Guiding Chinese Investment:
Government and NGO Collaboration
Douglas Whitehead
Global Environmental Institute
Exchange on Development and Environmental Issues
Summit Parkview, Yangon, March 28 2011
Summary
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Go Out Strategy
Chinese FDI and its Environmental Challenges
Environmental Challenges
Chinese Policies
– International Guidelines
– Domestic Policies and Guidelines
• GEI Case Study
– IPP Program
The “Go Out Strategy”
• Since early 2000s, guided by
inst. like Exim bank
• US$40.65 of outbound
Direct Investment Overseas
• Sectors: Timber,
Hydropower, Plantations,
Mining, Oil & Natural Gas
• Regions: SE Asia, Africa,
Latin America
• China working to maintain
Image as responsible superpower
• Challenge: How to ensure
best environmental impact
overseas?
China’s FDI
Overall
Source: OECD
By sector
By Region (hydro)
Source: GEI
Environmental and Social Impact
• Environmental
– Effects on biodiversity
– Deforestation and Watershed
degradation
– Soil Fertility
– Pollution and waste
• Social
– Community livelihoods
– Cultural value
Merowe Dam, Sudan
China Int’l Water
and Electric
Sedimentation,
evaporation,
resettlement
Loango Oil Field, Gabon
Sinopec
Threat to 67,000 hectares
in National Park
• Potential Blowback
– Project related risks
– Effects on bilateral/regional
relations
Nam Ngum 5, Laos
Sinohydro
Potential flooding
damage to watershed
communities
(under-construction)
What and Who is at Stake?
• Chinese Government and
Enterprises
– China’s ecological deficit
(WWF-CCICED)
– Managing environmental and
social risks (growing concern)
• Host Countries
– Governments: development
priorities
– Communities/indigenous
peoples: livelihoods
– Civil Society:
Environmental/Social
Welfare
International Guidelines
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Equator Principles
– 2008 MoU with SEPA
– One Chinese Bank signatory
UNEP: Finance Initiative (UNEP: FI)
Principles for Responsible
Investing
– Growth in signatories from emerging market
investors
UN Global Compact
– 139 Chinese Members by 2009
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IFC: Policy and Performance Standards
– MoU with ExIm Bank, MEP
– Support for China’s ‘Green Credit Policy
OECD Guidelines for Multinational
Enterprises
– No emerging market signatories
Global Reporting Initiative
– Domestic Sustainability reporting in China
Extractive Industries Transparency Initiative
– No support yet from China and India
Domestic Policies: Greening Chinese Investment
• Sustainable Investment Policies
– 2002 Environmental Impact Assessment
Law (NPC), among many
– 2008 Guidance on Centrally Owned
Enterprises Fulfilling Social
Responsibilities (SASAC)
– Market based instruments (DPS, EPBs,
tax incentives, green credit, green
insurance)
– ISO 14001 Certification Requirements
• FDI-Specific
– 2007 Nine Principles on Encouraging and Standardizing Foreign
Investment(State Council)
– 2007 Guidelines on Sustainable Management of Overseas Forests by Chinese
Enterprises (SFA, SEPA)
– 2008 Guide to Strengthen Regulation on Listed Companies (SASAC)
Policies: Green Finance
• Green Lending
– 2003 Observation of Equator Principles
– 2007 SEPA Notice on Risk Pollution
• Insurance
– Guiding Opinions on Pollution Liability
Insurance (SEPA)
• Banks
– Export-Import Bank
• MoU with IFC on
• Performance Standards
– China Development Bank
• CADF, includes EIAs
– NGO Report:Environmental Report
on Chinese Banks
• Green Watershed, Green Earth Volunteers
GEI
– High Performing banks
• Industrial Bank of China (EP)
• Bank of China (Green Credit)
• CCIC
‘Governance Gap’
• Chinese Side: Local Laws as Default
– Exim Bank 2007 Code of Conduct
requires investors to comply with
local law enforcement
– Conflicting Instructions:
Economic and Commercial Councils’
role in encouraging observance of
host country law
• Weak Host Country Governance
– Law or Policy may be good on paper, but
poor in execution (Zambia, Namibia)
– Legislation or Policy may be piecemeal or
– non-existent
• Response:
– Regional collaboration
– Civil Society Support
Opportunities: GEI’s IPP Program
• IPP: Integrated Policy Package
• Stakeholders
– Chinese Government
Guidelines on Environmental Conduct
Environmental Policies on Chinese FDI
– Chinese Enterprises
Sinohydro Community Development
Project
Nam Theun 2 Workshop
Chinese Chamber of Commerce
Workshop
– Host Country Government
Partnership NLMA of Lao PDR
PES and REDD Workshops
• Further Pilots
Integrated Policy Package
• Policies: CCA, PES, EIA, CSR, REDD(?)
– EIA: incorporated into legislative process of host
countries
– PES: Ecological services quantified, payments
contributed through fund
– CCA: Allocates how PES payments would go towards
conservation; land use concessions; community
involvement
– CSR: Voluntary tool, mounting domestic pressure
– REDD: carbon financed for reduced deforestation
• Advantages:
– Designed to address multiple stakeholders
– Community Development benefits
– Enhances civil society participation
Model 1:
GovernmentNGOEnterprise
Model
Model 2:
Guarantee Fund for
Community
Development and
Environmental
Protection
Guidelines and Research: Government Collaboration
• Guidelines
– 2008 Guide on Sustainable Overseas
Silviculture by Chinese Enterprises
(SFA, with GEI)
– 2009 Guide on Sustainable Overseas
Forest Management and Utilization
by Chinese Enterprises
(SFA, MOFCOM, with GEI)
– 2011 Guidelines on Environmental
Conduct by Overseas Chinese
Enterprises
(MEP, MOFCOM, with GEI)
• Research
– Environmental Policies on Chinese
FDI
– Case Studies (Laos, Zambia…)
Enterprise Pilot: Sinohydro
• Sinohydro
– MoU, GEI-Sinohydro
– Environmental
Institution
• Nam Ngum 5 Hydropower
Station
– Sinohydro—BOT
– EIA performed by Earth
Systems
• Community Development
Upstream
– Community Forestry
– Cattle Breeding
– Household Biogas: 40
digesters in Ban Chim
Village
Engaging Chinese Enterprises: Building
Capacity
• Workshop with Chinese Chamber
of Commerce in Lao
– Guidelines and Performance
Standards
– Environmental Risk Management
– Incl. Chinee government (SFA,
MEP, MOFCOM, MFA) and
enterprises (ExIm Bank, Sinohydro,
China Minmetals…)
• Best Practices in Hydropower
Development: GEI-WB joint
conference
– Nam Theun 2 Cascade Dams
– Dialogue on Hydropower
– Informal Knowledge Sharing
Network
– Challenges in future developments
Host Country Partnership: Lao PDR
• MoU with National Land
Management Authority (NLMA)
– Sustainable, Market-based
Land Management
– Capacity and Institution
Building
– Incorporate policy tools (PES)
in Lao National Assembly
• Trainings
– PES
– REDD
• Other Lao Partners
– Water Resources and Environment
Authority
– Ministry of Energy and Mining
– Ministry of Planning Investment
Conclusions
• Environmental Policies on Chinese FDI
growing stronger, but gaps remain
• Stronger awareness of performance
standards by enterprises
• Strengthening host country governance vital
• Government-Enterprise-NGO partnerships
feasible and effective in enforcing
responsible investment