Peter Bosshard
29 May 2008
(Page 2 of 3)
Since the 1980s, multilateral development banks have adopted safeguard policies that address the social and environmental impacts of their projects. Western financiers are concerned that Chinese banks will take up projects that they rejected because of unacceptable environmental risks. There is ample anecdotal evidence to suggest that borrowing governments use the availability of Chinese funding to pressure other financiers to weaken their environmental standards, or to flout them in specific projects.
In October 2006, then World Bank President Paul Wolfowitz warned:
'Almost 80 per cent of the world's commercial banks respect [the Equator Principles] when they finance projects. The large Chinese banks do not apply them. True, they are relatively new to this type of activity in Africa. But they should not make the same mistakes which France and the United States have made in Mobutu's Zaire... Let's be honest, this would be terrible, a true scandal [9]."
Around the same time, Philippe Maystadt, the President of the European Investment Bank, criticised Chinese financiers even more bluntly. 'The competition of the Chinese banks is clear', Maystadt said according to the Financial Times. 'They don't bother about social or human rights conditions.' The EIB President claimed that Chinese banks had snatched projects from under his bank's nose in Africa and Asia, after offering to undercut EIB conditions on labour standards and the environment [10].
Maystadt and others recommend that international financial institutions should lower their own standards in response to Chinese competition. The EIB President argued that international financial institutions needed to avoid 'excessive' conditions, and had to 'think about the degree of conditionality we want to impose' [11]. The Chinese financiers' lack of stringent environmental standards may not only cause serious environmental impacts in specific projects, but also trigger a broader race to the bottom regarding the environmental standards of financial institutions.
EVOLVING ENVIRONMENTAL POLICIES
China's traditional response to concerns about the environmental impacts of overseas projects is that China does not interfere in the domestic affairs of other countries. China's African Policy of January 2006 stresses that China 'respects African countries' independent choice of the road of development', and will 'increase assistance to African nations with no political strings attached' [12]. In response to Paul Wolfowitz's accusation that China was undermining environmental standards, a Foreign Ministry spokesperson maintained in October 2006:
'China has adopted the principle of non-interference of other nations' internal affairs in its foreign relations. China does not accept any country imposing its values, social systems and ideology upon China. Neither will China allow itself to do so to others' [13].
The reality of China's foreign policy is more complex than public announcements indicate, and has evolved over time. After a string of riots in African countries, the Chinese government seems to be increasingly aware that human rights abuses and environmental destruction in Chinese projects can trigger an unacceptable backlash. President Hu Jintao for example repeatedly urged Chinese businesses to respect local laws during his visit to Africa in February 2007.
Government concerns over the impacts of overseas investments have triggered a series of guidelines regarding workers' rights, product safety, community relations, and environmental impacts in such projects. In August 2006, the Ministry of Commerce issued recommendations for improving the safety of workers in Chinese overseas investments. It urged Chinese companies to hire local workers, respect local customs and adhere to international safety standards in their projects. The recommendations argue that doing so will serve China's national interest [14].
In October 2006, the State Council, China's highest government body, issued nine principles regulating foreign investments of Chinese companies. Among other things, the Council called on Chinese investors to 'fulfill the necessary social responsibility to protect the legitimate rights and interests of local employees, pay attention to environmental resource protection, care and support of the local community and people's livelihood cause', and to 'preserve our good image and a good corporate reputation' [15].
China Exim Bank was an early example of China's effort to adopt environmental guidelines. The bank adopted an environmental policy in November 2004, and made it publicly available in April 2007. The policy states that 'projects that are harmful to the environment or do not gain endorsement or approval from environmental administration will not be funded'. It stipulates that 'once any unacceptable negative environmental impacts result during the project implementation, China Exim Bank will require the implementation unit to take immediate remedial or preventive measures. Otherwise, they will discontinue financial support' [16].
In August 2007, China Exim Bank issued more specific guidelines on social and environmental impact assessment. The guidelines require projects to comply with host country policies - but not international standards - regarding environmental assessment, resettlement and consultation. They stipulate an active role for China Exim Bank in monitoring environmental impacts throughout the project cycle, and reserve the right to cancel a loan if environmental impacts are not adequately addressed [17]. Observers agree that China Exim Bank is interested in international good practice in environmental assessment, but does not accept any political obligation to endorse standards drawn up by other bodies.
FROM GUIDANCE TO IMPLEMENTATION
Guidelines indicate the political intentions of the Chinese government, yet compliance is not mandatory. The central government still owns more than 150 large companies but has little control over their day-to-day operations. It has even less influence over the numerous provincial, municipal and private Chinese enterprises which are currently exploring Africa [18]. As a result, there are countless examples of Chinese investments in Africa which contradict the government appeals for a harmonious society and the tenets of corporate social responsibility.
In recent years, Chinese government agencies have created strong incentives for companies to comply with the country's environmental laws and guidelines. In August 2007, China's State Environmental Protection Administration (SEPA, now Ministry of Environmental Protection or MEP), the People's Bank of China and the China Banking Regulatory Commission jointly prepared a green credit policy. Under this policy, 'banks will be stricter about lending to companies that do not pass environmental assessments or fail to implement environment-protection regulations' [19]. In November 2007, 12 Chinese companies for the first time were withheld loans under the green credit policy.
In October 2007, SEPA and Ministry of Commerce announced that they would ban companies which were found seriously violating environmental rules from exporting for up to three years [20]. And in January 2008, SEPA signed a deal with the International Finance Corporation to introduce the Equator Principles - the environmental standards of international private banks - in China [21].
None of the measures adopted by SEPA and other agencies explicitly refer to the environmental track record of Chinese overseas investors. They may even encourage domestic producers to relocate their most polluting operations abroad. Yet if the political will exists, all these measures can be used to strengthen the global environmental performance of Chinese companies.
EXPORTING CHINA'S DOMESTIC EXPERIENCE
Like every government, China tends to export its own development model through its aid and foreign economic policy. Chinese authorities have for example invited several African delegations to visit the Three Gorges Dam as a model for the continent's energy sector development.
In recent years, the horrendous cost of the Chinese development model to the environment, public health and ultimately the economy has become evident. In 2007 the World Bank documented the alarming price which China pays for its air and water pollution. The Three Gorges Project in particular can no longer serve as an argument for putting growth before the environment. In September 2007, Chinese experts warned that the hydropower dam could 'lead to [an environmental] catastrophe' and that 'the problems are all more serious than we expected' [22].
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