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C H A P T E R 1 3

CHINA AND THE REGULATION OF OUTBOUND INVESTMENT: TOWARD A ‘RESPONSIBLE INVESTMENT’ POLICY FRAMEWORK PICHAMO N YE OPHA N T O N G A ND CRIS TELLE MAURIN

INTRODUCTION Investment policies matter to good governance and sustainable development. This is a central message contained in the UN Conference on Trade and Development’s (UNCTAD) ‘Investment Policy Framework for Sustainable Development’ (Investment Policy Framework),1 and one that is echoed in other UN documents such as the ‘Guiding Principles on Business and Human Rights’ and the draft ‘Code of Conduct on Transnational Corporations’ (1983).2 It also serves as the departure point for this chapter. As foreign direct investment (FDI) to and from emerging markets—in particular, the BRICS (Brazil, Russia, India, China, and South Africa) countries—continues to rise, this has sparked renewed interest in the regulation of FDI and its effects on developing host countries. At a time when there is a global push to mainstream

1. See UNCTAD, ‘Investment Policy Framework for Sustainable Development’ (2015), ; see also UNCTAD, ‘World Investment Report 2015: Reforming International Investment Governance’ (2015) Sales No. E.15.II.D.5. 2. Commission on Transnational Corporations, ‘Report on the Special Session (7–18 March and 9–21 May 1983)’, Official Records of the Economic and Social Council (1983), Supplement No 7 (E/1983/17/Rev 1), Annex II; UN, ‘Guiding Principles on Business and Human Rights: Implementing the United Nations “Protect, Respect and Remedy” Framework’ (2011) HR/PUB/11/04.

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350 Yeophantong and Maurin ‘environmental, social, and governance’ (ESG) issues3 alongside corporate social responsibility (CSR) concerns within a ‘transitioning’ international investment regime, increased scrutiny has come to center on the role played by these new actors. Especially with emerging-market multinational enterprises (MNEs) serving as important sources of FDI in the developing world,4 these MNEs stand to influence not only the trajectory of international investment policy, but equally the evolution of sustainable development policies at the global, regional, and national levels.5 Yet, whether these present unique opportunities for, or serious impediments to, the socioeconomic development of industrializing countries in Africa, Asia, and elsewhere remains a subject of intense debate. Since 2012, FDI flows into the BRICS have more than tripled, reaching approximately US$ 252 billion in 2014.6 Crucially, investment outflows from the BRICS are estimated to account for 9% of global FDI outflows, rising from US$ 7 billion in 2000 to a striking US$ 126 billion in 2012.7 With FDI constituting one of the major forms of cross-border capital flow into developing countries, Latin America, Africa, and Southeast Asia have become key investment destinations for BRICS MNEs. In 2010, BRICS investment amounted to 25% of Africa’s total FDI inflows 8 with targeted industries including manufacturing, services, and the primary sector (i.e., extractive industries), the latter making up 26% of the value of BRICS investment projects in the region.9 A major source of outbound direct investment (ODI) since the late 1990s, China has been assertive in expanding its investment portfolio globally. According to the Chinese Ministry of Commerce (MOFCOM), it is estimated that China’s global FDI outflows reached US$ 120 billion in 2014, while the revenue from China’s overseas contracting projects stood at approximately US$ 142 billion.10 Further, in the second quarter of 2015, the stock of Chinese nonfinancial ODI accumulated to nearly US$ 736 billion.11 Being one of the biggest outward investors among the BRICS, China has also become a leading investor in such developing and 3. See PRI Association, ‘What is responsible investment?’, . 4. Often supported by the economic and political clout of their home country, the rate of internationalization of these MNEs is also outpacing that of Western firms. See Karl P Sauvant, Wolfgang A Maschek, and Geraldine McAllister, ‘Foreign direct investment by emerging market multinational enterprises, the impact of the financial crisis and recession, and challenges ahead’ in Karl P Savant, Geraldine McAllister, and Wolfgang A Maschek (eds), Foreign Direct Investments from Emerging Markets: The Challenges Ahead (Palgrave Macmillan 2010) 3–29. 5. For a discussion on CSR and sustainable development, see Roel Nieuwenkamp, ‘Corporate accountability and the UN sustainable development goals: How responsible business conduct could and should play a decisive role’ (Independent Research Forum 2015), . 6. UNCTAD, ‘World Investment Report 2015’ 6. 7. The UNCTAD report was released on the eve of the fifth BRICS Summit held in Durban, South Africa. UNCTAD, ‘The Rise of BRICS FDI and Africa’ Global Investment Trends Monitor (2013) 1, . 8. UNCTAD, ‘The Rise of BRICS FDI and Africa’ 6. 9. ibid 8. 10. This constitutes a 10% rise from the previous year. China also became a net capital exporter for the first time in 2014, as its outbound investment exceeded inbound FDI. KPMG, ‘China Outlook 2015’ (2015) 10, . 11. MOFCOM, Regular Press Conference, 21 July 2015, .


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China and the Regulation of Outbound Investment 351

transitioning economies as Venezuela, Ecuador, Cambodia, and Myanmar.12 Although its ODI into developed economies has not been marked by significant growth,13 Chinese outbound investment in Africa, Asia, Latin America, and Oceania, Africa, and Asia rose respectively by 33.9%, 16.7%, 132.7%, and 51.6% in 2013.14 With the recent establishment of the BRICS Bank and the Asian Infrastructure Investment Bank (AIIB), these trends are set to continue. This, in effect, raises important questions regarding China’s role as a home country of investment. The Chinese government has often been criticized for supporting its state-owned enterprises (SOEs) to invest within weak governance settings, demonstrating little concern for regulatory compliance.15 As relative newcomers to a competitive global market, Chinese SOEs have been prone to investing in high-risk schemes to the detriment of their own reputation. Examples abound of the purportedly unsustainable practices of Chinese companies and financiers that have, in certain cases, prompted local unrest as well as a rise in anti-Chinese sentiments within host societies.16 Across the developing world, Chinese investment—particularly in the energy, resource, and infrastructure sectors—is thus popularly perceived as a mixed blessing.17 For while it comes with the promise of economic modernization on the one hand, it can also work to entrench corrupt government practices and encourage the unbridled exploitation of scarce resources on the other. This chapter argues for a more nuanced understanding of China’s evolving investment policy framework and regulatory system. Parallels are drawn between emerging trends in the international investment policy landscape and China’s ODI regime toward ‘responsible investment’, understood here as an investment approach that recognizes, among other considerations, the importance of ‘environmental, social and governance factors’ to ‘long-term sustainable returns’.18 In so doing, the chapter advances an analytical framework to make sense of how ‘responsible investment’, as both concept and practice, has become internalized within the Chinese regulatory environment and with what implications for official state policies and corporate conduct. Employing a socialization perspective, China is arguably in the middle stages of norm internalization.19 The chapter illustrates how this language of responsible investment 12. Venezuela is the biggest recipient of Chinese FDI in Latin America, while Cambodia and Myanmar are the two biggest recipients of Chinese FDI in Southeast Asia. 13. This is changing, however. See Jamil Anderlini, ‘China to become one of world’s biggest overseas investors by 2020’ Financial Times (Beijing, 25 June 2015), . 14. MOFCOM, ‘Joint Report on Statistics of China’s Outbound FDI 2013 Released’ (2014), . 15. See e.g., Deborah Brautigam, The Dragon’s Gift: The Real Story of China in Africa (Oxford University Press 2009) 299–306; ‘The Chinese in Africa: Trying to pull together’ The Economist (Nairobi, 20 April 2011), ; Maya Forstater et al., ‘Corporate Responsibility in African Development: Insights from an Emerging Dialogue’ (2010) Corporate Social Responsibility Initiative Working Paper No. 60. 16. Pichamon Yeophantong, ‘China’s hydropower expansion and influence over environmental governance in mainland Southeast Asia’ in Evelyn Goh (ed), Rising China’s Influence in Developing Asia (Oxford University Press 2016) 174-192. 17. See e.g., Africa Progress Panel, ‘Africa Progress Report 2013: Equity in Extractives Africa Stewarding Africa’s natural resources for all’ (2014) 50–51. 18. PRI Association (n 3). 19. Inspiration is drawn from Martha Finnemore and Kathryn Sikkink’s model of norm dynamics, as well as from the broader constructivist literature on learning and norm internalization. Note, however, that the focus here is not on examining a norm’s ‘life cycle’. Rather, it is on understanding the processes through which the responsible investment approach has been adopted by the Chinese government and the policy implications of


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352 Yeophantong and Maurin has gradually filtered into official Chinese political discourse. This has, in turn, given rise to an evolving investment policy and regulatory framework that is increasingly attuned to the nexus between responsible business conduct, legitimacy, and firm performance.20 Sizable impediments remain, however, especially in the areas of policy implementation, regulatory enforcement and compliance. While this is by no means a challenge unique to China, it is one that potentially holds profound implications for developing-country recipients of Chinese ODI. As evinced by the case of Chinese investment in Africa’s resource sector, regulatory oversight on the part of Chinese firms could exacerbate the region’s preexisting governance gaps. Yet, these are not insurmountable problems. Given the fact that the Chinese government and its SOEs are still undergoing processes of learning and adaptation, we contend that there is space for external ‘game changers’—for example, civil society actors and international forces in the form of joint business ventures and global industry standards—to pressure and influence the direction of Chinese investment strategies. In the first section, we account for the evolution of China’s ODI regime in light of a shift toward more responsible investment within the state and corporate policy context. The second section then surveys Chinese outbound investment in the developing world. Focusing on Chinese ODI in Africa’s resource sector, it interrogates to what extent the overseas behavior of Chinese SOEs aligns with the CSR principles that have emerged in central government policies. It also considers, more broadly, whether these shifts have contributed in any way to host countries’ policy objectives. Here, the Chinese government and its corporate entities are shown to be on a learning curve, with subtle signs indicating greater conformance to international standards of responsible business conduct. Contrary to depictions of China as adhering to a ‘business-as-usual’ attitude, the narrative offered here is one of dynamic—a lbeit, incremental—change. A final caveat is warranted here. This chapter focuses primarily on China’s SOEs. Not only do they maintain a close relationship with the central Chinese government, but they also serve as the vanguard of China’s overseas investment boom and in its drive to secure access to resources in foreign jurisdictions. Among the major, yet controversial, resource projects in the developing world (e.g., the Belinga iron ore project in Gabon, the Sino-Myanmar oil and gas pipelines, and the Orinoco oil project in Venezuela), many have been—or are being—pursued by a Chinese SOE. They also tend to be financed by one of China’s leading policy banks, which includes the China Export-Import (Exim) Bank and the China Development Bank (CDB). The large scale of these schemes, combined with the fact that they are located in countries known to suffer from governance deficits, increases the likely severity of their social and environmental impacts within host countries. It is in this regard that the conduct of Chinese SOEs overseas becomes a litmus test that holds the potential to either validate or undermine the Chinese government’s professed commitment to investing responsibly. this. See Martha Finnemore and Kathryn Sikkink, ‘International norm dynamics and political change’ (1998) 52 International Organization 887; Jeffrey T Checkel, ‘Why comply? Social learning and European identity change’ (2001) 55 International Organization 553; Harold Hongju Koh, ‘Internalization through socialization’ (2005) 54 Duke Law Journal 975; Judith Kelley, ‘Assessing the complex evolution of norms: The rise of international election monitoring’ (2008) 62 International Organization 221. 20. For studies that analyze firms’ performance on ESG issues to longer-term investment gain, see e.g., Darren D Lee and Robert W Faff, ‘Corporate sustainability performance and idiosyncratic risk: A global perspective’ (2009) 44 The Financial Review 213; Piet Eichholtz, Nils Kok, and John M Quigley, ‘Doing well by doing good? Green office buildings’ (2010) 100 American Economic Review 2492; Robert G Eccles, Ioannis Ioannou, and George Serafeim, ‘The impact of a corporate culture of sustainability on corporate behavior and performance’ (2011) Harvard Business School Working Paper Series 12-035.


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A. GLOBAL TRENDS, POLICY ADOPTION, AND THE EVOLUTION OF CHINA’S ODI REGIME According to UNCTAD’s aforementioned ‘Investment Policy Framework’, achieving a balance between the rights and obligations of states and investors entails the inclusion of investment policies into broader development strategies at the national level. It also requires the strengthening of the sustainability dimension of international investment agreements at the global level. Consequently, the focus of investment promotion needs to shift from investment growth to ‘quality investment’—a fundamentally new paradigm for the international investment system. In parallel, although the prevailing consensus focuses on the importance of enhancing host countries’ capacity to oversee FDI, it is the case that burgeoning, and indeed much- needed, attention is now being directed to the role and capacity of home countries to influence the quality of FDI in developing countries. Significantly, mounting recognition that an international investment regime in transition requires both liberalization—for the sake of FDI promotion—and regulation, so as to bring about inclusive growth and sustainable development outcomes,21 is one which is also mirrored in the Chinese policy context. Since the opening up of its economy in the late 1970s, it has taken China less than three decades to transform into a major player within the global economy and the international investment system, more specifically. A leading recipient of FDI during the 1980s and 1990s, China began to actively promote outbound investment with the promulgation of its ‘Go Global’ strategy (zou chuqu zhanlue) in the late 1990s. Since then, FDI has served as a cornerstone of China’s economic development strategy, having been underpinned by favorable inbound and outbound investment policies, the negotiation of bilateral investment treaties (BITs),22 and increased investment flows into developed as well as developing countries. Engagement with the developing world, in particular, continues to be driven by the Chinese government’s commitment to advancing ‘South-South cooperation’ (nan-nan hezuo) and its desire to tap into the new investment opportunities presented by these industrializing regions. The ensuing account identifies three key stages—emergence, adoption, and enforcement— through which the responsible investment approach and attendant norms (i.e., corporate responsibility and sustainable development) have evolved and become diffused within the Chinese policy realm. The rationale for leveraging this framework is to shed light on the policy implications of the emergence of the responsible investment approach and its adoption by the Chinese government in the post-2001 period. The aim here is, thus, to generate a more dynamic understanding of the role played by the Chinese government, as well as to offer a nuanced perspective on the state of debates on responsible investment within China. As the following sections reveal, China is still in the policy adoption stage vis-à-v is its internalization of the responsible investment approach. Indicative of the growing resonance of CSR issues are the proliferation of state-led CSR regulations and guidelines over the past decade, as well as the explicit discussion of these issues in both the country’s public and policy spheres, as reflected in state-run media (e.g., articles in China Daily), official statements, and civil society activism. 21. UNCTAD, ‘Investment Policy Framework’ (n 1) 13; UNCTAD, ‘World Investment Report 2012: Towards a New Generation of Investment Policies’ (2012) Sales No. E.12.II.D.3, xxiii. 22. Since signing its first BIT in March 1982 with Sweden, China has been among the most active negotiators of BITs in the world. By 2012, China had concluded more than 130 BITs, ranking it second in the world after Germany.


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354 Yeophantong and Maurin

1. EMERGENCE OF THE RESPONSIBLE INVESTMENT APPROACH Serving to accelerate the pace of its internationalization, China’s accession to the World Trade Organization (WTO) in December 2001 indicated an important shift in the country’s positioning within the global economy. This development marked the culmination of long-drawn processes of economic reform and SOE corporatization that had been underway ever since the late 1970s. Prior to the mid-1980s, Chinese outbound investment was strictly monitored by the State Council,23 with outbound investment projects approved on a ‘case-by-case basis’.24 It was, therefore, during the post-2001 period that we witnessed China’s deepening enmeshment within the global economic order and the concomitant liberalization of its domestic ODI regime. Rather than simply ‘protecting’ its national companies, the Chinese government sought to forcibly push Chinese SOEs onto the global marketplace and have them learn to either ‘sink or swim’—t hat is, fail and be made obsolete, or internationalize and become competitive globally. The policy shifts that these twin developments prompted are reflected in both the State Council’s 10th Five-Year Plan (2001–2005) and 12th Five-Year Plan (2011–2015).25 They are also epitomized by the issuance of the ‘Decision on Reform of the Investment System’ in 2004, which resulted in a relaxation of the government’s approval system for investment projects. Companies were, in effect, granted increased autonomy from the central government in making investment decisions.26 Several other measures were taken as well. In 2009, these included the State Administration of Foreign Exchange’s (SAFE) promulgation of the ‘Regulations on Foreign Exchange Administration of Overseas Direct Investments by Domestic Institutions’, which further relaxed state control, and MOFCOM’s ‘Measures for Overseas Investment Management’ that expedited approvals for firms seeking to invest abroad.27 Amidst this liberalization process, which helped to familiarize China with the international rules of engagement, the Chinese government did nevertheless retain a considerable degree of oversight and authority over the governance of FDI outflows. As discussed shortly, this centralized position is critical as it would, in theory, allow for the better monitoring of SOEs’ regulatory compliance. To this end, key government agencies such as the National Development and Reform Commission (NDRC), MOFCOM, and the State-Assets Supervision and Administration Commission (SASAC) have been tasked with regulating Chinese outbound investment and, in the particular case of SASAC, the conduct of Chinese SOEs abroad as well. These agencies were then—and still are—expected to assist with minimizing investment risks and maximizing national economic return. Although the emphasis in China’s investment policy framework had largely been on developing a lucrative investment portfolio, this focus was subsequently tempered as broader 23. The State Council is the country’s highest administrative authority. 24. Organisation for Economic Co-operation and Development (OECD), China: Encouraging Responsible Business Conduct (OECD Publishing 2008) 81. 25. See ‘Chinese premier on reform and opening-up’ People’s Daily (19 October 2000), ; ‘Report on the Work of the Government: III. Work for 2011’ China Internet Information Center (15 March 2011), . 26. National Development and Reform Commission (NDRC), ‘Decision of the State Council on Reform of the Investment System’ (Guofa Paper 20 2004). 27. SAFE, ‘Regulations on foreign exchange administration of overseas direct investments by domestic institutions’ in Nathalie Bernasconi-Osterwalder, Lise Johnson, and Jianping Zhang (eds), Chinese Outward Investment: An Emerging Policy Framework (The International Institute for Sustainable Development, 2013) 267–272; MOFCOM, ‘Measures for overseas investment management’ in ibid 76–82.


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global trends began to direct greater attention to the concept of corporate social responsibility. It was, hence, from this point on that we saw ideas pertaining to the responsible investment approach gradually surfacing within the Chinese policy and public realms. While it is possible to identify precursory CSR-related ideas in an early legal document like the 1994 Company Law—for example, the observance of business ethics, and the institutionalization of labor protection measures and employee rights into the corporate governance structure28—t he term ‘corporate social responsibility’ itself was not yet explicitly articulated or conceptualized.29 During the early 1990s, China’s political elite were still preoccupied with cultivating the profit-seeking capabilities of SOEs, despite the concerns raised during the legislative process that CSR considerations ought to be incorporated into the law.30 By the late 1990s and early 2000s, the winds of policy change began to blow. With the anti-sweatshop movement transforming into a global CSR movement at the turn of the millennium,31 combined with China’s celebrated membership of the WTO, the notion that companies had a social responsibility to uphold began to filter into China. Emerging global trends, which saw the establishment of the UN Global Compact earlier in 1999, further bolstered this process. As the Chinese manufacturing and export sectors came under the pressure of Western nongovernmental organizations (NGOs) to observe labor rights and meet international labor standards, the ‘Code of Corporate Governance for Listed Companies in China’ issued by the China Securities Regulatory Commission (CSRC) and former State Economic and Trade Commission (SETC)32 in January 2001 would make explicit note of the concept of social responsibility. Significantly, Chapter 6 of the Code acknowledged that ‘[w]‌hile maintaining the listed company’s development and maximizing the benefits of shareholders, the company shall be concerned with the welfare, environmental protection and public interests of the community in which it resides, and shall pay attention to the company’s social responsibilities’.33 Together, this combination of external and internal developments would later contribute to paving the way for the inclusion of CSR in the Chinese government’s policy and regulatory instruments, and specifically to the revision of the Company Law.

2. POLICY ADOPTION The bulk of China’s CSR-related laws, regulations, voluntary guidelines, and policies were released during the decade between 2004 and 2014. With over 30 oft-cited CSR measures having been published during this period,34 a number of these came to mark policy turning points

28. See Company Law (1994), arts 14, 15 45, 68, . 29. Li-Wen Lin, ‘Corporate social responsibility in China: Window dressing or structural change’ (2010) 28 Berkeley Journal of International Law 64, 68–69. 30. ibid 69–70. 31. For more on the anti-sweatshop movement, see Katie Quan, ‘China and the American anti-sweatshop movement’ (China Rights Forum 2003) 1, . 32. The SETC was incorporated as part of MOFCOM in 2003. 33. CSRC and SETC, ‘Code of Corporate Governance for Listed Companies in China’, art 86, . 34. This is a conservative estimate based, in part, on the survey of laws and regulations listed in Bernasconi- Osterwalder, Johnson, and Zhang, Chinese Outward Investment. If one were to broaden the definition of ‘CSR- related’, it is most likely that the number would be much higher.


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356 Yeophantong and Maurin which prompted the Chinese government to clarify and strengthen its position on sustainable development and responsible investment promotion. It is estimated that 15% of the world’s CSR reports were produced by Chinese companies as of 2009.35 The State Grid Corporation (SGCC) was the very first Chinese SOE to undertake CSR reporting, having released its inaugural CSR report in 2005. Crucially, this had coincided with the issuance of SASAC’s ‘Guidelines to the State-owned Enterprises Directly under the Central Government on Fulfilling Corporate Social Responsibilities’, which constitutes one of the earliest documents to spotlight the importance of CSR concerns to SOEs. Within the broader policy environment, these developments aligned with the Hu Jintao leadership’s announcement of the Harmonious Society (hexie shehui) concept, and subsequent Harmonious World (hexie shijie) rhetoric, during the 2005 National People’s Congress. Not only did this new policy discourse highlight the necessity of promoting ‘social equity and justice’,36 but it prefaced the government’s move toward the greater incorporation of CSR norms into the country’s corporate governance framework as well.37 Certainly, it deserves note that 2005 witnessed the emergence of a range of social and environmental problems in China, including food safety controversies38 and mass protests against industrial pollution. Over 51,000 pollution-related disputes took place in 2005 alone—a figure that captured the attention and concern of the leadership in Beijing.39 A major regulatory-cum-policy shift would take place a year later with the promulgation of the amended Company Law in January 2006, which made explicit mention of fundamental CSR principles. According to Article 5, ‘In its operational activities, a company shall abide by laws and administrative regulations, observe social morals and commercial ethics, persist in honesty and good faith, accept supervision by the government and the public, and assume social responsibility’.40 Geared in part toward enhancing the international reputation of Chinese firms and by extension, facilitating their integration into the global market, this revision had also mirrored the Chinese government’s desire to formulate an understanding of CSR that was ‘embedded [in] its unique economic situation and business culture’.41 The release of the revised Company Law was soon followed by a series of new state-led initiatives aimed at advocating and mainstreaming CSR principles. The first annual Chinese International Forum on Corporate Social Responsibility was held in early 2006 in Beijing, with support from the State Council’s Overseas Chinese Affairs Office. It was around the same time 35. The quality and depth of these reports varied considerably. Cited in Christopher Marquis and Cuili Qian, ‘Corporate social responsibility reporting in China: Symbol or substance?’ (2014) 25 Organization Science 127, 128. 36. ‘China publishes its resolution on building a harmonious society’ Xinhua News Agency (2006), . 37. See e.g., Zhao Jingchen, ‘The harmonious society, corporate social responsibility and legal responses to ethnical norms in Chinese company law’ (2012) 12 Journal of Corporate Law Studies 163. 38. See e.g., Hu Yan, ‘Red dye a ‘food for thought’ for Chinese’ China Daily (31 March 2005), . 39. ‘SEPA director says public protests over pollution rising by 29 percent per year’ (2006), . See also Howard W French, ‘Anger in China rises over threat to environment’ The New York Times (Xinchang, 18 July 2005), . 40. Company Law (2006), art. 5, . The 2013 revision of the Company Law retains this provision. See Company Law (2013), art. 5, . 41. The official website of the Forum can be accessed at .


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that MOFCOM published its ‘Suggestions for Strengthening the Human Safety and Protection of Workers for Chinese Enterprises and Organizations Overseas’.42 Calling upon Chinese firms to respect local laws and customs, the Suggestions served as an early indication of the emerging concerns over Chinese corporate practices abroad. Notably, the Shenzhen Stock Exchange’s ‘Social Responsibility Instructions to Listed Companies’—modeled on the revised Company Law—was also promulgated later in 2006, to the effect that listed Chinese companies were expected to contribute to ‘implementing scientific outlook of social development [and] building social harmony’.43 By mid-2007, 20 listed companies had reportedly published CSR reports;44 and by May 2008, the Shanghai Stock Exchange had followed suit by releasing its own ‘Notice of Improving Listed Companies’ Assumption of Social Responsibilities’.45 Hence, it is from 2006 onward that we see the Chinese government increasingly assuming the role of a policy entrepreneur.46 Having accepted the fundamental idea that companies had certain social responsibilities, the central government and relevant agencies were now actively encouraging the adoption of a responsible investment approach among Chinese businesses. Significantly, this soon culminated in 2007 with the release of the State Council’s ‘Nine Principles on Encouraging and Standardizing Foreign Investment’, which broke new ground with respect to the application of social and environmental responsibility requirements to the operation of Chinese firms overseas.47 It warrants special note that the Principles had been promulgated at a time when the practices of Chinese companies overseas, especially in Africa, were under intense scrutiny, with then President Hu Jintao emphasizing during his 2007 eight-country tour of Africa the importance of corporate responsibility in business dealings. Based on a speech he gave at the University of Pretoria, ‘[p]‌riority [vis-à-vis Sino-African cooperation] should be given to agriculture, infrastructure, manufacturing and public welfare projects that are vital to people’s livelihood’.48 What this indicates is the then incipient awareness on the part of the Chinese government of the linkages between the country’s international reputation49 and the conduct of its firms overseas. Other state and non-state actors have also played a burgeoning role in mainstreaming the language of responsible investment and sustainable development. Certainly, it deserves note 42. MOFCOM, ‘Explanation Regarding the “Suggestions for Strengthening the Human Safety and Protection of Workers for Chinese Enterprises and Organizations Overseas” ’ (Dui ‘guanyu jiaqiang jingwai zhongziqiye jigou yu renyuan anquan baohu gongzuo de yijian’ de jiedu) (2006), . 43. Depending on the translator, this sentence can also be translated as ‘implementing scientific development and building a harmonious society’. Shenzhen Stock Exchange, ‘Social responsibility instructions to listed companies’ (2006) in Bernasconi-Osterwalder, Johnson, and Zhang, Chinese Outward Investment 168–171. 44. Lin (n 16) 76. 45. See Shanghai Stock Exchange, ‘Notice of improving listed companies’ assumption of social responsibilities’ (2008) in Bernasconi-Osterwalder, Lise Johnson, and Jianping Zhang (eds), Chinese Outward Investment 178–181. 46. For a discussion of policy entrepreneurship, see Andrew Mertha, ‘ “Fragmented Authoritarianism 2.0”: Political pluralization in the Chinese policy process’ (2009) 200 The China Quarterly 995. 47. State Council, ‘Nine Principles on Encouraging and Standardizing Foreign Investment’ (Guanyu guli he guifan woguo qiye duiwai touzi hezuo de yijian) (2007), . 48. Hu Jintao, ‘Enhance China-Africa Unity and Cooperation to Build a Harmonious World’ (Speech at University of Pretoria, Pretoria, South Africa, 7 February 2007), . 49. Some have also highlighted CSR as a requirement of WTO membership. ‘Corporate social responsibility is not only [about] charitable aid’ (Qiye de shehui zeren bujin shi cushion juanzhu) People’s Daily (2006), .


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358 Yeophantong and Maurin that the 2008 ‘Social Responsibility Guide of the China Industrial Companies and Industrial Associations’—lauded as one of China’s ‘most comprehensive CSR standards’50—was devised thanks to the initiative taken by eleven industrial associations. At present, Chinese civil society, public intellectuals, news media, and even some businesses have been integral to pushing for companies to move beyond formulaic understandings of CSR as corporate philanthropy or charity (e.g., building schools and hospitals) to focus on deeper, long-term engagement with other non- state stakeholders (e.g., local communities and NGOs).51 Civil society actors, for one, assumed a prominent role in bringing the controversial Nu River dam cascade to an official halt in February 2004, having leveraged legal instruments like the then newly issued 2003 Environmental Impact Assessment Law to demand accountability from the cascade’s developers.52 Reportedly in response to a request from the US-based NGO Pacific Environment, the China Exim Bank had publicly disclosed its 2004 environmental policy in April 2007.53 Soon there after the Bank, under social pressure for its financing of questionable projects largely in Africa, published a new set of ‘Guidelines for Environmental and Social Impact Assessments of the China Exim Bank’s Loan Projects’, which was heralded by several NGOs as a substantial improvement from the 2004 policy.54 The concept of CSR has, in effect, come to gain a ‘multidimensional’ quality in Chinese public discourses, such that the nature of Chinese outbound investment in the developing world also needs to be modified accordingly. As a consequence, incorporating environmental, social, and governance issues into the culture and organizational structure of corporate decision-making becomes a matter of paramount concern.55 Indeed, notions of ‘responsible competitiveness’ (zeren jingzheng li) and ‘responsible citizenship’ (fuzeren de shehui gongmin) speak to this overarching notion.56 More recently, in light of such developments as the cancellation of the Chinese-backed Myitsone dam in Myanmar, this has provoked a flurry of internal debate over political risk and, specifically, the potentially costly trade-offs involved in financing large infrastructure schemes in politically unstable countries. With environmental and social issues gaining visible traction within the Chinese policy sphere of late, recent years have also witnessed an increased role for the Ministry of Environmental Protection (MEP) in the country’s regulatory system.57 A budding policy entrepreneur in its own right, the MEP has come to gain a more proactive role in informing the government’s investment policy framework, in spite of initial reticence to do so.58 50. Lin (n 16) 83. 51. Meng Liu, ‘Is corporate social responsibility China’s secret weapon?’ (World Economic Forum 2015), . 52. Plans to restart the project have, however, surfaced in recent years. See Deng Quanlun, ‘Campaigners re-ignite Nu River dam debate’ China Dialogue (11 February 2013), . 53. Center for Global Development, ‘China’s Exim Bank Discloses Its Environmental Policy’ (2007), . 54. International Rivers, ‘China Exim Bank’, . 55. ‘Corporate social responsibility is not only [about] charitable aid’. 56. See Meng Zhenping, ‘The corporate social responsibility of large state-owned [enterprises]’ (Guoyou daxing qiye de shehui zeren) People’s Daily (2006), . 57. The MEP’s predecessor, the State Environmental Protection Agency (SEPA), was known for being relatively weak (i.e., understaffed and underfinanced) vis-à-v is other major ministries with contending interests like the Ministry of Commerce. 58. See Katy Yan, ‘Interview with Ren Peng, Program Coordinator for GEI Environmental Governance Program on China’s Overseas Investment Guidelines’ (24 April 2013), .


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This is evident from the leadership it assumed in devising and releasing the ‘Guidelines for Environmental Conduct Overseas’ in 2009 and, subsequently in 2013, the ‘Guidelines for Environmental Protection in Foreign Investment and Cooperation’.59 Both documents seek to encourage Chinese enterprises to respect the environmental laws of host countries and to integrate environmental protection and ‘due diligence’ measures (e.g., conducting environmental impact assessments and formulating emergency contingency plans) prior to and during project development. Although these are voluntary guidelines, of interest here is the fact that the 2013 guidelines were issued jointly by the MEP and MOFCOM, having been informed by input from the Global Environmental Institute (GEI), a prominent Chinese NGO. There also appears to be greater interest in the promulgation of more sector-specific regulatory guidelines across China’s natural resource sectors.60 Notably, in late 2014, the China Chamber of Commerce for Minerals, Metals & Chemicals Importers & Exporters (CCCMC) published the ‘Guidelines for Social Responsibility in Outbound Mining Investments’.61 Comprehensive in scope, the guidelines were devised in collaboration with the German Agency for International Development (GIZ), and with recommendations from the Organisation for Economic Co-operation and Development (OECD) and, most notably, from the outspoken international NGO, Global Witness. Aimed at mitigating the sensitive problem of Chinese companies causing harm by (inadvertently) sponsoring the supply of conflict minerals, the guidelines focus on developing supply chain due diligence in conflict-afflicted countries, and encompass standards covering a range of issue-areas from environmental protection and labor rights to community relations and corruption prevention. Given that a sizable amount of China’s overseas investment flows into African and Asian mining sectors, such a push toward the adoption of international-standard best practices is promising.62 Guidelines are also being developed for the regulation of Chinese overseas activities in the rubber and forestry sectors. While still in draft form, the latest set of ‘Guidelines for Overseas Sustainable Forest Products Trade and Investment by Chinese enterprises’ is anticipated to be a substantial improvement upon extant frameworks such as the 2009 ‘Guide on Sustainable Overseas Forests Management and Utilization by Chinese Enterprises’, which was jointly developed between MOFCOM, the State Forestry Administration (SFA), and four leading international NGOs in this area (i.e., World Wildlife Fund, World Conservation Union, Nature Conservancy, and Forest Trends). Drafting of the guidelines has been led by the SFA since 2013, in collaboration with the Chinese Academy of Forestry, Beijing Forestry University, and other NGOs. There is apparently a potential for these guidelines, once released, to pave the way for the introduction of a ‘binding timber legality assurance system’ in China.63 Should this 59. MOFCOM, ‘Notification of the Ministry of Commerce and the Ministry of Environmental Protection on Issuing the Guidelines for Environmental Protection in Foreign Investment and Cooperation’ (2013), . 60. That said, the State Forestry Administration (FSA) and MOFCOM’s ‘Guide on Sustainable Overseas Silviculture by Chinese Enterprises’ was issued back in 2007. 61. CCCMC, ‘Guidelines for Social Responsibility in Outbound Mining Investments’, . 62. See Becky Davis, ‘Chinese mining group sets guidelines for overseas interaction’ The New York Times (Beijing, 24 October 2014), . 63. Duncan Brack, ‘Chinese Overseas Investment in Forestry and Industries with High Impact on Forests: Official Guidelines and Credit Policies for Chinese Enterprises Operating and Investing Abroad’ (Forest Trends Report Series 2014) 7.


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360 Yeophantong and Maurin prove to be the case, the guidelines would constitute an important step forward with regard to the development of mandatory regulations within and across these industries.

3. ENFORCEMENT Yet, despite these prominent regulatory and policy developments over the past decade, China remains mired in the policy adoption stage of CSR internalization, as the Chinese government continues to struggle with incentivizing Chinese companies to comply with what are, in most cases, voluntary guidelines. Frequent criticisms leveled against exploitative and opaque Chinese business practices resonate with this deep-seated enforcement challenge. Considering how the regulation of overseas corporate conduct effectively entails monitoring across borders, this further heightens the barriers to enforcement. Aside from the challenges posed by limited organizational resources and capacity,64 equally problematic is determining accountability for transboundary harm and compelling host countries to raise their domestic safeguards when little political will exists.65 That said, it deserves note that such issues are, if anything, symptomatic of underlying domestic issues. In part derivative of a domestic political culture marked by patronage networks and weak rule of law, the archetypal Chinese business model usually involves the negotiation of state contracts behind closed doors and the cultivation of personal guanxi ties that can—and do—exacerbate both petty and big corruption problems. The situation is further complicated by other factors, including interagency rivalry and the organizational diversity of Chinese investors, which can range from large SOEs to smaller private firms. Renewed efforts on the central government’s part to consolidate regulatory power notwithstanding, China’s political system remains an inherently fragmented one, being populated by a variety of contending interests. In this way, the ‘omnidirectional channels of influence’ present in the Chinese policy-making process could, under certain circumstances, serve to undermine regulatory implementation.66 This is evinced by the emerging loopholes in the country’s newly released Environmental Protection Law.67 As posited by Marquis and Qian, even though one would normally expect noncompliance issues to lie mainly with the supervision of private firms, the regulation of SOEs can likewise prove highly problematic due to the close relationship between the central government and its large SOEs.68 With the introduction of MOFCOM’s ‘Revised Measures for Foreign Investment Management’ in late 2014, this raises the possibility of regulatory overlap, as the relaxation in 64. While the MEP has come to gain a stronger foothold in the country’s regulatory and policy spheres, it still has to compete for resources and relative authority against other government bodies (e.g., the NDRC). Moreover, there remains a perceptible gap between the MEP’s policy innovativeness and its capacity to enact these in practice. See Elizabeth C Economy, The River Runs Black: The Environmental Challenge to China’s Future (Cornell University Press 2010) 110; Liu Jianqiang, ‘China’s environment minister an “utter disappointment” ’ China Dialogue (2013), . 65. See Michael Mason, The New Accountability: Environmental Responsibility across Borders (Earthscan 2005). 66. Linda Jakobson and Dean Knox, ‘New Foreign Policy Actors in China’ (2010) SIPRI Policy Paper 26, vi. 67. The law took effect on 1 January 2015. But despite being touted as a major step forward vis-à-v is domestic environmental protection, it is argued that the law is constrained in its power to demand compliance from targeted stakeholders. See Bo Zhang and Cong Cao, ‘Policy: Four gaps in China’s new environmental law’ Nature (21 January 2015), . 68. See Marquis and Qian (n 22) 127–148.


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rules means that only investment in countries or regions and industries identified as ‘sensitive’ require approval from MOFCOM.69 Even so, to take criticisms of Chinese outbound investment at face value would in itself be problematic. The following section examines the extent to which Chinese resource investment in one major region of the developing world—t hat is, Africa—has or has not contributed to the development imperatives and sustainability goals of countries on this continent.

B. CHINESE RESOURCE INVESTMENT AND ECONOMIC COOPERATION IN AFRICA While the establishment of Sino-African relations dates back to the 1950s, China’s opening up to the world saw the deepening of these ties in the 1980s. Driven by a combination of pragmatism and geostrategic motives, China’s economic and political cooperation with the African continent has expanded steadily over the course of three decades. The first high-level meeting of the Forum of China Africa Cooperation (FOCAC) in 2000 served to formalize these ties,70 with Sino-African cooperation having since been enhanced through regular FOCAC meetings as well as the development of bilateral relations. Just as Chinese FDI flows increased from US$ 317 million in 2004 to US$ 2.52 billion in 2012, China’s FDI stock in Africa notably reached US$ 21.73 billion, penetrating all sectors of African economies.71 In 2012 alone, the total trade volume between China and Africa reached US$ 198.49 billion, amounting to a 19.3% year-on-year growth. As Africa’s largest trading partner since 2009,72 this trend is likely to be sustained. Earlier in 2014, Premier Li Keqiang announced that Sino-African bilateral trade will double between 2014 and 2020, with Chinese FDI stock also anticipated to quadruple to US$ 100 billion.73 It is within this context that Chinese companies—in particular, SOEs74—have emerged as influential actors in Africa. Apart from high domestic demand for natural resources,75 commercial opportunities in emerging African economies, together with the provision of Chinese development aid, have also motivated Chinese SOEs to establish a growing presence 69. MOFCOM, ‘Ministry of Commerce Introduces Newly Revised Measures for Foreign Investment Management’ (2014), . 70. The forum was held in Beijing. 71. Source: WRI Sustainable Finance, based on official figures from Ministry of Commerce (MOFCOM) 2012 Statistical Bulletin of China’s Outward Foreign Direct Investment. 72. State Council, ‘China-Africa Economic and Trade Cooperation White Paper’ (2013), . 73. ‘Full text of Li Keqiang’s speech at Africa Union’ (2014), . 74. Chinese SOEs continue to dominate the market. This is despite the fact that the past decade has witnessed a notable increase in private Chinese investment, with private firms gaining a foothold in Africa and the Asia- Pacific region. However, private investment remains primarily concentrated in the manufacturing and service sectors. Shen Xiaofang, ‘Private Chinese Investment in Africa: Myths and Realities’ (2013) Policy Research Working Paper 6311, 7. 75. Notably, in 2012, it was estimated that 26% of China’s energy needs are currently supplied by sub- Saharan Africa. Muna Ndulo, ‘China helps recast Africa in global economy’ Business Day (Johannesburg, 7 November 2012), .


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362 Yeophantong and Maurin on the continent. Here, Chinese investment is primarily concentrated in the construction and resource sectors, specifically the extractive industries.76 Certainly, given how Africa’s dynamic growth has long been impeded by underinvestment in critical infrastructure, China’s contribution to the infrastructure and natural resource sectors is regarded as an important driver of change—one which has the potential to assist Africa along the path to sustainable economic development.

1. TAKING A CLOSER LOOK AT SUSTAINABILITY IMPACTS Chinese investment in Africa’s resource sector has soared since the late 1990s, as China became a net importer of oil and other commodities. From the mid-1980s, Chinese state agencies such as China Metallurgical Import and Export Company (CMIEC), an entity under the Ministry of Metallurgy, were involved with the negotiations of resource-related projects with their foreign counterparts. CMIEC signed the Channar Joint Venture Agreement in 1987 with Hamersley Iron Pty. Ltd.77 for the development of an iron ore mine in the Pilbara region of Western Australia. In Africa, as early as 1997, a joint venture was established between the Limpopo Economic Development Enterprise of South Africa and the Chinese state entity Eastern Asia Metals Investment Co. Ltd. to operate a ferrochrome mine and smelter in the Limpopo Province.78 Indeed, the significance of China’s corporate presence in Africa’s resource sector stems, in large part, from the scale of many of the Chinese-financed projects arrived at through these government-to-government negotiations. In countries such as the Democratic Republic of Congo (DRC) and Zambia, Chinese SOEs have become major stakeholders in the local economy. In the DRC, for example, a consortium of Chinese SOEs was responsible for striking a major resource deal with the DRC government to construct much-needed infrastructure in exchange for copper and cobalt mining concessions.79 In Zambia, the China National Non-Ferrous Metals Import and Export Corporation (CNIEC) had acquired rights to develop the newly privatized Chambishi copper mines in the late 1990s.80 Similarly, the China National Machinery & Equipment Import & Export Corporation (CMEC) won a tender in Gabon in 2006 to develop the Belinga iron ore mines and build related infrastructure. The project was initially backed by a loan on preferential terms from the China Exim Bank.81 China Power Investment Corporation (CPI) has likewise 76. China’s FDI stock in the extractive sector (i.e., oil, gas and minerals) alone has risen dramatically from US$ 5.94 billion in 2004 to US$ 44.66 billion in 2010 MOFCOM, 2010 Statistical Bulletin of China’s Outward Foreign Direct Investment (Beijing 2010). 77. The original Channar joint venture was signed in 1987 between CMIEC (Channar) Pty. Ltd. and Hamersley Iron Pty, . The latter company has since become part of Rio Tinto, . 78. The joint venture ASA Metals is a subsidiary of Sinosteel Corporation, , . 79. See Johanna Jansson, ‘The Sicomines Agreement: Change and Continuity in the Democratic Republic of Congo’s International Relations’ (2011) SAIIA Occasional Paper 97. 80. Human Rights Watch (HRW), ‘ “You’ll Be Fired if You Refuse”: Labor Abuses in Zambia’s Chinese State- owned Copper Mines’ (2011), . 81. See ‘Gabon to review China’s Belinga deal, Vale hovers’ Libreville (13 April 2010), .


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sought to invest approximately US$ 6 billion in Guinea’s bauxite and alumina schemes, while China National Petroleum Corporation (CNPC) has invested nearly the same amount in Sudan’s oil sector. According to the FOCAC Beijing Action Plan (2007–2009), the Chinese and African governments have agreed to ‘support their enterprises in conducting joint development of energy and other resources through diversified forms of cooperation’. Applying a pragmatic approach to dealings with its African counterparts, the Chinese government had then pledged to ‘giv[e]‌ high priority to helping African countries turn their advantages in energy and resources into development strengths, protecting the local environment and promoting sustainable social and economic development in the local areas’.82 The Beijing Action Plan (2013–2015), concluded at FOCAC’s Fifth Ministerial Conference, reiterated this commitment, with emphasis placed on ‘enhancing African countries’ capacity for intensive processing of energy and resource products to raise the added value of these products, helping African countries translate their energy and resources strength into development strength’.83 Significantly, this declaration speaks to a regional commitment to encourage national economies to diversify away from a reliance on unbeneficiated resources to focus on mineral extraction and processing operations, which better feed into broader economic development objectives.84 A key dimension of China’s engagement with Africa has, of course, been the provision of development ‘aid’. This comes in the form of grants and zero-interest and concessional loan packages. By mid-2012, Beijing had already pledged US$ 20 billion in loans to help develop local infrastructure, agriculture, and manufacturing across the continent, as well as build the capacity of small and medium-size enterprises.85 In accordance with the country’s broader resource strategy,86 Chinese investment in overseas resource assets have received substantial support from the central government,87 as evident from the preferential loans granted through the Exim Bank and the CDB.88 China’s foreign aid grants and zero-interest loans are managed 82. Forum on China-Africa Cooperation Beijing Action Plan (2007–2009), s 3.6.1, . 83. FOCAC’s Fifth Ministerial Conference was held in July 2012, . 84. The Africa Mining Vision was adopted at the African Union Summit in February 2009 to provide a continent-w ide framework aimed at promoting a resource-based industrialization strategy to sustain Africa’s economic and social development. See Cristelle Maurin, ‘Strategic partnerships and sustainable investments: How can China support the African Mining Vision?’ CCS Policy Briefing (May 2013), . 85. Wayne Ma, ‘China offers Africa billions in new loans’ Wall Street Journal (Beijing, 20 July 2012), . 86. China’s resource white paper provides insights into this strategy. See State Council, ‘China’s Policy on Mineral Resources’ (2003), . Moreover, according to the Iron and Steel Industry Development Policy, it stipulates that China ‘should [. . .] intensify the international cooperation regarding overseas mineral resources [. . .] support supplying bases of iron mines, chrome ore mines, manganese mines, nickel ore mines, waste steel and coking coal … by way of setting up solely-funded enterprises, joint-equity enterprises, contractual enterprises and purchase of mineral resources’. NDRC, ‘Iron and Steel Industry Development Policy’ (2005) art 30, . 87. MOFCOM and Ministry of Foreign Affairs, ‘Country and Sector Guidance Catalogue for Outward Investment’ (2004); NDRC and MOFCOM, ‘Outward Investment Sector Direction Policy’ (2006). 88. NDRC and China Exim Bank, ‘Circular on Credit Support Policy to Key Offshore Investment Projects Encouraged by the State’ (2004); NDRC and CDB, ‘Circular on the Issues on Offering More Financing Support to Key Overseas Investment Projects’ (2005).


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364 Yeophantong and Maurin by MOFCOM, whereas the major financiers responsible for disbursing concessional loans are the CDB and Exim Bank, with the latter particularly known for providing concessional loans at times in exchange for preferential treatment for Chinese contractors or exporters.89 But while the Chinese government appears earnest in its attempt to improve its soft-power appeal by providing ‘no-conditionality’ aid to Africa, it is unlikely that such assistance can ever be decoupled entirely from Chinese political, economic, and commercial motives. Indeed, given how Chinese SOEs tend to be motivated by both political and profit-seeking motives, this has allowed them to consider investment projects in riskier environments, thereby outpacing companies constrained by purely commercial considerations. In view of this, it is not surprising for Chinese development assistance, including more commercially-driven forms of state financing (which feature a lower grant element and higher interest rates), to be linked in some way to investment in the natural resource sectors—a point over which critics have understandably voiced concern. China is not a conventional aid donor, and much of its aid is imbued with symbolic and pragmatic value. In fact, what is commonly taken to be Chinese development assistance would fit uneasily with the criteria of ‘official development assistance’ (ODA), as originally set out by the OECD Development Assistance Committee (DAC).90 The policy and developmental implications of such practices are invariably double-edged. Owing to the uncertainty surrounding aid figures, it has proven exceedingly difficult to ascertain the exact degree to which Chinese loans and payments have been tied to resource deals and, by extension, the extent to which they are ultimately geared toward China’s own national priorities.91 Specifically for developing host countries, this raises the specter of resource dependency, as their economic development becomes closely tied to the extraction and export of resources to China, as well as the lowering of regulatory standards. The aforementioned Belinga iron ore mines constitutes a case in point. Mining concessions in the Belinga Mountains of northeast Gabon were granted to a consortium named Comibel (Compagnie Minière de Bélinga) for 25 years. However, this was the result of a controversial and opaque bidding process that CMEC had won out against Companhia Rio do Vale Doce (CVRD), a Brazilian company.92 Questions have likewise surfaced over the quality of Chinese investment projects. Oft-cited examples include a hospital in Luanda, Angola, which within a few years of its opening saw serious cracks develop in the walls; the Lusaka-Chirundu road, built by China Henan, where a portion of the road had crumbled after a rainstorm; and Ghana’s Koroidua bypass, built by the 89. Sarah Baynton- Glen, ‘Beyond trade— China- Africa investment trends’ Standard Chartered (22 February2012), . 90. The OECD reportedly broadened the definition of ODA in early 2016. See Antony Funnell, ‘Whatever happened to “foreign” aid?’ ABC (20 April 2016), . The DAC’s original definition of ODA is as follows: ‘Flows of official financing administered with the promotion of the economic development and welfare of developing countries as the main objective and which are concessional in character with a grant element of at least 25 per cent (using a fixed 10 per cent rate of discount). … Lending by export credit agencies—w ith the pure purpose of export promotion—is excluded’. Quoted in Deborah Brautigam, ‘Aid “with Chinese characteristics”: Chinese foreign aid and development finance meet the OECD-DAC aid regime’ Journal of International Development (2011) 754. 91. Sven Grimm et al., ‘Transparency of Chinese Aid: An analysis of the published information on Chinese external financial flows’ (Publish What You Fund/Centre for Chinese Studies, University of Stellenbosch 2011) 3–4. 92. Phal Gualbert Mezu, ‘Gabon to review China’s Belinga deal, Vale hovers’, Reuters (13 April 2010).


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China Water and Electric Company, which became unusable after a year.93 Equally worrying are Chinese investment schemes that involve African countries using their natural resources to secure loans for infrastructure development—that is, the practice of reserves-backed lending (also known as the ‘Angola model’)—of which a US$ 3 billion loan secured against petroleum revenue to Ghana in 2010 constitutes one such example.94 Despite the fact that such an arrangement allows financially weak countries to mitigate their infrastructure deficit, the implications of this mode of financing remains obscure and seems to vary largely on a case-by-case basis. In 2004, for instance, the model appeared advantageous to Angola, as repayments for the US$ 2 billion credit facilities advanced to the country were made against delivery commitments of 10,000 barrels (though estimates vary up to 120,000 barrels) of crude oil per day to be sold internationally at the spot market price.95 Yet, in the case of the DRC, the model has had the opposite effect due to obscure and unfavorable contractual arrangements.96 In the case of the mining sector, noncompliance with local laws has become a major concern in a number of Chinese-funded mining operations.97 Given their late entry into the global mining industry,98 Chinese companies have been largely isolated from emerging models of sound resource governance built around international standards for responsible business conduct and sustainable resource development. Few official studies have been published on China’s participation in the African mining sector, notably in Zambia, Gabon, and the DRC. A common observation points to the trend of noncompliance among Chinese mining companies in relation to the labor laws of host countries, highlighting the recurring conflicts that have arisen between Chinese managers and the local workforce, whose rights are not being adequately upheld.99 Certainly, the protracted protests by Zambian miners against the Chinese-owned Collum Coal Mine, along with then President Michael Sata’s reference to Chinese investors as ‘infestors’,100 serve as poignant examples. Another complaint often leveled against the Chinese approach to resource investment and, specifically, mineral extraction is the lack of public consultation and engagement with local communities, both of which are 93. See Nathan Meyer, ‘China’s dangerous game: Resource investment and the future of Africa’ Diplomatic Courier (23 January 2013), ; Deborah Brautigam, ‘Chinese aid and Luanda General Hospital in Angola: Still falling down?’ (21 April 2011), . 94. See e.g., Will Connors, ‘China extends Africa push with Loans, deal in Ghana’ The Wall Street Journal (24 September 2010), . 95. Helmut Asche and Margot Shuller, ‘China’s Engagement in Africa—Opportunities and Risks for Development’ (Deutsche Gesellschaft fur Technische Zusammenarbeit 2008) 37. 96. ibid. 97. See e.g., Rights and Accountability in Development, ‘Les entreprises minières au Katanga, République Démocratique du Congo’ (2009); and Action Contre l’Impunité pour les Droits Humains, ‘Les investissements privés et publics chinois dans le secteur minier au Katanga: Bonne gouvernance et droits de l’homme’ (2010). 98. Commonwealth of Australia, China Embraces the World (Department of Foreign Affairs and Trade 2002). 99. Baah and Herbert, ‘Chinese Investments in Africa: A Labour Perspective’, cited in HRW, ‘ “You’ll Be Fired if You Refuse” ’ (n 75) 18. The practices of Chinese companies in Africa do need to be contextualized in view of the general disregard for human rights by transnational companies operating in weak governance settings, particularly in Africa’s mining industry. See Barry Sautman and Yan Hairong, ‘Gilded Outside, Shoddy Within: The Human Rights Watch Report on Chinese Copper Mining in Zambia’, . 100. Alexander Mutale, ‘Zambia’s fiery populist, Michael Sata, wins presidential election’ Christian Science Monitor (Lusaka, 23 September 2011), .


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366 Yeophantong and Maurin central to attaining a ‘social license to operate’—a notion that has gained considerable resonance within the mining industry in recent years.101

2. EVOLVING RESPONSIBLE INVESTMENT PRACTICES In light of these criticisms, Chinese SOEs have begun to demonstrate a stronger willingness to observe international standards and, in some cases, to ‘rectify existing malpractices, to eliminate potential risks, and to work together in managing our enterprises well’ when problems have been identified, as seen in the case of Zambia’s CNMC-operated mine.102 That said, the establishment of the China-Africa Development (CAD) Fund, announced back in 2006 by former President Hu Jintao at the FOCAC Beijing Summit, has reoriented China’s investment strategy to promoting the sustainable development of African economies, while stimulating commerce and investment by Chinese companies.103 Set up as a private equity fund, the CAD Fund operates independently and supports projects in the natural resource, manufacturing, infrastructure, and agricultural sectors. The government of Ghana, for instance, has negotiated with CDB to establish a Comprehensive Project Financing Facility for overseeing the development of a cluster of mineral processing industries within a Free Export Processing Zone, to be developed jointly with the China Africa Development Fund and Bosai Minerals Group of China.104 Some SOEs have, moreover, adopted CSR-centered policies that promote adherence to global initiatives.105 Notably, as a member of the UN Global Compact and a long-term investor in Australia’s mining sector,106 the state-owned iron and steel trading company Sinosteel has adopted a comprehensive CSR policy to oversee its operations in southern Africa. In 2008, it published its first sustainability report on its overseas operations in Africa vis-à-v is issues ranging from environmental protection to community engagement and philanthropy.107 Chinese investors in the mining sectors of Gabon and the DRC have also indicated their commitment to improving transparency108 and conformance with social and environmental standards in accordance with the Extractive Industries Transparency Initiative (EITI) principles.109

101. Ernst & Young, ‘Business risks facing mining and metals 2011–2012’, . 102. ‘CNMC’s Response to HRW (Letter dated 8 October 2011)’. Quoted in HRW, ‘ “You’ll Be Fired if You Refuse” ’ (n 75). 103. The CAD Fund’s official website can be accessed at . 104. See Liberty Amewode, ‘Ghana in need of $16bn’ GhanaWeb (28 October 2010), . 105. See Dylan Sutherland, ‘Corporate Social Responsibility in China’s Largest TNCs’ (2009) University of Nottingham Discussion Paper 51. 106. Sinosteel and Australia’s CRA entered into a joint venture to develop the Channar iron ore mine in the Pilbara in the late 1980s. In 2009, Sinosteel acquired the Australian mining company Midwest Corp. 107. See Wang Danna, ‘Sinosteel launches sustainability report’ China Daily (2 February 2010), . 108. Johanna Jansson, Christopher Burke, and Wenran Jiang, ‘Chinese Companies in the Extractive Industries of Gabon and the DRC: Perceptions of Transparency’ (University of Stellenbosch 2009). 109. Neither the Chinese government nor any Chinese oil or mining companies are signatories of the EITI.


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Elements of China’s domestic regulatory and policy framework on responsible investment can be further distilled from the Mineral Development Agreement negotiated between the Liberian government and China Union for the development of the Bong Ranges iron ore mines. The agreement explicitly stipulates the company’s responsibility for monitoring and managing their environmental and social impacts, with environmental audits to be undertaken on an annual basis. Aside from observance of the Voluntary Principles on Security and Human Rights, it also obligates China Union to set upward employment targets for local staff, establish consultative mechanisms for communities, as well as ensure access to ‘clean and safe’ drinking water in all company-provided housing units.110 As such, although one should not overlook the problems that come with Chinese investment in weak governance settings, Chinese resource investment—a long with the aid and loan packages that come bundled with it—holds the potential to become a force for positive change and sustainable development. Not only has the influx of Chinese investment contributed in varying degrees to the rejuvenation of the African economy,111 but it can also help to generate much-needed employment opportunities within the region. As the continent’s largest creditor, the China Exim Bank has committed itself to disbursing US$ 20 billion worth of loans by 2016. By the same token, infrastructure projects like the highway built between Sudan and Ethiopia (at a cost of US$ 27 million) come with the promise of transforming the region’s socioeconomic landscape for the better.

C. EXTERNAL GAME CHANGERS AND INVESTMENT REGULATION FOR SUSTAINABLE DEVELOPMENT Both opportunities and challenges define China’s investment relations with other developing countries. It is important to bear in mind, however, that policy dissonance—t hat is, the gap between policy adoption and regulatory enforcement—is by no means unique to the Chinese case. A similar disconnect is observable in the behavior of other investors operating in the developing world.112 Hence, at issue here is the question of how Chinese corporate actors might be incentivized to pursue responsible investment for the sake of sustainable development in host countries. More specifically, how can voluntary guidelines become more socially—if not legally—binding? This chapter’s first section examined the evolution and current state of China’s ODI regulatory system. The analysis revealed how the Chinese government constitutes the main driver

110. ‘Mineral Development Agreement Between the Government of the Republic of Liberia, China-Union (Hong Kong) Mining Co., Ltd. and China-Union Investment (Liberia) Bong Mines Co., Ltd.’ (2009), n 13.2, n 9.5. 111. Arguably, the rapid growth of China’s national economy has given rise to a ‘commodities super-c ycle’ that has, in turn, contributed to Africa’s own ‘unprecedented’ growth rates. Daniel Flynn, ‘Africa Investment- China brings goods and roads, now Africa wants jobs’ Reuters (Dakar, 21 July 2013), . 112. The controversy surrounding Total’s and Chevron’s involvement in the Yadana pipeline project in Myanmar constitutes but one example. See EarthRights International, ‘Background of the Yadana Pipeline’, .


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368 Yeophantong and Maurin behind an ongoing shift toward a more responsible investment approach. The state-controlled nature of the Chinese ODI regime furnishes the central government with the authority to push companies toward greater conformance through an evolving body of CSR regulations and guidelines. This, in effect, reflects growing recognition on the central government’s part that while host-country governments need to strengthen their own institutional capacities to promote sustainable business practices, home countries must also contribute to the realization of such outcomes. But while internal pressure is necessary, our hunch is that it is not a sufficient condition to motivate Chinese firms into observing these regulations. Here, the potential role played by external ‘game changers’, as drivers of sustainable change, must also be taken into account. We focus, in particular, on the following three: bilateral investment treaties, civil society, and international forces.

1. BILATERAL INVESTMENT TREATIES As China seeks to consolidate its bilateral ties with developing countries, this warrants serious consideration of the importance of legal instruments such as BITs. Although they form, to a considerable degree, the bedrock of investment relationships, BITs tend to be negotiated and concluded away from the public eye. Notably, a comparative review of the BITs signed between China and African countries reveals no major difference in terms of structure and content with the BITs that African governments have signed with other OECD member countries. Here, the primary focus of these treaties is investor protection.113 A preliminary review of the BITs signed between China and Southeast Asian countries yields similar findings,114 with the majority of these BITs following a formulaic structure reminiscent of those seen in the Sino- African BITs. No mention is made of any shared development ideals or objectives. The adoption by the Southern African Development Community (SADC) of a model investment treaty that aims to balance investor rights and obligations115 offers African countries the opportunity to develop a more cohesive, common position on BITs that would allow for enhanced transparency and regulation. At the same time, such a development could help to compel China to reorient its outbound investment policy. Adopting a new model bilateral investment treaty—one which promises to safeguard the public interest and support host governments in promoting national development objectives—would match its rhetoric of ‘win- win’ benefits under the broader framework of South-South cooperation. Crucially, there are precedents for adopting such a course of action. For instance, the 2008 BIT between the United States and Rwanda not only contained a provision on labor rights but also explicitly stipulated how the contracting parties ‘recognize that it is inappropriate to encourage investment by weakening or reducing the protections afforded in domestic

113. See Uche Ewelukwa Ofodile, ‘Africa-China Bilateral Investment Treaties: A critique’ (2013) 35 1 Michigan Journal of International Law 131–211. 114. This is based on a survey of nine publicly available BITs between China and the countries of Southeast Asia, including those that are in force and those that have been signed but not in force. Data on BITs taken from UNCTAD’s Investment Policy Hub, . 115. See Southern African Development Community, ‘Bilateral Investment Treaty Template’, .


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environmental laws’.116 The BIT concluded between South Korea and Trinidad and Tobago in 2002 similarly acknowledged how favorable conditions for investment need not come at the expense of ‘relaxing health, safety and environmental measures of general application’.117 In more recent years, the 2012 revision of the US Model BIT serves as a noteworthy example of how environmental and social provisions can be formally incorporated to expand and enhance treaty obligations.118 Inclusion of similar provisions in the BITs that China concludes with other developing countries could provide stronger legal incentives needed to compel Chinese companies to behave more in line with prevailing responsible investment expectations and sustainable development norms.

2. CIVIL SOCIETY In March 2015, Burundi President Pierre Nkurunziza decided to suspend a US$ 200 million building contract119 which was awarded to a Chinese company, Sino-African Trading and Investment Initiative Co. It was feared that protests against the project could ‘disrupt’ the country’s election preparations. With no international tender process having been instituted for the project, allegations of corruption soon surfaced, quickly followed by widespread local disapprobation. Around three hundred civil society organizations, supported by labor unions and women’s associations, threatened to stage strikes and demonstrations against the scheme, should it be permitted to continue.120 This is not an isolated case of public outburst against a Chinese-backed infrastructure project. Labor protests against poor working conditions at Chinese construction sites and mines in Zambia and Zimbabwe121 underscore an emerging trend, which sees civil society actors playing a bigger role in holding the Chinese government and companies to account. Nascent environmental activism by Kenyans and Nubians against potentially devastating hydropower dams 116. Treaty between the Government of the United States of America and the Government of the Republic of Rwanda concerning the encouragement and reciprocal protection of investment (entered into force on 1 January 2012) art 12 (U.S.-Rwanda BIT), . See Ofodile, ‘Africa-China Bilateral Investment Treaties’ 196, 194. 117. Ofodile, ‘Africa-China Bilateral Investment Treaties’ 193–194. The full text of the South Korea-Trinidad and Tobago BIT (entered into force 27 November 2003) can be accessed at . 118. See Lise Johnson and Lisa Sachs, ‘International investment agreements, 2011–2012: A review of trends and new approaches’ in Andrea K Bjorklund (ed), Yearbook on International Investment Law & Policy 2012– 2013 (Oxford University Press 2014) 229–237; Lise Johnson, ‘The 2012 US Model BIT and what the changes (or lack thereof) suggest about future investment treaties, Political Risk Insurance Newsletter (2012) 8, 2, . 119. This concerned the construction of a shopping mall in Bujumbura. 120. A delegation of civil society and union leaders reportedly met with Chinese Embassy officials. Desire Nimubona, ‘Burundi halts $200m Chinese contract to forestall protests before vote’ Mail & Guardian Africa (11 March 2015), . 121. See e.g., Daniel Bardsley, ‘Zimbabwean workers protest over treatment by Chinese companies’ The National (Beijing, 20 November 2010), ; Nan Chen, ‘Will China wear out its welcome in Africa?’ Foreign Policy in Focus (18 March 2013), .


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370 Yeophantong and Maurin in Ethiopia (the Gibe III dam) and Sudan (the Kajbar dam)122 likewise parallels developments seen elsewhere in the developing world, including in Myanmar, Cambodia, and Ecuador,123 where ‘bottom-up’ environmental and social movements targeting Chinese-financed dams have gained momentum in recent years. The regulatory implications of such displays of civic activism can be noteworthy. Often converging on the lack of transparency and pubic consultation in project development, as well as on the anticipated adverse social and environmental repercussions (especially in the case of resource development projects), civil society actors tend to be in a unique position to appeal directly state and corporate actors to modify their behavior. Through the use of a variety of advocacy strategies (e.g., petition campaigns, street demonstrations, or even violent protests), they can work to heighten the reputational and material costs of noncompliant behavior. The previously mentioned case of activism against the Myitsone dam on Myanmar’s Irrawaddy River serves as an instructive example. Here, a broad-based network of activists mobilized to call for the cancellation of proposals to build the large dam, which was expected to have dire social and environmental consequences on local livelihoods and the surrounding environment.124 After almost half a decade of opposition, the anti-Myitsone dam movement was met with then President Thein Sein’s decision in late 2011 to suspend the dam. Taken together, these developments had a cascading effect on China Power Investment (CPI), as the main Chinese SOE financing the project, as well as on the Chinese government more broadly. Not only did the anti-Myitsone dam campaign seriously impact CPI’s international reputation and cast a doubtful light over Beijing’s ability to regulate its companies to meet CSR standards, the unexpected suspension announcement also incurred a hefty cost on CPI, which had invested around US$ 1.2 billion without any political risk insurance.125 With occurrences like the Myitsone dam’s suspension bringing into sharp relief the necessity of the social license to operate, greater policy space has been afforded to civil society actors to act as game changers. Especially in light of the Chinese government’s desire to project a more responsible image of Chinese businesses overseas, there is a real potential for emergent 122. The Gibe III dam on Ethiopia’s Omo River, funded in part by a loan from the Industrial and Commercial Bank of China (ICBC), has been viewed as a threat to the downstream ecosystems of the Lower Omo Valley and the Lake Turkana region. In Kenya, this has prompted grassroots groups like the Friends of Lake Turkana to start up an ongoing campaign to protect indigenous rights and Lake Turkana. The proposed Kajbar dam on the Nile in Northern Sudan, to be constructed by China’s largest dam developer, Sinohydro Corporation, has also faced comparable opposition from Nubian activists. Peter Bosshard, ‘Grassroots Protests Against Chinese Dams in Africa’ (2011), . 123. See Kalyanee Mam, ‘A threat to Cambodia’s sacred forests’ International New York Times (28 July 2014), ; Pichamon Yeophantong, ‘Cambodia’s environment: Good news in Areng Valley?’ The Diplomat (3 November 2014), ; Toh Han Shih, ‘Chinese dam builders rush to Latin America’ South China Morning Post (2014), . 124. See Thomas Fuller, ‘Myanmar backs down, suspending dam project’ International New York Times (Bangkok, 30 September 2011), ; Pichamon Yeophantong, ‘China, Corporate Responsibility and the Contentious Politics of Hydropower Development: Transnational Activism in the Mekong Region?’ (2013) GEG Working Paper 2013/82. 125. Pichamon Yeophantong interview with senior CPI engineer, Kunming, Yunnan Province, China (26 September 2013).


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processes of civil regulation126 to provide the necessary external push to drive Chinese companies up the learning curve. In fact, recent Chinese policy debates spotlighting the close connection between a firm’s reputation and long-term performance would appear to attest to this.127

3. INTERNATIONAL FORCES128 New cooperative investment models such as those seen in strategic joint ventures between Chinese firms and multinational corporations in Guinea, Sierra Leone, and Mozambique,129 together with the acquisition of international companies with strategic assets in developing countries,130 present a distinct opportunity for Chinese companies to be influenced by—or rather, to learn from—foreign corporate practices. Examples include Rio Tinto’s partnership with state-owned aluminum company Chinalco in developing the Simandou iron ore mines in Guinea and state-owned National Offshore Oil Corporation’s (CNOOC) joint venture with Tullow Oil and Total in the development of oil blocks in Uganda’s Lake Albert region.131 In this way, the enmeshment of Chinese companies into the regulatory webs of the global mining industry promises to help steer Chinese companies toward better environmental and social performance in line with prevailing international standards. By the same token, deeper Chinese engagement with preexisting industry mechanisms and frameworks like the EITI or the Hydropower Sustainability Assessment Protocol (HSAP) could contribute to improving not only China’s global image but also facilitate processes of social learning and adaptation by exposing the Chinese government and its SOEs to international regulatory standards and CSR practices. Even so, China’s participation in global industry-based initiatives like the International Council for Mines and Metals remains somewhat limited. What is needed, as such, is increased Chinese involvement, which could be encouraged through sustained, collective pressure from African states. Calls from African nations to China to support the implementation of the ‘African Mining Vision’, the resource-based industrialization strategy instigated by the African Union and the United Nations Economic Commission for Africa (UNECA), would stand to strengthen existing safeguards and benefit the resource partnership and economic relations with China. 126. Civil regulation refers to the regulation of corporate conduct by the public sphere. See David Vogel, ‘The private regulation of global corporate conduct’ (2010) 49 1 Business & Society 68. 127. See e.g., Bi Shihong, ‘Chinese firms face changing Myanmar society’ Global Times (28 March 2014), . 128. By ‘international forces’, we are referring broadly to the role played by such exogenous forces as international partnerships and industry standards. 129. For example, in Guinea, Rio Tinto is partnering with Chinalco to develop the Simandou iron ore project. In Sierra Leone, two Chinese companies, China Railway Materials Commercial Co. and Shandong Iron & Steel Group, have invested in African Minerals Ltd.’s Tonkolili iron ore project, whereas in Mozambique, Wuhan Iron and Steel Group Corporation has invested in Sydney-based Riversdale Mining’s Zambeze coal project. 130. For instance, in July 2011, Hanlong Mining launched takeover bids for two Australian resource companies, Bannernam Resource, which holds uranium assets in Namibia, and Sundance Resource, which operates the Mbalam iron ore project in Cameroon. 131. See Ross Anthony, ‘China’s role in the East African oil and gas sector: A new model of engagement?’ CCS Policy Briefing (August 2012), .


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372 Yeophantong and Maurin

CONCLUDING REMARKS As issues pertaining to corporate responsibility and sustainable development feature more prominently in the international policy environment for cross-border investment, increased global scrutiny has come to center on the opportunities and challenges presented by multinational enterprises originating from major emerging markets like China to an evolving policy framework for responsible investment. With China’s presence as an investor and financier continually expanding ever since the mid-2000s, this question is especially pertinent to the case of Chinese outbound investment in the natural resource sectors of developing countries. These past years have seen the Chinese government and its national companies come under mounting pressure to observe best practices. Stakeholder expectations have centered, in particular, on the adoption of socially and environmentally sound approaches to Chinese-financed resource schemes in developing host countries, especially in those suffering from lax governance. In the preceding discussion on China’s conformance with international norms and sector- specific standards, changes that have occurred in the Chinese systems of corporate law, environmental law, and investment regulation were highlighted. Within a state-controlled ODI regulatory regime, the Chinese government holds the potential to oversee as well as inform the behavior of its enterprises vis-à-v is an emerging normative framework that links international investment to sustainability and responsible business conduct. In the absence of legally binding measures, however, the issue of whether policy intentions are aligned with actual impacts is still open to question. Further in-depth research is, therefore, needed on the role of Chinese regulatory agencies and whether imposing controls is a prerequisite for effective regulation, or if establishing guidelines can in fact trigger meaningful responses from corporate actors. We also examined how Chinese resource investment in the developing world has raised serious—a lbeit, unresolved—questions regarding the sustainability of Chinese investment and what they signify vis-à-v is China’s transformation into a major source of outbound FDI. Clearly, the implications of Chinese investment on developing host countries’ socioeconomic development and, more broadly, on regional political dynamics are both complex and wide- ranging. It is in this respect that the case of Africa serves as an instructive litmus test of China’s commitment to becoming a ‘responsible’ global investor. Just as the Chinese government and its national companies are now recognizing how ‘irresponsible’ behavior can harm the reputation of Chinese companies abroad, debate has surfaced over the linkages between Chinese resource investment and developmental aid to countries in the developing world—most notably in Africa. Despite the promise of economic growth from increased investment,132 an influx of Chinese ODI into African mining jurisdictions holds complex implications for resource governance locally and regionally. Only an ambivalent consensus has so far emerged between resource companies, civil society, and governments on what is needed to prevent resource extraction from becoming a curse for resource-rich developing countries.133 The major policy and regulatory strides taken by the Chinese government notwithstanding, much more still needs to be done. Greater corporate accountability and transparency in 132. The global surge in demand for oil and minerals has been one of the main drivers of sub-Saharan Africa’s economic resurgence. See PricewaterhouseCoopers, ‘Into Africa: Investment prospects in the sub-Saharan banking sector’ (2008), . 133. See Jill Shankleman, ‘Going Global: Chinese Oil and Mining Companies and the Governance of Resource Wealth’ (Woodrow Wilson International Center for Scholars 2009).


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the overseas dealings and activities of Chinese firms constitute important preconditions for the adoption of a responsible investment approach that could help to mitigate political risk, as well as further the cause of sustainable development. Enhancing the sensitivity of Chinese businesses to local customs and needs—t hat is, to the importance of earning a social license to operate—is likewise crucial to maintaining sound relationships with host societies. Needless to say, Chinese SOEs cannot remain on the learning curve forever. Whether it be through external game changers or internal policy entrepreneurs, there is certainly room—not to mention rising demand—for dynamic change within the Chinese regulatory and policy realms.


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