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Jan 01 0001
Guiding the Environmental Conduct of Chinese Hydropower Investments in the GMS
By REN Peng and Douglas Whitehead

A joint report published by the World Wide Fund for Nature (WWF) and the China Council for International Cooperation on Environment and Development (CCICED) describes an ecological deficit China faces, and China’s increasing trend, therefore, to seek resources from abroad. This includes extractive sectors like energy (hydropower, oil, gas), mining and forestry. Such activity has been supported by policy-making institutions like the Export-Import Bank of China (China ExIm Bank) through the “Go Out Strategy.”

Hydropower, in particular, is one area of heavy concentration of Chinese overseas investment, particularly in Africa and Southeast Asia. For one thing, China has a strong domestic hydropower industry, with cascades dotting the Yangtze and its tributaries, as well as rivers throughout the country’s Southwestern region. Moreover, countries like Laos, Cambodia and the Democratic Republic of the Congo receive up to (40%) of primary energy from hydropower. Because of China’s need to guarantee energy security, while at the same time striving to reduce or minimize greenhouse gas emissions, domestic and overseas hydropower has become a priority sector for investments.

This paper examines the growth of Chinese investments in hydropower and other extractive industries abroad, and examines efforts by China and host countries to regulate the environmental and social impacts of these investments. The paper is divided into three main parts: section 2 provides a brief description of China’s “go out strategy”; section 3 investigates the development of environmental and social governance in China, in terms of both domestic policy as well as corporate practice, including observation of global standards on sustainable investments and the establishment of guidelines on Chinese overseas investment; finally, section 4 looks at the hydropower sector more specifically, examining case studies on best practices in the Greater Mekong Subregion (GMS).

I. Go Out Policy

As observed above, China, in a sense, faces a domestic deficit in natural resources. Wang Liqun, for instance, observes that both depleting domestic timber reserves, a domestic logging ban, as well as growing global demand for Chinese finished wood products, has given rise to significant Chinese import of raw timber imports.[①] A similar trend is observed in the energy sector. Jiang and Stinton observe that a combination of aging domestic oil fields and steadily growing domestic oil demand—projected to far exceed global demand for the coming five-year period—has prompted major Chinese oil companies to invest heavily abroad.[②] Likewise, China’s technological advantage in hydropower has led developers abroad to Africa, Southeast Asia and South America. Likewise, hydropower investments abroad have grown significantly, with particularly heavy concentrations in Africa and Southeast Asia.[③]

Such high volume invest abroad has found its political backing through the “Go Out Strategy,” encouraged most prominently by China ExIm Bank, China’s main policy bank and an increasingly significant player in the global investment field[④], as well as other institutions like the State-Owned Assets Supervision and Administration Commission, which oversees all of China’s state-owned enterprises. China’s outward foreign direct investment has grown since the early 1980s, but the greatest growth has occurred over the past decade, at points reaching annual growth rates of 116%.[⑤] Broken down by sector, the heaviest concentrations of investment outflows are in electronics, real estate and, in particular, extractive industries like hydropower, forestry, oil and natural gas.[⑥]

China’s foreign aid and investment have in the past been viewed with some reservation by western observers, in part because of its tendency to revert to local law enforcement on environmental and social issues (reflecting a similar pattern followed domestically of leaving such matters to local governments) and because aid and investments tend to come, at least on paper, with “no strings attached.” Indeed, a number of investments have either presented significant threats to local protected areas, or have directly or indirectly led to the displacement of large numbers of people. Nevertheless, there is clear indication of an improving trend in better environmental and social governance, as more and more Chinese policy-making and financial institutions adopt (and even develop) internationally recognized standards. In particular, the hydropower sector is perhaps the most high profile in terms of environmental impact, but by the same token is also a sector where the biggest improvements have been made in recent years.[⑦]

II. Environmental Governance in China

Consciousness of Chinese enterprises and relevant government institutions of Corporate Social Responsibility (CSR) and Responsible Business Conduct (RBC) are growing in China. A wealth of domestic laws and priority policies have been passed, which, despite gaps in enforcement are an encouraging sign of greater seriousness by Chinese government institutions. More and more companies themselves are establishing CSR and sustainability departments. Furthermore, companies investing overseas are equally aware of the need to improve environmental conduct, and are growing in their knowledge and implementation capacity of international standards. For their part, Chinese government institutions are also increasingly capable of enforcing stronger environmental and social conduct of overseas enterprises.

2.1. Domestic Governance

China’s first Environmental Protection Law was enacted by the National People’s Congress in 1979, with amendments in 1989 and 2001. Since then, a number of laws have been enacted to address environmental challenges domestically and govern corporate conduct. One of the most important is the Environmental Impact Assessment (EIA) Law, enacted in 2002, which requires that developers obtain approval for an environmental impact assessment before beginning construction. Amendments to the EIA Law included a provision on public participation in 2006. The Ministry of Environmental Protection performs regular checks on EIA implementation, which is handled mainly by local governments.[⑧] Despite clear progress in the number of EIAs being performed, loopholes like the “Green Passage” law that the MEP passed to shorten the number of days required to obtain an EIA for industrial projects have placed dents in efforts to improve enforcement.[⑨] This challenge typifies China’s governance challenge, where strong initiatives at the central level are diluted or weakened by the time they reach the local level of enforcement. Furthermore, public understanding of participation rights with respect to hydropower development is an area undergoing improvement, with considerable input from academic and civil society institutions being considered.[⑩]

In addition to legal action, the Chinese government has also sought to create policy and financial incentives for RBC domestically. The State Owned Assets Supervision and Administration Commission (SASAC) released the Guidelines on Fulfilling Social Responsibilities by State Owned Enterprises in 2007, which encouraged reporting on sustainability, the establishment of a division for CSR within SOEs, and prompted SOEs to actively learn from international best practices. [11] Furthermore, green credit and finance initiatives, including priority policies and tax incentives have contributed to stronger environmental enforcement in China, and provide another point of entry for multi-stakeholder participation.[12]

2.2. Overseas Enterprises and Investments: Regulatory Framework

Growth in China’s outward foreign direct investment (OFDI) grew significantly in the early to mid 2000s. China’s OFDI is overseen mainly by the Department of Foreign Economic Cooperation and Outward Investment of the Ministry of Commerce (MOFCOM), which was established in 2003. Through such a framework, MOFCOM and departments of commerce (DOFCOMs) review an investment proposal, and authorize based on a number of criteria, including local investment climate and distribution of Chinese OFDI, country’s political and economic relations with China as well as security concerns.[13]

To facilitate the growth of China’s OFDI, various Chinese ministries have also enacted a number of policies and incentives. These include a series of general, regional and sectoral Country Catalog[s] on OFDI jointly published by MOFCOM and the Ministry of Foreign Affairs (MOFA); an OFDI Statistical System issued by the National Statistics Bureau in 2002 and updated in 2004; as well as a number of tax incentives.[14] In addition, major Chinese banking institutions, including China ExIm, the China Development Bank (CDB) and the People’s Bank of China (PBOC) have also made financing of OFDI a priority.[15] In 2006, for instance, the PBOC removed a cap on foreign exchange conversion for overseas investment.[16]

While such policy support and financial incentives provide an important framework to encourage OFDI, environmental protection has not been part of such a framework. Nevertheless, as Chinese government, academic and civil society institutions have become more aware of the environmental and social impacts of OFDI, and as CSR becomes more strongly ingrained in Chinese corporate culture, guidelines on environmental and social governance for Chinese overseas enterprises are beginning to emerge. The following sections discuss the extent of observation by Chinese companies of international environmental and social standards on investments abroad, as well as the emergence of Chinese guidelines on overseas investment.

2.2.1. Observation of International Standards

Most observers of CSR in China note that most Chinese companies tend to view CSR as being tantamount to philanthropy.[17] While this may be true, larger enterprises, and particularly SOEs, have been growing more aware of both international and domestic standards on responsible investments, and have even made efforts to integrate such principles into their investment practice, although observation of such standards across the board is somewhat piecemeal.

A large variety of international guidelines have been designed to govern the ESG of overseas investments, with a few major Chinese companies observe such guidelines. Most well known, perhaps, are the Equator Principles (EP)—a set of voluntary standards for managing environmental and social risks for investments. In 2008, China’s State Environmental Protection Agency (SEPA) signed an MoU with the International Finance Corporation (IFC) of the World Bank group to introduce to domestic banks. The Bank of China (BOC) and the Industrial Bank have both made serious efforts to learn from and adopt the EP, with the latter China’s only “equator bank.”

Other global standards have met with mixed reactions from Chinese investors. The United Nations Global Compact had 139 Chinese members by 2009, and in May 2011, UN Secretary General appointed two Chinese members—Fu Chengyu, Chairman of China Petrochemical Corporation, and Li Decheng, Vice President of the China Enterprise Confederation—to the governing board of the UN Global Compact.[18] Likewise, reporting standards like the Global Reporting Initiative (GRI; linked closely in terms of approach with the UN Global Compact) are being implemented by an increasing number of Chinese companies.[19] Similarly, standards such as the Principles for Responsible Investing under the Financial Initiative of the United Nations Environment Programme (UNEP: FI) are seeing growing numbers of emerging market investors, including the China Investment Corp and China Banking Corp.

On the other hand, other standards, such as OECD Guidelines for Multinational Enterprises and the Extractive Industries Transparency Index, have not been observed by Chinese and Indian enterprises, or any emerging market investors with respect to the former.[20] There may be a number of reasons behind such incomplete observation by Chinese enterprises of international standards. One, as observed in Biau’s study comparing emerging market and OECD ESG in the Zambian mining sector, notes that overlap between multiple international standards, as well as regulatory frameworks within host countries and countries of origin, may cause confusion for some countries. A 2008 OECD report on Encouraging Responsible Business Conduct in China, notes that the lack of Chinese standards on overseas investments, and “poor reporting at the enterprise level,” makes implementation of ESG difficult. On the flipside, some Chinese regulators themselves feel that once Chinese regulations and guidelines are established, China may be able to exceed international standards like the EP. Yang Zhaofei of the Ministry of Environmental Protection (MEP) expressed such a desire during the Global Environmental Institute’s (GEI) press conference[21] for its book Environmental Policies on China’s Overseas Investment, emphasizing that the standards outlined in the EP and other agreements represent the bare minimum for Chinese enterprises operating abroad.[22]

2.2.2. Chinese Standards on Overseas Investments

While still relatively incomplete, a wide number of domestic standards on environmental and social governance of overseas investment have come into fruition. As the policy bank spearheading the Go Out Strategy, China ExIm Bank in particular has shown strong initiative in managing and alleviating environmental risks associated with overseas investments. This includes the adoption of environmental guidelines in 2004 and the strengthening of those guidelines in 2007, which incorporate EIAs as a basic requirement for pre and post-project reviews, as well as regular reviews of environmental impact and, if necessary, mitigation measures during project implementation.[23] These made extensive use of IFC’s performance standards. China ExIm Bank also signed an MoU with IFC in 2008 to improve the bank’s environmental and social risk management capacity, particularly in Africa.[24]

Other regulatory bodies in China have put forth their own guidelines on corporate conduct, particularly for overseas enterprises. In 2007, SASAC issued a Guiding Opinion on Fulfilling Social Responsibilities by Central Enterprises, which emphasizes sustainable development (“scientific development”) as a requirement by all of society and a necessity for international economic competition.[25] The same year, the State Council also issued the Nine Principles on Encouraging and Standardizing Foreign Investment,[26] in which overseas investors are called on to pay special attention to social and environmental impacts, transparency and the respect for local livelihoods.[27]

Nevertheless, it was not until recently that more comprehensive and sector-based guidelines began to emerge. These include the Guide on Sustainable Overseas Silviculture by Chinese Enterprises, published by the State Forestry Administration and the Ministry of Commerce in 2007, a follow-up guide entitled A Guide to Sustainable Oversea Forests Management and Utilization by Chinese Enterprises released in 2008, as well as the Guidelines on Strengthening Environmental Governance on China’s OFDI and Foreign Aid, currently under preparation by the MEP and MOFCOM. These guidelines place special emphasis on environmental protection and community development policy tools like Payments for Ecological Services (PES) and Community Conservation Agreements (CCA), and include significant input from academic, research and civil society institutions.

2.2.3. Governance Gap

While major strides have been made in establishing and revising standards for investment overseas, the main challenge remains in the implementation of these standards. Chinese enterprises leave the work of domestic environmental policy enforcement to local government institutions, and will often apply the same approach abroad, where environmental governance may be weaker. Nevertheless, some companies are beginning to recognize the need for a better approach to governance in order to strengthen their sustainability strategies. Sinohydro is a good example: at a meeting with Angolan officials in China, a Sinohydro executive emphasized that Chinese staff of its projects in Angola would strictly observe local laws and customs.[28] On the other hand, Peter Bosshard observes, in addition to a genuine interest to cooperate with civil society on improving environmental performance, an interest by Sinohydro and government institutions like ExIm Bank in following domestic environmental law for foreign investment, often as a priority over local laws.[29]

Still, complex relationships between government institutions make ESG difficult to enforce on the ground.  In her report on overseas investment in the Zambian mining sector, Carole Biau refers to a governance gap, both in terms of weak host country governance and in terms of implementation of country of origin standards overseas. For one thing, while guidelines such as those in preparation by MEP and MOFCOM encourage observation of Chinese laws, directives like the ExIm Bank’s Code of Conduct recommends companies follow local laws. Moreover, Economic and Commercial Councils—effectively local bodies of MOFCOM in host countries—usually recommend that Chinese companies “simply follow local laws.” Such an approach, Biau argued, may have hindered environmental progress on Chinese investments there, given Zambia’s weak state of governance.

Cooperation between the Chinese government, Chinese enterprises, host country governments and civil society organizations can often fill in the “governance gap,” as is illustrated in the case of hydropower investments in the Lao PDR, described in section 4 below.

III. Case Studies on Best Practices in China and Southeast Asia

Hydropower is an attractive target of investment not only because of its potential to generate large amounts of emission-free energy, but also for its advantages toward water conservation, irrigation and economic development. It is particularly attractive in China as a cost-effective, renewable alternative to coal, and because of the country’s vast amounts of untapped water resources. Proponents in China have also recognized some of the human and environmental costs of large hydropower, and environmental impact assessments have become the norm for new projects.[30]

One of the more widely publicized cases has been Nu (Salween) River, one of three scenically, ecologically and regionally important rivers that run through western Yunnan Province (along with the Mekong or Lancang and the Jinsha). In 2004, a successful effort was made to halt the construction of several dams along the river,[31] reinforced recently by further a moratorium on dam building along the river due to seismic concerns following a recent earthquake period. Although momentum is rebuilding for their constructions, the controversy has prompted authorities to take seriously the effects of large dam constructions on biodiversity and local communities, including even the Three Gorges Dam. Similar concerns have been raised on the construction of large dams abroad, particularly in countries like Sudan and Ethiopia.

While high profile Chinese overseas investments in hydropower and other extractive industries have attracted international scrutiny, positive examples of Chinese investments in the hydropower sector, both domestically and in neighboring countries (e.g. the Greater Mekong Subregion), reflect a positive trend toward greater environmental and social governance by Chinese enterprises. Moreover, more in-depth cooperation with local governments, multilateral donors and civil society suggest that Chinese government and private sector actors may play a deeper role in the establishment of regional ESG standards for extractive investments. Several domestic and international cases in the hydropower sector are examined here, including the Nam Theun 2 and Nam Ngum 5 stations in Laos and the Baoxing Hydropower station in China.

3.1. Nam Theun 2

The Nam Theun 2 (NT2) hydropower station is located near the Phou Dendin Nature Reserve in Northern Laos, is a 1,070MW capacity hydropower development built and operated by the Nam Theun 2 Power Company (NT2PC), which itself is comprised of Electricite Du France (40%), the Thai-government-owned Electricity Generating Public Company (35%) and the Government of Laos through the Lao Holding State Enterprise (25%). The construction of NT2 was funded in part by the World Bank. Construction on the dam began in 2006 and became operational in March 2010.

Despite EIA reports that pointed to potentially grave damage to surrounding biodiversity and community livelihoods, the efforts of the NTPC to mitigate these effects have garnered significant attention globally. Newsweek, for instance, called NT2 a “kinder and gentler dam.” Nevertheless, actual impacts of NT2 are somewhat more nuanced. An early report by the World Bank, for example, ranked NT2 as “average” based on a ratio of flooded area and resettled people per megawatt,[32] and reports by NGOs like the International Rivers Network have found considerable shortcomings in mitigation programs by the company.[33]

While the overall impacts of NT2 are debatable, the project remains instructive in its inclusion of multiple stakeholders in the evaluation and mitigation of its environmental and social impacts. The World Bank maintains an in-depth discussion page on NT2 on its website, which includes both positive commentary as well as critical voices from civil society organizations. Similarly, in January 2011, the World Bank’s Lao Office, the Beijing-based Global Environmental Institute and a local NGO, Challenge Program on Food and Water, held a dialogue on lessons learned from NT2 in Vientiane (website). Following the dialogue, GEI produced a Chinese language report on the environmental and social impact of the project.

3.2. GEI, Huaneng and CCA-PES in Sichuan

Central Sichuan, like much of Southwest China, is home to crucial forest and river biodiversity, but is also an attractive area for hydropower investments. Baoxing River in Ya’an Prefecture is home to the Fengtongzhai Nature Reserve, and important panda conservation area. It is also the location of a cascade of seven hydropower stations owned and operated by China Huaneng, a state-owned power enterprise, with potential to damage river ecosystems and interfere with effective conservation of the nature reserve through blurring of its boundaries.

In 2009, the Global Environmental Institute (GEI) began working with China Huaneng to facilitate Payments for Ecosystem Services (PES) to support local conservation activities. Specifically, PES payments from Huaneng have gone to support a conservation and development fund supporting alternative livelihood activities of communities in the buffer zone of the nature reserve. The activities include honeybee production, rabbit breeding and household biogas and were facilitated through a set of Conservation Concession Agreements (CCA) between GEI, the nature reserve management board and local communities.[34]

In addition, a notice posted on the China Huaneng in 2009 website announced an initiative for “feeding agriculture and benefiting the people” (bu nong hui min) in Sichuan province between China Huaneng and the Sichuan Provincial government that launched in 2007, totaling RMB26 million (USD3.79 million). Specifically, the program focuses on supporting the agricultural and pastoral livelihoods of communities located near the company’s hydropower developments. As of late 2008, RMB14.6 million (USD2.1 million) had been spent on 86 completed projects and 21 ongoing projects.[35]

3.3. Nam Ngum 5: A Case of NGO and Enterprise Cooperation

The Nam Ngum 5 Hydropower station (NN5) is a hydropower station under construction on the Nam Ngum river, a tributary of the Mekong River in Luang Prabang Province, under joint investment by Sinohydro (85%) and Electricite Du Laos (15%), but with a transfer to the Lao government following a 25 year concession period. Built on the build-operate-transfer model (BOT), NN5 has an installed capacity of 120MW and belongs to a cascade of hydropower stations along the Nam Ngum River. Construction on NN5 began officially in April 2008, and electricity generation is slated to begin this year. The project received funding support from the Multilateral Investment Guarantee Agency (MIGA) under the World Bank Group.

3.3.1. Environmental Impact

The Nam Ngum Basin is an area of rich forest biodiversity and important river ecology, on which local livelihoods depend. Multilateral institutions like the World Bank and Asian Development Bank have prioritized conservation and livelihood development for the projects it has financed along the Nam Ngum.

In February 2008, two months prior to the construction of NN5, the Asian Development Bank commissioned a “Cumulative Impact Assessment” of hydropower construction on the development of the Nam Ngum Basin, focusing particularly on NN3. The report urged the formation of a Nam Ngum River Basin Committee, stronger management of environmental flow in the Nam Ngum basin, a greater role played by Lao government institutions like the Water Resources and Environment Administration (WREA) and that strategic environmental impact assessments (SEA) be institutionalized in the law of the Lao PDR.

In June 2008, Sinohydro and Dongsay Co. Ltd. performed a “Final Environmental Impact Assessment” on the NN5 project. In addition to pointing out the project’s benefits in terms of electricity, but also clarifying that the project would be designed to ‘reduce and avoid’ damage to environment and view-scapes and that relevant local laws would be observed. The EIA recognized some potential damage to surrounding forests as well as the river and its tributaries due to the construction and operation of the hydropower station, but maintained that overall losses would be minimal. In addition to the acknowledgement of the need for the establishment of a “Nam Ngum Water Management Association” the EIA also announced a repayment to the 49 affected households upstream in 1.733 billion Lao Kip (USD173,000), mainly for buffalo breeding as in kind for damage to paddy fields, and providing an additional USD5,000 for new paddy fields for select households.

In August 2008, MIGA held a stakeholder consultation on NN5, clarifying its position on its choice to invest in the project and emphasizing the importance of implementing environmental and social standards for private, lessons from NN2 as well as the importance of rapid action on community development. The workshop was also attended by representatives from Ban Chim Village, who urged developers to provide them with rapid assistance, particularly in alternative livelihoods.[36] During the conference, a representative from Sinohydro spoke on the company’s involvement in the NN5 project as well as its plans for livelihood restoration and community development.

3.3.2. NN5 and Sustainability Reporting

In 2009, Sinohydro completed a “Nam Ngum 5 BOT Hydropower Project Environmental and Social Impact Assessment Progress Report.” The report follows progress on the effects of the project on community livelihoods and health in Ban Chim village upstream from NN5, and announces the establishment of an Environmental and Social [Management] Office (ESMO) of the NN5PC that includes representation from Sinohydro, the WREA and local communities. The report also announces the creation of an environment and social management section on the NN5PC, in which the company clarifies its environmental and social obligations, including internally defined obligations, observation of international standards like ISO14001 as well as rights and obligations of Lao government institutions with respect to the project.

3.3.3. GEI and NN5

The Global Environmental Institute (GEI) has, since the launch of China’s “Go Out” policy in 2007, worked closely with Chinese enterprises, Chinese government institutions and host country governments to improve the environmental and social impact of China’s overseas investment, particularly in extractive industries. In addition to working with the Chinese government to develop environmental and social guidelines for overseas investment, GEI’s primary approach to improving environmental conduct is through implementing a set of market and policy tools Payments for Ecological Services (PES) by means of an “Integrated Policy Package” (IPP).

In 2008, GEI launched its first IPP pilot project in the Lao PDR, working directly with ministries the Lao National Land Management Authority (NLMA) and the WREA to improve local environmental regulations through mechanisms like PES and Reducing Emissions from Deforestation and Forest Degradation (REDD). Through this partnership, GEI was able to work with NLMA to make recommendations for incorporation of PES into Lao legislation, and to develop a system for sustainable, market based land management in the Lao PDR.

GEI also signed an MoU with Sinohydro in 2009 to work with Sinohydro on implementing community development activities as part of its environmental obligations and PES payments for the NN5. From March to May 2011 the NN5 Power Company supported the construction of 40 household biogas digesters in Ban Chim Village, the village most directly impacted by the construction of NN5, with assistance from GEI. Biogas is in the early stage of development in the Lao PDR, and contributes significantly to the electrification of remote villages like Ban Chim, which lack stable access to electricity. A press release from the NN5 Power Company observed that Ban Chim villagers themselves had taken part in the construction of the digesters. By a May 2nd Sinohydro press release, 32 eight cubic meter biogas digesters had been constructed.

3.3.4. Other work in Laos

In addition to GEI’s work with Sinohydro and the NLMA, GEI has introduced concepts of environmental governance to other extractive enterprises investing in Laos. In January 2011, GEI held a workshop with the Chinese Chamber of Commerce in Laos, discussing environmental and social governance with a number of overseas enterprises in Laos in various extractive sectors, including mining, construction and palm plantations. The workshop received strong response from both the Chamber of Commerce and enterprises in attendance, particularly mining enterprises.[37]

IV. Conclusion

As we have seen above, China’s policy makers are recognizing the importance of governing overseas investments, and are now establishing relevant guidelines. Furthermore, the examples provided in section 3 above illustrate improving approaches by major Chinese overseas investors to mitigate the environmental and social impact of their investments in Southeast Asia. Such efforts in themselves indicate a genuine recognition by Chinese actors of the environmental and social risk associated with their overseas investments, as well as China’s increasingly public role as an emerging market investor and a major global economic force.

Natural resource extractive investments, and particularly hydropower, have significant effects not only on economic development and environmental protection, but also on regional relations. Good environmental and social governance on these investments will therefore contribute greatly to broader regional cooperation. The importance of good governance on hydropower is no better illustrated than the Xayabouri case in Northern Laos. As one of the biggest hydropower investments throughout the Mekong Subregion, Xayabouri has the potential to affect not only surrounding communities and biodiversity, but also could have major implications downstream, and hence has generated strong reaction from Laos’ neighbors in Vietnam and Cambodia (source). In April 2011, a moratorium was put forward by the Mekong River Commission (MRC), however, the Lao government, which stands to benefit greatly from the dam in, has made no decision as yet regarding the moratorium.

While China does not participate in the MRC, the Xayabouri case presents an important example of where Chinese actors may play a leading role in bringing GMR countries together to develop standards on the governance of hydropower investments. In particular, China maintains very strong bilateral relations between countries like Laos, Cambodia and Myanmar, which may be a leverage point in improving host country policy and thus bridging the “governance gap”. Individual examples, like NT2, and particularly NN5, can provide insights into how different stakeholders may work together at the project level. Improving strategies of Chinese government and enterprises toward environmental and social governance complement efforts to work with.

The urgency for China to perform competitively is not just with OECD countries, but also with other emerging market investors. Biau notes that Chinese investors in the Zambian mining sector performed relatively weaker than their South African counterparts.[38] Moreover, in the UN Global Compact’s 2007 Responsible Competitiveness Index, China ranked 87th—lowest ranked among the BRICS countries.[39]

China has indeed come a long way, but will need to keep up (and perhaps ramp up) the good work in order to keep up with its competitors.

Source of documents:Global Review

more details:

[①] Liqun Wang, “An Insight Into Forest Resources,” China Insight 2008 (Beijing: China Environmental Sciences Press, 2009).
[②] Julie Jiang and Jonathan Stinton, “Overseas Investments by Chinese National Oil Companies: Assessing the Drivers and Impacts,” Information Paper, International Energy Agency, February 2011.
[③] Wisdom Zhi and Douglas Whitehead, “China’s FDI International Competitiveness and Its Environmental Protection Responsibilities,” Economic Research Guide, Volume 26, 2009.
[④] Moss and Rose observe that as early as 2005, China ExIm’s commercial operations abroad appeared to exceed those of lead agencies in the United States, United Kingdom and Japan. See Todd Moss and Sarah Rose, “China ExIm Bank and Africa: New Lending, New Challenges,” Centre for Global Development Notes, November 2006.
[⑤] OECD, China 2008: Encouraging Responsible Business Conduct, OECD, 2008.
[⑥] Ibid.; Wisdom Zhi and Douglas Whitehead, “China’s FDI International Competitiveness and Its Environmental Protection Responsibilities”.
[⑦] Peter Bosshard, “Chinese Overseas Dam Builders: From Rogue Players to Responsible Actors?” The Asia-Pacific Journal Online, April 26, 2010.
[⑧] OECD, China 2008, p. 263.
[⑨] Carole Biau, “Addressing the Environmental and Social Governance Challenges of Chinese Companies Operating in Africa: A Comparative Study of OECD and Emerging Market Investor Behavior in Zambia’s Copper Mining Industry,” Global Environmental Institute Manuscript, 2010.
[⑩] Lila Buckley, “Public Participation and Energy Diversity are Key,” China Watch, Worldwatch Institute, June 3, 2011,
[11] OECD, China 2008, p. 193.
[12] Yu Xiaogang, Environmental Report on Chinese Banks, Green Watershed, 2009 and 2010.
[13] Global Environmental Institute (GEI), Environmental Policies on China’s Investment Overseas, Beijing: China Environmental Sciences Press, 2011, p. 26.
[14] Ibid., p. 19.
[15] Linghong Kong, “Green Finance Trends on China’s Outward Investment,” Economic Research Guide, Volume 8, 2010.
[16] Global Environmental Institute (GEI), Environmental Policies on China’s Investment Overseas, p. 19.
[17] Conversation with staff from the Global Reporting Initiative in Beijing, July 26, 2010.
[18] China CSR, “Chinese Board Members Appointed to UN’s Global Compact,” May 24, 2011,
[19] Global Environmental Institute (GEI), Environmental Policies on China’s Investment Overseas, p. 59.
[20] Carole Biau, “Addressing the Environmental and Social Governance Challenges of Chinese Companies Operating in Africa”.
[21] Further details on the press conference can be found in Li Jing, “Environmental Guidelines for Firms Investing Abroad,” China Daily, September 2008; Xia Liu, “Yang Zhaofei of the MEP’s Environmental Planning Department: ‘This Book is Vital Research in Support of New Government Policy,” National Business Daily, June 9, 2010; Xia Liu, “Ren Peng of the Global Environmental Institute: We Hope we can Promote the Issuance of New Policy,” National Business Daily, June 9, 2010; Si Meng, “Following the Money,” China Dialogue, September 20, 2010; Zhigang Xi, “Challenges in Implementing China’s Environmental Guidelines for Enterprises Operating Overseas,” Phoenix Weekly, Volume 19, 2009.
[22] Director Yang said specifically: “One should note that the Equator Principles are really the lowest environmental standards…Chinese financial institutions operating abroad either observe the EP or local standards—whichever is higher. They should at least observe minimum standards in China.” See Xia Liu, “Yang Zhaofei of the MEP’s Environmental Planning Department”.
[23] OECD, China 2008, p. 190.
[24] The IFC also signed an MoU with the MEP in 2008 to promote its performance standards in China, and has worked with the China Banking Regulatory Commission and the PBOC on green credit and finance in China. See IFC, “IFC Support for China’s Green Credit Policy,” June 7, 2011,$FILE/flyer_China.pdf.
[25] OECD, China 2008, p. 189.
[26] State Forestry Administration, Department of Afforestation, A Guide on Sustainable Overseas Silviculture by Chinese Enterprises, Beijing: China Forestry Press, 2008.
[27] OECD, China 2008, p. 274.
[28] Sinohydro, “Group Resident Fan Jixiang meets with President Jose Eduardo dos Santos of Angola,” Sinohydro News Room, 2008, ArticleID= 96&ClassID=2.
[29] Peter Bosshard, “Chinese Overseas Dam Builders”.
[30] Jianxiang Yang, “Hydropower: A Viable Solution to China’s Energy Future?” China-Watch, Worldwatch Institute, 2005.
[31] Yingling Liu,“Missing Voices on the Nu River Dam Project.” ChinaWatch, Worldwatch Institute, 2005.
[32] World Bank, “Sixth Report of the International Environmental Panel and Social Panel of Experts,” Laos - Nam Theun 2 Hydroelectric Project: Environmental Assessment, Vol. 20 of 22, March 21, 2003.
[33] International Rivers Network, “Nam Theun 2 Hydropower Project: Risky Business For Laos,” June 5, 2008.
[34] Mingjie Chen and Wang Aimin, “Implementing the Community Conservation Agreement in China: Exploring Methods of Biodiversity Conservation,” China Insight 2008, Beijing: China Environmental Sciences Press, 2009.
[35] Huaneng Company, “Sichuan Company’s ‘Feeding Agriculture and Benefiting the People’ Program [Sichuan Gongsi Pumin Huinong Gongcheng],” Huaneng Websit, February 11, 2007,
[36] Manichanh Panchivansay, “Villagers Want Quick Assistance from Hydropower Developer,” Vientiane Times, August 25, 2008.
[37] “Workshop on Environmental Policies on China’s Investment Overseas Held in Laos,” Xinhua Net, January 7, 2011.
[38] Carole Biau, “Addressing the Environmental and Social Governance Challenges of Chinese Companies Operating in Africa”.
[39] Global Environmental Institute (GEI), Environmental Policies on China’s Investment Overseas.