Global Policy Forum

Some high-profile examples illustrate the risks created by Chinese investments for Africa's environment. In Sudan, China Exim Bank is financing the large Merowe Dam Project on the Nile. The dam's reservoir will displace more than 55,000 people from the fertile Nile Valley to arid desert locations. In violation of Sudan's environmental law, the project's superficial environmental impact assessment has never been approved by the Ministry of Environment.

In Gabon, Sinopec explored for oil in Loango National Park until the country's national park service ordered exploration to stop in September 2006 [5]. Conservation groups had pointed out that oil exploration threatened rare plants and animals, and the environmental impact study had not been approved by the environment ministry. China's Kongou Dam, which has been proposed to power the Belinga iron ore project in Gabon, could negatively impact the forests of the Ivindo National Park. Sinohydro's Bui Dam, a project being financed by China Exim Bank, will flood about a quarter of Bui National Park in Ghana. The Lower Kafue Gorge Dam, a Sinhoydro project being financed by China Exim Bank in Zambia, will put additional pressure on the ecologically important Kafue Flats and its national parks.

African and Western Reactions to China's Environmental Footprint

African governments of all political stripes have strongly welcomed China's growing presence on the continent. They have expressed appreciation not only for the economic boost triggered by Chinese investment, but also for the pragmatic and speedy way in which China has delivered aid projects, often irrespective of concerns over corruption and environmental impacts. Sahr Johnny, Sierra Leone's ambassador to China, summarised a meeting with Chinese investors in 2005 as follows:
‘The Chinese are doing more than the G8 to make poverty history. If a G8 country had wanted to rebuild the stadium, we'd still be holding meetings! The Chinese just come and do it. They don't hold meetings about environmental impact assessment, human rights, bad governance and good governance. I'm not saying it's right, just that Chinese investment is succeeding because they don't set high benchmarks' [6].

African governments have expressed concerns when cheap Chinese investors wiped out local textile (and other) industries, preferred Chinese over African workers, or did not comply with local labour laws. Very few concerns have been recorded regarding the environmental impacts of Chinese investments. In January 2008, Sierra Leone banned timber exports because, as the country's environment minister said in an interview with the BBC, Chinese and other logging companies were plundering forests with no respect for the law [7]. And a task force of the African Union urged all actors in September 2006 to ‘[e]nsure that China pays more attention to the protection of the environment in its investment practices' [8].

Since the 1980s, multilateral development banks have adopted safeguard policies that address the social and environmental impacts of their projects. Western financiers are concerned that Chinese banks will take up projects that they rejected because of unacceptable environmental risks. There is ample anecdotal evidence to suggest that borrowing governments use the availability of Chinese funding to pressure other financiers to weaken their environmental standards, or to flout them in specific projects.

In October 2006, then World Bank President Paul Wolfowitz warned:
‘Almost 80 per cent of the world's commercial banks respect [the Equator Principles] when they finance projects. The large Chinese banks do not apply them. True, they are relatively new to this type of activity in Africa. But they should not make the same mistakes which France and the United States have made in Mobutu's Zaire… Let's be honest, this would be terrible, a true scandal [9]."

Around the same time, Philippe Maystadt, the President of the European Investment Bank, criticised Chinese financiers even more bluntly. ‘The competition of the Chinese banks is clear', Maystadt said according to the Financial Times. ‘They don't bother about social or human rights conditions.' The EIB President claimed that Chinese banks had snatched projects from under his bank's nose in Africa and Asia, after offering to undercut EIB conditions on labour standards and the environment [10].

Maystadt and others recommend that international financial institutions should lower their own standards in response to Chinese competition. The EIB President argued that international financial institutions needed to avoid ‘excessive' conditions, and had to ‘think about the degree of conditionality we want to impose' [11]. The Chinese financiers' lack of stringent environmental standards may not only cause serious environmental impacts in specific projects, but also trigger a broader race to the bottom regarding the environmental standards of financial institutions.

Evolving Environmental Policies

China's traditional response to concerns about the environmental impacts of overseas projects is that China does not interfere in the domestic affairs of other countries. China's African Policy of January 2006 stresses that China ‘respects African countries' independent choice of the road of development', and will ‘increase assistance to African nations with no political strings attached' [12]. In response to Paul Wolfowitz's accusation that China was undermining environmental standards, a Foreign Ministry spokesperson maintained in October 2006:
‘China has adopted the principle of non-interference of other nations' internal affairs in its foreign relations. China does not accept any country imposing its values, social systems and ideology upon China. Neither will China allow itself to do so to others' [13].

The reality of China's foreign policy is more complex than public announcements indicate, and has evolved over time. After a string of riots in African countries, the Chinese government seems to be increasingly aware that human rights abuses and environmental destruction in Chinese projects can trigger an unacceptable backlash. President Hu Jintao for example repeatedly urged Chinese businesses to respect local laws during his visit to Africa in February 2007.

Government concerns over the impacts of overseas investments have triggered a series of guidelines regarding workers' rights, product safety, community relations, and environmental impacts in such projects. In August 2006, the Ministry of Commerce issued recommendations for improving the safety of workers in Chinese overseas investments. It urged Chinese companies to hire local workers, respect local customs and adhere to international safety standards in their projects. The recommendations argue that doing so will serve China's national interest [14].

In October 2006, the State Council, China's highest government body, issued nine principles regulating foreign investments of Chinese companies. Among other things, the Council called on Chinese investors to ‘fulfill the necessary social responsibility to protect the legitimate rights and interests of local employees, pay attention to environmental resource protection, care and support of the local community and people's livelihood cause', and to ‘preserve our good image and a good corporate reputation' [15].

China Exim Bank was an early example of China's effort to adopt environmental guidelines. The bank adopted an environmental policy in November 2004, and made it publicly available in April 2007. The policy states that ‘projects that are harmful to the environment or do not gain endorsement or approval from environmental administration will not be funded'. It stipulates that ‘once any unacceptable negative environmental impacts result during the project implementation, China Exim Bank will require the implementation unit to take immediate remedial or preventive measures. Otherwise, they will discontinue financial support' [16].

In August 2007, China Exim Bank issued more specific guidelines on social and environmental impact assessment. The guidelines require projects to comply with host country policies – but not international standards – regarding environmental assessment, resettlement and consultation. They stipulate an active role for China Exim Bank in monitoring environmental impacts throughout the project cycle, and reserve the right to cancel a loan if environmental impacts are not adequately addressed [17]. Observers agree that China Exim Bank is interested in international good practice in environmental assessment, but does not accept any political obligation to endorse standards drawn up by other bodies.

From Guidance to Implementation

Guidelines indicate the political intentions of the Chinese government, yet compliance is not mandatory. The central government still owns more than 150 large companies but has little control over their day-to-day operations. It has even less influence over the numerous provincial, municipal and private Chinese enterprises which are currently exploring Africa [18]. As a result, there are countless examples of Chinese investments in Africa which contradict the government appeals for a harmonious society and the tenets of corporate social responsibility.

In recent years, Chinese government agencies have created strong incentives for companies to comply with the country's environmental laws and guidelines. In August 2007, China's State Environmental Protection Administration (SEPA, now Ministry of Environmental Protection or MEP), the People's Bank of China and the China Banking Regulatory Commission jointly prepared a green credit policy. Under this policy, ‘banks will be stricter about lending to companies that do not pass environmental assessments or fail to implement environment-protection regulations' [19]. In November 2007, 12 Chinese companies for the first time were withheld loans under the green credit policy.

In October 2007, SEPA and Ministry of Commerce announced that they would ban companies which were found seriously violating environmental rules from exporting for up to three years [20]. And in January 2008, SEPA signed a deal with the International Finance Corporation to introduce the Equator Principles – the environmental standards of international private banks – in China [21].

None of the measures adopted by SEPA and other agencies explicitly refer to the environmental track record of Chinese overseas investors. They may even encourage domestic producers to relocate their most polluting operations abroad. Yet if the political will exists, all these measures can be used to strengthen the global environmental performance of Chinese companies.

Exporting China's Domestic Experience

Like every government, China tends to export its own development model through its aid and foreign economic policy. Chinese authorities have for example invited several African delegations to visit the Three Gorges Dam as a model for the continent's energy sector development.

In recent years, the horrendous cost of the Chinese development model to the environment, public health and ultimately the economy has become evident. In 2007 the World Bank documented the alarming price which China pays for its air and water pollution. The Three Gorges Project in particular can no longer serve as an argument for putting growth before the environment. In September 2007, Chinese experts warned that the hydropower dam could ‘lead to [an environmental] catastrophe' and that ‘the problems are all more serious than we expected' [22].

Over the years, the Chinese government has taken strong measures to address the alarming environmental destruction. It banned logging in old-growth forests in 1998, strengthened the water law in 2002, adopted a strict law on environmental impact assessment in 2003, and ensured public participation in such impact assessments in 2006. The green credit policy and other measures adopted by SEPA provide the teeth which will enforce stricter compliance of domestic polluters with environmental regulations.

The guidelines adopted by the State Council, the Ministry of Commerce, China Exim Bank and other agencies indicate that China intends to address the environmental footprint of Chinese companies overseas. Yet as happened in Western countries, stricter environmental regulations at home may also motivate Chinese companies to move their polluting operations abroad. This creates risks for regions with weak environmental regulations and enforcement capacities such as Africa.

In September 2007, South Africa's Deputy President Phumzile Mlambo-Ngcuka announced that her government was talking with China about moving polluting Chinese companies to South Africa. ‘China needs to send some of its polluting industries elsewhere because it is choking on them', Mlambo-Ngcuka said. ‘We have the capacity to manage emissions and want to regulate that agreement' [23]. The announcement is reminiscent of a memorandum in 1991 in which the World Bank's chief economist Lawrence Summers argued that ‘under-populated countries in Africa are vastly under-polluted', and that the World Bank should be ‘encouraging more migration of the dirty industries to the [Less Developed Countries]' [24].

Conclusion

China has great strategic interests in Africa, and Africa will benefit from a continued strengthening of its cooperation with China. Such South-South cooperation will promote growth and much-needed investment. However, as China's domestic experience demonstrates, economic growth should not come at the cost of environmental destruction. As a long-term partner in Africa's development, China has a self-interest in strengthening the rules on the social and environmental impacts of its overseas projects. China has begun the process of establishing guidelines for overseas investments. Given the speed of its global expansion, these guidelines will need to become more comprehensive, and deepened through binding regulations.

African governments can learn from China's experience by being selective in the types of investments which they invite, and by making sure that investments do not undermine the long-term environmental foundations of growth and prosperity. Africa's civil society is taking an active interest in China's role in the continent, and will continue to monitor the sustainability of Chinese investments.

Western governments will become more credible in expressing concerns regarding the environment and good governance if they uphold and strengthen the standards ruling their own overseas investments. They will need to accept their primary responsibility for addressing global environmental impacts. They should do more to promote standards and technologies which can help reduce emissions at home, in China and in other countries which are currently catching up with Western consumer societies.

Footnotes

[1] Financial Times (2007) ‘China pledges $20bn for Africa', 17 May
[2] Goldstein, A., Pinaud, N., Reisen, H. and Chen, X. (2006) ‘The Rise of China and India - What's in it for Africa' OECD
[3] For a brief discussion of other impacts of China's role in Africa, see Bosshard, P. (2007) ‘China's Role in Financing African Infrastructure', International Rivers Network
[4] See Economy, E. (2007) ‘The Great Leap Backward?', Foreign Affairs, September/October 2007, for a good summary of China's environmental problems and their link to inadequate governance structures
[5] Centre for Chinese Studies (2007) ‘China's Engagement of Africa: Preliminary Scoping of African Case Studies', pp. 94f
[6] Quoted in Lindsey Hilsum (2005) ‘We Love China', in Granta 92, ‘The View from China'
[7] ‘Sierra Leone bans timber exports', BBC News, 15 January 2008, viewed on http://news.bbc.co.uk/2/hi/africa/7189204.stm on 16 January 2008
[8] African Union (2006) ‘Meeting of the Task Force on Africa's Strategic Partnership with Emerging Powers: China, India and Brazil', p. 5
[9] Quoted in Les Echos, 24 October 2006 (translated from French by the author)
[10] Financial Times (2006) ‘EIB accuses China of unscrupulous loans', 28 November
[11] Philippe Maystadt quoted ibid
[12] China's African Policy, January 2006 [13] Ministry of Foreign Affairs of the People's Republic of China, Foreign Ministry Spokesman Liu Jianchao's Regular Press Conference on 24 October 2006
[14] Ministry of Commerce of the People's Republic of China, ‘Dui ‘guanyu jiaqiang jingwai zhongqiye jigo yu re nyuan anquan baohu gongzuo de yijian' de jiedu' [Explanation regarding the suggestions for strengthening the human safety and protection of workers for Chinese enterprises and organizations overseas], 31 August 2006, and Gill, B. and Reilly, J. (2007) ‘The Tenuous Hold of China Inc. in Africa', in The Washington Quarterly, Summer 2007, pp. 37–52, p. 47
[15] Guanyu Guli he Guifan Woguo Qiye Duiwai Touzi Hezuo de Yijian, viewed on http://www.zgbfw.com/info/pump-news-296021.html on October 30, 2007, Principles 5 and 9, unofficial translation
[16] China Ex-im Bank's environmental policy (unofficial translation of the Chinese original). See also Environmental Defense, International Rivers Network, International Civil Society Recommendations Regarding China Exim Bank's Environmental Policy Based on International Good Practice, September 2007
[17] China Exim Bank, Issuance Notice regarding Guidance on Environmental and Social Impact Assessment in China Export Import Bank Projects (unofficial English translation), 28 August 2007
[18] Alden, C., (2007) ‘China in Africa', London/New York, pp. 29f., 58
[19] State Environmental Protection Administration, Media News, Blacklist of Polluters Distributed, 6 August 2007
[20] State Environmental Protection Administration, News Release, MOC and SEPA Jointly Issued the Circular to Resolutely Prohibiting the Export Activity at the Cost of Damaging the Environment, 31 October 2007, and Xinhua, Supervision of exporters to be tightened, 30 October 2007
[21] International Finance Corporation, China EPA, IFC to Develop Guidelines for Groundbreaking National Green Credit Policy, 26 January 2008
[22] See Xinhua, ‘China warns of ‘catastrophe' from gigantic Dam', in Chinadaily.com.cn, 26 September 2007
[23] Phumzile Mlambo-Ngcuka quoted in Business Report, 1 October 2007
[24] Lawrence Summers, The World Bank, Office Memorandum, 12 December 1991

About the Author: Peter Bosshard is the Policy Director of International Rivers in Berkeley, USA. He coordinates a program to strengthen the environmental standards of Chinese overseas investments.