China’s African encounter

China’s rising involvement in Africa has brought opportunity and investment, says Ben Schiller. But poor standards of corporate responsibility present a real danger to the continent’s environment and development.

China has long enjoyed good relations with the southern African state of Angola, during the Cold War the two regimes shared ideological sympathies. But the relationship has taken on a new closeness in recent years, as China’s economy has expanded and Beijing has encouraged its companies to scour the world for natural resources. From being a blip on China’s strategic map, Angola is now central to China’s strategic plans – a country to be flattered and indulged through a mix of military support, aid, and cheap loans.

Earlier this year, Angola – Africa’s second largest oil producer – became China’s number one source of crude oil, overtaking Iran, Saudi Arabia and Nigeria. In May, Sinopec, one of China’s three leading oil companies, struck a US$2.2 billion deal with Sonangol, Angola’s state-owned oil company, to develop two new blocks with estimated reserves of 4.5 billion barrels, adding to its previous concessions. By 2008, Angola will supply the People’s Republic with up to two million barrels a day. And, by all accounts, the plan is for more.

Accompanying its investments in oil, China has extended a series of low-interest loans, pledged investments in Angola’s telecoms sector, railways, and military communications network. Chinese companies have also been active in various infrastructure projects, including roads, bridges, schools, shopping centers, office buildings and low-cost housing. Most dramatically, Chinese firms are heavily involved in building a new city south of Luanda, which the government hopes will house up to four million people and help to alleviate extreme overcrowding in the capital.

China’s largesse – while beneficial to Angola’s post-war reconstruction – has not come without criticism. A US$2 billion loan, signed with China’s export credit agency in 2004, was especially controversial, with NGOs and others complaining that China had helped Angola to renege a putative deal with the IMF, which came with conditions to cut corruption and improve transparency surrounding the country’s oil revenues. Global Witness, a British NGO, has lambasted China for eschewing governance in the negotiation of such financing, while Western oil companies have said Chinese companies have effectively hampered efforts to introduce anti-corruption schemes like the Extractive Industries Transparency Initiative – which Angola has signed but has yet to implement. At the same time, development experts have questioned whether China’s money, while helping to build hospitals, will actually start the country on the road to self-sufficiency. A feature of much of China’s investment in Africa, they say, is the use of Chinese, rather than local workers.

China’s involvement in Angola is hardly unique. Over the past few years, Beijing has been extending soft credit to numerous countries in Africa, Latin America and Asia, as part of its push to secure energy supplies and develop its companies’ interests overseas. The “big three” of Chinese energy companies – CNPC, Sinopec, and CNOOC – have been buying up dozens of oil and gas blocks, and as in Angola, Chinese construction firms have been busy building major infrastructure all over Africa and Latin America. China’s aim, observers say, isn’t necessarily profits – at least in the short term – but rather to build influence in the developing world, undercutting western governments and companies.

This model of development, which forgoes any “interference” in the internal affairs of foreign states, is of increasing concern to NGOs, international financial institutions, and western companies trying to improve transparency, human rights, and develop “capacity” in poor countries. The worry is that Beijing will let nothing get in the way of its “go global” policy, turning a blind eye to the activities of its companies overseas, even as it tightens corporate responsibility standards at home (as it has done on issues of corruption, worker safety and the environment). In turn, there are those who fear what this will mean for western companies trying to compete with their Chinese counterparts; whether – backed by cheap loans, diplomatic pressure, and military assistance – China’s companies will lower the bar for all comers.

On the other hand, many African leaders point out that, far from corrupting the development process, China is presenting Africa with opportunities. They argue that it was precisely the meddling of western powers – such France, Portugal and Britain – that contributed to the extreme poverty on the continent. By contrast, China’s approach, focusing less on governance and more on getting things done, stands more chance of success than endless foreign interference.

China and corporate responsibility 

Nonetheless, the activities of Chinese companies in Africa have raised eyebrows. Experts say that, compared to western companies, Chinese multinationals are only beginning to understand corporate responsibility. Some believe greater engagement with institutions like the World Bank, the need for western capital (including stock-market filing requirements), as well as the reputational benefits of corporate responsibility, will all encourage Chinese companies to begin to take the area more seriously – at least at home. More worry surrounds the companies’ behaviour abroad. On transparency, China has yet to sign up to international anti-bribery initiatives like the OECD’s anti-bribery convention, and the EITI. Says Peter Rooke, director of the Asia department at Transparency International: “As Chinese companies expand their investment into other countries, there is a need for better international standards.”

The weaknesses of Chinese corporate-responsibility standards are most evident in developing world – where the majority of Chinese investment is now focused – and are frequently oil-related. Most egregious is the relationship with the regime in Sudan – where China has ignored US sanctions, the genocide in Darfur, and a full-scale divestment campaign from NGOs. Burma and Zimbabwe have also benefited from numerous Chinese loans.

NGOs and other observers are also very concerned about China’s international environmental impact. A report from the International Rivers Network and Friends of the Earth last year criticised Exim Bank, China’s export credit agency, for funding projects such as the Yeywa Dam in Burma, Merowe Dam in Sudan, and the Nam Mang 3 Dam in Laos. It says Exim has failed to sign up to the environment guidelines adopted by many export-credit agencies from OECD countries, including Korea and Turkey. These guidelines, known as the “common approaches”, compel export-credit agencies to subject projects to environmental review, as well as relevant host country and international standards. In late 2004, Exim adopted environmental guidelines of its own; but NGOs point out that they are not available to the public, or to commercial banks that arrange funding on Exim’s behalf. The report notes that Exim also has no apparent policy on human rights, despite loaning to countries with poor human-rights records, such as Burma and Sudan. Meanwhile, concerns have been raised over the environmental impact of various Chinese-run mining operations in Africa, including copper mines in Zambia and Congo, and titanium sands projects in ecologically sensitive parts of Mozambique, Kenya, Tanzania, and Madagascar. Chinese miners have also come under fire in South Africa.

Moreover, China is a major importer of illegal timber from forests in places like Burma, Indonesia, Cameroon, Congo, and Equatorial Guinea. Last year, Global Witness said that China’s imported timber – most of it illegal – was worth some US$350 million annually. Up to 70% of that ended up being re-exported abroad as furniture, plywood and other processed products, according to a report this year by Centre for International Forestry Research.

Elizabeth Economy, director for Asia Studies at the Council on Foreign Relations in Washington and author of The River Runs Black: The Environmental Challenge to China’s Future, says there are two ways of understanding China’s impact on the global environment. One, is what she calls the “unintended consequences” of China’s rapid economic advance: its impact, for example, on ozone depletion and climate change, and its pollution of the Pacific Ocean.

The second phenomenon, she says, is more recent and concerns its multinationals working abroad. “If you can accept that Chinese companies engaged domestically are some of the most egregious in the world in terms of labour and safety standards and environmental standards, then there is very little reason to anticipate that what they are doing abroad is any better,” she says.

There are signs, however, that Chinese companies and the Chinese government are beginning to take concerns over corporate responsibility more seriously. For example, following Global Witness’s report on Burmese logging, the Yunnan Provincial Government closed its border to illegal imports from that country. In Peru, where CNPC’s subsidiary SAPET has come under fire for impinging on the habitats of indigenous peoples in the Amazon, the company recently requested that the government remove an affected area from their oil concession. Such examples may be the first evidence that Chinese companies understand that to operate over the long-term they need to adjust to the concerns of local people.

Economy says some government agencies is beginning to wake up to the potential for difficulties. She says: “I think there is some concern within the Foreign Affairs ministry about how to keep track of China’s growing presence abroad. I think the idea of corporate responsibility among Chinese companies is just beginning to take hold. But it’s going to take some time, because the companies haven’t felt these concerns domestically.”

Ben Schiller is a freelance journalist based in London. He specialises in US politics, eastern Europe and corporate responsibility issues.