CSR practices of Chinese businesses in the global South

Can Chinese business engagement ensure sustainability and benefit the poor? Our research suggests complex factors shape their operations – of which Chinese policies play only a minor role. 

South Africa President Jacob Zuma speaks to China counterpart Xi Jinping at the FOCAC summit in Sandton, Johannesburg in 2015. China is increasingly influential in Africa (Photo: GCIS/GovernmentZA, Creative Commons, via Flickr)

How to make sure Chinese businesses in the global South benefit the environment and poor communities? This has become a hot topic in international development, given the sheer scale of the Chinese engagement in the global South.

China is now one of the world's top foreign investors (subscription required) and Africa's largest trading partner. It is also the largest builder of new infrastructure on the continent. 

While Chinese government policies and guidelines are often seen as critical in influencing business conduct, we want to find out what shapes the behaviour on the ground. 

Working with Chinese researchers, we talked to 58 representatives from Chinese state-owned enterprises and private businesses in Kenya, Mozambique and Uganda. We wanted to hear the perspectives of Chinese business representatives in-country, which are missing from the current debate – despite them making key decisions related to environmental and social practices in daily operations. The results are detailed in our discussion paper

We wanted to find out how much influence Chinese policies exert at the operational level. Can we simply presume a high degree of top-down government control over business operations overseas, as happens within China? And do we assume that the Chinese policies affect all Chinese businesses the same way? 

Among 30-plus Chinese policies regarding overseas sustainable investment, only one clearly states the ways of punishment – Yuan Wang, co-researcher  

We share some of the findings below – there are more nuances and details in the paper. But we are keen to hear feedback from researchers, NGO workers and others in the field based on your experiences.

Findings from Kenya, Mozambique and Uganda 

Low awareness and limited relevance of Chinese policies: more than half of the businesses interviewed were not aware of the selected Chinese policies (see figure 1 below). Only 15 per cent expressed familiarity.

A chart showing awareness of Chinese overseas business policies and guidelines among all respondents (Image: IIED)

The most important thing is policy support from the local government; Chinese policies are not relevant – Executive, private business, Uganda

Local governance and corporate policies matter more: We found that host country legislation, local governance factors (e.g. limited local government capacity, weak rule of law, corruption) and internal corporate policies were more important in guiding environmental and social practices on the ground. For construction companies working as contractors, the terms of the contract and conditions related to financing were very important. 

Despite the common perception that Chinese businesses maintain cosy relationships with host governments, our interviewees were frank about the challenges of dealing with local corruption and government institutions. One manager of a state-owned enterprise in Uganda said: "Our construction team cannot move an inch in some sections — the local government has not resolved the land disputes on the route they promised."

Corruption was one of the top challenges mentioned; but some private businesses, ironically while complaining about corruption, seemed uncritical of their own role in perpetuating it – Wenhong Xie, co-researcher 

Wide range of views: there were big differences between state-owned enterprises and private businesses in terms of awareness and attitude to Chinese policies (state-owned enterprises showed higher awareness and a more positive attitude), which surprised co-researcher Yating Luo. 

We also found vicious competition among Chinese companies in the construction sector as well as antagonism towards "trouble-makers" – mostly small and medium private businesses that are seen as skirting around local regulations.

The Chinese business community in Africa – and possibly around the world – is far from uniform and seems to respond to regulatory pressures from China in vastly different ways.

Given the increasing share of private businesses involved in China's foreign direct investment, this raises the question of how the Chinese government can govern private business conduct overseas – is China the right entry point for advocating improved business practices or should we focus on local governance and host country government instead?

Some private businesses just come in (without proper approvals) and ruin the playground for us all – Manager, state-owned enterprise, Kenya

Awareness of voluntary guidelines: While there was limited awareness of some guidelines (eg Guidelines for Environmental Protection in Foreign Investment), Chinese companies were more familiar with some sector specific guidelines in mining and contracting.

But our research indicates that a proliferation of voluntary guidelines without proper consideration for dissemination, implementation, uptake and incentives will likely fail to achieve the desired impact

A chart showing policy awareness levels for three voluntary guidelines (Image: IIED)

Some care about social impacts and localisation: these companies have worked to improve community relations and skill transfer in their own ways. But while these companies' intentions are laudable, their efforts appear somewhat ad-hoc nature and there was a lack of expertise in some cases, potentially hampering efforts.

One of the co-researchers, Tianjun Hou, commented that Chinese companies seemed more likely to succeed if they were more localised – employing local people as senior managers or subcontracting to local companies – rather than being enclosed in "China town". 

Share your perspective 

Our findings suggest that we need to make a more realistic assessment of Chinese policies' and guidelines' limited influence on overseas business conduct. Do you agree with this assessment? Or do you find our results surprising? 

Does your experience of Chinese business activities in Africa and other developing countries provide a different perspective? 

We'd also welcome your ideas for future research based on this paper's findings. The researchers have suggested going beyond perception analysis by assessing compliance and conducting comparative research between Chinese and non-Chinese businesses – as well as between different African countries to tease out the impact of local factors.  

We'd also like to hear the views of those working on the ground, or campaigning on these issues. Does this more nuanced understanding of corporate governance among Chinese companies in Africa provide insights? Does it allow you to engage more effectively with Chinese business?  

What might provide the incentives – policy or non-policy instruments – for Chinese companies to conduct responsible business abroad, and incorporate voices from local communities into their decision-making processes, in particular when it is not required by the law of the host country? 

Please share your views in the comments section below or email xiaoxue.weng@iied.org.

Xiaoxue Weng (xiaoxue.weng@iied.orgis a researcher in IIED's Natural Resources Group.

The discussion paper Chinese businesses in Africa: perspectives on corporate social responsibility and the role of Chinese government policies was edited by Xiaoxue Weng and Lila Buckley from IIED, and included contributing authors Feifei Cai, Tianjun Hou, Jinghao Lu, Yating Luo, Lei Meng, Deborah Sarah Nakirijja, Yuan Wang and Wenhong Xie.