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How NGOs can help Chinese firms do better overseas

Chinese firms overseas need help to develop risk analysis and reputation management, says Jin Jiaman, head of the first Chinese NGO to operate abroad

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GEI has advocated for sustainable timber use in SE Asia to protect forests, and China's reputation (Image: World Bank photo collection)

chinadialogue: There’s a high failure rate when it comes to overseas investments by Chinese firms. Reports suggest as many as 70% of ventures suffer losses. Does policy need to change?

Jin Jiaman, Executive Director of Global Environment Institute: Since 2001 we’ve only seen the government push businesses to invest overseas, with no sign of any encouragement for scientific or research institutions to do the same. But overseas investment is bound to involve problems, which the businesses themselves may not be able to resolve.

For example in Burma the China Power Investment Corporation was ordered to halt construction of the Myitsone dam, resulting in losses of US$3 billion. The political risks there were clear in the years before construction started, but the company continued to operate just as it does in China: get government chiefs on side, and all will be well. Then a new government more responsive to public opinion came in, and US$3 billion was lost.

And it’s not just Burma. Chinese companies are heavily involved in the rest of Asia, Africa and Latin America. When military governments are replaced with democracy, or during political turmoil, policies towards China can change, and that affects China’s investments. Those risks should not be borne solely by corporations. Research institutes and specialists should be involved in much of preparatory work, informing companies of the risks and how to avoid them.

It doesn’t matter if it is hydropower, mining, or agriculture. China should have a research process telling companies the state of global markets, where the opportunities are, what kind of cultures will be more receptive.

CD: You want to see overseas aid brought into this process. Why?

Jin: A lot of preliminary work is required in overseas investment to understand what kinds of risks are present in the host nation and how to avoid them. Many countries have overseas aid offices, designing programmes for regions where they have strategic interests. Such work lays the foundation for investments in line with national interests across the fields of politics, human rights, technology and social initiatives.

Many of China’s overseas investments are of strategic significance and require significant research. So we suggest China establishes an overseas aid office to design and carry out such research, linking overseas aid and investment.

Currently China’s overseas aid is restricted to the political level; there’s little understanding of how to design aid to help the people. Sometimes China donates money and the locals don’t actually know where it has come from. This is because it’s only the companies that set the targets. For example, when funding a methane gas scheme in one country, China sent technicians. But it wasn’t just a technical project – it touched on sustainable development, climate change, energy for poverty-stricken regions, building good relations with our neighbours. Those aren’t things that a team of engineers can achieve.

China should consider changing how it thinks about overseas aid and innovating in how that aid is delivered, in order to ensure that it truly serves our global strategy and reduces the political, social, environmental and even financial risks of investing overseas.

China’s overseas aid budget is currently smaller than it should be considering the size of our overseas investments and our international standing. Between 2003 and 2012, our outward-bound investments increased by 41% a year on average, and we became the world’s third largest overseas investor. But in the same period our overseas aid budget grew by just 12.7% a year. When you compare overseas investment and overseas aid there’s a huge difference in the rates of growth, the absolute amounts and our international standing. In 2011 we spent US$2.4 billion on overseas aid, a mere 0.03% of our gross national income (GNI). Compare this with the US, which spent US$30.7 billion, or 0.2% of GNI.

We need to think about how to constrain the environmental impacts of Chinese firms overseas when drafting legislation and establishing systems for overseas aid and overseas investment. We should have the legal tools to prevent actions that cause harm and damage China’s international image.

CD: Why does GEI focus on what Chinese firms do overseas, rather than at home? As an NGO, how do you persuade the Chinese government to take your work seriously?

Jin: Chinese firms overseas are part of China’s international image, so they get more attention and pressure than they do at home. It makes them more motivated to live up to their environmental and social responsibilities, so we aim to start overseas, then bring those experiences back home, to help companies deal with domestic problems.

If NGOs want to play a more important role, they need to get involved in government decision-making. How to do that? NGOs need to find their position, to know what they can and can’t achieve. First, we identify what the focus of debate is and where the problem is, taking a global perspective. We start looking into this maybe two years before the government does. Then, we start researching the problem and giving that information to the government, forming a joint understanding, so we can jointly consider designing a solution to resolve the problem.

For example, China has faced international criticism over imports of timber from South-East Asia and South America since 2004. We talked to the State Forestry Administration (SFA) several times, and discussed possible solutions. In 2006, SFA and the Ministry of Commerce published guidelines on sustainable timber use for Chinese firms overseas. GEI was involved in the drafting, editing and publication of those guidelines, successfully pushing government to issue new policy.

In 2007, there was a lot of discussion internationally about the resource-driven nature of China’s overseas investment, and the environmental impacts of mining and hydropower schemes. GEI saw that Chinese companies were going to have to pay attention to the environmental impact of their operations, so we worked with the Ministry of Commerce and the Ministry of Environmental Protection to find a way to regulate the environmental behaviour of those firms and reduce investment risks.

It’s not that Chinese firms don’t want to do well. They just don’t have enough experience of working overseas, so the risks are greater. They hope to see NGOs providing them with information and helping to resolve problems. NGOs can act as advance parties for the companies and inform them of problems arising during their operations, making suggestions for resolution. We’ve seen that NGOs are an essential and irreplaceable part of overseas investments.

 

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