Under Beijing\u2019s \u201cGo outward\u201d policy, Chinese companies are actively purchasing timber, mineral assets, oil and gas around the globe. But since western companies have already acquired so many of the world\u2019s most lucrative and accessible natural resource concessions, Chinese companies have often been forced to seek out riskier opportunities in politically unstable or frontier areas. As a result, Chinese companies are now involved in developing some of the world\u2019s most environmentally and socially sensitive projects.<\/p>\n
Chinese companies are quickly generating not only same kinds of environmental damage but also the community opposition that Western companies have spawned around the world. For instance, in Zambia\u2019s recent elections, the leading opposition candidate ran on a platform that tapped local anger over unsafe working conditions in Chinese-owned mines.<\/p>\n
Over the past several years, international NGOs have started to pressure not only companies, but also the banks<\/a> that back them. As a result, international banks have developed environmental and social financing standards, particularly for large development projects such as dams, pipelines and oil projects.<\/p>\n<\/div>\n While these standards and their implementation are not as robust as they could be, they can be useful in many ways.\u00a0Minimum standards can make it more difficult and expensive \u2013 if not impossible \u2013 for the most egregious projects to receive funding.\u00a0They can also create a strong incentive for companies to be responsible by designing more socially and environmentally benign projects. Some bank standards may even require companies to listen to community concerns as a condition for receiving loans.\u00a0For example, the Equator Principles<\/a>, a set of project financing standards endorsed by over 40 banks, require companies to consult with affected communities before a project is built, and to establish grievance mechanisms afterwards to address the concerns of people who may be affected.<\/p>\n While the Equator Principles have attracted a lot of support, they do not seem to have attracted the interest of Chinese financiers. Moreover, unlike some international banks, Chinese financiers currently lack standards on other issues such as mining, forests, and climate change. Based on publicly available data, only one Chinese bank \u2013 China Development Bank<\/a> \u2013 has adopted its own environmental financing standards. China Export-Import Bank (Chexim) reportedly has environmental policies, but they have not been made public. Only the Bank of Shanghai has endorsed the United Nations Environment Programme\u2019s Statement by Financial Institutions on Environment and Sustainable Development<\/a>, and only Shanghai Pudong Bank has issued a corporate responsibility report. No Chinese banks have adopted the Equator Principles on project finance.<\/p>\n But Chinese banks are still involved in environmentally risky deals. For example, Chexim, one of the country\u2019s biggest overseas lenders, has funded the Merowe dam<\/a> in Sudan, which will relocate farmers from the fertile banks of the Nile to barren desert, displacing around 50,000 people. It is also funding the Nam Mang 3 dam in Laos, which will displace about 15,000. Chexim finances China Metallurgical Construction Company\u2019s Ramu nickel mine<\/a> in Papua New Guinea, which employs the environmentally destructive practice of submarine tailings disposal. This technique<\/a> relies on the ocean dumping of mining waste, which often contains heavy metals and can be harmful to human and environmental health. The mine been described by the New Guinean National Fisheries Authority as an \u201cunsustainable project socially, economically, and environmentally [that] cannot be allowed to proceed.\u201d<\/p>\n Recently, Chexim has agreed to finance the China National Machinery & Equipment Import & Export Corporation (CMEC), which plans to develop an iron ore mine in the Belinga region of Gabon. This region is located in the Central African Rainforest, the second largest rainforest in the world.\u00a0According to Greenpeace, in as little as five to ten years, Africa’s apes, gorillas, and chimpanzees will disappear as forest habitats are degraded or lost. The Belinga region in particular has been identified as a \u201cPriority Important Area\u201d in the Regional Action Plan for the Conservation of Chimpanzees and Gorillas in Western Equatorial Africa. At one time, the area was not considered under immediate threat, because the lack of infrastructure made mining commercially unfeasible.\u00a0But with the backing of Chexim, CMEC is also going to build a port, rail system and two dams.<\/p>\n Another major Chinese bank, China Development Bank (CDB), has traditionally focused on domestic financing, but is now internationalising its portfolio.\u00a0CDB is one of the few Chinese banks with a public environmental-financing policy, but it seems to be limited to ensuring compliance with environmental laws in China.\u00a0CDB finances oil palm plantations in Borneo (Indonesia), home to some of the world\u2019s most biologically important tropical moist forests and the habitat of endangered orangutans, and will likely be at the centre of deals between China and Russia to develop dams, pulp mills and oil pipelines in the environmentally-sensitive Russian far east.<\/p>\n Some international observers have already started to sound the alarm about Chinese banks.<\/p>\n For example, many Equator banks rightly complain that the lack of Chinese environmental banking standards creates an unfair playing field.\u00a0But at the same time, many of them are buying significant shares of Chinese banks and have even joined the boards of these firms \u2013 Royal Bank of Scotland owns close to 20% of Bank of China and Bank of America could own up to 19% of China Construction Bank. With this level of involvement, they have the ability to introduce environmental financing policies at Chinese banks, and should not just complain.<\/p>\n<\/div>\n World Bank president Paul Wolfowitz recently expressed concern that Chinese lending, which is set to surpass the World Bank lending in Africa, could worsen African debt.\u00a0What he has not acknowledged is that the debt crisis was largely created by careless World Bank lending in the first place (which largely benefited Western companies).\u00a0Wolfowitz should not be surprised that Africa is turning to China for aid, since Western governments have not lived up to their own promises to cancel debt and extend more aid and concessional loans to Africa.<\/p>\n While NGOs should encourage Chinese companies and banks to adopt better environmental and social practices (for the sake of all affected communities \u2013 both inside and outside China), they must not ignore the role of Western consumption. For example, a significant amount of the timber that China imports from countries like Cameroon, Burma, and Russia goes directly into producing bookcases, furniture, picture frames and other goods that are then exported to the rest of the world.<\/p>\n But ultimately, calls from the international community may not matter.\u00a0Chinese banks will likely realise that it is in their own best interests to adopt world-class environmental and social lending policies.\u00a0Not only will it help them manage credit risk and make better loans, but it will also help Chinese companies preserve their social license to operate by acting more responsibly.\u00a0If securing access to natural resources is a key priority for Beijing, then securing international goodwill and promoting a harmonious society will also be paramount.<\/p>\n
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