Two events illustrate the current state of corporate responsibility in China. The first, a number of speeches at the 10th National People’s Congress (NPC) in Beijing in March 2005 affirming the Chinese government’s commitment to ‘Constructing a Harmonious Society and Corporate Responsibility’. The second, the uproar over Yahoo!’s handing over of information that enabled the government to track down and imprison a Chinese citizen. The first illustrates how far CSR has come: the government has formally accepted the concept and is willing to work with it. The second confirms its own terms of engagement, and ultimately how different Chinese and foreign viewpoints on CSR remain. To the Chinese government, Yahoo!’s actions were a clear demonstration of what corporate responsibility, at its core, is all about; for the western observer, a clear illustration of what it is not.
From the outside in
After pressure from NGOs, media and shareholders, high-profile international brands have begun to grapple with the worst excesses in their supply chains in China in order to keep home markets happy and their reputations intact. But what about their domestic Chinese markets? Once largely a source of cheap labour for products destined for European and American markets, China is now a market destination in its own right, a place where many multinationals see their future salvation from saturated Western markets.
Operating further from the full glare of international media, NGO and public scrutiny, and enjoying the relative absence of local consumer and regulatory pressures, many companies admit that the wholesale adoption of CSR practices is neither relevant nor practical while commercial challenges in China remain so overwhelming. A glance at the retail sector illustrates this view. A homesick foreigner in China in search of retail therapy may be comforted by the existence of large well-known retail brands in most major urban centres. But if the socially conscientious wished to be reassured that, as at home, the table he/she buys is unlikely to have contributed to the destruction of the rainforest, the toxins in the paint pot are of internationally acceptable levels, and the worker who glued the sports shoe was treated humanely, they may be disappointed. A closer look at global retail supply chains in China reveals that a ‘one country, two systems’ approach to ethical trade is at work: one system that attempts to apply social and environmental standards demanded by overseas markets and another that does not.
Import requirements for goods entering the European Union or the US now demand minimum social and environmental standards as a pre-requisite for market entry. By contrast, the domestic market places few such expectations on foreign retailers. In this respect, the foreign retailer enjoys a quiet life: a disenfranchised labour force, fledgling and fragmented NGO activity, a consumer consumed more by material than ethical concerns, and media, by and large, on a leash.
The managing director of one foreign retailer in China acknowledged that such an environment allowed for less change in the supply chain: “Consumers and media are picking up on health and quality-related issues, but the wider impact of products on the environment and labour issues are not on the radar screen yet”. After Chinese customers complained of headaches, the retailer introduced low toxic paints, a range that had been available in its home market for years.
Retailers that take pride in stocking sustainable wood products in their overseas markets admit a very different picture in China. One admitted that only a small proportion of its hardwood products in its Chinese stores are Forest Stewardship Council certified, compared with over 90% in its home market. “China is where our home market was 20 years ago. If we employed the full range of our ethical trade policies here we’d be out of business.”
When challenged, foreign retailers will tell you that their ethical sourcing policies for local and overseas markets are essentially the same; they just proceed at different paces. Yet, as the director of one Chinese NGO remarked: “Of course, on paper, the policies are the same, but in practice, they are different. Wal-mart is a classic example. Lots of written commitments and policies, but the reality of the ‘ding dan’ (order placement) is to get the cheapest price.”
Regulatory pressures, too, are less onerous. A Beijing-based manager of a large European retailer explained: “We are seeing more local environment and health-related legislation but the scope for abuse of labour-related legislation is still great.” Such are the realities of China’s labour market; its legislation riddled with loopholes and contradictions, exposed to misinterpretation and abuse. At its core, a fundamental contradiction: that China’s economic survival and political stability rests on its vast pool of cheap, disenfranchised labour. Higher wages and better labour standards will only serve to undermine this comparative advantage.
But things are changing. The government is fearful of increased social instability and sees business as both scapegoat and partner; a consumer rights consciousness is growing in China. Behind it, local media, denied a political voice, is sharpening its claws on social and environmental issues. Local NGOs too, whilst still fragmented and often at the mercy of the state, are starting to use the corporate sector as a vehicle for change, in some cases, working with international NGOs – witness the Greenpeace campaign against Carrefour last year for illegally selling genetically engineered rice in contravention of both local law and its own international food safety policy.
Shaken, but not yet stirred?
Two things motivate the Chinese government’s interest in CSR: fear, and national pride. Alarming statistics on work-related accidents, HIV/AIDS, labour disputes, the cost of pollution-induced illnesses and the effects of acid rain on grain harvests are enough to convince the government that a breakneck economic growth of 8% per annum is costing it political legitimacy, social stability and international reputation.
Barely a week goes by without newspaper reports of angry demonstrations against environmental damage, protests by workers demanding unpaid wages and blockades by residents fighting to protect their homes and communities against real estate or industrial development. Witness the recent chemical explosion in the northern city of Jilin that led to poisoning of the local river and water systems, and the tragic shooting of protestors in southern China. Both have provoked unprecedented waves of criticism from both citizens and the local press. Incapable of delivering sustainable solutions for 1.3 billion all by itself, the government sees the increased role of business as a partial solution.
China’s recent hosting of the Global Compact meeting in Shanghai in December, followed by the WTO conference in Hong Kong has secured the nation a seat at the high table of global governance. A flurry of academic studies and workshops on CSR in China over the past year and a recent announcement that the government will develop its own CSR standard confirms its interest in taking a stake in what has been to date, largely a foreigners’ debate. But the slew of foreign corporate codes of practice and audits imposed on its domestic factories has also stirred Chinese national pride. While relatively few local factories are reported to have applied for SA8000, the standard is viewed by some in government as a foreign model insensitive to local context, and, worse, a form of imperialist CSR Trojan horse. “Why should these foreigners be telling us how to run our factories?” While the creators of SA8000, Social Accountability International, have done their best to allay fears that it is neither another manifestation of US imperialism nor a form of non-tariff trade barrier, rumours of factories receiving threats for using the standard still persist.
The government’s response to SA8000 is no different to responses by China’s political elite in earlier times when it felt threatened by foreign interests. An advisor to the Qing court in the dying days of the dynasty in the 1880’s advised that China must “learn from the foreigners in order to defeat the foreigners”. It comes as no surprise, then, that China has come up with its own version of the social compliance model, CSC9000T.
Consumer power
When the owner of a faulty Mercedes Benz dragged his car into a public square in Sichuan and pulverized it with sledgehammers in front of 30 reporters and TV cameras in 2002, he touched a raw nerve and captured the imagination of every consumer group, TV station and newspaper in China. “We smashed the car to encourage every Chinese consumer to stand up and fight the big companies who think they can always win”. While this dramatic case was as much an opportunist publicity stunt as a genuine consumer grievance, it nonetheless marked an important stage in China’s growing ‘rights consciousness’; a direct challenge to a company’s stated global business ethics and a careful and sustained management of media to ensure maximum coverage.
Foreign businesses are an easy target for criticism. Big brands such as Fuji, Samsung, Toshiba, Kimberley Clark, Anheuser Busch, Glaxo SmithKline, Estée Lauder, have all fought rearguard actions in the face of accusations of double standards in recent years. And it is not only foreign business that is starting to feel the pressure. China’s leading national retailer, Lianhua has backed down in the face of several protests by local residents over its site developments, despite having official approvals from local authorities and a direct line to the Mayor of Shanghai.
Issues of obesity and nutrition amongst children are also of increasing concern. Double-digit growth in the fast food and snack industries, changing lifestyles and a uniquely Chinese legacy – the one child policy — are key drivers. Concerns focused on environment, health and safety have accelerated in the wake of SARS, avian flu and widespread pollution, prompting a wider consciousness about product safety – from ice cream to i-pods. And, while perhaps sporadic and not yet conscious, a linkage between consumer rights and wider environmental concerns is beginning to emerge.
While still evolving, the expression of consumer rights in China marks an important stage on the road to a greater collective social conscience, which, for so long, has opted to be quietly oppressed by those in authority .
Media and ngos
Assisting this consciousness to evolve, and gradually breaking free from its own form of “quiet oppression”, is the local Chinese media. After 56 years of loyal service, it remains the mouthpiece of the Communist Party, unleashed periodically to report on corruption or theft of state assets. However, it is on social and environmental issues that it has really begun to flex its muscle. One paper’s (Nanfang Zhoumo) recent ranking of 70 Fortune 500 firms on their CSR performance in China is just one sign of this. And they are increasingly turning to local grassroots organisations and NGOs as credible sources. Environmental groups in particular, are filling a growing political space as the country’s environmental pressures increasingly align them with government concerns. They find willing allies in local communities, student groups and media and have moved beyond the ‘bird-watching, tree-planting, garbage collection’ phase to tackle large-scale power generation projects and other government-approved developments.
The government tolerates but keeps a wary eye on their development. But life appears to have become more difficult for those working on more sensitive issues such as labour rights. Rising instability and a rash of revolutions in neighbouring central Asian countries has made the government nervous. This is not helped by the fact that many in government believe that US-sponsored NGOs were a factor behind these revolutions.
The Ministry of Civil Affairs estimates that there are over 290,000 registered NGOs in China. Unofficial estimates claim up to 3 million. However, many are small, fragmented and operating in a legally tenuous space. There exist a few high profile examples of corporate partnerships with leading Government – Owned NGOs (or GONGOs). Even fewer either assess the impacts of their contributions or develop strategies that are more sensitised to local needs of communities in different provinces or regions. At a time when the government increasingly looks to the corporate sector to support its social and environmental goals, companies would do well to plan their community partnerships better.
While Chinese groups, unlike their western counterparts, are still more ‘service-based’ than ‘rights based,’ participatory rather than adversarial, this is beginning to change. And while environmental activities have made more headway in recent years, increased activities on labour issues are not far behind.
Labour issues
A rising tide of labour disputes in recent years reflects a growing awareness of rights and confidence to assert them. It also reflects the fact that despite a decade of corporate codes of conduct and audits, life for the average Chinese worker hasn’t improved. Officially recorded collective labour disputes have doubled between 1998 and 2002. In 2004, over 250,000 disputes were officially reported. The real number is likely to be far higher. And child labour has re-emerged as a problem too – in part a by-product of recent labour shortages, but more importantly symptomatic of a flawed education system.
Labour rights lawyers are busy, particularly in the southern province of Guangdong, heartland of labour rights abuses. One lawyer told us that his cases had doubled in the last year. While he earned more from representing factory managers, he increasingly represented groups of workers because they were becoming more informed and resourceful. This was confirmed at a recent conference on supply chains in Shenzhen, where worker representatives asked us if we could facilitate access to foreign companies directly to ask for help. When asked if they approached auditors for the same thing, they responded, “no point, nothing will change.” Sadly, this only re-affirms what we already know: that the standard audit driven approach is not solving anyone’s problems, worker, factory manager or foreign brand. However, with the advent of supplier database systems such as SEDEX and the growth in piloting of collaborative industry initiatives with factories, there are opportunities for companies to do more.
Olympic opportunity
China’s hosting of the Olympics in 2008 presents both the Chinese government and companies operating in China with an unprecedented opportunity. For the government, an opportunity to demonstrate it is a responsible progressive player on the world stage: to obliterate those images of tanks and sweatshop conditions. For companies, a chance to demonstrate that they are not profiting from such a legacy, or from being able to ‘get away with’ practices they would not be able to get away with at home. The world will be watching.
Corporate Citizenship Briefing, issue no: 85 – January, 2006
Liza Lort-Phillips is a consultant with The Corporate Citizenship Company. She worked in Greater China for ten years.
Liza has an MSc in Business and Environment from Imperial College London and has also worked as a freelance consultant for the Corporate Responsibility programme at the International Institute of Environment and Development (IIED). A fluent Chinese speaker, Liza is a graduate of Politics and East Asian Studies from Newcastle University. Liza co-authored a Save the Children UK publication ‘Beyond the Rhetoric: Transparency in the Oil and Gas Industry’ (2005).