenue in 2022 dropped by nearly one-third compared to 2021.
The dual pressure of significantly increased fiscal expenditures and sudden income reductions has left local governments in dire straits. To bridge the funding gap, local governments continue to raise debt, exacerbating the financial strain even further.