China’s Influence on Global Dam Standards: A Race to the Bottom?

Peter Bosshard
Wednesday, June 9, 2010

In 1999, a Sudanese government delegation traveled around the world to raise funds for the planned Merowe Dam on the Nile. It returned home empty-handed. Export credit agencies from France, Canada and other countries turned the project down because of serious concerns over its human rights impacts. Their caution was a sign of the times. Throughout the 1990s, funding for large dams dwindled over environmental and human rights concerns.

The temporary camp for Merowe Dam affected people.
The temporary camp for Merowe Dam affected people.
A rude awakening soon followed. Chinese companies gained the know-how to build large hydropower projects and started exporting their expertise to the rest of the world. China Exim Bank, the government's export credit agency, offered a large loan to build the Merowe Dam in 2003. Within a few years, Chinese dam builders dominated the global hydropower market. We are currently aware of at least 240 international projects with Chinese involvement, and China Exim Bank has become the world's most important dam financier.

Western companies and international financial institutions soon started complaining that they lost out to Chinese competitors because of unequal social and environmental standards. When environmental organizations urged the World Bank and other actors not to get involved in destructive projects, the activists were frequently warned that if Western companies withdrew, Chinese competitors with lower standards would snap up the projects.

"The competition of the Chinese banks is clear," Philippe Maystadt, the President of the European Investment Bank, explained in 2006. "They don't bother about social or human rights conditions." Maystadt claimed that Chinese banks had snatched projects from under his bank's nose by undercutting its conditions on labor standards and the environment. He argued that international financial institutions needed to avoid "excessive" conditions in response to the new competition. The emergence of the Chinese dam builders thus threatened to unleash a race to the bottom in the world of environmental standards.

In recent years, China has woken up to the environmental and social costs of its rapid industrialization and infrastructure construction at home. The Chinese government prepared comprehensive new laws and regulations to protect ecosystems and affected people. In some cases, they are stricter than the regulations in any other country. For instance, all 18 million people who have been displaced by dams in China will receive reparation payments for 20 years to compensate for past damages.

With a certain time lag, some China's dam builders and financiers also started paying attention to environmental protection overseas. China Exim Bank adopted an environmental policy in 2004 and published it in 2007. Its recommendations are still quite vague. They mostly rely on host country standards, but refer to "our country's standards or international practices" if local standards are not sufficient. China Exim Bank commits to monitoring environmental impacts throughout project construction and operation. It asks international environmental experts to assess its projects in order to avoid controversy.

Sinohydro, the world's biggest hydropower company, has engaged in a dialogue with International Rivers since the summer of 2009. The company is currently preparing an environmental policy. It has asked us to make recommendations, and has agreed to share a draft with us before adopting it. We have urged the company to adopt an environmental policy which reflects highest international standards, such as those proposed by the World Commission on Dams. In a separate development, Sinohydro agreed to work together with the Global Environmental Institute, a Chinese NGO, in an effort to address the social and environmental impacts of the Nam Ngum 5 Dam, a $200 million hydropower project in Laos.

Progress and backsliding

There is often a big gap between policy improvements and the projects on the ground. Paper is patient, as we say in Switzerland, and the proof of the pudding is in the eating. We see a mixture of progress and backsliding in China's real-life projects. China Exim Bank suspended support for a hydropower project in Gabon after a local NGO documented that the dam would violate the bank's environmental policy. The Chinese government has so far also ignored Turkey's invitation to fund the Ilisu Dam, a highly controversial project on the Tigris River.

Turkana residents protest Gibe dam
Turkana residents protest Gibe dam
Lucas Ng'Asike/The Standard
On the other hand, a Chinese company just agreed to supply equipment for the Gibe 3 Dam, a destructive project in Southern Ethiopia, with support from ICBC, China's biggest commercial bank. (See the press release.) And a variety of Chinese companies and financiers are building dams in Burma under often horrific conditions.

How can we explain these differences? Sinohydro and China Exim Bank, the leading Chinese actors in this field, don't want to become rogue actors on the international market, but are eager to be seen as good global citizens. In contrast, smaller companies often don't care about their reputation. And new actors in the global hydropower market, such as ICBC, may not be fully aware of the problems that projects like Gibe 3 will create, and the public opposition that they will soon face.

In cooperation with our local partners, International Rivers will try to ensure that the process of reforms begun by China's leading dam builders and financiers translates into progress on the ground and that the worst performers no longer get away with their substandard projects. We will also start putting pressure on other actors in China to adopt environmental reforms.

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