As China’s economy has exploded, concepts of sustainability and business ethics have developed that differ from those in the west

As China’s economy has exploded, concepts of sustainability and business ethics have developed that differ from those in the west

Since the launch of the Reform and Opening Up policies of the late 1970s and early 1980s the People’s Republic of China has been on a prolonged trajectory of economic growth. This growth saw the country achieve double-digit annual GDP growth for more than a decade, and even now growth is topping 8%.

In large part the success of the Chinese economy has been predicated on two factors. First, is the ability to produce goods cheaply and in large quantities for export, attracting multinational companies to increasingly source products from China. Second, as labour costs remain low by international standards and global supply chains became increasingly integrated, so foreign companies have increasingly opened their own manufacturing operations in China.

This has meant that China’s economic growth has been driven largely by export earnings and inward investment, making the country the “workshop of world” and the planet’s largest holder of foreign currency reserves.

The range of products and goods sourced from China is staggering. The largest single buyer, US retail giant Wal-Mart, is, by some estimates, buying as much as $27bn a year in Chinese goods. Crucially, as China has progressively moved up the value chain, the country has moved from being the producer of countless plastic goods, toys, jeans and T-shirts to a producer of hi-tech mobile communications, cars, ships and iPods.

Workers without number

Nobody really knows quite how many factories there are in China or how many people employed. As an indication, the government admitted that 20 million workers lost their jobs with the downturn in sourcing at the start of the recent recession. Large companies work with a network of factories employing thousands in total. For instance, Nike is thought to have products made in 180 factories across China employing about 200,000 workers. Monitoring operations as extensive as these has proved a daunting challenge.

This sustained 30 years of expansion has not been without bumps along the road. China’s vast rural population has been steadily urbanising, leading to massive internal migrations from the farms to the factories. China’s cities have become huge megalopolises with the government desperately trying to create new jobs to support those moving from agriculture to manufacturing and services.

At the same time an internal revolution has been occurring as China’s large state owned enterprises, the backbone of the country’s heavy industry, have been privatised, with many now listed on newly created stock exchanges. And China’s banking and finance system has been the subject of repeated reforms.

Both these elements of reform have led to any number of issues including emerging notions of corporate governance, corruption and labour rights – issues that have at times, most notably during the Tiananmen Square demonstrations in 1989 and their brutal suppression, burst into protest and challenges to the ruling Chinese Communist party.

Put simply, China, the world’s most populous country, is now heading towards becoming the world’s largest economy too. Yet it is still an economy and a country in transition. As fast as the economy has grown, and people’s expectations of higher living standards have been raised, the Chinese legal system, governance structures and social welfare policies have not always managed to keep pace.

Now, in the face of the international recession, China has begun to reorient its economy as export orders have slumped – away from a reliance on manufacturing for export and attracting inward investment to increasingly attempting to harness the potential of the country’s domestic market and its consumption capabilities. This desire was most recently expressed at the Davos World Economic Forum by the Chinese vice-premier, Li Keqiang, a man tipped to be China’s next leader after Hu Jintao stands down. He said: “We will focus on boosting domestic demand. The growth in domestic consumption in China will not only drive growth in China but also provide greater markets for the world.”

China’s economic growth has brought massive change for its 1.3 billion people. China’s urbanisation rate will reach 48% in 2010, according to the Chinese Academy of Social Sciences and is expected to exceed the critical 50% mark in 2012 or 2013. Urbanisation is expected to spur consumption as China’s roughly 200 million migrant workers send money earned in the cities to their families in the rural areas. China’s numbers are always vast – when the urbanisation rate grows by 1% about another 10 million people have moved to the towns and cities.

In those towns and cities – and China has more than 660 cities of which 99 have populations officially over one million – lives have changed dramatically in the past three decades. Vibrant property markets have exploded, the number of service jobs has grown, educational opportunities have expanded and a swelling middle class has emerged.

Huge problems remain – China’s social safety net is thin with poor medical coverage and an inadequate pensions system for a rapidly ageing society – and, of course, while the past few decades have seen massive doses of “perestroika” reconstruction there has been little to no “glasnost” openness.

Lack of freedom

There is effectively no independent judiciary, no free press and heavy censoring of all forms of media including the internet. There are limitations on international travel and capital movement. As is well known, the Communist party brooks no challenge to its ruling legitimacy through either independent organisation, protest or democratic activity, which is important when considering the role of NGOs.

This then is the backdrop against which a concept of corporate responsibility – qiye shehui zeren – has begun to emerge and attract attention in China. Just as Deng Xiaoping announced that China would have “capitalism with Chinese characteristics” so it seems that China’s evolving notion of corporate responsibility will also have its own set of caveats and distinctive parameters.

To better understand this evolution in China it is crucial to understand two divisions. First, contrary to popular definitions in the US and Europe that highlight the voluntary nature of corporate responsibility, most of the debate around corporate responsibility in China focuses either on legal compliance on the one hand or corporate philanthropy on the other.

Second, there is a broad distinction between the importance attached to corporate responsibility, its implementation and enforcement between Chinese companies, whether private or state-owned, and foreign firms operating in China. The gradual emergence and integration of many Chinese companies, from oil firms to kitchen appliance makers, in the global market has begun to change this, but it is still fair to say that there is a major divide in approach between local and foreign. This is often a source of conflict and misunderstanding.

The result is that national and international stakeholders do not yet share a common understanding of corporate responsibility in China. Still less do shareholders in the west always understand the constraints and the landscape companies operate under in China. This again has led to problems.

Similarly, NGOs in China are not able to operate with the freedom of movement and voice they have in other countries. The development of domestic company corporate responsibility strategies, those of foreign firms operating in China and the nascent NGO movement are all guided by these concerns and constraints. Understanding these differences, and the fact that the Beijing government will evaluate any corporate responsibility initiatives in terms of its two major objectives – staying in power and promoting the slogan of a “harmonious society” – is crucial to evaluating what is achievable in China and measuring progress.

The result has been a growing convergence between the corporate responsibility activities of domestic and foreign companies in recent years as Chinese firms expand their definitions of corporate responsibility and foreign companies come increasingly to seek to raise their profile domestically rather than simply respond to overseas criticisms. And so, it’s been a busy time for corporate responsibility in China recently.

Ethical Corporation: China corporate responsibility factsheet

Socio-economic statistics
Population: 1.34 billion
GDP (nominal): €3.2tn (2008)
GDP per capita: €2,400 (2008)
Monthly minimum wage: €78 (720 yuan, 2007)
Human Development Index
China: 0.772 (ranked 92 out of 182 countries)
Hong Kong: 0.944 (ranked 24 out of 182)

Current leadership:
President: Hu Jintao
Premier: Wen Jiabao
Type: Communist

Primary industries:

• mining and ore processing, iron, steel, aluminium, and other metals, coal
• machine building
• armaments
• textiles and apparel
• petroleum
• cement
• chemicals and fertilisers
• consumer products, including footwear, toys, and electronics
• food processing
• transportation equipment, including automobiles, rail cars and locomotives, ships, and aircraft 
• telecommunications equipment, commercial space launch vehicles, satellites