China needs more than money to win global affection

Chinese companies invested abroad must work harder to safeguard the environment and deliver local benefits, writes Wu Wenyuan

China may be feared and respected in the global economy but it’s still a long way from being loved.

The shift in the economic balance of power between the US and China is playing out not just in the markets but also in global public opinion. Although most people still see the US as the leading economic power, China is gaining ground. In fact, respondents in seven out of ten European countries, as well as Australia and Russia, see China as the chief economic power, according to research by the Pew Research Center. Many developing nations in Latin America and Africa also view the country positively.

But China’s economic might isn’t translating into soft power.

Among factors to explain why this is the case, my research has found that the Chinese companies which embody Beijing’s global reach suffer from a lack of confidence in their capacity to be good corporate citizens. In addition, underperformance can often be linked to the social and political environments in a specific host country.

Chinese businesses investing overseas are often criticised for making little or no contribution to boosting local employment, preferring instead to bring staff from China. There are also many cases in which they stand accused of harming the environment. For example, Chinese agriculturalmininglogging, and oil companies have been criticised for encroaching on the Brazilian and Ecuadorian Amazons, exacerbating deforestation and damaging biodiversity.

CSR to the rescue

With more emphasis on corporate social responsibility (CSR), especially in less developed countries, Chinese companies can deliver greater local benefits, help preserve the environment, and also improve China’s soft power. Of course, ameliorating the environmental and social footprints of Chinese businesses will require a long term and concerted effort between corporations, the Chinese state, and governmental and civic actors in host countries. But the payoffs for all sides – and the planet as a whole – would be substantial.

Unfortunately, unlike Beijing’s other efforts to expand its global reach (like the Belt and Road Initiative), China lags behind its Western counterparts in instituting effective sustainability policies. Chinese policy makers have promulgated a series of political guidelines to promote CSR, including those crafted by the SASAC and the China Exim Bank as well as the Green Credit Guidelines, but those frameworks are still limited in scope compared to those of the EU and US.

China’s rules mainly apply to state-owned enterprises and often use ambiguous language. They emphasise compliance with host country regulations and customs but do not encourage companies to “go beyond”, an approach that is more in line with the international perception of CSR. As a result, China’s business culture lacks uniformity in how it applies CSR standards, with managers adopting different approaches on a firm-by-firm basis.

Even so, Chinese companies do sometimes outperform their international competitors on CSR. One example is SAPET, a Peruvian subsidiary of the Chinese oil company CNPC. It was commended internationally and by local communities for divesting from a contested area of land that overlapped with indigenous territory in the Madres de Dios. In contrast, the Spanish company Repsol-YPF was condemned by local civil society groups for trespassing on the territories of the local Pananujuri, Taromenane and Taushiro peoples.

But one stellar performance does not a culture of CSR make.

In many cases, the same companies who earn praise in one market have woeful records elsewhere. Andespetro, the Ecuadorian subsidiary of CNPC and Sinopec, has encountered fervent protests over its expansionary moves in the Amazon and for hiding its use of a Chinese management team despite a promise to employ locals. Like Ecuador’s national oil corporations Petroecuador and Petroamazonas and Western predecessor Chevron, Andespetro is under fire for frequent oil spills and problematic community relations.

These deficiencies have been made worse by weak oversight and enforcement from Beijing. They are also a setback for Chinese companies interacting with host communities overseas. Just look at Africa, where despite being the single largest source of FDI, feelings about China are mixed. Some fear that Chinese investments betray neo-imperialist ambitions, and the ambiguous, often top-down nature of Chinese CSR has only served to fuel those suspicions.

Missed opportunities to help address emergencies in poorer nations, like the Ebola outbreak in West Africa, have not helped either. While Beijing contributed state-sponsored humanitarian aid and technical assistance, Chinese companies active in disease-stricken countries like Guinea rushed to pull out, leaving their local employees and partners to fend for themselves.

This stood in sharp contrast to private actors from other countries. The Russian aluminium company UC Rusal, one of the largest investors in Guinea, not only stayed fully operational during the crisis but took an active role in the fight against Ebola. As part of a public-private partnership (PPP), Rusal invested US$10 million (67 million yuan) to build an epidemic research and treatment centre designed by its own engineers. Separately, 11 London-based companies with long-term business dealings in West Africa formed a group named ESPMG to mobilise local skills and resources. They attracted over 100 companies and 50 public bodies and NGOs to join the cause at the peak of the crisis.

Room for growth

Why, then, do Chinese companies act as responsible stewards in some cases but not in others? My own research traces these divergences to differences in host countries’ regulatory structures and civil societies. To put it simply, Chinese companies are most willing to commit to CSR when host governments facilitate economic competitiveness and decentralisation, all while upholding inclusive policies toward civil society. Companies are more likely to follow through on their CSR commitments when faced with a unified, collaborative civil society.

Of course, multinational corporations also fall short on CSR in places where economic activity is subject to centralised, non-competitive governance and where civil society is constrained. The effects are exacerbated, though, when host governments have extensive economic ties with China or profess political sympathies for Beijing.

Governments that find themselves dependent on China or overly keen to embrace the country tend to favour Chinese investment over the considerations and demands of local communities, viewing engagement with China as an indispensable part of their national interest.

Faced with little competition and lax oversight, Chinese companies (like their Western counterparts) lapse into reckless behaviour. But those firms could still learn to excel in CSR given the right incentives and beneficial outside pressures; local governments and civil society, for instance, can provide regulatory and communal oversight. Whether or not China comes to be seen as a positive global force depends on their success.