Eversheds comment: Chinese companies investing abroad will be asked to improve their environmental
Following Chinese companies investing abroad being asked to improve their environmental standards under guidelines drafted by the government, Andrew Halper, head of the China Business Group at international law firm Eversheds comments:
"Our understanding is that compliance will be mandatory, although exactly how the PRC Government intends to monitor and enforce compliance has not been disclosed. Although the pronouncement will likely be welcomed abroad, the reality is that it will be very hard for the PRC to enforce rigorous standards on Chinese companies overseas.
"This move is not, as was the case with similar developments in the West, a response to a domestic environmental constituency, since we are quite far from seeing such developments in the PRC. Rather, it appears primarily to reflect the Chinese Government's foreign policy concerns -- it seems to be motivated by a growing awareness on the part of the PRC Government that China's reputation abroad has begun to suffer very badly as a result of its rapidly increasing investments in mining, crude oil production, manufacturing and infrastructure developments in Southeast Asia, Africa and Latin America -- where environmental regulation is often inadequate and poorly enforced. Data from the Ministry of Commerce shows that China's overseas FDI in non-financial sectors increased in 2008 by 63.6% over 2007. Since 2002, non-financial Chinese FDI has grown from US$2.5 billion to US$40.7 billion. Along with this growth in investment has come some serious environmental degradation and a tarnishing of China's image in precisely those countries where it often seeks political support as a counterweight to Western criticism."
Boris Martor, of the Eversheds Paris office, adds: "This initiative should be considered in the light of recent criticisms raised by international financial institutions and the IMF when China entered in direct contracts with the DRC to get priority access to its resources. The contracts entered into were said to pledge the country's assets, with China proposing to provide both financing and construction facilities to Congolese authorities in consideration for mining licences granted on a long term basis. Such type of agreements, although highly unusual, are still under discussion by traditional lenders, notwithstanding the concerns of some of the DRC's main commercial partner countries."
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