* Govt shake-up to grant more powers to environment ministry
* Beijing to raise fines, criminal punishments for polluters
* Law to boost monitoring capacity to combat fraud, evasion
China could grant its undersized environment ministry new powers over resources, possibly allowing it to veto future projects, and more muscle to punish polluters as part of a government shake-up to tackle decades of unchecked growth.
Sources with ties to the leadership told Reuters that the government was considering a sweeping reorganisation of cabinet ministries next month that will dissolve the Ministry of Land and Resources and transfer some powers to the Ministry of Environmental Protection (MEP), long regarded as too weak to punish law-breaking polluters.
Amendments to China's 1989 environmental law, likely to be rubber-stamped at the annual session of the country's legislature next month, are expected to also give the environment ministry the powers to impose unlimited penalties on firms that fail to rectify problems and allow regulators to suspend or shut down persistent offenders.
A nationwide monitoring system will be established to force industries to disclose exactly how much pollution they cause, and it will become a criminal offence to misuse or switch off pollution control technology and misreport emission levels.
China's big polluters routinely exceed government emissions limits, say environmentalists, and high pollution levels have sparked widespread social unrest, which is a major concern for China's leadership.
The proposals are part of Beijing's efforts to steer the economy away from investment-led growth, which has fuelled three decades of double-digit expansion per year, towards a lower but more sustainable pace leaning more on consumption and services.
Despite vows to get tough on industry, China's ability to impose environmental safeguards on local governments and powerful state-owned firms remains in doubt following a series of toxic chemical spills, smog scares and food safety scandals.
"China will not be able to stop polluters from violating the law without stronger penalties," said Alex Wang, an expert in Chinese environmental law at UCLA in the United States. "For companies making billions of yuan in profit each year, these fines have been less than negligible."
China has already stripped dozens of powers from ministries, including the powerful National Development and Reform Commission (NDRC), in a bid to move away from bureaucratic interference in the world's second-largest economy and towards better regulation.
The NDRC, a sprawling superministry with a huge swathe of duties ranging from cutting greenhouse gases to deciding energy prices, has long been under fire for resisting reform and for heavy-handed intervention in the economy.
The leadership sources told Reuters that proposals have been made to slim down the NDRC into a sort of "macroeconomic planning and research" body with no powers of approval.
The new amendments will abolish a "maximum fine" system in favour of unlimited penalties for repeat offenders. Officials say firms have preferred to pay the relatively small fines up front rather than face much higher compliance costs.
"To a relatively big enterprise, the level of punishment cannot even be compared to the cost of complying with the law or even with our administrative costs," Ji Gang, an official with the MEP's law enforcement division, told the Xinhua-run Economic Information Daily in January.
Creating a monitoring system to identify polluters will help enforcement and also encourage the public to supervise factories, said Huang Wei, a campaigner with environmental group Greenpeace in Beijing.
But the environment ministry will also need a bigger budget and a rise in status in China to fulfill its goals.
"In many cases, the big SOEs (state-owned enterprises) pretend to comply but actually go above the environment ministry's head and ask the NDRC for more lenient treatment," said a government policy researcher who did not want to give his name, citing the sensitivity of the issue.
The environment ministry said last year that it planned to spend 40 billion yuan ($6.60 billion) over 2011-2015 to boost its monitoring capacity, but it will not be enough unless China strengthens the bureaucratic position of the watchdog, said Wang of UCLA.
"Effective regulation is impossible without a regulatory body with sufficient authority to hold the major state-owned firms to account," he said.
The planned environmental law changes have been broadly welcomed by activists, but they are concerned about new restrictions on the public right to sue polluters.
A previous draft said lawsuits could only be filed via the government-affiliated All-China Environmental Federation. Critics said the clause would restrict citizens' rights to sue in contentious cases, and it was criticised even by the People's Daily, the mouthpiece of the Chinese Communist Party.
Subsequent amendments also allowed government-registered environmental organisations that have been operating for at least five years to launch legal action. Chinese environmental group Friends of Nature said the change was not enough and the clause remained "detrimental to the public interest".