Improving the Environmental Standards of China’s Growing Overseas Investment

China’s rapid economic growth and its growing demand for resources have increased its investment footprints across the world. Its outbound direct investment (ODI) was estimated at USD115 billion in 2012 and is projected to reach USD172 billion by 2017, making the country the second-largest overseas direct investor after the US.  However, China’s overseas investment in mega-projects such as hydropower dams, an estimated 308 dam projects in 70 countries as of August 2012, is not without problems. In some cases, such projects have aggravated armed conflicts. Myanmar offers an apt example. Hydroelectric dam projects in provinces like Kachin State has escalated tensions in 2011 between the Myanmar Army and the armed opposition group, the Kachin Independence Army (KIA). Construction of these dams often proceeded under questionable circumstances such as lack of consultation of ethnic minorities inhabiting the areas and lack of transparency on the potential environmental and social impacts. The Letpadaung copper mine in Sagaing Division offers another example. Operated jointly by China’s Wanbao Mining Limited and the Union of Myanmar Economic Holdings Limited (UMEHL), the project was subjected to mass protest in August 2012 due to environmental pollution, forced removals and unfair compensation. Subsequent crackdown injured nearly 100 villagers.

The lack of environmental regulations of China’s overseas investment is hardly surprising because such regulations continue to  remain weak within China itself. Issues related to environmental pollution are often characterised by official apathy, opacity, cover-ups, and outright denial. For instance, Beijing-based lawyer Dong Zhengwei’s request on 30 January 2013 for full disclosure of the findings of a comprehensive study of land pollution conducted by relevant government ministries from 2006 to 2010 was rejected because it is a “state secret”. Also, after decades of official apathy, the Chinese government finally admitted in February 2013 of the existence of a new phenomenon of “cancer villages”, more than a decade after more than 400 such villages have been identified.

China can no longer afford to ignore the environmental and societal impacts of its overseas investment. Absent strict environmental standards, such investments could inflame tensions in countries with histories of internal armed conflicts such as Myanmar and parts of Africa, another region with huge Chinese investments. In a positive sign, China’s Ministry of Commerce and Ministry of Environmental Protection jointly issued the ‘Guidelines for Environmental Protection in Foreign Investment and Cooperation’ on 18 February 2013. The Guidelines aim to “direct enterprises in China to further regularize their environmental protection behaviours in foreign investment and cooperation, guide them to actively perform their social responsibilities of environmental protection, and promote the sustainable development of foreign investment and cooperation”. The issuance of the Guidelines is timely. However it is a voluntary guideline meaning companies are not required by law to abide by them. It is imperative that such guidelines be made mandatory for all Chinese companies venturing abroad so China’s overseas investments can result in a win-win solution that balances economic development and environmental protection.

This blog post has been written by Mr PK Hangzo. He is Associate Research Fellow at the Centre for Non-Traditional Security (NTS) Studies, S. Rajaratnam School of International Studies (RSIS), Nanyang Technological University (NTU)).