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«A research undertaking by the Centre for Chinese Studies, prepared for the Extractive Industries Transparency Initiative (EITI) & Revenue Watch ...»

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Chinese civil society has only recently begun to emerge, as noted by Ye: “[o]ne of the significant developments of Chinese society in the past two decades is the emergence of nongovernmental organizations (NGOs)”3. As a result, civil society in China is not yet very developed and has low capacity. Furthermore, Chinese civil society organisations’ activities have to be aligned to CPC policy, thus, they remain heavily influenced by government and are restrained. As a result, NGOs are not perceived to be qualified policy players in China and have limited leverage.

1.1.3 Conceptual remark: Corporate Social Responsibility

Part of the aim for this report is to explore the perceptions held by Chinese stakeholders of corporate social responsibility (CSR) initiatives. In this context, corporate social responsibility entails “situations where the firm goes beyond compliance and engages in ‘actions that appear to further some social good, beyond the interests of the firm and that which is required by law’”4, for example by seeking to contribute to the betterment of issues such as labour standards, community relations or environmental standards5.

1.2 Background 1.2.1 China’s energy demand China became a net oil importer in 1993 and its domestic supplies are dwindling as its economic growth continues to experience unprecedented rates. The Chinese government initiated the ‘Going Out’ strategy in 2001, encouraging Chinese companies to participate in the global economy. As a result of domestic production failing to meet the country’s demand, China’s oil companies have over the last decade started to explore opportunities overseas6. The invasion of Iraq in 2002 was perceived by many Chinese policy makers as a flagrant attempt by the United States and its allies to strengthen access to oil resources in the Middle East.7 Furthermore, China National Offshore Oil Corporation’s (CNOOC) aborted bid to purchase Union Oil Company of California (UNOCAL) in 20058 had a profound effect on Chinese stakeholders, an effect that since has been reinforced by the drastic fluctuations in the international price of crude oil.

The above mentioned examples all concern oil supply, which traditionally has been the focus of Chinese energy policy. However, Chinese policy makers increasingly recognize that domestic energy policy requires greater focus on reforms to moderate demand.9 According to China's 11th Five-Year Program (2006-10), China aims to reduce energy consumption per unit of GDP by 20 percent from 2005 to 2010 by improving resources, utilizing efficient technology and saving energy. Houser notes that China accounts for 9 percent of global oil demand and 1 percent of known oil reserves.10

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1.2.2 General Chinese policy formulation A great deal has already been written on the fragmentation of public institutions in China.11 Rationalist perceptions of the Chinese Government as a monolithic unitary actor assume high levels of unity and the leadership’s capacity to impose their positions across the entire state apparatus.12 This rationalist approach assumes Chinese leaders enjoy complete knowledge of alternative solutions and can calculate the costs and benefits of each option’s consequences.13 Such perceptions remain common in Western popular media, but are often simplistic in nature and provide little insight into understanding the complexities of the operations of the Chinese Government today.

Lieberthal and Oksenberg developed the model of ‘fragmented authoritarianism’ at the end of the 1980s to explain the dynamics of decision making within the Chinese government, taking into account power struggles among bureaucratic units of the Chinese state14. Speed suggests that the three primary challenges the Chinese government is facing in the effective implementation of policy are; first, the multiple tiers of government, second the inability to effectively institute reforms, and third the lack of staff with the necessary expertise.15 Shirk describes the decision making process of the Chinese Government at state, provincial and municipal levels in terms of conflict amongst leaders and their networks of clients.16 The formulation of energy policy does not appear to be an exception.17

1.2.3 Chinese energy policy formulation

The Chinese Government is working hard to address the procedural challenges within energy policy formulation outlined in the introduction. One such attempt was the Draft Energy Law initiated in December 2007, calling for a more environmentally friendly energy policy as well as a more market oriented pricing system for energy. The draft also pushed for the re-establishment of the Energy Ministry that was disbanded in 1993. The draft was published on the website of the Office of the National Energy Leading Group in order to solicit comments from the public, and thereafter the State Council and high level Chinese officials approved the draft before it was released.

As of January 2009, the implementation of the Draft has only been partially successful. While the 1st January 2009 implementation of a consumption fuel tax on gasoline and diesel fuel may be interpreted as making energy more responsive to the market, the absence of an Energy Ministry is evidence of partial failure.18 It has been argued that an independent and strong Energy Ministry is crucial to China’s long-term strategic development. However, those with vested interests in the status quo have sufficient influence to thwart legislation they perceive to be detrimental to their interests.

Downs notes that the Chinese Government’s inability to effect such necessary changes clearly reflects the limited capacity of the relevant institutions and should not be understood as a conscious decision by Beijing to shirk its global responsibilities.19 This challenge, however, does not only apply to the energy sector but is closely tied to broader issues of governance and the country’s entire political economy.

The Chinese Government is currently challenged to develop institutional structures to underpin

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market reforms.20 This is increasingly important as the growing influence of corporate interests requires better policy coordination and regulatory systems.21 Moreover, Xu notes that it is imperative to strengthen the separation between policy-making, regulating and policy implementing institutions.22 The Draft Energy Law and other institutional developments can only be understood in light of the policy they implement. The grand governing policy guiding China’s current energy security issue is the “Outline of the 11th Five-Year Plan for National economic and Social Development”.

Formulated by the State Council in 2006, it directs China’s developmental path through 2010.

Its content is mandated by the “Proposals for Formulating the 11th Five-Year Plan for National Economic and Social Development”, drafted and passed by the 16th Central Committee of the Communist Party of China (CPC) in 2005.23 With respect to the energy sector, the CPC Proposals call for a new “economic development model” based on renewable and clean energy development, energy conservation and environmental protection. These guiding principles have all been incorporated into Chapter 6 of the “Outline – Building a Resource-conserving and Environment-Friendly Society”.24 Energy policy is a very sensitive issue and few Chinese observers have written anything substantial on policy formulation. Information on the topic is scarce. Zha Daojiong at the Centre for International Studies at Peking University25 and Yang Guang at the Institute for West Asian and African Studies at the Chinese Academy of Social Sciences26 have done a great deal of work on the international implications of Chinas energy policy.

A limited number of international observers have contributed their thoughts and analysis to this issue. Erica Downs at the Brookings Institute has written a number of prominent pieces focused on contemporary developments in the formulation of China’s energy policy.27 Philip Andrews-Speed at the Centre for Energy, Petroleum Mineral Law and Policy at the University of Dundee, Scotland has also written extensively on this topic and provides a thorough historical perspective.28 Christian Constantin is another scholar who has also written on this topic.29 Wenran Jiang at the China Institute at the University of Alberta, Canada, is a well recognized expert in this field and has made regular contributions to media reports on this issue.

© 2009 Centre for Chinese Studies, University of Stellenbosch; All rights reserved

-6Relevant actors in Chinese energy policy formulation This section introduces and discusses the institutions that play a role in China’s energy policy formulation process and what the dynamics are between these actors in terms of decision making processes. Some of the institutions mentioned play a more limited role, however, they are included for contextualising purposes. The section also seeks to delineate which the major Chinese state-owned and private oil, gas and mining companies operating abroad are (with particular reference to Africa), which countries they are active in and which government agencies regulate these companies in terms of their investments abroad. Lastly, the section also seeks to outline the government agencies engaged in developing the corporate social responsibility (CSR) directive issued by the Chinese Government to the state-owned and private Chinese companies and which, if any, Chinese civil society organisations are engaged in the domestic energy sector.

2.1 Structures of government 2.1.1 Communist Party of China (CPC) The Communist Party of China (CPC) headed by President Hu Jintao is the supreme political authority in China and develops policies in accordance with the Charter of the CPC and the Constitution of the People Republic of China. The Party has over 70 million members - almost 1 in every 15 adults in China.30 The CPC is led by the 9 member31 Standing Committee, or Politburo, that guides policy and monitors the implementation of laws and development plans set forth by the National People’s Congress (NPC), held every five years. The last National Congress was held in October 2007.

The policies developed by the CPC are executed by the administrative branch of government headed by the State Council (outlined below). Relations between the party and the administration are extremely close with many government officials and SOE executives holding positions within the CPC, particularly at senior levels.

Following the introduction of economic reforms under Deng Xiaoping in 1978 and Jiang Zemin’s subsequent focus on economic growth and development, some observers have suggested that there have been significant improvements in overcoming the factionalism that characterized Chinese politics in the past. There is an increasing degree of intra-party democracy and strengthening of the role of the People’s Congress in addressing the enormous challenges associated with internal pluralism. Economic growth remains a priority for the CPC with special attention to addressing domestic disparities in wealth.

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2.1.2 The State Council The State Council headed by Premier Wen Jiabao is the highest executive organ of state power and the highest organ of state administration. It oversees over 80 ministries, bureaus and other institutions and is responsible for carrying out the principles and policies of the CPC, as well as the regulations and laws adopted by the NPC. The State Council consists of the premier, four vice-premiers, five state councillors and the secretary-general. The State Council meets once a month and its standing committee meets twice a week. The vice-premiers and state councillors are nominated by the premier and appointed by the president with approval from the National People's Congress (NPC). Naughton has suggested that the State Council is increasingly dominated by politicians and less by technocrats.32 The Information Office of the State Council has described the strengthening of international cooperation as a key component of the country’s energy reform laid out in its first White Paper on national energy strategy in December 2007.33 The White Paper explains that the government will increasingly provide support for direct overseas investment by major state energy companies and further open its energy industry, forging closer ties with the rest of world.

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2.1.3 The National Development and Reform Commission (NDRC) The National Development and Reform Commission (NDRC) is the foremost government institution influencing energy policy. Formerly called the State Planning Commission and State Development Planning Commission, the NDRC is a macroeconomic management agency directly under the State Council with broad administrative and planning control over the economy. At the time of writing, the NDRC, headed by Zhang Ping, is heavily preoccupied with the implementation of the Government’s economic stimulus project.34 The NDRC has 26 departments and bureaus with over 1,000 staff focusing on economic sectors including industry, transportation, energy, environmental protection, natural resources, social development, foreign enterprises, and trade and employment. It is known as a ‘super ministry’ and it usually appears to mirror the wishes of the State Council and is often referred to as the ‘mini State Council’.

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