By All Means Necessary (15 page)

When Shougang arrived, Peru (and Marcona in particular) was much in need of outside assistance. Lima and its surrounding countryside, including Marcona, were embroiled in conflict between the Maoist Shining Path, a Communist insurgent organization, and the Peruvian government. Given the tumultuous environment, Shougang's decision to purchase the mine seemed particularly bold and was lauded by the domestic and international press.
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(It also fit with the Chinese pattern of investing in resource projects with low technical but high political risks.) The Chinese government provided significant support through low-interest loans and tax breaks; Shougang paid $311 million for the mine, which by one estimate was fourteen times the mine's actual worth.
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The Marcona mine, run by the Shougang Group's subsidiary Shougang Hierro Peru SAA (hereafter referred to as Shougang Hierro Peru), quickly ran into trouble. As soon as the company purchased the mine, several hundred Chinese miners replaced indigenous workers who had been fired prior to Shougang assuming ownership. More importantly, the additional investment in the region's infrastructure and housing for workers that Shougang Hierro Peru had promised dropped from a pledged $150 million to a far less substantial $38 million, plus an additional $12 million fine to the government.
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At the same time, in 1995, a combination of corruption and poor business decisions was bleeding Shougang dry back home. When workers at the Shougang Hierro Peru mine went on strike, management decided to fire the union leaders—one of whom later became minister of labor—and hired a private security force to put down the strike.
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Shougang Hierro Peru further angered workers by clustering families into single houses that had once held only one family each, while Chinese managers lived separately in the Playa Hermosa district and ate in separate cafeterias.
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Shougang Hierro Peru's workers also claimed to be among the lowest paid in Peru. Over the next two decades, the Marcona mine was the site of repeated labor, environmental, and safety violations. The mine's environmental performance was not unusual, but importantly its labor record was.
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Wage disparity among workers at the mine was a constant source of contention and strikes. In April
2007, subcontracting workers implemented a five-day work stoppage, the third strike in less than twelve months, a high rate even for the strike-prone Peruvian mining sector.
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In 2010, sixteen hundred workers rejected a proposed bonus and went on strike; the action was the fifth within a one-year period.
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Workers struck again in 2011 and 2012, seeking higher pay and better working conditions.
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Though Shougang Hierro Peru has amassed complaints and violations for its labor, safety, and environmental practices, few are complaining about its economic performance. In 2010, the company's ore production rose by 16 percent, reaching six million tons. Meanwhile, profits there rose rapidly. Shougang Hierro Peru was on track to implement a long-planned $1 billion expansion in 2013, which is estimated to increase production capacity by ten million tons.
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Latin Trade
's 2011 survey of Latin America's Best Companies, which analyzed revenue growth and profit growth for companies with more than $100 million in revenue, declared Shougang Hierro Peru the best company operating in all of Latin America, because its revenues grew 124 percent to $700 million while profits rose by 456 percent to $292 million. The magazine cited Shougang Hierro Peru's ability to keep operational costs—which includes labor costs—low as a key factor in its success.
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Back in Beijing, however, officials were apparently concerned with Shougang's performance in Peru. In 2011, the Ministry of Commerce's Department of Outward Investment and Economic Cooperation noted that Chinese companies in Peru needed to “respect Peruvian law, ” “keep good relations with workers to keep disagreements from spiraling out of control, ” and “employ talented locals and set up fun village activities.” Mining companies in particular were encouraged to “pay attention to village problems” and not “put the interests of the company above the village.”
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How unusual is Shougang Hierro Peru's experience? A comparative study of wages there relative to those of other large Peruvian mines confirms that the company's base pay for low-skilled laborers is lower than others. But it also offers bonuses that can raise a worker's salary, and scholars have speculated that these bonuses may ultimately leave higher-skilled Shougang Hierro Peru workers paid
similarly to their counterparts elsewhere. The most striking issue is the differential between old and new workers; wages for the former are $22 to $27 per day (close to the industry average of $30 per day), while the latter are paid only $15 to $17 per day (neither figure includes bonuses and benefits); this is an important source of the ongoing strikes and conflicts with the workers.
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A detailed review of Shougang's performance also demonstrates a high rate of serious accidents and an above-average number of fines for labor violations, though less tendency to use low-paid contractors and a lower fatality rate than some multinationals have.
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Interviews with officials, mine workers, and civil society activists in other resource-rich countries suggest that, in fact, in many cases Chinese labor practices are substandard compared to Western multinationals, or at least they are perceived to be so. One would certainly be hard-pressed to find any case where a Chinese company was lauded for raising the bar on labor practices. A Zambian activist, for example, has this to say:

The Australians set a high bar, trying to behave responsibly….The Chinese operate differently. They have no definition of corporate social responsibility, they pay minimum wage, and get around long term plans and benefits for workers by hiring contractors and then rehiring them. There is no monitoring system in place to determine if people keep renewing their contracts over and over again.
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This perspective was supported by a former nickel mine worker, who said that the Australian companies are much safer than Chinese or Indian mining companies. He noted that when a new mine is going to open, the first thing prospective Zambian mine workers ask is, “Who is the investor?” If it is an Indian or Chinese firm, “they are less excited.” According to this same miner, the Canadian and Australian mining firms are much safer.
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Some argue that the Chinese mines are less sophisticated and use lower-skilled workers, explaining their relatively low pay. But this in itself is not the end of the story; to the extent that Chinese mining companies are not as aggressive in investing in state-of-the-art equipment,
mining investment will tend to produce lower-wage jobs than others' investment does.

The strong presence of growing numbers of Chinese workers abroad can affect attitudes toward resource extraction too. Estimates of the number of workers who now seek their fortunes in the world's resource-rich countries range from the hundreds of thousands to the millions. The numbers involved in extractive industries themselves are much smaller, but the number who are active as laborers in massive construction projects can be significant. Former president of Mozambique Joaquim Chissano assessed the Chinese role in extractive industries thusly: “Everyone warns me about Chinese investment in Africa [in resource extraction]; I tell them we're asking where? We don't have any [Chinese workers in extractive industries].” Instead, he pointed out, Chinese laborers abound in construction.
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Large expatriate Chinese populations tend to be unpopular among the publics of countries with resource-rich economies. Requirements to use Chinese firms are often written into concessional loans; for example, one EXIM Bank loan to Angola included the requirement that 70 percent of the public tenders for construction and civil engineering contracts for Angola's reconstruction be awarded to Chinese firms, which are prone to using Chinese labor.
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Some officials claim a motivating factor for using Chinese labor in mining and infrastructure is the fact that they will work seven days per week on longer shifts at lower pay. Spartan living conditions—temporary sheds with bunks or Chinese ships off the coast—also keep costs low. Discussions with senior Chinese foreign ministry officials yield a range of additional and illuminating justifications: “African workers have unions, ” “they want to go to church, ” “they refuse to work on weekends even for overtime pay, ” and “they like to sing and dance.”
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This invariably rankles local populations in the countries where Chinese laborers are sent. From the perspective of many locals, projects tied to Chinese
labor remove value from the investment (though others applaud quick completion time on projects that use Chinese workers). As an expert in Mozambique noted, the Chinese practice compares unfavorably to projects funded by the World Bank or the United States Agency for International Development (USAID), which use local labor.
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Within extractive industries themselves, reliance on Chinese labor can exacerbate relationships with locals by adding clashing cultures to the mix. Take the case of the Ramu nickel mine in PNG. Ninety percent of the workers at the mine and 87 percent of the workers at the associated refinery reported themselves as either “dissatisfied” or “extremely dissatisfied” with their wages, claiming they earned less than both their Chinese colleagues and PNG workers in other mines.
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The problem was exacerbated by negative cultural perceptions: PNG workers viewed their Chinese bosses as slave drivers, while the Chinese viewed the PNG workers as lazy.

Some countries have responded to concerns about Chinese workers by adopting new labor regulations that attempt to limit the potential influx. As mentioned previously, in Mongolia, immigrants from any one country are capped at fewer than ten thousand people, and foreign workers are limited as well. In 2012, Vietnam passed a new law requiring that all foreign business give priority to Vietnamese workers; local government committees will first be allowed to solicit Vietnamese workers before any foreign labor can be imported. Conflict has arisen in particular over Chinese plans to bring two thousand workers to a Chinalco-invested bauxite mine in Vietnam.
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China's going-out strategy nominally incorporates a formal commitment to development in resource-rich countries beyond infrastructure development and resource exploitation. Chinese investment often involves putting money into manufacturing and processing industries, along with assistance in agriculture, health,
and education. In three of the most challenging countries for overseas investment—Equatorial Guinea, Nigeria, and Sudan—Chinese companies have provided millions of dollars in educational assistance through scholarships and school construction.
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Nonetheless, more often than not, China extracts resources abroad and then ships them back home for processing, removing opportunities for technology transfer. It is this phenomenon, more than any other, that leads to accusations of neocolonialism. In some cases, the trade pattern simply reflects the facts of comparative advantage: it is economically efficient for resources to be processed in China rather than abroad. In other cases, though, the pattern is a result of tariffs on processed goods from elsewhere. This tilts the playing field and directly impedes efforts to add value to resources outside of China.

Partly in response to such concerns, the Ministry of Commerce has established a broad network of special economic zones, overseas areas in which Chinese state-owned enterprises, as well as private firms, undertake significant investment projects with support from the government. The SEZs were formally announced under the auspices of the Forum on China-Africa Cooperation in 2006, but several were already under way. They embrace a range of industries, such as mineral processing, construction materials, and logistics. Zones also incorporate industries not directly related to a host country's resources (for example, automobile manufacturing, textile processing, wood processing, and engineering).
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They are supported by the Chinese government through tools that include financing, as well as political guidance by senior leaders, who may recommend that certain firms undertake certain projects in certain countries.

In a detailed study of China's SEZ policy, Brautigam and Tang lay out three reasons the Chinese government has promoted these development zones overseas: “Providing a platform to accelerate China's own domestic restructuring by easing the outward investment of mature Chinese firms, increasing demand for Chinese-made machinery and equipment, and reducing trade frictions by relocating Chinese production to third countries.”
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Some zones may be explicitly tied to host governments' desires to ensure they capture some of the value-added processing associated with China's resource extraction. For example, this may have been the impetus behind the Russian and Chinese governments' decision to develop a forestry product processing industrial zone in Russia. However, these zones are not unique to resource-rich countries; nor do significant resource investments in a country go hand in hand with an SEZ.

There is debate over how well these zones are doing at reducing trade frictions and relocating Chinese manufacturing to host countries. Ana Alves, a scholar at the South African Institute of International Affairs, identifies a number of challenges to the success of these zones. In Mauritius, for example, one Chinese partner did not possess the financial capacity to implement the project, and the two subsequent firms identified by the Chinese government had no real interest in implementing the project. Even in the case of Zambia, in which seventeen companies have registered inside the Zambia-China Cooperation Zone, Alves points out that most of the companies are subsidiaries of those undertaking the onsite infrastructure development for the SEZ, rather than companies engaged in other valuable industries. Chinese developers acknowledge that they are struggling to attract investors, citing cultural and language challenges, lack of familiarity with the African business environment, and the global economic slowdown. Alves also notes there are few formal mechanisms, such as training programs, in place to actively ensure skills and technology transfer from any of the Chinese businesses to local populations.
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