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Jem Bendell
Adjunct Associate Professor,
Griffith Business School, Australia

Founder, Lifeworth, Switzerland

Jonathan Cohen |
Principal, Stakeholder Consulting;
Author, Business Watch*

Tipping Frames: The Lifeworth Review of 2006
[ PDF: 2585kb | 54 pages ]

Appendices available in all PDF versions.

Who's leading Hu?


Will endemic corruption, increasing wealth gaps, and the immense scale of environmental and health degradation from China's industrial revolution, lead to increased social unrest and an even greater media crackdown? Or will the waking economic giant leapfrog mistakes made during the West's industrial revolution? And, in answering this conundrum, will corporate citizenship play a role?1

Some think so. In August a 'China CSR Map' was launched, 'to promote CSR in China through a centralized platform for the dissemination of information on organizations with CSR activities there'. Although considerable discussion and activities around CSR exist in China, it is often difficult to find concrete information on which organisations are undertaking what activities. In addition to business, it involves academic institutions, service providers, media and online resource providers. To further accessibility, it is bilingual. China CSR Map is a collaboration between Deutsche Gesellschaft für Technische Zusammenarbeit (GTZ), SynTao and Transtech.2

Corporate citizenship appears to be relevant to Chinese companies and society for three main reasons: the influence of Western markets; the global aspirations of some Chinese companies; and the so-called development trajectory.

First, there is Western market influence. The social and environmental concerns of Western companies have been influencing construction, manufacturing and human resource practices in China, albeit to a limited and questionable extent. Even Japanese companies and those from other non-Western countries are now requesting environmental improvements from suppliers in China. Thus, to compete in certain export markets, Chinese companies will need to pay attention to how these markets adopt and practise greater responsibility. Doing so will facilitate China's navigation through the rough seas of global competition.

Recent signs indicate potential strains on future growth, partly fuelled by global trade. China has been posting an average annual gross domestic product (GDP) growth rate of 9.4% for the past 26 years, following Deng Xaioping's Four Modernisations economic reforms.3 But China's ranking in the World Economic Forum's Global Competitiveness Index (GCI) fell to 54 in 2006 from 48 a year ago. 'The most worrisome development is a marked drop in the quality of the institutional environment,' the report said. The culprit: the 'steep fall'-from 60 to 80-in how the Chinese institutions fared in the 2006 ranking. These institutions, spanning both public and private, had poor results in all the Index's 15 institutional indicators.4 GCI measures the set of institutions, policies and factors that set the sustainable current and medium-term levels of economic prosperity.

As if sensing the need for change, on 25 September 2006 Chen Liangyu, a top Chinese Communist Party official in Shanghai, was booted out of the party's top leadership council, the Politburo. Mr Chen was 'the most senior official to be sacked' in a decade, or since incumbent President Hu Jintao became party secretary in 2002. The government launched an investigation that centred on the misuse of at least one-third of the 10 billion yuan ($1.2 billion) pension fund to make illegal loans and investments in real estate and other infrastructure deals.5 Coincidentally, on the day of Mr Chen's downfall, China's auditor-in-chief disclosed that 'an unnamed company defrauded $140 million from Chinese banks and spent nearly $40 million on bribes'.6

To comply with international norms and to increase their competitiveness on the world stage, Worldwatch, an NGO, suggested this: 'Chinese private enterprises would be wise to integrate CSR from the beginning.'7 The global aspirations of some Chinese companies are a second reason why corporate citizenship is relevant to China. Chinese premiere Hu Jintao himself highlighted the goal of having a prominent role in global markets worthy of a great power. The Lenovo purchase of IBM and attempted takeover of Unocal by the China National Offshore Oil Company (CNOOC) is setting a trend that, according to Jack Zhai, head of global corporate finance at Deutsche Bank in Beijing, 'will continue'.8 Besides mere ambitions, Chinese companies are expanding abroad because of market realities: constant price-cutting at home makes entry to foreign markets vital. Thin margins abroad make up for even thinner margins at home.9

But will going global mean going ethical? If Chinese companies seek to become global players or own global brands, they will need to pay more attention to the values and aspirations of producers and consumers in their target countries, especially those in the West. According to AccountAbility CEO Simon Zadek: 'Going global means being more responsible. We may just be on the cusp of an accountability revolution in Chinese business, or at least that part that needs to be credible in international markets, as they seek to move up the chain towards the high-value-added opportunities that come with control of global brands.'10

But, if Chinese companies target countries where consumer demands for responsibility are not as strong as in the West, there lies the problem. Recent Chinese foreign direct investment and foreign acquisitions have been in Asia11 and Africa. In both continents, the general concept of CSR among local players is still largely equated to philanthropy. These countries, including its neighboring economic power Japan, have embraced the trade opportunities with China whose robust growth and growing prosperity has enabled them to diversify their export markets and become less reliant on exports to the US. The stalling of the world trade talks has even led to a faster proliferation of bilateral and regional free-trade agreements.12

This has made NGO campaigners increasingly concerned about Beijing's model of 'international development', as exemplified by the country's relationship with Angola.13 In 2004, Angola's government, battered by a long civil war, was negotiating a new loan with the International Monetary Fund (IMF) for its reconstruction. The IMF, aware of Angola's long history of corruption and poor governance since independence from Portuguese colonial rule in 1975, was keen to include measures to cut corruption and tighten the country's economic management. To the IMF official's surprise, the Angola government suddenly broke off negotiations. The Angolans had received a counter-proposal from China's export-credit agency, Exim Bank: a $2 billion loan that came with minimal rates of interest, a generous payback period, and none of the IMF's 'conditionalities'. The government in Luanda chose China's offer.

Unlike many Western companies, Chinese companies with global ambitions already serve important markets, including its own domestic market of more than a billion Chinese and where margins are squeezed to their limits. Adopting expensive above-compliance strategies on social and environmental issues have made them wary of becoming uncompetitive at home and in other markets they currently serve. Just as some factories have different labour codes for different production lines in the same factory, depending on which brand the production line is for, global Chinese companies might seek to align the CSR credentials of particular products with the markets being served, rather than raise their standards globally. Oddly, this might provide new impetus for ethical labelling within those sectors that have been resistant to it until now. The impact on how companies do their business in China, however, might be limited to the size of the ethical market in the West.

The third reason why corporate responsibility may be relevant to China is because of its development trajectory. If the (questionable) assumption that the West has established a development trajectory that China is following and modelling, then just as the voluntary responsibilities of business towards society and the environment have grown in the West, then the same can be expected in China. Yet this assertion is based on many assumptions about the limited role of government to actually deliver changes in corporate practice through regulation, as well as the ability of a vibrant civil society to push for changes not demanded by government. On both counts, the situation appears quite different. The interventionist approach of the Chinese government could lead to significant rapid developments in regulations and investment for a sustainability transition; yet at the same time the same philosophy does not leave much scope for civil-society activism that could drive voluntary corporate action.

China imposed broad new restrictions on 10 September 2006 on the distribution of foreign news in the country, beefing up state regulations on the news media. Under new rules that were said to take effect immediately, the state-run New China News Agency said it would become the de facto gatekeeper for foreign news reports, photographs and graphics entering China. To censor content that endangers 'national security', the agency announced its new role and rule in its own dispatch. As chronicled by a New York Times article, 'President Hu Jintao has intensified a crackdown on all kinds of news media in recent months, arresting and harassing journalists, tightening regulation of Web sites and online forums, hiring tens of thousands of people to screen and block Web content deemed offensive and firing editors of state-run publications that resist official controls.'14

Yet it is exactly such discourse and information flow that is essential for corporate responsibility. Western-based companies such as News International and Yahoo! have been criticised for agreeing to restrictive media regulations in order to access the Chinese market. These defy the basics of corporate responsibility, like social auditing, which requires active participation and ownership of standard setting, monitoring, verification and corrective action implementation by independent representatives of the workers themselves. Without change in the social and legal context in China, it will be difficult for companies to responsibly source from China.15

Still, the words of Chinese business leaders should be taken into account as a guide to indigenous driving forces for CSR versus Western models. Wu Mao, Chief Economist of the Shougang Steel Group, one of the top five steel companies in China, said, 'CSR will not be promoted in China by 'lecturing' or 'teaching'. Rather, foreign companies and NGOs should share their experiences in order to promote CSR in a Chinese way.'16

Similarly, Chen Ying, Deputy Director of the China Enterprise Confederation (CEC), is on record as saying that corporates and foreign NGOs have demanded too much on too many issues in China. 'Rather than telling China what to do, they should let the Chinese government, companies and social organisations develop their own ideas. CEC plans to provide training to encourage more Chinese enterprises to take up CSR practices and join the Global Compact.'17

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1 www.lifeworth.com/2005review/q2.1.html

2 www.chinacsrmap.org/E_index.asp

3 UNDP China Human Development Report 2005; www.undp.org.cn/modules.php?op=modload&name=News&file=article&catid=13&topic=40&sid=236&mode=thread&order=0&thold=0.

4 'Switzerland, Finland and Sweden take the lead in the rankings of the World Economic Forum's Global Competitiveness Index, but US drops', World Economic Forum; www.weforum.org/en/media/Latest%20Press%20Releases/GCRpressrelease06.

5 'Top China leader fired for graft', BBC News; news.bbc.co.uk/2/hi/asia-pacific/5376858.stm.

6 Minxin Pei, 'The Tide of Corruption Threatening China's Prosperity', Financial Times, 27 September 2006; www.carnegieendowment.org/publications/index.cfm?fa=view&id=18734&prog=zch.

7 Zijun Li, 'Lack of Corporate Social Responsibility behind Recent China Accidents', Worldwatch, 12 December 2005; www.worldwatch.org/node/3859.

8 Simon Zadek, 'China's Route to Business Responsibility', openDemocracy, 30 November 2005; www.opendemocracy.net/democracy-china/china_business_3076.jsp.

9 Tom Miller, 'Working Up the Value Chain', Asia Times Online, 23 November 2006; www.atimes.com/atimes/China_Business/HK23Cb01.html

10 Zadek, op. cit.

11 Daniel H. Rosen, 'China and the Changing Economic Geography of Asia: Trends in Trade and Investment Flows, Examples and Observations on Implications', July 2005; www.aei.org/docLib/ 20050721_Rosen.pdf.

12 Shobhana Chandra and Matthew Benjamin, 'Global trade no longer hostage to US consumers', bilaterls.org, 27 September 2006; www.bilaterals.org/article.php3?id_article=6079.

13 Ben Schiller, 'The China Model', openDemocracy, 20 December 2005; www.opendemocracy.net/democracy-china/china_development_3136.jsp.

14 www.nytimes.com/2006/09/11/world/asia/11china.html

15 Lifeworth Annual Review 2005.

16 CSR Asia Weekly, Vol. 1 Week 49 (7 December 2005): p. 7; www.csr-asia.com/upload/ csrasiaweeklyvol1week49.pdf.

17 Ibid.



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