By All Means Necessary (16 page)

Chinese companies within the SEZs have thus not yet established themselves as important mechanisms for improving the state of native technological capacity in developing countries where China invests in resources. This confirms the fact that Chinese resource investment is much like that from other countries' multinationals: it typically has limited impact on native technological capacity, particularly beyond resource extraction itself.

The biggest exception is likely in agriculture. Since the late 1950s, China has sent as many as ten thousand agricultural technicians to
Africa. It also partnered with the UK in 2011 to launch a four-year program to help transfer agricultural technology to low-income countries in Africa and Asia.
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China has established agricultural technology demonstration centers in several African countries, where Beijing provides training courses. It also furnishes, with low-cost loans, the agricultural machinery and equipment on which to train. In Ethiopia, for example, a Chinese-sponsored agricultural demonstration area is well on its way to fruition, with the goal of supporting experimental research, training, and demonstration of agricultural techniques. Chinese experts have taken up residence on site, and at the same time, Ethiopia is sending its own agricultural experts to China for training.

Another joint Ethiopian-Chinese technology project has transferred know-how for making charcoal from bamboo. The Chinese have benefited from selling processing machinery and charging Ethiopian workers for training; Ethiopians, in turn, have developed an entire new industry of growing bamboo to make charcoal.
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Has Chinese investment in natural resources transformed the world in the bad ways its detractors warned of—or in the good ways Chinese leaders promised and development theorists have argued are often possible? The track record is more prosaic: for the most part, the country's performance is neither special (companies do not raise the bar on environmental, labor, or financial behavior) nor disastrous (poor Chinese labor and environmental practices often simply track those of extractive industries at large).

Nonetheless, there are departures from this pattern at the margin. Chinese companies often invest in mines and projects that others won't touch, in the process delivering new income and jobs. At the same time, at best Chinese companies, which are used to lax environmental and labor rules at home, have not brought strong new practices to the countries where they invest. Even worse, in cases where host governments' institutions are weak, Chinese companies—not governed effectively by Beijing
either—have too often transformed important dimensions of the countries they invest in for the worse.

Regardless of the underlying substance, though, the mixed popular review of Chinese investment in resource-rich countries—some of it rooted in reality and some of it based in misguided perception—is triggering a range of responses within China and in the countries where its companies invest. Although some Chinese officials attribute the companies' problems to a Western conspiracy, others are convinced that the country and its multinationals need to change their tactics, if not their broader approach. Consensus is growing that the firms need to operate at international standards or risk losing out over the long run. Seeing how this is unfolding requires investigating how various actors within China are taking steps to establish a new approach to investment in resource-rich developing economies.

ON MARCH
17, 2013, the newly selected Chinese premier, Li Keqiang, warned that the country's continued economic growth was being endangered by corruption and an ever-worsening environmental situation. He pledged greater transparency and more public supervision, and he called on the media representatives arrayed before him in the Great Hall of the People to hold him personally accountable if the government failed to transform the situation.
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Li's remarks reflected a changing understanding within China about the relationship between economic development and societal well-being. Officials and citizens are rapidly concluding that their own welfare is served poorly by a growth-at-all-costs strategy. Mounting environmental challenges, public health crises, and unsafe labor practices are perceived by many as too steep a price to pay for double-digit economic growth. They want Chinese business to support clean air and water, safe food, and good working conditions. In a February 2013 online poll of more than six hundred thousand Chinese by the
People's Daily
, fighting corruption, reforming health care, and protecting the environment were among the top issues citizens wanted addressed by the National People's Congress.
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Over the past decade, ideas about how to integrate the public's demands for improvements in social welfare and public goods with economic growth have begun to evolve.

Changes at home are likely to lead to changes in how companies behave abroad. This is all the more probable as the Chinese people also become increasingly aware of their country's place in
the world. The country's economic influence, expansive diplomacy, and rising military strength not only give China the ability to have more influence in international affairs but also place it under greater international scrutiny. Officials and citizens alike are increasingly sensitive to claims that, as companies become global players, their investment practices are not up to international standards, and in fact are detrimental to China's image. They are thus searching for ways to ensure that, as companies continue to invest in developing the world's resources, they are viewed as world-class competitors.

Moreover, civil society is no longer dormant. Beijing continues to define the rules of economic development at home, but the media, nongovernmental organizations, and the general public now act as watchdogs, holding local officials and business leaders accountable for their actions—and occasionally scrutinizing Chinese behavior abroad too. Civil society also engages widely with the outside world, drawing on ideas from abroad and helping weave them into the way China does business.

Shifts within China are producing changes in how Beijing approaches its resource investments. Leaders are taking steps to develop a system of incentives to encourage companies to improve their performance at home and abroad. Ideals of corporate performance that go beyond short-term profits are permeating the institutional infrastructure of the economy from the top down, from the outside in, and increasingly from the bottom up.

These efforts are typically thought of in China under a very broad conception of corporate social responsibility that can encompass basic labor and environmental standards along with respect for the rule of law. Corporate social responsibility in this sense is not a new concept within China. However, the details of what it means within the country have evolved significantly over time. Before 1985, corporate social responsibility meant the responsibility of SOEs to provide health care, education, housing, and retirement benefits for
their employees (in contrast with the situation in Western countries, where many of these social welfare concerns are provided for or subsidized by the state).
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With China's accession to the World Trade Organization in 2001, however, its companies were exposed far more rigorously to the strictures of the global market and to the idea that a commitment to strong environmental protection, fair labor practices, and well-developed corporate governance was essential. The government view also evolved, shifting from interpreting Western countries' focus on standards for corporate behavior as trade protectionism to seeing opportunities for business and government to work together in addressing social needs and challenges.
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At the very moment of WTO accession, in fact, the United Nations Global Compact, the world's largest voluntary corporate responsibility initiative, together with the Chinese Enterprise Confederation (a government-sponsored business organization), hosted a high-level meeting in Beijing to begin the process of introducing new approaches to social responsibility to Chinese companies.
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The Global Compact embraces ten core principles, such as “avoid human rights abuses” and “support environmental protection.” Even though initially China's engagement with the Global Compact was overwhelmingly ceremonial, over the next several years, as the economy grew at home and the country's reach expanded globally, social welfare obligations gradually became more deeply embedded in a number of domestic regulations.

China also began to engage in other CSR-related international initiatives. These developments accelerated after 2006, when Beijing adopted the China Company Law. The law mandated that companies commit to corporate social responsibility.
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Once again, this points to a sharp difference between Western and Chinese conceptions of CSR: for Western companies, CSR includes only measures that are not legally mandated.

To encourage the development of CSR, the Chinese government began to use the influence of its economic and financial institutions. The Shenzhen Stock Exchange, for example, issued a set of “Social Responsibility Instructions to Listed Companies” in September 2006, encouraging listed companies to publish CSR reports and
adopt policies that protected the environment and reflected responsibility for social development.
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The Shanghai Stock Exchange followed two years later with its own guidelines. Most of the guidelines developed by the stock exchanges were and remain voluntary. The Shanghai Stock Exchange, however, has attempted to put teeth into its efforts by requiring that companies immediately report environmental accidents and inform the exchange if they have been blacklisted by an environmental protection agency.
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Moreover, the Shanghai Stock Exchange has pioneered its own social responsibility metric, the Social Contribution Value per Share (SCVS) rating system, which adds together tax revenues paid to the state, salaries paid to employees, loan interest paid to creditors, and donations and value added for stakeholders and then subtracts the social costs incurred from environmental pollution and other externalities.
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The Shenzhen Stock Exchange also has detailed requirements with regard to transparency, stipulating that companies disclose information concerning the acquisition and transfer of mining rights overseas, such as evidence that their activities are in line with the laws and regulations of the host country.
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Yet adherence to the reporting guidelines outlined by the stock exchanges is weak. According to an evaluation of Chinese corporate social responsibility by the World Economic Forum (WEF), reporting in 2011, about 70 percent of companies listed on the Shanghai and Shenzhen stock exchanges were not following the guidelines concerning publication of CSR reports (which in principle cover activities at home and abroad), and of those that were reporting, many did not have consistent structures or provide balanced information. As the WEF report notes, the stock exchange guidelines don't provide clear guidance as to what should be in the reports, so many reports are “very loosely organized…with high level messages and little supporting data or specific examples.”
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Another study, undertaken by Chinese researchers Jiufang Tang and Pengfei Li, found that state-owned enterprises, large companies, and corporations in high-polluting sectors had the greatest level of reporting compliance. Among the reporting companies, what the companies conveyed also varied greatly, including investment in environmental
protection, steps taken to have others certify their good behavior, and other matters.
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Overall, however, they called disclosure of environmental performance information among listed companies shockingly low.

The large role of China's state-owned enterprises in the country's resource quest, particularly in the first wave of overseas investment, has also provided SASAC with the opportunity to play an important role in promoting better corporate governance. In 2007, SASAC developed its own guidelines for the SOEs that it oversaw. SASAC adopted an extraordinarily broad understanding of CSR in keeping with the Party's own priorities to develop a harmonious society, as well as to become a global leader in innovation. Thus SASAC's guidelines ranged from recommendations such as reducing layers of management and increasing investment in research and development to more traditional understandings of CSR, among them ensuring product safety and reducing energy consumption.
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Beijing also uses the leverage of its banking system to encourage Chinese multinationals to improve their environmental and social practices. The China Development Bank stands out for its early adoption of guidelines in these areas. In 2005, CDB required that all firms seeking loans had to undergo an environmental impact assessment and that loan contracts had to include environmental costs and standards. The CDB was also the first state-owned bank to join the United Nations Global Compact; after becoming a member, CDB expanded its loan approval evaluation process by incorporating 142 performance indicators, particularly focusing on “human rights, the environment, labor, and corruption.”
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The EXIM Bank—the source of all Chinese government concessional loans in support of overseas resource investments—has also published several sets of environmental and social responsibility requirements for its loans. These include not only environmental but also social impact assessments for all projects under consideration. Under EXIM Bank guidelines, if an EIA falls short, the company is supposed to have to reapply for the loan. Borrowers are also required to provide ongoing reports on their projects' environmental
and social impacts and ensure that they comply with host country laws.
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Additionally, the bank notes that where local laws are not well developed, companies are required to follow Chinese or international practices.
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