By All Means Necessary (18 page)

In any case, international CSR networks and organizations are not the only way Chinese companies learn from the outside in. Firms learn from the experience of other multinationals, including from foreign partners in overseas resource projects and from their domestic competitors. In Peru, a Chinese mining executive noted that all the mining companies were learning from the experience of Shougang Hierro Peru, as discussed in the previous chapter. According to the Peruvian-based American scholar Cynthia Sanborn, the larger Chinese mining firms have formed an association in Peru and meet regularly at a club to exchange experiences; those with more experience lend insights to newcomers. Moreover, a cottage industry has developed in Peru to provide consulting services to mining companies, and several try to cater to Chinese needs.
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This may help explain why the regional coordinator of Revenue Watch has found that more recent Chinese entrants to Peru's mining sector are more responsive to the needs of local people in an effort to avoid the mistakes of their predecessors.
⁴⁷

The experience of the Chinese mining company Chinalco in Peru may be one such beneficiary of Shougang Hierro Peru's missteps. In 2007, Chinalco purchased Vancouver-listed Peru Copper, acquiring the option to develop Peru's Toromocho mine, a copper mine with reserves estimated as high as two billion tons. Toromocho is located about seventy miles outside of Peru's capital city, Lima. With a $2 billion loan from EXIM Bank, Chinalco planned to bring the mine
online in late 2013. Like Shougang Hierro Peru, Chinalco has faced concerns about its efforts to relocate nearby residents. In response, it has built an entirely new city, Nueva Morococha, for five thousand people, with a central plaza, school, hospital, and churches.
⁴⁸
According to one estimate, the cost of resettlement to Chinalco is as high as $150–200 million. Only 8 percent of residents have thus far refused to move; the rest have supported the development of the new town and were consulted about their needs in the process.
⁴⁹

Chinalco has also brought in outside experts to help ensure that its development process runs smoothly.
⁵⁰
It hired an experienced Western head and a Canadian firm to develop an environmental management system, and it invested $50 million to design and construct an advanced tunnel wastewater treatment plant.
⁵¹
It also uses local rather than Chinese labor.
⁵²
Still, while an independent auditor found Peru's mining sector in compliance with EITI standards—the participation rate of companies signed up to EITI in Peru was over 80 percent—both Chinalco and Shougang Hierro Peru were among those missing from the list.
⁵³

Moreover, there were some small demonstrations in 2012 opposing Chinalco's development on the grounds that not enough homes have been built to house all the residents of the original Morococha. The local mayor is demanding that Chinalco compensate the town for as much as $300 million for the “loss of identity, culture and tradition, ” and he is seeking jobs for his town's residents in the new mine.
⁵⁴
As of early 2013, a “No” campaign among the holdouts was under way to push Chinalco to offer more. But such conflict is endemic to the mining industry; it is hardly a unique issue for projects involving Chinese companies. Indeed, despite these challenges in the relocation process, Chinalco has earned plaudits for its approach within Peru and the broader community that evaluates multinationals' foreign investment practices.

Despite some positive signals, transforming China's business culture will take time. Beyond technical and governance challenges, there is a deeper barrier to change: many companies and policy makers are suspicious of efforts to promote better social
and environmental performance for more fundamental reasons. According to a survey of twenty-two extractive companies operating abroad by the international NGO Global Witness and the Beijing-based consulting firm SynTao, many companies are concerned that transparency will reduce their competitiveness, “heighten expectations for Chinese extractive companies to address economic and social hardships in host countries, ” and bring “increased scrutiny from citizens, NGOs and watchdog groups.”
⁵⁵
As the U.S. Chamber of Commerce describes in a report on Chinese firms' CSR practices, the Chinese government retains some hesitancy about too strong a drive toward international standards, fearing they will prevent some of the companies from investing overseas.
⁵⁶

Moreover, in certain Chinese quarters, there remains a deep-seated belief that Chinese companies are unfairly targeted by the West. One op-ed published by the
People's Daily
claims: “The interest groups of some countries are quite vigilant against the investments from China and have deliberately distorted the purposes of the investments. As long as they dig out a tiny thing, they will exaggerate it immediately through the media and attack China's foreign policies.”
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The piece further calls for the Chinese media to play a public relations role, arguing that they have a “duty to provide accurate, complete and timely coverage of Chinese overseas investment projects and should be more proactive in refuting malicious reports from some Western media.”
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The development of better corporate social performance in most countries embraces a combination of top-down, outside-in, and bottom-up pressures for change. Governments and civil society—including NGOs, corporations, and the broader public—all contribute to developing a set of accepted norms and institutions. To date, China has been largely an exception to the rule: overwhelmingly, Chinese corporate social responsibility has been established in
a top-down fashion, with only limited interaction between the key players and the people. More and more, however, citizens are raising questions about, and pushing change in, Chinese CSR practices.

The Chinese people are increasingly aware of the importance of strong corporate social responsibility. This derives almost entirely from their experience at home: corporate malfeasance within China has contributed to numerous tragedies, notoriously among them the poisoning of Sanlu milk powder in 2008, which contributed to three hundred thousand children falling ill and at least six deaths; and the 2008 Sichuan earthquake, in which thousands of people are estimated to have died as a result of shoddy construction. Daily in China, there are reports of companies responsible for serious food safety violations, environmental disasters, and corrupt practices. The public has begun to put pressure on the government to enforce higher standards of CSR through Internet activism as well as protests on the street. The environment ranks as one of the top sources of social unrest in the country. Chinese nongovernmental organizations have also become active players in enforcing corporate accountability, and whereas Chinese civil society is largely focused on improving corporate social responsibility on the home front, some media and NGOs have begun to explore the impact of Chinese investment in extractive industries abroad. A 2011 opinion piece in the
People's Daily
(which, although a Party-controlled newspaper, occasionally publishes pieces that diverge from conventional Party thinking) cautioned firms to “tread lightly when investing overseas” and pleaded for companies to “inform local residents about their efforts.” It noted that “keeping a low profile tends to make things even more complicated.”
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A Chinese journalist returning from Africa echoed these sentiments: “State-owned enterprises have disregarded the accumulation of statistical data on corporate social responsibility. In responding to Western media's harsh criticisms, it is all too easy for them to remain passive.”
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In June 2011, the Chinese environmental NGO Green Watershed traveled to Burma to evaluate investment projects. Over the course of the weeklong investigation, the NGO discovered that the reputation of Chinese companies, including in extractive industries, suffered
from their close relations with Burmese officials, who were widely perceived to be corrupt. In contrast to Korean and Indian investors, Chinese businessmen paid little attention to developing contacts with the public. In visiting a natural gas development project, local residents informed Green Watershed that although Korean companies provided some social services, the Chinese companies did not; nor did they hire local workers. Even in areas where Chinese companies did invest in local services for the benefit of the local communities, they were not given credit because the projects were carried out through an unpopular government, or the projects didn't really benefit the people.
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Green Watershed returned to China with a number of recommendations, among them the necessity of paying closer attention to the needs of local communities and communicating with them directly, as well as undertaking better conflict risk assessment given the ongoing conflicts between various ethnic groups.

The Chinese people and some business leaders are also thinking seriously about the political environment in which their companies invest, drawing into question decades of “not mixing business with politics.” They are less certain that the advantages of doing business where other countries and multinationals fear to tread are worth the risks. In late January 2012, for example, the head of a major Chinese-led oil consortium was expelled from South Sudan for “non-cooperation” and twenty-nine Sinohydro workers were abducted in South Kordofan, a Sudanese border state. The abduction stirred Chinese online nationalist sentiment; one microblogger asked, “Why are militants around the world so keen on kidnapping Chinese? If they kidnap Americans, they are dead when U.S. Special Forces take action.” And another netizen wrote: “We should interfere directly and rescue our citizens. Don't let Chinese people feel they are abandoned by their motherland when they go abroad.”
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The Sinohydro incident was not connected to resource development, but the episode has had broader reverberations through Chinese attitudes toward involvement abroad.

Alas, the response from the embassy in Sudan could hardly have been reassuring to those in China who expressed concern:

The Going Out strategy mainly focuses on poor third-world countries. Poor countries often have conflicts and chaos. So Chinese workers will find it hard to avoid being affected. We must understand that a large quantity of Chinese laborers going abroad is part of our going-out strategy. As China's economy develops, more and more people will work overseas and thus the frequency of security incidents involving Chinese overseas workers may grow larger and larger.
⁶³

Not everyone is willing to take the risk. One of Sinohydro's top executives, Wang Zhiping, has said the company learned an important lesson in Libya, where he estimates the conflict cost Sinohydro at least “US$1.2 billion in suspended contracts and US$200 million in writedowns.” The company now has a “caution list, ” featuring Iraq, Afghanistan, and Burma (where Sinohydro suffered a huge setback when its $3.6 billion Myitsone dam hydropower project was suspended).
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As we saw in
chapter 4
as well, Chinese agricultural firms and farmers are avoiding investment in certain countries in Africa, where the risk of kidnapping or other violence is high.

Chinese companies traditionally bring their experience and culture from home as they seek resources abroad, sometimes hurting the countries in which they operate in the process—particularly in countries where governance is already weak. But change is arising from multiple sources. Countries in which China invests are adapting and forcing Chinese companies to shift course, a pattern that shows no sign of abating. Pressure from home, in part in response to the reputational damage done by Chinese firms abroad, is similarly reshaping how the companies operate. These efforts, though, remain incomplete: weak governance in China and many of the countries where Chinese companies invest means that efforts to reshape corporate behavior (along, in many cases, with the behavior of other multinationals) continues to be slow and uneven.

The difficulties of investing in regions where the rule of law and institutions of governance are weak—along with the existence of big resource deposits elsewhere—are also helping propel Chinese firms beyond their traditional developing-country focus. But competing in markets such as Australia, Canada, and the United States offers its own set of challenges. Stronger state capacity means more attention to the role of the Chinese state in the firms' investments, as well as a heightened concern in many cases that Chinese firms will pose issues for national security. Stronger civil societies and legal regimes, moreover, mean sustained attention to and control over the firms' labor, environment, and safety practices. A growing segment of China's extractive industries sector is taking on these challenges, learning to adapt to new business environments, while at the same time helping reshape the investment environment in these countries.

ON JULY
23, 2012, CNOOC made a $15 billion bid for the Canadian oil producer Nexen.
¹
At the time, Calgary-headquartered Nexen owned oil- and gas-producing properties in Western Canada, the UK North Sea, the U.S. Gulf of Mexico, Nigeria, and Yemen.
²
In 2011, it produced the equivalent of 207, 000 barrels of oil a day out of 2.3 billion barrels of reserves.
³
The bulk of that came from oil, and more than half of Nexen's oil production came from the UK. Indeed, less than a quarter of Nexen's oil production—the product of its Long Lake bitumen project and a share in a company named Syncrude—came from Canada.
⁴
Yet Nexen was a Canadian-headquartered company, and roughly two-thirds of its employees were based in Canada. The takeover bid thus was subject to Canadian government review.