Guiding Opinions on Overseas Investment Environment to be Released

Profit-motivated overseas investors in China could soon be finding themselves under pressure to restrain themselves.

At the “Seminar on Environmental Protection Policies in China’s Overseas Investments” held on July 8, Yang Chaofei, Director-general of Department of Law and Regulation of the Ministry of Environmental Protection disclosed that the Ministry of Environmental Protection is liaising with other departments such as the Ministry of Commence to release guiding opinions to strengthen environmental management in China’s overseas investments and aid as soon as possible. The guiding opinions have been preliminarily stipulated, and are currently in the process of modification. “We hope to publish the opinions as soon as possible, as this will help China to establish a good international image” He said.

It is understood that the Ministry of Commerce is the main supervising body in the overseas investments of China’s enterprises. However, this does not cover the environmental issues concerning these enterprises overseas. The Ministry of Environmental Protection is the supervising body for environmental issues, but its jurisdiction is limited to domestic issue As a result, overseas investments from China lack supervision and regulation.

In recent years, although China’s overseas investments have grown fast, some enterprises have failed to take local environments into account. As a result, some investments have been boycotted or have suffered from breach of contract, which has had disastrous consequences.

In response to this, organizations including the Chinese Academy of Environmental Planning, Global Environmental Institute and the University of International Business and Economics researched environmental protection policy in China’s overseas investments, and published the Environmental Protection Policies in China’s Overseas Investments on July 8. A governmental official pointed out that this research provides a basis for the government’s policy making.

Jin Jiaman, Executive Environmental Protection Director of the Global Environmental Institute told journalists that China’s enterprises should adopt higher standards in their international investments. If the local economy in question is not as developed as China, they may operate according to China’s standards; while for developed countries, investments may be regulated in accordance with their environmental protection requirements. “If the original standards are very low, some developing countries might upgrade their standards on environmental protection in the future, which will eventually invalidate many investments and result in conflicts.” She said.

Some of China’s overseas investments have incurred heavy losses

In recent years, although China’s overseas investments have grown rapidly, some enterprises have neglected environmental issues and incurred serious losses as a result.

China’s overseas direct investments cover a wide scope and are generally concentrated in resource development and primary manufacturing. For instance, of the total overseas investment in 2008, the commercial service industry accounted for 38.8% and the mining industry accounted for 10.4% which was mainly composed of petroleum and natural gas mining, non-ferrous metals and ferrous metal mining and selecting. By the end of 2009, China’s total overseas direct investments had exceeded USD 220 billion.

However, research indicates that although China’s overseas investments are spread widely, they are highly concentrated in certain regions, and they have neglected environmental risks. As a result there have been numerous cases of failed investments.

For example, an enterprise invested in forestry in Cambodia and signed an agreement with the local government in 1995 for USD 30 million to exploit local forests for 30 years. However, the local government reclaimed the forest concession 2001 on environmental grounds and replaced the concession for forest conservation rights and planting rights in 2005. In the end the enterprise was forced to withdraw, resulting in a front-end investment loss of USD 15 million.

“In fact, such cases have been quite common, especially with small and medium scale enterprises that have invested at the borders, who have seriously neglected environmental risks.” Jin Jiaman, Executive Environmental Protection Director of Global Environmental Institute said.

China’s overseas investments are growing fast. However, there are no accurate figures on the losses that have resulted from environmental problems. Most Chinese enterprises have not adopted international standards such as the “Equator Principles”, which has become a new standard for major financial institutions in the financing of international projects (the principles require financial institutions to conduct comprehensive assessments on the environmental and social impacts of projects requesting finance, and using financial leverage, encourage such projects to play an active role in environmental protection and the harmonious development of the surrounding communities). In China, only the Industrial Bank has adopted the “Equator Principles” in China. Other domestic banks have not adopted the “Equator Principles”, so their loans to China’s enterprises for overseas investments are not recognized internationally.

Violators overseas might be punished

Both the Ministry of Commence and the Ministry of Environment Protection have realized the severity of this problem.

Now, several departments are engaging in negotiations and planning to publish a set of guiding opinions to strengthen environmental management in China’s overseas investment and aid.

Departments including the Chinese Academy of Environmental Planning and Global Environmental Institute have drafted proposals for the guiding opinions.

The proposals point out that relative departments should establish a workforce to monitor and inspect the environmental impact of overseas construction projects from the time they begin construction until after their completion, so as to avoid serious environmental pollution or ecological damage. Enterprises that pollute or damage the environment should be punished depending on the severity of the situation.

In terms of project management, enterprises should apply advanced environmental protection technologies to continuously reduce the negative environmental impacts while improving the standard of production technologies. Especially, “enterprises should establish complete archives documenting the operation of facilities for environmental pollution governance, and submit them regularly to the relative regulatory departments and the local community”.

Ge Chazhong from the Chinese Academy of Environmental Planning pointed out that China should keep a close eye on the overseas investment projects of domestic enterprises. Enterprises that damage the environment severely should be “blacklisted and punished.”

It is understood that some domestic policy proposals have called for environmental awareness and requirements to be reflected in strategies and plans for overseas corporate investment and overseas aid. The investment and business activities of overseas investing enterprises should follow the international conventions and agreements on environmental protection and sustainability signed between China and the countries where these enterprises invest. (Source: 21st Century Business Herald)