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China's top environment watchdog has spelt out its intention to take a new approach to curbing industrial pollution, a senior official has said.

Instead of punishing offending enterprises, the State Environmental Protection Administration (SEPA) wants to offer enterprises tax exemptions and preferential loans if they operate in a cleaner, greener way.

"SEPA wants to give some incentives such as tax exemptions and preferential loans to environment friendly enterprises (EFEs)" said Li Xinmin, deputy director of SEPA's Pollution Control Department

In 2003 China established 22 indicators to monitor environment performance, covering areas such as pollution discharge and water consumption per unit of products. Companies that meet targets in all 22 areas are awarded EFE status, the highest environmental recognition in the country.

The plan announced today was part of a Sino-Swedish programme aimed at reducing industrial pollution through improved management of EFEs.

The Swedish side will also help SEPA strengthen EFE evaluation and analysis of industrial environmental impact control.

The plan is still in the early stages, as incentives such as tax exemptions require support and co-ordination from other government departments, SEPA warned.

"But at a minimum, SEPA can offer EFEs some incentives independently, such as returning part of the fees collected for pollutant discharge," said Chen Ying from the Environmental Protection Centre under the SEPA.

"Environmental protection and management in China is focused on end-of-pipe solutions, and environmental issues related to industries are mainly regulated through emission standards," said Annika Siwertz, head of development co-operation section of the Embassy of Sweden.

"The (Sino-Swedish) programme is designed to help China's evaluation of EFEs and management of industrial pollution in a new and constructive way."

There are 38 EFEs in China, and already some local governments are offering the type of incentives recommended by SEPA. For example in Northwest China's Ningxia Hui Autonomous Region, EFEs are offered a three-year income tax exemption.

But others warn that having EFE status has little practical benefit.

APP, an Indonesian paper-making company operating across China, was among the first eight EFEs in 2004, in part due to its low waste water discharge.

Company spokesman Jin Yuchun said: "Every year we invest a lot in the environment, but at the moment being an EFE is just an honour. We would really welcome preferential polices."