China’s elitist approach to overseas investments

China’s overseas expansion is marked by corruption, poorly treated workers and a lack of social integration

China-based journalists Juan Pablo Cardenal and Heriberto Araujo talk to chinadialogue managing editor Tom Levitt about their three-year investigation of China’s expanding global influence

Tom Levitt: Do you believe there is a lack of oversight of Chinese companies working overseas?

Definitely there is a lack of control in a way from both sides. Some of the countries China is investing in or engaging with loans are weak in their system of checks and balances. But [the problems] are also a consequence of the lack of checks and balances in China especially in terms of the rule of law. We always wondered when we were travelling if a Chinese company has an environmental problem in one of these countries, could the company be sued in China? I am not sure they would be, especially if you are talking about state-owned companies.

There is no incentive to look into what the state-owned companies and banks are doing abroad. It’s not all bad but there is definitely no incentive to look into that because the state owned companies and banks are part of what we know as China INC. We know that China has a strategic need for resources for its development. Therefore who is going to scrutinise or look into the standards or bad practices of these state-owned companies abroad? I can’t see any political opposition who will denounce it and NGOs are not strong or independent enough.

The West are not better or worse, but the system makes a difference. In the West a bad behaviour is more controlled and scrutinised with penalties in terms of image, financially or even jail. I can’t see anything like that in China.

TL: What is China’s approach to overseas investment?

It’s a silent approach, so in a way it’s like soft power. It is nothing to do with a military conquest so completely different to what western countries did in the past. For China, it’s all about the economy, natural resources and making the state-owned companies global. For them the developing world is a place where they potentially face less competition.

Then there’s another level of Chinese presence in the developing world and that’s the private sector; small entrepreneurs, businessmen and migrant workers. They’re human beings with a drive to have a better life. It’s important to understand those two levels of Chinese presence and investment because they are completely different.

TL: What is the motivation for those leaving China for developing countries?

There isn’t any central policy from Beijing to push or encourage private businessmen or migrants to go abroad. There is the “go global policy” so state officials are happy to see these companies going global and in a way competing with the international big companies, it makes China more competitive. In some regions where there is a high degree of unemployment, local governments are tolerating or even promoting Chinese people going abroad, through for example recruitment agencies, which bring people abroad to work on infrastructure projects for state-owned companies.

In the case of entrepreneurs, we witnessed dozens of individuals leaving the country because, for example, they’d been told by someone in their village that if you go to Egypt and sell clothes door-to-door you can make good money. They’re very brave and take that risk to go, because sometimes they have to fight back against xenophobia or anger from local population. “It’s not that there’s hunger back home but there is a lack of opportunities,” a migrant worker told us.

If you go to China now you can feel something that comes out of each of the Chinese, which is that this is our historical moment to make a better life, to improve. This is one of their big strengths. In each one of the Chinese people, whether in China or abroad, they have a feeling that they have to work to have a better life and give their children a better life.

TL: Is there a problem with social integration?

In many of the infrastructure projects they have flown in a couple of thousand of Chinese workers, where they stay in a camp for two or three years – they don’t want to leave because they don’t know the place or speak the language. So the perception from outside the camp is what’s wrong with these people, they don’t want to interact with us, we never see them – it’s where the theories about them being Chinese prisoners comes from.

In Mozambique we heard workers saying, “they come here and earning money but they don’t want to share a couple of drinks with it. The Italians have Mozambique girlfriends, but the Chinese don’t even look at our girls”. It’s a simple way of looking at this, but what I think they mean is that there is no social interaction.

TL: You talk a lot about the poor treatment of workers, but are conditions any worse than those with other foreign-owned or local companies?

The work of Human Rights Watch in Zambia, in the copper belt, backs up what we found. If you compare Chinese mines in Zambia to any other foreign or local mine you find them paying the lowest salaries, having the lowest safety standards and poorest working conditions. According to the unions, the only mining company that had standard conditions was one that had recently taken over a mine that had previously been owned by an Indian company.

It’s anecdotal evidence yes, but we have been in 25 countries and have witnessed this anger from the workers in places as different as Siberia, Mozambique and Peru. When you go to all those places and see something common we feel we are legitimate in saying the pattern of Chinese companies is morally wrong. They may be within the law but we can say for sure that the workers believe they are being treated unfairly.

We don’t say the Western companies are better, they all believe in one thing, money and business. The difference is that we can now know what foreign companies are doing because we have media, NGOs and civil society, but what about the Chinese companies. Is the Chinese judicial system going after those companies if they are not fulfilling the law?

I think what we see, in a way, is the limits of the current Chinese system.

We’ve heard for so long about this win-win situation about what China is doing abroad and how helpful it is, something we don’t deny. But there’s a huge gap between what the official rhetoric says they are doing and what is really happening on the ground – and that’s what we’ve been able to document in countries like Mozambique and Zambia.

TL: What is the long-term impact of these failings?

China has a PR problem. They have it in China and they have it abroad and honestly, it’s very difficult to understand how a country can invest so heavily in the developing world, giving billions of dollars in loans and helping those countries build infrastructure etc but are not able to talk about it. If they could explain it, people would understand. We can understand they don’t want to explain the bad parts of the picture, but there’s a lot of room to explain the good things.

By not explaining things at a local level to people, they’re fuelling potential conflicts. We don’t deny the good things, but there are side-effects and they make people suffer. People who are not part of the picture.

Honestly, at this point, we’re not optimistic they will, because everything ends up in the Chinese political system. There are voices in China that realise that going to a country and building a dam is not enough and that you have to consider the side-affects. They need to change it, but they’ll probably have to change it in China first.

If you change the system of how China INC operates abroad it means the efficacy of this system is going to decrease. It will become more like our system where you have a lot of decision-makers before you have a law. Then you also need to take account of all the environmental and social impact studies. This will take away the ability to make quick decisions and to do business in countries that are very risky.

China is making these huge investments and loans in countries that few could believe are very stable, such as Turkmenistan, where China has given more than US$8 billion in loans to improve infrastructure and build a gas pipeline to sell its main source of income to another country other than Russia. But Turkmenistan is one of the most isolated and corrupt countries in the world. So what happens if the president one day is changed by revolution? How are you going to keep your economic interests?

Or what about Venezuela? The Chinese development Bank lent over US$40 billion in exchange for access to one of the biggest reserves of oil in the world. We now see a president who is ill, if there is a change in Venezuela what is going to happen with this US$40 billion? Some say that what Chavez did was illegal in terms of the Venezuela legal system.

TL: What kind of environmental impacts is China having overseas?

The environmental impact is not only created by the Chinese companies, it is also the responsibility of the recipient countries. Take the example of Mozambique or Siberia, you have local authorities allowing state-owned companies or Chinese businessmen to take the logs and import them to China and gaining all the value there.

Read: Mozambique losing millions to illegal Chinese logging trade

The key issue is that this system is possible because there is corruption in the middle of everything. The Chinese are able to export those logs, not within the law, because they are paying bribes at the border, allowing them to cross on the trains with the logs. It’s even worse in Mozambique where you see those companies giving loans to those local companies, who then cut the trees down and put them on a cargo to China. This is where we see the link between corruption and the environmental impact.

TL: Do you think things are getting better or worse in terms of China’s overseas impact?

Recently we’ve witnessed Chinese workers being abducted in Sudan and a few even killed in Egypt and Nigeria. That’s a new problem. In terms of the impact, I think we still need a few more years to see what the real impact of Chinese overseas expansion is. Thanks to Chinese investment and engagement in Africa and Latin America you are seeing those countries in the centre of the international debate and that has created international attention. For the recipient countries like Mozambique and DRC to have the global powers competing for their resources, if they manage to do it in the right way, is very good.

For China it’s going to get better because they’re having opportunities in the developed world that they didn’t have before, for example in Canada. I don’t think China would have had the access they are having into Western markets if there wasn’t the crisis.

For the recipient countries, honestly, we’re not very sure how this is going to develop. Logic tells me this system in which China only engages with the elites and doesn’t pay attention to the side-effects, is going to cause them problems in a number of countries and generally speaking this is not a system that is going to work in the long-term. But that’s what we’ve been saying for 30 years about China itself, but its still growing.

Juan Pablo Cardenal and Heriberto Araujo are authors of ‘China’s Silent Army: The pioneers, traders, fixers and workers who are remaking the world in Beijing’s image’. It is being published in Chinese in 2013 in Taiwan.