To: Ministry of Commerce of the Peoples Republic of China

From: Yixuan (Sharon) Shao

Subject: Strengthen Chinese Companies Negative CSR performance in Africa
Date: 2015/7/30
Introduction:

Chinas partnership with Africa dates back to early 1960s during the independence movements. In
recent years, Chinese enterprises economic investment in Africa has increased rapidly. However,
due to Chinese companies poor performance in corporate social responsibility (CSR), the public
perception of Chinese enterprises in Africa has been very negative. The Chinese Ministry of
Commerce, in collaboration with other departments, should adopt the following approaches, to
enhance Chinese enterprises CSR capacity, thus the long-term China-Africa relationship:

1. Arrange regular high-level CSR trainings among Chinese business leadership to better engage
them with relevant CSR standards, and global collective action.
2. Build a case study bank sharing specific CSR experiences from Chinese companies in Africa
to stimulate communication and learning.
3. Set up government grants to encourage the expansion of Chinese NGOs to Africa. This
non-political communication channel will better help Chinese companies engage and
collaborate with local community in Africa.

Problem Definition:

China has become Africas largest trade partner, and Africa is now Chinas fourth largest
investment destination. From 2009 and 2012, Chinas direct investment in Africa achieved an
annual growth of 20.5%, with a total amount of $21.23 billion in 2012. And Chinas trade volume
in Africa reached $1984.9 billion in 2012 with an annual increase of 19.3%.

However, in the eyes of the Africans, local Chinese enterprises are showing a full range of
negative images. As Ethics Institute of South Africa revealed in 2013, local Africans positive
perception of Chinese investors social and environmental performances in Africa is only 21% and
11% respectively (Liezl Groenewald & Sofie Geerts, 2013).

Local Africans represents a critical stakeholder group in this issue. Chinese enterprises negative
public perception hinders the stability of Chinas relationship with Africa. For example, the 2006
presidential election in Zambia, where Chinese enterprises have been operating large mines for a
decade, was won by a populist who tapped into growing anger with perceived Chinese
high-handedness and shoddy treatment of Zambian workers (Evan Roe, 2013).

Local African government represents another crucial stakeholder here. Unlike what many
Africans assume, China did not foist itself on African government like the Western colonialists
who took up the resources and administrative governance of every colonized country (Thompson
Ayodele & Olusegun Sotola, 2014). Instead, Chinas non-involvement policy prevents Chinese
business from intervening in Africas internal affairs. Consequently, to ease Chineses enterprises
tension with local community, a non-governmental community engagement will be preferred.

1
Other Investors in Africa also represent an important stakeholder group, as the Africa market is
getting more competitive recently, especially among Asian countries who aim to boost domestic
economy with Africas natural resources. Over the last 5 years, Japanese investment in Africa has
increased 576%, and Malaysias project investment has grown by 140% to $2.64 billion. LG
Electronics, South Koreas second largest electronics maker, also plans to invest $2.4 billion in
research and development in Africa to generate $53.8bn in revenue (Surinder Sian, 2015).

Chinese NGOs in Africa represents one final critical stakeholder group. Consistent to Chinas
non-involvement policy, Chinese NGOs in Africa play an important role in promoting bilateral
China-Africa relations through culture and people-to-people exchanges. However, compared to
Western NGOs who have been in Africa for 10 to 20 years, Chinese NGOs are relatively new to
Africa and lack experiences in international relations. According to China Daily, there are
currently about 100 Chinese NGOs operating in Africa, and only 10 of them have permanent
operations / local offices in Africa (Meng Jing & Sun Yuanqing, 2013).

Policy Alternatives & Evaluation:

Enlarge current local employment rate One of many criticisms toward Chinese companies in
Africa is - Chinese workers in Africa have been taking jobs away from local Africans since
Chinese investors prefer to employ Chinese workers. However, this is a very biased perception for
the following two reasons 1) Instead of taking away local jobs, Chinas huge direct investment
creates jobs. According to Chinese Embassy in South Africa, 49 firms they frequently contacted
alone can provide at least 13,000 jobs for local people. 2) Due to Africas strict foreign worker
entrance policy1 and the high cost of Chinese personnel, Chinese companies already demonstrate
a high labor localization rate. 87.5% companies have over 50% local employees, and most
companies in labor-intensive industry have an over 90% labor localization rate. The local criticism
mainly comes from a small portion of job loss during Chinese enterprises merger and acquisition
(Huang & Ren, 2013). Therefore, instead of blindly enlarging current local employment rate, more
work should be done to better engage local stakeholders and to dispel this local biased perception.

Require all companies in Africa to build CSR department Many Chinese companies
operating in Africa have no independent CSR department, thus no clear CSR management system
or objectives. However, building a functional CSR department specialized in dealing with Africa
operation can be very costly and normally takes a long time, thus is of low efficiency. Besides, the
sizes of Chinese companies operating in Africa are of big range. Large and well-managed
companies usually attach great importance to CSR. While negative CSR concerns over Chinese
companies expressed by local African media are mainly caused by the conduct of smaller, less
well-managed Chinese companies. Consequently, instead of requiring all the companies to
establish independent CSR departments (Zadek & Simon, 2009), we should mainly focus on
strengthening those smaller, less well-managed Chinese companies CSR capacity at this point,
and stimulate their communication between better-performed companies.

1 High unemployment rate in South Africa leads South Africas government to be strict with the entrance of foreign workers. In principle, if a local
candidate is competent for a job, foreign workers are not allowed to apply for it.

2
Set higher Benchmark: widely adopt international CSR standards The market advantage of
Chinese companies in Africa is mainly earned by their low cost base, willingness and abilities to
work in extreme difficulties, cross-sector collaboration and long investment timelines. However
the Environmental, Social, Governance (ESG) issue faced by Chinese companies in these situation
are neither sufficiently answered by local laws or International CSR standards. Among Chinese
companies who have adopted international standards such as ISO 14001, over 75% felt that these
fixed standards fail to address the controversial issues caused by the widely adopted public-private
partnerships in Africa (Zadek & Simon, 2009). Consequently, rather than inflexible universal ESG
standards, a feasible CSR framework that recognizes the multi-stakeholder engagement and
applies to actual African situation is preferred.

As noted above, better local stakeholder engagement, stronger non-governmental communication

channels, and more relevant CSR framework are three key points the Ministry of Commerce of
China should focus on. Therefore, I recommend the following policies:

1. Arrange regular high-level CSR trainings among Chinese business leadership through
chambers of commerce for different import and export industries. Compared to setting up new
CSR department, regular training among business leadership arranged and financed by the
government is a more feasible way to incorporate CSR concept into companies decision making.
The regular training will better engage major Chinese enterprises with relevant CSR standards,
resources, and stimulate their involvement in global collective action on issues such as economic
development, climate change, and anti-corruption.

2. Build a case study bank to share specific CSR experiences from Chinese companies in Africa
and other comparable regions. Considering the big ranges of Chinese companies CSR capabilities
in Africa, the case bank should highlight both good practice and challenging issues, to stimulate
the necessary learning and communication between different companies.

3. Set up government grants to encourage the expansion of Chinese NGOs to Africa. NGOs are
good communication channels to help Chinese enterprises better engage with local civil society,
and to dispel any existing local biased perceptions. There is already a promising trend in Chinese
NGOs interest in Africa. In 2012, the China-Africa People's Forum (biggest national forum)
attracted over 300 delegates from NGOs in China and Africa with an annual participation increase
of over 50%. However, lacking experience in international relations, not all Chinese NGOs are
ready to operate oversea at this stage. There should be a pre-selection for the grant to limit them to
NGOs with proven capabilities.

Conclusion:

As noted above, the primary goals of any CSR remedy policies for Chinese enterprises should be 1)
Equip Chinese companies with more relevant CSR resources and guidance to enhance their CSR
capabilities and performance; 2) Stimulate people-to-people and culture exchange between two
countries through non-political multi-stakeholder communications. Of the available policy
alternatives, I believe the most feasible way to achieve these aims is to arrange regular high-level
CSR trainings, build CSR case study bank and set up government grants to encourage the
expansion of Chinese NGOs to Africa.

3
Reference

[1] Jawahir Adam. China and Africa: The Role of CSR in this partnership, MHC International
2010
[2] Liezl Groenewald and Sofie Geerts. Business Ethics Survey. Ethics Institute of South Africa,
2013
[3]Ayodele, Thompson, and Olusegun Sotola. "China in Africa: An Evaluation of Chinese
Investment." Inifiafive for Public Policy Analysis Working Paper Series (2014): 1-20.
[4] Meng Jing and Sun Yuanqing, Chinese NGOs reach out to African countries, China Daily,
2013
[5] Zadek, Simon, et al. "Responsible Business in Africa Chinese Business Leaders Perspectives
on Performance and Enhancement Opportunities." Corporate Social Responsibility Initiative
Working Paper No 54 (2009).
[6] HUANG, Meibo, and Peiqiang REN. "A study on the employment effect of Chinese
investment in South Africa." (2013)
[7] China-Africa Economic and Trade Cooperation(white paper), 2013
http://www.safpi.org/sites/default/files/publications/China-AfricaEconomicandTradeCooperation.pdf
[8] Evan Roe. Is CSR the missing ingredient in the China-Africa relationship, 2013
https://www.devex.com/news/is-csr-the-missing-ingredient-in-the-china-africa-relationship-81747
[9] Surinder Sian. Japanese investors spearhead 160% rise by Asian funds in African project
finance, 2015
http://www.linklaters.com/News/LatestNews/2015/Pages/Japan-spearhead-rise-Asian-funds-Afric
an-project-finance.aspx