China’s economy continues to decline, and local finances under the Chinese Communist Party are tight. In recent days, three institutions including the government of Linying County, Luohe City, Henan Province, have been sued by Linying Kandah Environmental Protection Water Service Co., Ltd. (hereinafter referred to as “Linying Kandah”) for long-term unpaid sewage treatment fees, with a claim of about 578 million yuan.
According to a report by the mainland media Da Feng News on June 23, in 2008, Chongqing Kandah Environmental Protection Industry (Group) Co., Ltd. (hereinafter referred to as “Chongqing Kandah”) signed an agreement with the government of Linying County through investment promotion to build a sewage treatment plant in Linying County, Henan Province, with a total investment of about 158 million yuan. However, the Phase 2 project has not been finally audited to date.
This water service company located in Linying County, Henan Province is fully named Linying Kandah Environmental Protection Water Service Co., Ltd. According to Mr. Hu, the assistant to the chairman of Chongqing Kandah and vice general manager of Linying Kandah, after the sewage treatment plant was completed and expanded as agreed, they provided sewage treatment services in accordance with the contract. However, since 2020, the Linying County government has continuously delayed payment of sewage treatment fees, with 38 months of continuous arrears. As of September 30, 2024, the Linying County government, Linying County Housing and Urban-Rural Development Bureau, and Linying County Urban Management Bureau owe them approximately 129 million yuan in sewage treatment service fees. In addition, according to the original agreement, they also need to bear a late payment default penalty of about 10 million yuan.
Mr. Hu explained that he had repeatedly negotiated with the Linying County government, hoping to receive the overdue sewage treatment fees as per the agreement. The other party had promised to pay off in three years, but stopped two months after making payments. “Later, we requested monthly payments, but they stopped after some time.”
Due to the long-term arrears of sewage treatment fees by the authorities, Linying Kandah is facing significant challenges in production and operation. The company is currently facing bank pressure for debt repayment, unpaid wages for employees, lawsuits from suppliers, and frozen company accounts, making it impossible to carry out daily production and operations normally.
In May 6 this year, Linying Kandah filed a lawsuit against the Linying County government, the county housing and urban-rural development bureau, and the county urban management bureau with the Intermediate People’s Court of Luohe City, Henan Province, claiming a total of 578 million yuan in various expenses. This includes the principal sewage treatment fee of about 129 million yuan, a late payment default penalty of about 10 million yuan, an expected net profit of about 278 million yuan, and a termination compensation of about 160 million yuan.
“The case has been filed and the first round of evidence has been completed, awaiting trial,” Mr. Hu said.
Information from the Intermediate People’s Court of Luohe City shows that the lawsuit has been accepted for trial, and the case is classified as an administrative first-instance case.
In response, a person in charge of the Urban Management Bureau of Linying County admitted that the county government owed the sewage treatment fees to Linying Kandah, but currently, the county government is facing great difficulties with very limited funds, making it unable to pay. Linying Kandah has already filed a lawsuit.
The deputy county mayor in charge of Linying County said they are negotiating with Linying Kandah, hoping to reach a settlement. “The county’s finances are indeed in a difficult situation. After discussions, it has been decided to buy back the project.”
According to enterprise research platform, Tianyancha, Chongqing Kandah was established in July 1996 with a registered capital of about 1.876 billion yuan. It is mainly engaged in environmental protection services, environmental pollution control services, and water pollution control services, employing over 2,000 staff. It went public in Hong Kong in 2016. Linying Kandah is a wholly-owned subsidiary of Chongqing Kandah with a registered capital of 6 million yuan.
This incident has sparked discussions online. Netizens commented, “We should check the details of the water bill. Every cubic meter of sewage treatment fee is paid by ordinary people. As for where the money has gone, it is definitely due to financial difficulties and misappropriation.” “Undertaking government projects may be stable, and the prices are usually good. But the biggest risk lies in the unequal status. Once they delay payment or even default, you have no way to enforce it. Even if you win the lawsuit, can the court seize government finances or use government buildings for compensation?” “Local governments lack integrity, making it extremely difficult for private enterprises to survive.”