By All Means Necessary (17 page)

These rules appear to have some teeth: in one case, in 2008, the UK-based environmental NGO Brainforest asked EXIM Bank to look into the environmental practices of the China National Machinery and Equipment Import and Export Corporation (CMEC), which had won a tender for the Belinga mine in Gabon. Brainforest argued that the company was violating local laws and thus EXIM Bank's guidelines for financing policy. After review, EXIM Bank decided not to provide financing to CMEC for the hydropower project associated with the mine unless the EIAs could be verified.
¹⁷

Chinese policy makers have also taken steps to encourage companies to become more familiar with the laws and regulations of countries they operate in. Ignorance of local laws and regulations is a common theme in assessments of Chinese companies' activities abroad. While calling the international performance of SOEs “commendable, ” SASAC Deputy Chairman Shao Ning noted that Chinese firms “generally lack international management skills” and that “they are not familiar with the foreign laws and market standards [where they invest].”
¹⁸
Culpability for the poor practices of some firms is often laid at the foot of both Chinese and host country actors: “Some [Chinese companies] ignore their responsibilities, and some countries in Africa with insufficient laws and regulations make it easy for Chinese companies to ignore their social responsibilities, pollute the environment, and fail to comply with local labor laws.”
¹⁹
Beijing is attempting to rectify such challenges by educating firms and establishing additional layers of bureaucratic oversight. Responding to calls for the government to do more in assisting companies in evaluating the risks in certain countries and ferreting out information about “hidden political, economic, and social problems” in particular regions or with particular projects,
²⁰
the Ministry of Commerce, along with the National Development and Reform Commission and the Ministry of Foreign Affairs, has since 2009 issued a detailed set of measures for overseas investment.
These guidelines include specific information about well over one hundred countries in which Chinese multinationals invest, such as the countries' development priorities, regulations governing foreign investment, and even guidance concerning how Chinese firms are perceived within the country. The Ministry of Commerce also boasts its own in-house think tank, the Beijing New Century Academy on Transnational Corporations, which conducts research and makes policy recommendations on the development of corporate social responsibility.
²¹
Chinese embassy staff in host countries are further nominally responsible for training staff sent by Chinese companies on local business practices and regulations, as well as community protocol and culture. They also facilitate interactions between overseas Chinese entities and local authorities to ensure compliance with local regulations.
²²

The banking supervisory body, the China Banking Regulatory Commission (CBRC), also issued an additional set of guidelines in 2012 that required banks to organize onsite investigations at least once every two years. In addition, it required that when a bank provides financing for overseas projects, it must “promise in public that appropriate international practices or international norms [with regard to environmental protection, land, health, safety, etc. of the country or jurisdiction where the project is located] will be followed so as to ensure alignment with good international practices.”
²³

Yet the government has limited ability to monitor and enforce compliance with its many directives. This is partly a problem of will, but it also has deep roots in the structure of the political system: poor transparency, limited public engagement, and a weak judiciary undermine the ability of even a strong central government to regulate activities across a vast economy. This problem, already large within China, becomes far more acute for companies operating overseas. For example, China's version of the Foreign Corrupt Practices Act (a U.S. law that is designed to prevent bribery and other corruption in overseas business dealings) is the 2008 Administrative Regulation on Contracting Foreign Projects. The regulation states that a company obtaining a project as a result of “contracting any project at an illegitimate low price, or engaging in collusive tendering
or commercial bribery” will be fined or have its project revoked.
²⁴
Yet there is no institutional mechanism within the administrative or legal system to monitor or enforce the regulation.

Indeed, the banking sector also complies only weakly with its CSR regulations. In 2012, for example, the CDB signed a memorandum of understanding with the Ethiopia Sugar Corporation granting a $500 million loan to construct six sugar factories in the Lower Omo Valley. These sugar plantations are estimated to divert at least 28 percent of the Omo River's annual flow and lower the water of Lake Turkana—the world's largest desert lake—by at least thirteen meters. Analysts anticipate that once the sugar plantations and a large hydropower project planned to dam the Omo River are complete, migrations among the people of Ethiopia, Kenya, and South Sudan will breed more conflict.
²⁵
With the exception of Chinese banks, all other international financial institutions refused to finance this development as a result of the environmental and likely social impacts.
²⁶
In the face of such international opposition to the project, it is difficult to assert that China Development Bank is adhering to the CBRC's requirements

Chinese companies are also better—although still weak—at the more formal parts of environmental compliance—producing environmental impact assessments, following applicable regulations in the countries where they invest, and even signing up to (if not always following) international standards such as ISO 14001, which is an internationally accepted framework for establishing an environmental management system—than at those parts that are less rule-driven and anchored more in informal consultation and community engagement.
²⁷
An informal comparison of the 2011 CSR reports of seven major Chinese mining companies bears this out.
²⁸
For example, China National Metals Corporation (CNMC), which is listed on the Hong Kong Stock Exchange, subscribes to the Global Reporting Initiative (a framework for reporting on an organization's social, economic, and environmental performance), as well as some international standards, such as ISO 14000.
²⁹
Yet it fails to report on a number of basic metrics, such as investment in environmental protection, investment in workplace safety, and
mine fatalities. Many other mining companies or holding groups, such as Chinalco, Shenhua Group, Minmetals, China Coal Energy, and China National Gold Group, similarly publish CSR reports, but they all choose which of the relevant metrics to report.

To provide further encouragement for Chinese companies to improve their CSR efforts and publish CSR reports, the Chinese Academy of Social Sciences (CASS) has developed a rating system for CSR reports. In April 2010, CASS released the criteria on which company reports would be evaluated, among them completeness, substantiality, balance, comparability, readability, and creativity. In CASS's review of the first ten reports submitted, however, every company received either an “outstanding” or “leading” evaluation, prompting some international reviewers to raise concerns over CASS's independence and the potential for the rating system to become a “promotional tool.”
³⁰

As Beijing continues to put in place new policies and regulations in order to promote better corporate performance, it has often welcomed the opportunity to learn from and cooperate with others outside China. The Ministry of Commerce has encouraged companies to become more active in the United Nations Global Compact. In 2005, Shanghai hosted the Global Compact Leaders' Summit, and at the 2007 summit in Geneva the Chinese delegation boasted as many as one hundred members. By 2012, 299 Chinese companies had joined the Global Compact. Fu Chengyu, former head of the China National Overseas Oil Corporation, has even served on the Global Compact board.
³¹
Nonetheless, according to statistical analysis of a 2009 survey of the 283 Chinese firms participating in the UN Global Compact, between 2000 and 2008, only 21 percent of the firms were compliant with the Global Compact's reporting requirements, with SOEs posting a higher rate of compliance than private enterprises (though how much higher was not determined).
³²

Chinese CSR engagement in the Extractive Industries Transparency Initiative—a more ambitious effort than the others—is weaker
than in other international reporting frameworks. The EITI is a coalition of governments, companies, nongovernmental organizations, and investors seeking to ensure that companies “publish what they pay” and governments “disclose what they receive.”
³³
The idea behind the EITI is simple: governments of resource-rich countries are encouraged to publish information about the revenues from their extractive industries (oil, gas, and mining), and these revenues are then compared to the payments (taxes, duties, royalties, bonuses, and other payments) that the multinational investors have made to the government. An independent administrator reports on and reconciles any differences that emerge. The information is made public so that people and NGOs can hold their governments accountable.
³⁴
A country can become an EITI candidate by publishing a report reconciling the reported revenues and payments.
³⁵

Chinese leaders have expressed support for EITI in international forums, supported a UN General Assembly resolution that requires transparency for all member states, and agreed to a resolution at the 2009 Group of 20 (G-20) summit in Pittsburgh that supports participation in EITI.
³⁶
However, Beijing has yet to sign on to EITI as a candidate or supporting country.
³⁷
No Chinese company has become a member, although once states in which they operate are EITI members, some companies will comply with the EITI reporting requirements. Moreover, despite not being individual members, the companies can participate in other ways. China National Petroleum Corporation, for example, became a member of the multistakeholder board of Iraq's EITI in 2010, the first time a Chinese company had taken such a role. The Iraqi EITI group has since reported that CNPC is an “outstanding” participant and advocate for transparency in the oil industry.
³⁸
As Erica Downs notes, the most important variable in CNPC's participation in EITI in Iraq is probably pressure from the host country, though a number of other factors might be playing into CNPC's decision. They include pressure from partners (for example, CNPC has a technical service agreement with BP in Iraq), the hope that CSR is good for business, and a serious commitment to EITI principles.
³⁹

Other Chinese companies have more indirect links to EITI. For example, Shenhua Coal is a member of the World Coal Association, which is an industry supporter of the International Council on Mining and Metals, which in turn is an industry supporter of EITI. A few companies, such as PetroChina, Zijin Mining, and Yanzhou Coal Mining, have also taken steps toward greater financial transparency by disclosing the taxes they pay to overseas governments, even though they are not members of EITI.
⁴⁰

There are a number of reasons behind the weak participation of China in EITI. According to a University of Stellenbosch study, Chinese officials are less aware of EITI than of the UN Global Compact, which is housed within the United Nations, an institution familiar to and respected by Chinese officials. Those officials who do know EITI often perceive it as a “Western NGO, ” which diminishes its impact since the government generally does not engage with NGOs. In particular, they are suspicious of the funding relationship between the Soros Foundation (which advances a range of democracy initiatives China does not support) and EITI.
⁴¹
One of the programs initially created by George Soros's Open Society Institute is the NGO Revenue Watch, which is a “leader in the development and implementation of the Extractive Industries Transparency Initiative.”
⁴²
Moreover, the Ministry of Foreign Affairs has said it is concerned that EITI principles and criteria conflict with China's stated (though inconsistently pursued) commitment to noninterference in other countries' affairs.
⁴³

The fact that international CSR institutions are entirely voluntary also limits their ability to shape Chinese firm behavior. For example, according to a PricewaterhouseCoopers (PwC) evaluation, EITI has had limited impact in shaping Chinese mining practices abroad, in large part because companies can often simply ignore its strictures. In Zambia (an EITI candidate), the EITI Council requires only that holders of “large scale mining licenses” participate in reporting—and many Chinese companies active in the country are small. According to PwC, only a small number of participating companies in Zambia (Chinese or other) actually submitted complete documentation. As a result, the firm found there was a “significant
amount” of unresolvable discrepancies between companies' reported revenues and monies received by the government.
⁴⁴

To be certain, weak adherence to internationally recognized guidelines or even regulations is not unique to Chinese companies. Indiana University political scientist Scott Pegg, for example, argues that Chinese oil companies are not terribly different from Western oil companies. The latter, he notes, set sharp limits on their role in broader governance and transparency issues. Many firms insist that with regard to mandatory corporate disclosure of all payments made to host governments, the reporting obligation rests with the countries and not the companies; any disclosure, moreover, should be voluntary, not mandatory.
⁴⁵