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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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However, the ‘Three Giants’ (CNPC, Sinopec and CNOOC), enjoy a high level of financial independence, resulting from their access to substantial revenue.96 A senior academic focused on financing in the energy sector explained to the research team that the oil corporations usually finance the bulk of their overseas investments themselves.

However, the ‘Three Giants’ (CNPC, Sinopec and CNOOC), enjoy a high level of financial independence, resulting from their access to substantial revenue. A senior academic focused on financing in the energy sector explained to the research team that the oil corporations usually finance the bulk of their overseas investments themselves.97

2.4.1 Chinese financial institutions and CSR

Those of China’s banks that are expanding overseas are often seeking to comply with international standards. For example, China Development Bank released its 2007 CSR report in October 2008 focusing on compliance with regulations to curb lending to energy-intensive and highly-polluting industries. The principles are a voluntary set of guidelines based on International Finance Corporation (IFC) policies to incorporate social and environmental issues in project financing.98 Furthermore, the then State Environment Protection Administration (SEPA) (now Ministry of Environmental Protection) signed a deal in January 2008 with the IFC introducing the Equator Principles, a financial industry benchmark for determining, assessing and managing social & environmental risk in project financing to China.99 China EXIM Bank now seeks to adopt these principles.100 The bank publicly released the 2007 updated environmental guidelines entitled “Guidelines for Environmental and Social Impact Assessments of the China Export and Import Bank’s (China EXIM Bank) Loan Projects” in July 2008 replacing a November 2004 version that was first publicly disclosed in April 2007. The new guidelines were developed in accordance with China’s Environmental Impact Assessment (EIA) Law, the Environmental Protection Law and the Environmental Management for Construction Project Ordinance, drawing on the experience of international banks.101 Moreover, the World Wide Fund for Nature (WWF) and the People’s Bank of China released a report in September 2008 on sustainable development and China’s banking industry. The report suggests Chinese banks establish environmental reporting, assessment, management and risk evaluation systems to promote sustainable development. It the first high-level report on sustainable development in China’s banking sector and was very well received.102 For more information on WWF’s activities in China, please refer to section 2.5 below.

2.5 Civil society As mentioned in section 1.1.2, civil society organisations are not seen as qualified policy players in China and have limited influence. In the area energy policy and CSR, there are no important domestic Chinese civil society organisations.

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Two international organisations active in China in the field of energy and CSR are Business for Social Responsibility (BSR) and the World Wide Fund for Nature (WWF). BSR is an international advisory organisation with offices in Beijing, Guangzhou and Hong Kong that works with business to further CSR.

WWF has a unique position in China as the first international civil society organisation to be invited by the Chinese government in 1980 to start operations in China. For the first 15 years, the civil society organisation’s staff based outside of the country came in to China for project implementation and monitoring. In 1996, WWF’s Beijing office opened, allowing the organisation to build closer ties with its government partners, notably the State Forestry Administration, and also to develop new partnerships both at national and local level. Today, WWF’s China Program Office (CPO) in Beijing has about 100 staff working on over 40 projects, from the Yangtze River conservation to climate change and environmental education. In addition to the Beijing office, the WWF has eight field offices, located in Changsha (Hunan province), Wuhan (Hubei province), Kunming (Yunnan province), Xi'an (Shaanxi province), Chengdu (Sichuan province), Lhasa (Tibet), Harbin (Heilongjiang province) and in Shanghai.103 © 2009 Centre for Chinese Studies, University of Stellenbosch; All rights reserved

- 20 EITI and CSR in China During the field research, perceptions of CSR and EITI and possibilities for implementation of the latter in a Chinese context was discussed with a wide range of respondents from the institutions outlined above; government departments, policy banks, think tanks, academia, media and the private sector as well as representatives from several of the SOEs. The below synthesises the findings from these interviews and discusses challenges that needs to be taken into account when presenting EITI’s interests to Chinese government stakeholders.

3.1 EITI – a non-governmental organisation

Very few of the Chinese government officials consulted were aware of EITI. By and large those that were perceived the initiative as a ‘Western NGO’. Given the status of NGOs and civil society in China, as outlined in the conceptual remarks, such perceptions are not conducive to EITI being taken seriously or developing clout in China. A senior official from the National Development and Reform Commission (NDRC) stressed in an informal discussion with the research team that Chinese government institutions would not engage with an NGO since they are simply not seen as competent actors.

There is thus no natural ‘counterpart’ for EITI in Beijing, and the research team discussed with a number of Chinese respondents during the field research the issue of how EITI can engage in China. Two main strategies were suggested in this regard. First, it was argued that the best entry strategy for the EITI in the Chinese policy setting is to ensure Chinese buy-in and ownership of the EITI process in China. It was suggested that as an external non-governmental actor in China, it is important to be perceived as constructive and inclusive. It was also noted that it is important to allow the engagement process to develop over a period of time, since relationshipand confidence building is particularly crucial in the Chinese context.

To ensure buy-in and ownership of the EITI process in China, it was suggested that the best strategy is to engage with academia since, as already mentioned, Chinese companies and government institutions will simply not engage with an NGO. The engagement strategy outlined in section 3.6 below comprises a clear plan for such engagement with Chinese academia.

Second, it was suggested that the EITI could engage the Chinese government with assistance of government officials from countries that support and seek to promote the EITI. These officials could engage their Chinese counterparts on issues of transparency in general and the EITI in particular. It is suggested in the below engagement strategy that government officials from countries that support the EITI could participate in the planned seminars.

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3.2 EITI and the principle of non-interference The EITI principles and criteria are perceived to contradict China’s foreign policy of noninterference.104 A senior official in the Ministry of Foreign Affairs (MFA) explained to the research team that his Ministry has already conducted an assessment of EITI and indeed agreed with the principles of the initiative. However, the MFA was concerned that the political aspects of EITI contradicts China’s foreign policy of non-interference, established at the 12th CPC National Assembly in 1982.105 The respondent from MFA claimed that although the Chinese Government has indeed exerted influence for positive change in countries such as Sudan and Zimbabwe, non-interference remains a key tenet of Chinese foreign policy, particularly regarding China’s ties with Africa.106 The official also stressed that dealing with an initiative such as the EITI is largely beyond MFA’s realm.

3.3 Peaceful evolution

While suggested to be a largely rhetorical concern, elements within the Chinese Communist Party have expressed serious apprehension about Western influence worldwide in the form of peaceful evolutions. According to David Shambaugh, the “colour revolutions” that precipitated the demise of socialist regimes in Eastern Europe (Serbia in 2000, Georgia in 2003, Ukraine in 2004 and Kyrgyzstan in 2005) are examples of such peaceful evolution. Shambaugh notes that the Chinese leadership have identified the George Soros Foundation, the National Endowment for Democracy (NED), the Government of the United Kingdom and the Government of Sweden as initiators of these revolutions.107 Elements of the Chinese leadership is thus aware and perhaps views with suspicion the Soros Foundations’ work in Eastern Europe which it believes may have a political agenda. Due to the perceived close relationship between EITI and the Soros Foundations, this notion should be taken into account as EITI engages with Chinese policy-making institutions.

3.4 Chinese stakeholders perceive themselves as unfairly ‘singled out’

Several of the stakeholders interviewed perceive Chinese firms as being unfairly singled out as a major obstacle to transparency in Africa. It is therefore imperative to engage the Chinese stakeholders on the premises that they are merely one of many members of the international community and to demonstrate that by becoming an integral part of the process, Chinese stakeholders will receive genuine ownership of the EITI in China.

Hence, the resistance identified against the idea of the EITI amongst Chinese government representatives and companies pertains only partially to the idea of EITI per se and its implications for the principles of non-interference. This resistance is also based on a mismatch between the nature of the EITI as an NGO on the one side and Chinese governance structures and protocol on the other. These obstacles can be overcome, as suggested by many respondents and outlined further below, by engaging with Chinese academia and thus encouraging Chinese buy-in of the EITI process in China.

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3.5 Effective arguments for the EITI in approaching Chinese companies and other stakeholders A suggestion emerging from the interviews is that there are two main factors that could convince Chinese companies to support the EITI: first, if the EITI is supported by the Chinese Central Government, and second, if supporting the EITI could contribute to improving the overall business environment in the host country. While risk to their international reputation is an important issue for Chinese companies, their primary focus is the pursuit of profitable corporate activities. Hence, the best argument to use when promoting the EITI to Chinese companies in the extractive sectors is that it could improve the operating environment in African countries by reducing arbitrary corruption at central - and perhaps even local - government levels.

This ties in with CPC’s current key priorities to root out domestic corruption. At the 17th Congress of the CPC in 2008 Hu Jintao warned that “the situation of corruption is worsening;

you must realize, this trend of corruption is about to kill the future of the CPC”.108 A key element of the CPC’s fight against corruption is to improve transparency in financial transactions, which is a development that the EITI could leverage in its engagement with Chinese stakeholders. The Chinese Government wants financial transparency to be strictly adhered to and rigorous internal and external audit procedures to be undertaken. Thus, the core principles of the EITI are not anathema to Chinese companies and as such it would not be a major practical challenge for Chinese companies to support and participate in the EITI process.

Similarly, the Chinese government is increasingly recognising the need to engage with issues of CSR in order to become an acknowledged international player and access international capital. As discussed in section 2.1.6, the State-owned Assets Supervision and Administration Commission (SASAC) released CSR guidelines in January 2008, encouraging SOEs to take responsibility for stakeholders and the environment in addition to making a profit. Thus, if Chinese ownership of and buy-in to the EITI process could be ensured, there is potential for a great deal of synergy between increased Chinese CSR interest and the goals of the EITI.

3.6 Suggested strategy for engagement

The findings of the report "Chinese Companies in the Extractive Industries of Gabon and the DRC: Perceptions of Transparency"109 clearly indicate that while the Chinese Government and Chinese corporations are increasingly aware of CSR and the benefits that such initiatives can deliver, both to recipient economies as well as to the sustainability of their business operations in foreign markets, they have a very low understanding of EITI. However, when made aware of the EITI and the principles involved, they expressed strong interest. Moreover, the apparently trivial issues of linguistic and cultural differences are, in fact, very important impediments to communication and interaction between Chinese, African and Western stakeholders in Africa.

Thus, in order to promote collaboration with Chinese stakeholders in Africa, it is important to improve the level of knowledge of transparency in general and EITI in particular among PRC Government actors. The outlined engagement strategy serves to promote the principles and interests of the EITI in the context of Chinese extractive industry players in Africa. The strategy

has three main overall aims:

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1) To build awareness among key Chinese stakeholders within research institutions, academia, government and the business sector of transparency in general and the principles and methodology of EITI in particular;

2) To encourage buy-in and support for the principles of EITI among Chinese stakeholders by means of academic knowledge production that can subsequently feed into policy making; and

3) To facilitate access to key Chinese stakeholders within both government and academia so that at the conclusion of this engagement project, EITI representatives have a base from which to build upon and continue dialogue.

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