Chinese firms have radically stepped up their overseas investment activity in recent years. But the environmental impact of that investment has caused international controversy and China’s own environmental NGOs are starting to pay attention.
One such group is the Global Environmental Institute (GEI), a non-profit outfit headquartered in Beijing that has a particular focus on the environmental impact of Chinese finance abroad. Indeed, it is the first Chinese environmental organisation to successfully run a project abroad and, in 2009, set up an office in Laos.
In Laos and elsewhere, GEI would like to see Chinese companies strengthen links with NGOs. “We suggest that when Chinese firms are undertaking ‘compensatory work’ [i.e. recompensing communities that lose out from development, for example relocating local people to make way for a dam] as part of overseas investments, they consider partnering with civil society organisations rather than local government,” said GEI project manager Ren Peng.
At a seminar in July, attended by academics and government officials, GEI introduced its work in this field and hosted a discussion about the current state of Chinese investment abroad and areas of concern. The event marked the launch of the organisation’s new book, Environmental Policies on China’s Investment Overseas – the first to be openly published on the topic in China – which includes two proposals for overseas investment regulations that have been submitted to the government for consideration.
GEI focuses mainly on issues surrounding investment in hydropower projects, such as impacts on fish migration, damage to vegetation and provisions for local people whose livelihoods and homes are lost as a result of such schemes.
In Laos, its work has centred on the Nam Ngum 5 hydropower project, which is located on the upper reaches of the Nam Ngum River, 350 kilometres from the capital Vientiane. It is a joint venture between Chinese engineering and construction firm Sinohydro, which holds an 85% stake in the scheme, and Electricite du Laos. Construction started in October 2008 and the first turbine is due to start generating power in October 2011. The dam will submerge some of the homes and most of the land of 57 farming households, at the same time taking away the livelihoods of the people who live there.
GEI is working on a community development plan to provide alternative means of earning a living, such as community forestry or methane generation – an effort that fits in with the organisation’s broader aims of finding new ways of supporting rural areas, promoting sustainable development and diversifying local income sources.
Ren explained that GEI aims to help the Nam Ngum project operate in a more responsible and sustainable manner, but not to undermine the whole scheme. “We have made it clear [to the companies involved] that we’re not there to oppose them,” he said. “We aren’t looking at whether or not the project itself is sustainable, as once something like that has started, it is virtually impossible to halt.”
Another aspect of GEI’s work here is a China-Laos cooperative project on sustainable land and natural-resources management. “There’s a complete lack of environmental legislation in Laos, and naturally companies investing there tend to set low standards for themselves,” said Ren. Since December 2009, GEI has organised two seminars on ecological compensation and land management, presenting best practice case studies from overseas. The deputy prime minister of Laos, Asang Laoly, attended one of these sessions.
According to Ren, companies investing in Laos usually pay compensation via the local government. However, a lack of transparency common to many developing nations leaves this method open to corruption – and the money often fails to make it to the communities. Some Chinese firms also help to build local infrastructure, such as schools and clinics. And while this has its advantages, there are also challenges, such as finding teachers to work in the school. Ren believes that NGOs can implement demonstration projects as models to showcase effective methods of delivering compensation.
Ren added that the problems associated with Chinese investment abroad are caused primarily by small and medium sized private firms (SMEs): “State owned firms are generally listed and need to publicise operational details, so they are more restricted in what they can do.” He told chinadialogue that some private SMEs operating copper mines in Africa, where there is a lack of oversight, use cash to open up mines when copper prices are high, only to abandon the site when the prices fall. “It’s like money-laundering – quickly in, quickly out. And as they don’t take out loans, there is nothing the Chinese government can do.”
Chinese SMEs are usually limited liability companies. As of 2008, ventures by companies of this type accounted for 50.2% of China’s total overseas investment, and Ren thinks this figure will increase. Unlike listed companies, these firms are not obliged to make certain information public, nor do they have the same incentive as state-owned enterprises to present a good image of China to the world. The only limits on their investments are the Ministry of Commerce’s annual audits and evaluations of overseas investment – but these do not look specifically at environmental impact.
Speaking at the GEI book launch, Yang Chaofei, head of the Ministry of Environmental Protection’s Department of Policies, Laws and Regulations, said that scarce resources and increasing labour costs at home were inevitably driving Chinese firms abroad. Meanwhile, Zhang Lijun, who runs the Asia department at the Ministry of Foreign Affairs, said that China and India are set to become the world’s main energy consumers and, while overseas investment is important if China is to become a stronger nation, the country will also be expected to act more and more responsibly.
According to GEI’s new book, Chinese firms are actively buying up natural resources around the world – including timber, mineral rights, oil and natural gas. In 2006, mining accounted for 40.4% of total Chinese overseas investment, with the majority going towards the extraction of oil, natural gas and ferrous metals.
The book quotes 2008 figures from, among others, the Ministry of Commerce, the National Bureau of Statistics and the State Administration of Foreign Exchange, to point out that China’s overseas investments are concentrated in resource development and primary manufacturing. And, while investments have been made in 174 nations, there is a heavy focus on Asia (77.9%) and Latin America (6.6%). Just 9.8% of investment went to Africa in 2008, but within the following year, that figure went up 2.5 times.
Zhang Lijun added: “Certain countries feel uneasy about China’s rise, and the behaviour of overseas investors potentially provides them with something to use against us.”
“International opinion is still mainly controlled by the west, and bias does exist,” said Ren. “Some locals can’t even distinguish between different Asian faces, and assume they’re all Chinese. Hence China gets the blame.”
Ren believes that China does not promote itself adequately; it often does plenty, but talks little. In many issues, China’s own lack of openness is the problem. Ren gives an exchange with International Rivers – an international NGO working on rivers and dams – as an example. In September 2007, the organisation went to China to meet with Sinohydro subsidiary Sinohydro International Engineering. At the meeting, the two parties found that incomplete information had led to misunderstandings. Sinohydro was not involved with all of the projects International Rivers believed it to be. The NGO asked Sinohydro to double-check the list of purported projects, and the record was corrected accordingly. Peter Bosshard, policy director at International Rivers said: "I thought it was a good experience and it actually created confidence between Sinohydro and us.”
Ren believes that local NGOs should act as a bridge, helping organisations and companies to share accurate information. Others are more cautious. Fu Tao of China Development Brief, a publication that has long observed the development of Chinese civil society,told chinadialogue that with limited resources, energy, vision and opportunity, only a small number of organisations can currently get involved in this area.
Nonetheless, as Chinese firms are becoming more active overseas, so are China’s environmental NGOs. In 2008, NGO Green Watershed and eight other domestic organisations launched the Green Banking Innovation Awards in order to encourage banks to consider environmental protection when awarding loans for investment abroad. Another body, Minjian International, has raised awareness of overseas investment in intellectual circles. Its founder, the writer Chan Koon Chung, said in a letter to members that “China is already a powerful nation (though it is not a superpower, I think it is more powerful than mid-ranking powers) and it is time for China’s intellectuals to pay real attention to this.”
Meng Si is managing editor in chinadialogue’s Beijing office.
Homepage image from Synohydro shows a consultation with villagers downstream of the Nam Ngum 5 hydropower project.