Monday, May 20, 2013

Chinese SOEs in Latin America--CSR and Culture


There has been much attention paid to the practices of Chinese multinationals, especially its State Owned Enterprises, in Africa (e.g., Lucy Corkin, "China's Emerging Multinationals in Africa," The Africa Journal, Spring 2007; Chris Alden, China in Africa: African Arguments (London: Zed Books, 2007); China Into Africa: Trade, Aid, and Influence (Robert I. Rotberg, ed., Washington, D.C.: Brookings, 2008); Párdraig Carmody, The New Scramble for Africa, Cambridge: Polity Press, 2011); Corporate Responsibility in African Development:  Insights From an Emerging Dialogue, Maya Forstater, Dr. Simon Zadek, Professor Yang Guang, Kelly Yu, Chen Xiao Hong, and Mark George, Working Paper No. 60, Harvard Kennedy School Corporate Social Responsibility Initiative, October  2010).


 (Pix (c) Larry Catá Backer 2013)


Considerably less attention has been paid to the increasingly important involvement of Chinese firms, private and state owned, in Latin American development.  I have previously suggested the U.S. emphasis on the strategic implications of China-Latin American Trade (See, Thoughts on the US-China Economic & Security Review Commission Report: China in Latin America,  Law at the End of the Day, March 5, 2012 (with useful citations)). My research assistant has prepared a general and brief preview of the issues of CSR in Chinese outbound investment in Latin America.  More to come.





Overview

This research summary mainly concerns about the potential causes of conflicts between Latin Americans, including indigenous peoples, and Chinese firms oversea investments, particularly, one of the causation “Chinese firms’ low involvement with local communities and local affairs.” This summary first argued that the conflict between Chinese firms and local people is a common issue that challenging all the developing countries, even country like China. In fact, the core of the problem is the conflict between economic globalization and regionalism. Then this article analyzes one reason for Chinese investors’ improper CSR performance, namely, low involvement with local community.


Latin America’s[1] social issue and Chinese firm’s CSR behavior

With great development of China’s OFDI around world, Chinese firms’ CSR practice has drawn more attention than they desired. Targeted by western media and local NGOs, publications about Chinese firms’ poor CSR performance not only challenged the nerves of hosting countries’ local communities and Chinese governments but also pressured Beijing and Chinese investors to take measurements saving themselves from another PR disaster. Fortunately, with increasing social awareness every day, there are more studies and researches on Chinese oversea CSR practice by Chinese academic. There are more Chinese journalists covering oversea labor rights violations or environmental problems. There is a new tendency, instead of ignoring or keeping silent on these problems, both governments and companies take a positive stand to change their international images[2].


Africa vs. Latin America, unequal academic attention.

“CSR in Latin America” could be one exception for Chinese scholars’ intensive study of Latin America’s economic, politics, history and culture. Although China has numerous investments projects in Africa and Latin America, equal academic attention were not paid to oversea CSR practice in those regions. Chinese firm’s CSR performance in Africa is always a hot topic, in contrast, Latin America looks like a virgin soil under similar academic discussions. It is very rare to read someone write CSR practice in Latin America.



Inherited social issues in Latin America’s foreign investment

In the case of Latin America, there are various explanations for Chinese firms’ conflict with local community or Indians. Under a bigger picture the conflicts reflected a common problem that shared by many developing countries, which investors take away the profit of investment while the local communities gain nothing but pollution and poverty. Focusing on the Chinese firms, their improper CSR practice also contributed to those social issues.

China’s investments in Latin America are similar to Africa regions. Investments in these regions are heavily concentrated on energy and industrial raw material sectors. The significance of Latin America is the fact that their natural resources fueled China’s export oriented economy at a desired price, which China willing to make some long time investments. Thus, Latin America in general is a natural resource import region as well as an export destination for Chinese products. Such arrangement is naturally inherited with potential problems.

First, oil, woods and other natural resource exploitation activities not only produce environmental harms but also exclude the incentives for industry upgrading, which could generate long term benefits for local economy.[3] Moreover, Chinese products create competition with local products, which projects certain threats to local business. Especially for those countries that still follow Washington Consensus.[4] Their unregulated free market can’t protect local business from Chinese competitors. In summary, the negative aspect of Chinese investments produces both environmental and potential poverty concerns for local communities. However, Chinese investor is not the key of this problem. The governments in Latin America regions need foreign investments to fund their budget deficit.[5] The practice of trading long term development and environment for tax revenues is not new for many less developed countries. Indians’ battle with undesired and unfair treatment just a small portion a larger issue of economic globalization.

Chinese firms’ improper behavior

As the representative of globalization, Chinese investments or Chinese investors’ Latin America operation did not minimize the negative aspect of globalization. In the absence of social awareness and relevant government attention, Chinese firms’ domestic operation as well as international operation share exact same CSR problems.

Labor issues

Unfairly low wages and unsafe production environments were two major issues that concerned by local workers and NGOs.[6] Chinese firm’s compromise of fair treatment and safety with economic profit has raised numerous protests and criticisms.[7] Some Chinese firms even imported cheap labors from China to do low level non-technical jobs, which hit local labor markets.

Business credibility

Some Chinese firms have bad reputation for betray their investees, which create an impression to the Latin American that Chinese firm will choice short term benefits over company’s credibility. For example an Ecuador company Dygoil SA was a major contractor of a petroleum production upgrading project.[8] Before Dygoil SA began to work on project, its Chinese investor stop cooperation and took the project away to be a sole contractor with the oil company.


Causation for CSR issues

There are many reasons for CSR deficit. This report is focusing on the low involvement of local community.

Traditions of no involvement with local community

Chinese firms have been heavily criticized for lacking involvement with local community. Two facts might contribute to such behavior, namely, Asia culture and CCP foreign policy. Asia culture traditionally requires people to be modest and low profile. As a humble businessman, he should not publicize his virtue and goodness. Broadcasting one’s goodness is opposite to the role model that promoted by the society and being seen as a disgraceful showoff. As for low profile, which requiring people mind their own business and being respected to others by not interfering business outside one’s own territory. Thus, it is more important for people to stay away from troubles under other people’s roof.

In foreign trade area China traditionally holds a concept that “consistency between national interest and business interest”, which suggested two things. First, business interest is subjected to the national interest. For example, current oversea projects guidance reflected China’s national interest of acquiring foreign nature resource to fund its economic developments. Second, Chinese investors oversea behavior shall covey central government’s foreign policy. In particular, uphold the ideal of mutual respect and non involvement of local affairs or disputes. There are historical reasons for China to take such stand. China as well as Africa and Latin America shared a similar history of being western colony and losing control over its customs, justices and national resources.[9] The past suffering reinforced China’s resistance of foreigners interfere with local social issues. Thus in order to avoid being suspect of imperialism behavior, any Chinese born in mainland will be precaution with the involvement of foreigner’s affair.

Thus, a Chinese firm may not involve the local affirms because culturally he may not interested or politically he don’t want to get into any troubles. Even a Chinese firm involved with local community they failed to deliver their performance in front of international media because they just want to be modest.

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NOTES:


[1] In Chinese Social Science area, Latin America (拉丁美洲, Pin yin: La ding mei zhou) does not equal to South America. Latin America is a term has frequently been used by scholars in their literature when they discuss politics and culture in that region. It usually refers regions in the south of U.S. board, where people use Romance languages, such as Spanish and Portuguese, which include Mexico, most of Central America, South America and the West Indies. South America (南美洲, Pin yin: Nan mei zhou) is a term that referring a continent in the south hemisphere, where it covers regions by the south of the Panama Canal. See http://zh.wikipedia.org/wiki/%E5%8D%97%E7%BE%8E%E6%B4%B2

[2] One apparent change is that more and more central SOEs published their oversea CSR reports. Such as Sinopec published its 2011 Brazil CSR reports, Sinopec in Brazil, see http://www.sinopecgroup.com/gsjs/Documents/SinopecResponsabilidadeSocial.pdf.

Another change is central government taken CSR issues more seriously. In 2009, state council specially distribute note to all central SOEs to improve CSR performance. See SASSAC Guidance Opinion on Central SOEs CSR performance, 2007. Also, various conferences and working meetings by the state agencies indicated central government’s determination of improving Chinese SOEs’ images. Under Chinese politics regimes, these measurements could be seen as political orders by the central government.

[3] Gonzalez, Carmen G. , China and Sustainable Development in Latin America (August 2, 2012). 4 Jiangxi Social Sciences 247 (2012). Available at SSRN: http://ssrn.com/abstract=2122609.

[4] Lbid.

[5]孙洪波, “环境维权的警示,” 中国石油石化5 (2011): 31

[6]钟宏武、杨小科, “海外中资企业的社会责任缺失问题研究,” WTO经济导刊8 (2007): 50-52.

[7] Shougang Corporation acquired Peru Steel Corporation in 2002, during the 14 years of operation Shougang never fulfilled its promise of upgrading the production facility, numerous accidents occurred during the production every year.

[8]Wall Street Journal, “中国公司海外投资谨记前车之鉴”, 成功营销2 (2005) 16.

[9] Gonzalez, Carmen G. , China and Sustainable Development in Latin America (August 2, 2012). 4 Jiangxi Social Sciences 247 (2012). Available at SSRN: http://ssrn.com/abstract=2122609.
See also钟宏武、杨小科, “海外中资企业的社会责任缺失问题研究,” WTO经济导刊8 (2007): 50-52.

1 comment:

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