Obligations Abroad

China guides its enterprises toward fulfilling their social responsibilities when investing abroad By Lan Xinzhen

Chinese companies are gaining recognition around the world for their attention to social responsibility in the host nations in which they invest, and new government initiatives are about to set the bar even higher.

University of South Carolina’s West Quad Living and Learning Center, built by China State Construction Engineering Corp., received the silver-level cert ifi cation of Leadership in Energy and Environmental Design (LEED) from the U.S.Green Building Council. The LEED rating system sets and measures international standards for green buildings. In 2011, China National Petroleum Corp.’s PK project in Kazakhstan received two government award—the Enterprise of Sustainable Development Prize and the Presidential 2011 Gold Paryz Award of Corporate Social Contribution—for its contribution to economic and social development in the country.

But not all Chinese investment abroad has been acknowledged by the host nations for social responsibility. Copper mines developed by Chinese enterprises in Chile are often interrupted by local protestors who claim the projects are harming the environment. Some investment projects in Africa are often rejected by governments for fear that they may have adverse impact the local environment and harm wild animals.

On February 28, the Ministry of Commerce(MOFCOM) and the Ministry of Environmental Protection (MEP) jointly released the Guidelines on Environmental Protection in Overseas Investment and Cooperation, the first of its kind for Chinese enterprises.

“When investing abroad, most Chinese enterprises understand the need to protect the environment, obey the laws of the host nations and actively fulfill social responsibility. However, some enterprises are not experienced in the work of environmental protection and need the guidance of the Chinese Government,” said Yao Jian, a spokesman of the MOFCOM in a press release on the guidelines.

According to the guidelines, Chinese enterprises are required to fulfill their social responsibility for environmental protection,respect religions and customs of host nations,protect the legitimate rights and interests of laborers and understand the “win-win” result of profits and protecting the environment.The guidelines also encourage enterprises to learn from the standards and practices of international organizations, such as the United Nations Principles for Responsible Investment,the Organization for Economic Cooperation and Development Guidelines for Multinational Enterprises, the guiding principles of the World Bank and International Financial Corp. as well as UN Global Compact.

Chen Lin, commercial counselor with the Department of Outward Investment and Economic Cooperation with the MOFCOM,says by formulating the guidelines, the Chinese Government aims to instruct Chinese outbound enterprises to be responsible corporate citizens.

Being responsible

Corporate social responsibility has become a worldwide trend. Countries and international organizations are stressing the protection of natural resources and the harmony between humans and nature.The international community is improving standards for corporate social responsibility and requiring companies to fulfill their obligations. Some transnational companies have required their suppliers to produce a certi fi cate proving their social responsibility before placing any orders.

China’s overseas investment is growing rapidly. According to MOFCOM fi gures, Chinese investors invested in 4,425 overseas enterprises in 141 countries and regions in 2012, with a total direct investment of $77.22 billion in the non- fi nancial sector, up by 28.6 percent.

However, in the face of changing investment environments, country-specific policies,and different cultures and labor structures as well as complicated international relations,some Chinese enterprises have encountered difficulties fulfilling their obligations and are subsequently criticized as irresponsible by international media.

Many Chinese enterprises have committed to being socially responsible long before the government’s guidelines were released. For example, China Metallurgical Group Corp.’s copper mine project in Saindak in Pakistan offers free medical services to local villagers, at a cost of $50,000 a year. The company has also built a school offering free education to local children.During the global financial crisis, China Nonferrous Metal Mining (Group) Co. Ltd.didn’t reduce production, lay off workers or slash wages for local workers at its Zambian copper mine project.

According to MOFCOM figures, in 2011 Chinese outbound enterprises paid taxes of $22 billion to host nations, and among 1.22 million employees 888,000 were locals, accounting for 72.8 percent.

Hao Jie, Deputy Director of the Foreign Trade and Investment Of fi ce under the National Development and Reform Commission, says outbound enterprises have a lot to improve regarding social responsibility, not out of an unwillingness to do so but because some Chinese enterprises have failed to understand their host nations.

Large and medium-sized state-owned enterprises do better than smaller private enterprises in this regard because the latter lack well-developed plan to confront local challenges. Moreover, some enterprises do a poor job advertising their achievements, and others are simply not aware that social responsibility should be connected to their long-term sustainable development.

Future steps

“In the medium- and long-term, the ability of Chinese enterprises to meet social responsibility requirements overseas will determine their success, hence both enterprises and the government should pay attention to this issue,”says Hao.

Developing countries in Asia, Africa and Latin America are increasingly aware of labor rights and the need to protect the environment, and their environmental protection standards are reaching international norms, says Hao, therefore the behavior of Chinese investors will be subject to stricter supervision by host nations. Most Chinese investment in Southeast Asia, Africa and Latin America are in sectors directly tied to the environment, such as exploitation of oil and natural gas, mining, hydropower, forestry and infrastructure construction.

For those who fail to meet their obligations and damage the local environment or disregard the rights and interests of local employees, the government should mete out punishment, says Hao.

Yao says that over these years Chinese enterprises have made enormous strides in ful fi lling their social responsibilities overseas,adding the MOFCOM will continue to offer support to companies in the future. “Next we may change what we have proposed into laws and regulations in order to advance environmental protection.”

Yao also says the government will further improve regulations by requiring Chinese enterprises to fully understand local laws related to trade unions, labor protection, taxation and environmental protection.

“When formulating and improving related laws and regulations, the government should also make environmental protection and social responsibility one of the standards when evaluating overseas investment results,” he says.

Chi Changhai, Vice Chairman of the China International Contractors Association, thinks industrial associations should play a more important role in the fulfillment of corporate responsibility.

Industrial associations are very important communication channels between the government and enterprises, says Chi. The MOFCOM has supported the establishment of associations in host nations.

“Industrial associations can help regulate the business behavior of enterprises by ensuring that obligations toward social responsibility are met, by preventing destructive competition, and by mediating between enterprises and the local people, community, government, religious organizations and trade unions,” Chi says. ■