Wang Lifeng

Since China’s reform and opening-up, Chinese enterprises investing overseas have increased rapidly, expanding the scale of overseas investment. Ministry of Commerce data from the 2010 statistical bulletin detailing China’s foreign direct investment show that as of the end of 2010, more than 13,000 Chinese and foreign-invested enterprises in China have directly invested in more than 16,000 enterprises overseas, with cumulative net foreign direct investment of 317.21 billion U.S. Dollars. Meanwhile, protests, boycotts or attacks against Chinese-funded enterprises in some countries and regions have continued. The Myitsone Dam project in Myanmar was halted due to protests by local people and nongovernmental organizations. At the end of 2012, four Chinese employees in northeastern Nigeria were attacked and killed by unidentified armed people. These boycotts, protests and attacks against Chinese-funded enterprises have not only harmed their legitimate interests overseas, but also seriously interfered with the operation and development of those enterprises. After careful analysis, it might be noticed that one important reason for these problems is that those Chinese-funded overseas enterprises did not define or pay enough attention to human rights policies.

In fact, as early as the 1980s,during the early stage of Chinese enterprises “going out [into the world],” the Chinese government attached great importance to the management behavior of enterprises investing overseas. In order to guide and promote enterprises “going out,” the government has issued some policies. In 1981, the Ministry of Foreign Trade and Economic Cooperation issued interim provisions on setting up joint ventures abroad. In 1989, the Ministry of Finance, the Ministry of Foreign Trade and Economic Cooperation and the Bank of China issued interim measures on financial management of foreign trade, finance and insurance enterprises abroad. However, these policies were mainly involved with the operations of such enterprises.[page]

In the 1990s, regulations on respecting the rights of local employees appeared in some enterprises overseas. In 1995, the Ministry of Finance set up interim measures regarding the financial investment of overseas enterprises, stipulating in Article 15 that enterprises engaging in foreign investment should comply with the laws of host countries in deciding their wage system, clearly define responsibilities, rights and benefits, and establish and improve the appraisal system that covers both reward and punishment methods. Article 26 stipulated that accounting personnel stationed in overseas enterprises should observe the economic laws and regulations of host countries. Although less sophisticated, these regulations required overseas enterprises to understand the laws of host countries and ensure that their wage systems comply with relevant laws of host countries. These regulations expressed respect for host countries and the wage rights of their employees.

In October 2006, a State Council executive meeting approveda documentencouraging and regulatingChinese enterprises’ foreign investment, urging Chinese-funded enterprises overseas to standardize their operations. The document requiredsuch enterprises to comply with local laws and regulations, adhere to openness, fairness and transparency in contracting engineering projects, keep promises and increase credibility, fulfill their corporate social responsibility, ensure local employees’ legitimate rights and interests, pay attention to the environment and resource protection, and care and support local social causes involving people’s livelihood,in order to create a friendly environment of public opinion, publicize China’s advocacy of peaceful development and maintain a good image of China and a good corporate reputation overseas.

In 2009, the Ministry of Commerce issued measures on overseas investment management, stipulating in Article 23 thatenterprises shall implement personnel and property safetyprecautions. It also stipulated that they establish an early warning system for emergency and contingency plans, andaccept guidance from embassies and consulates regarding emergency preparedness and personnel safety. When emergencies occur, enterprises shouldproperly handle them in a timely way, and immediately report to embassies and consulates and relevant departments in the home country. This measure did not mentionprotection of human rights, but such “emergencies” have usually been related to human rights issues. Amajority of such “emergencies”have beenprotests or attacks after some Chinese-funded enterprises did not deal well with local employees or local communities.[page]

In 2011, the State-owned Assets Supervision and Administration Commission (SASAC) of the State Council issued interim measures on supervision and administration of overseas state-owned assets of central enterprises, emphasizing that such foreign investment should abide by the laws and regulations of host countries, and such overseas enterprises, in major emergencies such as war, major natural disasters, major mass incidents or major events threatening the safety of personnel or property, should report through related central enterprises to the SASAC within 24 hours. In 2011, China witnessed rapid development of Chinese-funded enterprises overseas and also many risks. The measures asked the enterprises to “abide by the laws of host countries” and emphasized early warning and prevention of“major mass incidents” or “major incidents.”

In April 2012, the Ministry of Commerce, the State Council Information Office, the Foreign Ministry, the National Development and Reform Commission, the SASAC, the National Bureau of Corruption Prevention, and the National Federation of Industry and Commerce jointly issued advice on the cultural construction of Chinese-funded overseas enterprises, for the first time requiring such enterprises to standardize their behavior from the cultural perspective, and importantly proposing the guiding ideology and the fundamental goal of such cultural construction. In the nine sections regarding cultural construction, there are six that involve the ethics and responsibilities of such enterprises, such as fighting against commercial bribery; the moral sense and ethics that permeate the whole process of enterprise management; environmental protection and resource protection; minimization of environmental pollution and damage during production and operation; adaptation to societies, religions and customs of host countries; risk assessment and prevention and avoidance of vulnerability; establishment of proper risk management systems; and preparedness for avoiding, controlling, transferring and dispersing risk. The interim regulation on central enterprises’ overseas investment supervision and management, issued by the SASAC, took effect on May 1, 2012, requiring that overseas investmentsby central enterprises “shall abide by the laws and policies of host countries (regions) and respect local customs. The central enterprises’ overseas investment management system should include an overseas investment risk management system.”[page]

The Chinese government attaches great importance to the management norms of overseas-invested enterprises, asking them to respect human rights and prevent risk. However, China’s overseas-invested enterprises still have some problems in management and measures should be taken to solve them.

Overseas-invested enterprises should integrate the concept of human rights into business practices. When getting along with local communities, they should respect and safeguard human rights and use human rights to guide their overseas investment. Respecting human rights is advantageous to enterprises and long-term good relations with local people will contribute to the success of commercial projects. Violations of human rights will result in a lot of business risk, such as pressure from nongovernmental organizations, the public, shareholders and employees. Other risks might include a bad reputation that could damage an enterprise’s public image and risk markets and business opportunities; negative impacts on projects by such projects being halted, delayed or revoked, thus leading to financial losses for the enterprise; and even lawsuits. Internationally, lawsuits resulting from violations of human rights are not rare. For example, the Shell Oil Company was charged by the Nigerian government.

Overseas-invested enterprises should establish the concept of respecting human rights. While working on rapid development of overseas investment, enterprises should also understand the impact of their investment on human rights in local communities and their accountability for protecting human rights and methods of implementation, as well as think about practical measures by which they can voluntarily take responsibility for human rights protection. Meanwhile, enterprises should establish a corporate culture of respecting human rights. Corporate culture is an extension of the corporate value system, which in principle guides the investment and management strategy of enterprises and reflects the attitude of enterprises toward human rights. Speeding up construction of corporate culture can accelerate the integration of Chinese-funded enterprises with local communities, help these enterprises to occupy the moral high ground and master public opinion, resulting in a positive influence and creating a good image in the international community, which as a whole would lay a sound foundation for Chinese-funded enterprises to develop themselves overseas in the long run. Acceleration of corporate culture is also required by the transformation of the “goingout” strategy of Chinese-funded enterprises. It can also increase the influence of Chinese culture and China’s soft power. It is an important guarantee for pushing forward peaceful development. ¹ Integration of the human rights concept with corporate cultural construction might effectively guide enterprises to arrange investment and management activities in line with human rights protection requirements.   [page]

Overseas-invested enterprises should draft human rights policies. In international investment, overseas-invested enterprises should draw up documents and regulations on human rights. Based on the Universal Declaration of Human Rights, overseas-invested enterprises should formulate human rights guidelines and policies, as well as establish documents about taking responsibility for local communities and define related policies and norms for enterprises in communities. The purpose of these policies isto appraisethe influence of ongoing and planned business activities on employees and communities; acquire the latest data on human rights impact and performance;includehuman rights values in corporate culture and management systems; and track reports on human rights implementation and the results.

A human rights responsibility system should be established in enterprises. First, the human rights risk appraisal system. Overseas-invested enterprises should appraise human rights risks during the process of making investment decisions. All departments in enterprises, including legal affairs, human rights and public relations, should appraise local human rights norms. Such appraisal should be conducted before investment to ensure preemptive measures ahead of possible human rights risks. Such appraisal should also be conducted during investment and business operationsto ensure timely adjustment of business strategies. Human rights risk appraisal should include appraisal of local governments’ attitude and policies toward human rights protection; appraisal ofthose with an interest in the investment, namely, supporters, opponents and neutral gatekeepers; appraisal of key issues and difficulties in corporate human rights protection;and appraisal of possible expenditures on human rights protection. Second, establishment of human rights work units. In order to better address human rights issues related to investment, overseas-invested enterprises, if possible, should establish human rights work units that specialize in dealing with human rights issues in business activities. Such human rights work units should work to spread the human rights concept in building corporate culture; offer human rights consultation regarding corporate investment and management policies and make sure that such policies do not violate human rights; pay close attention to international human rights trends and report to investment decision makers; popularize human rights trends and concepts among employees; and accept complaints on human rights violations from employees or communities. Third, regular issuance of human rights work reports. Overseas-invested enterprises, if possible, should regularly issue human rights work reports that notify local employees, local communities, host countries and the international community of the latest advances in corporate human rights protection and what will be done. Fourth, establishment of other mechanisms. Complaint mechanisms would take complaints from communities and respond accordingly. The consultation mechanism would require consultation with local communities for contracting third parties. Any violators of human rights, as local contractors, must not do business with overseas-invested enterprises. Human rights education should be one part of vocational training. The human rights registry mechanism records individual or corporate human rights violators in areas where overseas-invested enterprises do business.[page]

Overseas-invested enterprises should not indirectly infringe on human rights. Indirect human rights infringement includes activities that have some effect on human rights violations caused by governments or nongovernmental organizations. Such enterprises, usually very strong ones, have a significant impact on the economic development and social stability of host countries, and are thus closely connected with host countries and social groups, which enables them sometimes to become the accomplices of human rights violators. Overseas-invested enterprises should be prevented from indirectly infringing on human rights. They must not assist host countries in human rights violations, nor make profits from investment that risks violating human rights, nor conduct commercial bribery.

(The author teaches human rights at the Party School of the CPC Central Committee.)

1. “Advice on CulturalConstruction of Chinese-funded Overseas Enterprises,” issued by the Ministry of Commerce, the State Council Information Office, the Foreign Ministry, the National Development and Reform Commission, the State-owned Assets Supervision and Administration Commission, the National Bureau of Corruption Prevention and the National Federation of Industry and Commerce in April 2012.