Interview with Dr. Hu Tao on China's Overseas Investment Guidelines

Katy Yan
Wednesday, April 24, 2013
Dr. Hu Tao
Dr. Hu Tao
Photo: WRI

The Chinese Ministry of Commerce and the Ministry of Environmental Protection's “Guidelines for Environmental Protection in Foreign Investment and Cooperation” provide civil society groups with a new source of leverage when it comes to holding Chinese companies responsible for their environmental and social impacts overseas. International Rivers spoke with Dr. Hu Tao, senior associate at the World Resources Institute and former Senior Environmental Economist at the Policy Research Center for Environment and Economy of the Ministry of Environmental Protection (MEP) of China, on the long-term vision for these Guidelines.

What is the long-term vision for the guidelines? What would be the next steps in terms of implementation and encouraging greater accountability of overseas companies?

Dr. Hu Tao: The current guidelines are voluntary, and there are no specific guidelines for companies that are required by mandate. This is a moral issue; if companies don’t do anything with them, there’s nothing that would happen to them besides a sense of moral pressure. 

When my colleagues and I were working on the guidelines, we tried hard to have mandatory guidelines, we wanted Ministry of Environmental Protection (MEP) to have authority to manage companies doing business overseas regarding their Environmental Impact Assessments (EIAs) and environmental standards. After negotiating with the Ministry of Commerce (MOFCOM), we had to make some compromises, so we started with voluntary guidelines first. In the future, we may have mandatory guidelines.

If the guidelines don’t work well, China may consider using a bigger hammer on the companies such as mandatory-based guidelines. In China, the EIA Act covers companies within Chinese boundaries. One possibility is to extend the EIA Act beyond Chinese boundary to cover companies doing business overseas. During the last National People’s Congress in March, we provided technical support for submitting a bill by one of the delegates of the Chinese People's Political Consultative Conference (CPPCC) that would authorize the National People’s Congress (NPC) to extend MEP’s oversight to Chinese companies overseas. The draft bill is in process, and relevant ministries from MEP and MOFCOM are being asked for feedback. While we want mandatory guidelines in the future, we currently don’t have a legal basis to do this. We are now hoping NPC can authorize ministries to do more with regards to their environmental management of Chinese companies overseas.

Are there plans to develop similar guidelines for Chinese banks investing in projects overseas?

Dr. Hu Tao: The last article of the guidelines refers to multilateral financial institutions and implies that when companies borrow money from commercial banks, these banks would also be encouraged to adopt these guidelines. The Green Credit Directive by the China Banking Regulatory Commission (CBRC) also has a special article that mentions that banks providing money to companies overseas should have green guidelines, but there is no specific language on this. Parallel guidelines in the future on green credit for business operations overseas should be similar. 

How seriously will Chinese companies, and particularly big, state-owned companies, take these guidelines?

Dr. Hu Tao: These guidelines target the big State-Owned Enterprises (SOEs), who have done much better than small and medium-sized private companies not only in their overseas business but also within China. Around the world, large companies from all countries and not just China do pay more attention to their image. The CEOs of SOEs feel that they may the CEO today but a government official the next day, because they have a close relationship with the government and they are appointed by the Chinese government. Such guidelines thus have stronger impact on SOEs.

Which overseas regions in your experience do you see these guidelines making the most impact and why?

Dr. Hu Tao: The guidelines will have the most influence on the regions where environmental problems caused by Chinese companies are greatest. Looking at it by regions is less relevant than looking at investment ownership. If an SOE has more investment in a certain region, the guidelines will have more of an impact. Whether it’s in Africa, Latin America, or the ASEAN countries, projects with small and medium private companies will probably do worse, while areas where SOEs are involved may see a greater impact from the guidelines.

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