Politics: Backlash Against Rogue Chinese Investors Alarms Beijing

Beijing – As China moves up in the world and the need for investment in its own infrastructure declines, Chinese investors and financiers are eyeing lucrative contracts in less developed countries, winning bids to build dams, power plants and highways from Burma to Uzbekistan and Angola.

However welcome by local governments this influx of fresh Chinese financing may be, the wave of cheap Chinese labour and investors’ lack of concern for local communities are creating ripples of resentment in recipient countries, and gradually becoming a PR problem for image-conscious Beijing.

When economic historian Qin Hui recently gave a talk on China’s involvement in infrastructure projects in South-east Asia, he described Chinese investors as the new “Westerners” in Laos and Cambodia.

Speaking in Kunming – the centre of much Chinese investment flowing into the Mekong region – Qin said Chinese companies have a tendency to apply the lowest standards they possibly can. “Some companies look to see whether local standards are lower than Chinese standards – if so, they apply local standards,” Qin said.

This has created a lot of complaints about Chinese companies’ wrongdoings, agrees Zhang Xizhen of the School for International Studies at Beijing University. “There are multiple reasons for this: some Chinese companies only focus on profits and have little concern about local peoples’ benefits. On the other hand, the Chinese government has not taken strict measures to check companies’ behaviour but has only encouraged them to ‘go out.'”

While some of the companies that operate in Asia are small and obscure private enterprises, the most important players come from the state-owned sector – they are big, powerful and enjoy strong support from the government and the state banks.

In the first ten months of 2009, Chinese companies completed overseas projects worth 58 billion U.S. dollars, an increase of 33 percent over the same period in 2008, according to data from the commerce ministry.

Flush with cash and backed by an economic “going-out” government strategy, Chinese companies are more daring than ever when contemplating projects in risk places like Burma or Sudan. But the backlash against Chinese investors in some countries like Zambia and even ideological allies such as Vietnam are now sounding alarm bells in Beijing and making policymakers question the behaviour of its state champions abroad.

In Zambia, where China is mining cobalt, the deaths of several local workers in an accident in a Chinese factory in 2006 led to riots and more fatalities. After Chinese investment became an issue in Zambia’s presidential elections, Chinese president Hu Jintao was advised against visiting the country’s copper mines during his state visit to the country in 2007.

In Vietnam, where the communist party rules unrivalled in much the same way as in China, the state leaders have come under fire for undermining the country’s sovereignty by giving Chinese companies too many contracts to mine valuable natural resources.

In a stunning outcome for Hanoi, the environmental lobby and dissidents were joined by the venerated statesman and general Vo Nguyen Giap. The general, who once took his lessons in Marxism and guerilla warfare from Chinese communist leaders, has written several open letters calling on party leaders to scale down Chinese companies’ infiltration of Vietnam.

All these developments have been a matter of concern for Beijing for some time, and observers say Chinese leaders have responded to mend the country’s image and prevent another rise of “China threat” propaganda – particularly in South-east Asia, which Beijing regards as its backyard.

The development of the Mekong water resources in the region has emerged as one of the most sensitive issues between China and its downstream neighbours. China has built three hydroelectric dams on the Mekong (known as the Lancang in China) and is halfway through a fourth at Xiaowan, in the southern Yunnan province. What is more, Chinese investors are involved in scores of hydropower projects in Laos, Cambodia and Burma.

According to Qin Hui, of the 34 planned hydropower projects in Laos, roughly 40 percent are being developed with Chinese investment, while all of the 20 plants planned to be constructed in Burma are being built by Chinese companies.

Both the environmental protection and commerce ministry are reported to be working on guidelines requiring Chinese investors to apply Chinese domestic standards to overseas projects if the host country’s environmental and labour standards are too weak. During their diplomatic tours of Africa and Asia Chinese leaders from party chief Hu Jintao to vice-president Xi Jinping have been calling on Chinese business abroad to comply with local laws and respect local communities.

But, “although owned by the state, Chinese enterprises often operate at arm’s length from the government and do not necessarily follow official policies when they contradict corporate interests,” notes Peter Bosshard, policy director of International Rivers in the winter issue of the ‘World Policy Institute’ journal.

Bosshard, who has been observing the expansion of China’s dam industry overseas, believes that without Chinese funding and technology, many controversial projects in countries such as Burma, Laos and Sudan would not go forward.

But Chinese experts defend Beijing’s record, arguing that China cannot be expected to enforce its own other standards and that only those of the host country apply to infrastructure projects. Shi Guoqing, a resettlement expert who had been studying the Ilisu Dam project in Turkey – one of the most controversial large dam projects nowadays – says resettlement programmes are the responsibility of the host country and not of the developer or the funding agencies.

The Ilisu project, which had been rejected by European export credit agencies and private banks twice, is now reportedly lobbying for support from Sinosure – China’s official export credit insurance agency. Shi, who had been studying the proposed dam for three years, confirms that the project would displace up to 60,000 Turkish and Kurdish people from their land but argues that social resettlement programmes need to be guaranteed by the Turkish government.

“It is hard to expect foreign sponsors to go in and impose their own standards on the host country,” Shi says. As for Chinese funding, he believes that now even commercial Chinese banks like Huaxia bank are developing their own code principles and this would lead to a more unified approach in deciding where Chinese money goes.

Other experts say it is too simplistic to lay the whole blame for Chinese companies’ behavior abroad with the companies themselves. Ding Xueliang, a social scientist with the Hong Kong University of Science and Technology, says big Chinese state-owned companies go abroad only with the blessing of both Beijing and the governments of the host countries.

“If Chinese state companies do something bad abroad, they are indeed regarded as ‘big bullies’, but one needs to remember that the initiative had come first and foremost from the government of the host country. It is more of a government-to-government affair whenever big state companies are concerned,” Ding, who has researched Chinese company’s behavior in Southeast Asia, says.

He adds that Western nations’ reluctance to do business with some rogue countries in Asia has left a huge investment vacuum that Chinese companies are only too eager to fill. “Without competition from Western companies in the region, there is no pressure for Chinese companies whatsoever to improve their corporate behavior,” Ding says.