China’s factories, suppliers to the world, have developed philanthropy projects but not yet established proper corporate responsibility programmes

China’s factories, suppliers to the world, have developed philanthropy projects but not yet established proper corporate responsibility programmes

China has been a major challenge for the corporate responsibility profession, mainly because it is so important. Most big clothing, electronics and automotive companies, and countless firms in a host of other industries, source primarily from China.

While western buyers were enticed by attractive pricing, many failed to make sure that their Chinese partners could live up to their technical and logistical requirements. Supply chains became problematic. When Chinese suppliers struggled to meet production schedules, buyers used expensive airfreight, for example.

Quality issues also surfaced. Chinese suppliers often lacked the skills to maintain process control and implement engineering changes. The combination of problems often eroded the expected cost savings.

Just before the 2008 Beijing Olympics, Nike issued its first country-specific supply chain report and it chose China. Nike detailed the efforts it had been making to encourage suppliers to comply with its code of conduct and Chinese law, including a programme to monitor Olympics-related suppliers.

The report noted problems such as falsification of factory documents and payroll records, a lack of effective grievance systems for workers and hiring practices that did not ensure minimum age standards were met. Nike had rolled out a programme to check the identity of some 150,000 of its workers in China and found 167 cases of people who were below minimum age when they were hired. Sometimes companies such as Nike have been reduced to simply trying to ensure workers are paid. In 2005 and 2006, Nike “secured” more than $921,300 in back wages owed to workers in China alone.

The need to address basic issues, such as whether contracted factories are abiding by local laws or paying their workers, naturally cuts into the time and effort that can be expended on more advanced corporate responsibility initiatives in China.

Beyond philanthropy

There are still two stories in China: the approach and activities of local Chinese firms and those of foreign companies operating in the country.

A 2008 survey by the Environment-Oriented Enterprises Consultancy in Zhejiang, one of China’s wealthiest provinces, found: “Foreign multinationals are both more actively engaged in CSR activities in China than their Chinese counterparts and more effective at communicating their respective CSR activities.” Chinese companies that do communicate their engagement on responsibility issues have tended to focus particularly on community investment and philanthropy. There are a number of reasons for this.

The vast majority of Chinese companies are private and not listed internationally and so are not submitted to the same sorts of shareholder or NGO pressure as foreign companies. Most of these companies simply do not, as yet, realise the potential benefits of corporate responsibility.

It is also the case that most Chinese companies that are not state-owned enterprises are owned and managed by individuals who exercise a large degree of personal power within the company and have often become very wealthy. And political priorities have so far stressed the need for “harmony” in a society emerging from rigid socialism and into an environment where many individuals have become rich.

So community investment is popular because factories are located in relatively poor areas; areas where government spending on social welfare has been minimal. Beijing has been keen to see companies invest in social infrastructure such as hospitals, clinics and schools. In part, this is a political trade-off – business people and entrepreneurs know they exist in a relatively grey area and their newly acquired assets are not well protected under China’s rather weak legal system.

While some business people do genuinely wish to do good it is also widely accepted that many put money into community investment projects to curry favour with the government. Similarly with philanthropy.

The rise of corporate philanthropy has been rocky to say the least in China. Originally it was encouraged and pointed to, by both business people and the government, as a sign that a corporate responsibility mentality was emerging. This movement really peaked after the Sichuan earthquake on May 12 2008 (known simply as 5/12 in China).

About $1.5bn was donated, mostly by Chinese companies, but also by ordinary people and foreign companies in China. Despite praise at the time, questions were soon raised by both NGOs active in the quake zone and China’s notoriously tetchy blogosphere as to how much money had really been donated, where it went and how it was spent.

Official statistics, reported in the China Daily newspaper, show that charitable donations in China grew 3.5 times from 2008 to 2009. But more recently the blogosphere has become seemingly increasingly disenchanted with “Big Boss” corporate philanthropists.

A widely reported example is that of Chinese entrepreneur Chen Guangbiao, chief executive of Jiangsu Huangpu Investment, a property company. Chen made large donations to 5/12 disaster relief but then publicly criticised the government’s lack of transparency in explaining how the money was being spent. He decided to donate straight to where cash was required, telling the Chinese press: “An inadequate charity system and lack of openness and transparency on funds are the main reasons that many entrepreneurs choose to donate directly to the poor.”

However, his latest philanthropic venture – to travel with 126 other philanthropists to China’s poor western regions, taking with them $6.3m – appears to have backfired. After Chen was pictured standing in front of a wall of money, many in China’s online community questioned his motives and accused him of generating publicity for his own benefit, and trying to establish himself as an “economic personality”. That these posts have not been blocked indicate that the government is allowing these questions to be asked, which they did not when they were raised after 5/12.

With the recent rise of philanthropy by Chinese companies being openly questioned, many are now looking beyond the simple giving of cash. Rather than outbidding each other on philanthropic donations Chinese companies are turning their attention to the activities typified by foreign multinationals in China that are both broader and also welcomed by the government – good corporate citizenship.

Foreign corporate citizens

Foreign companies in China are more engaged in developing corporate responsibility than domestic companies. But they have still found themselves in trouble. Western companies from Timberland to McDonald’s and Nokia to Apple have been criticised in the press locally and internationally over issues ranging from pay to unions, health and safety to human rights.

Auditing and maintaining corporate responsibility programmes has proved problematic with so many factories to cover – a typical European clothing brand might source from more than 150 factories in China and have many more sub-contractors.

Increasingly foreign companies have sought to become good corporate citizens in China as they both manufacture for export to try and tap into the growing domestic market for their products and brands. This has meant that while, perhaps five years ago, most companies focused their corporate responsibility activities on working conditions, they are now moving closer to the Chinese model of stressing community investment and philanthropy.

The green middle class

It is only a couple of years since Jonathon Porrit, the environmental campaigner, annoyed many in China’s nascent green movement by claiming in an interview with the bilingual website China Dialogue that Chinese people only cared about getting rich and not the environmental cost of the process. Porrit has since changed his views on China, but still, to those living and working in China on corporate responsibility and the environment, they were reflective of a major disconnect between western impressions of the country and the reality.

The rising green consciousness in China is coming about as a direct result of the rise and expansion of an educated middle class. This now numbers more than 600 million people in households with an income of between $7,000 and $9,000 a year. This emerging class is highly urbanised, is educated, and invariably works in white collar occupations. These people have begun to acquire property, cars and appliances as well as being better travelled both internally and often outside China.

This is a sizeable group of people with a high awareness of issues, the means to express them (via the internet) and a more international outlook. They are the group most concerned about food quality, air quality, water quality and sustainability. They have a stake in China’s future and are often members of the 74 million strong Communist party. They also happen to be the backbone of the ongoing consumption boom that the government has staked its future on.

In the past many in the corporate responsibility and environmental movements in China had noted that foreign companies were not enacting policies in China that were in place in their home markets. The most obvious of these were the retailers and fast food brands.

That is changing now. In the last couple of years British supermarket chain Tesco has launched a number of energy saving and environmental initiatives in its China stores that it had enacted several years previously in the UK. Opening a new store in 2008, Tesco’s China chief executive Ken Towle said: “We are very pleased to announce our first green store open in China. Energy saving has become a hot issue in the nation.”

There have also been moves to reduce packaging and introduce more recyclable packaging by many international retailers and fast food chains in China. However, while this is welcome it should be noted that these changes have largely been introduced in response to new laws by the Chinese government banning plastic bags and enforcing recyclable packaging.

So China’s new middle class is now more aware of the environment – from the legion of university “green clubs” springing up on campuses to the outpouring of environmental debate in the blogosphere.

While the government media praised the Chinese delegation’s work at the Copenhagen climate summit, there were raging debates between government supporters and detractors on the internet, many feeling China was not acting responsibly. For observers of China the problem is understanding that Chinese citizens do not have the same opportunities for action as those in other countries. Letters to editors do not get printed, mass protests are forbidden, legal action virtually impossible.

However, the new middle class is finding ways to make its voice heard. Sometimes this is through discreet protests. Communities protesting about polluting factories have gathered and walked in small groups around government offices to avoid being identified as mass protests. Of course, other Chinese people see immediately what is happening.

While Chinese consumers may not be able to demonstrate, sue or bombard newspaper editors, they can exercise choice in where they shop and what they buy. Foreign, and increasingly domestic, brands and retailers realise this. Initiatives such as Tesco’s and others – Marks & Spencer introducing Plan A in its first Chinese store in Shanghai for instance – are becoming both more common and more regularly reported in the Chinese media.

Factory conditions – the forgotten cause?

While both domestic and foreign companies are concentrating their corporate responsibility strategies increasingly on community investment, philanthropy and the environment, the issues of factory conditions and human rights have not gone away. Indeed, they have become even more pertinent.

With export orders harder to find and a number of scandals involving everything from toothpaste to dog food and iPods, many Chinese companies have looked to corporate responsibility as a potential way to fight back. In this they appear to be supported by the government. Though many factory owners still see corporate responsibility as a western concept they do see it as a potential method to counter criticism of China’s labour and environmental practices.

Textiles has been an area where China has become a massive exporter and come under fire for working conditions. Some factories had been better at working with their western buyers on corporate responsibility than others.

A universal code of conduct was the goal of many. And on this China has responded. The China National Textile and Apparel Council is a government-linked body overseeing the industry. Its job is improving China’s reputation to bring in more work and has developed a three-pronged strategy: oppose dumping by Chinese companies, something that had been concerning the US and EU; try to tighten up infringements on intellectual property, something many Chinese textile firms are guilty of; and introduce concepts of corporate responsibility across the sector.

Their solution was CSC9000T, a code of conduct, or as the Chinese prefer to call it, a “management system”. Then the recession hit and CSC9000T appeared to be forgotten. Indeed the pressure from outside as well as internally for change appears to have receded.

Alexandra Harney, the Financial Times south China correspondent, whose 2008 book “The China Price” surveyed the state of corporate responsibility in China, says the old problems of falsification of factory audits and lack of enforcement of the labour laws remain widespread.

Initiatives still occur but are questionable. The government-issued China Corporate Social Responsibility Development Index Report (2009) says that the corporate responsibility index of foreign-funded manufacturing enterprises in China lags far behind that of their Chinese counterparts. The researchers say the low corporate responsibility index of foreign-funded companies is mainly caused by a lack of disclosure on the subject in China. However, a major benchmark was charitable donations, a questionable strategy in China due to the politicised nature of giving.

At present Chinese factories are in a holding pattern, in survival mode amid a slump in export orders. Enforcement of the new 2008 labour laws appears weak. Workers are being encouraged to work hard for the national good and protests are being repressed. The west is largely obsessed with its own problems and so the spotlight on China is far less bright than it once was. And so, many observers see China’s factory conditions as a forgotten cause in these economically troubled times.

Multistakeholder initiatives – not there yet

The last few years have seen a growing amount of talk in China of multistakeholder initiatives (MSIs). However, to date, real examples of MSI projects have been few and far between and encountered a host of problems.

In 2003, for example, nine Hong Kong labour groups and trade union organisations, including the Hong Kong Confederation of Trade Unions, became involved in a MSI developed by a British group, the Ethical Trading Initiative (ETI). The Hong Kong groups and ETI committed significant amounts of time to the project but there has been almost nothing to show for this effort. Eventually, the Hong Kong groups involved withdrew.

The ETI initiative necessarily had to involve China’s only trade union, the state-sponsored All-China Federation of Trade Unions (ACFTU). In fact, having to deal only with this state union has long been a problem for all MSIs in China. Many of the Hong Kong participants and ETI wanted stronger shop-floor involvement, which was strenuously resisted by the ACFTU. The union wanted to have control of all Chinese worker involvement.

There was poor communication – both the Hong Kong groups and the local ETI coordinator became caught up in a morass of negotiation with largely uninterested local corporate representatives and confused suppliers. Again communication between the partners and the ACFTU was virtually non-existent.

Finally the initiative suffered from weak corporate commitment. This was perhaps its key failing and is in fact the reason given for the weakness or failure of most attempted multistakeholder initiatives in China. Too many reps at Chinese factories have no real understanding of corporate responsibility issues. Others have conflicts of interest being both sourcing managers and compliance officers at the same time.

Chinese vs foreign companies – CR survey

A 2008 survey by the Sino-German Corporate Responsibility Project researched both Chinese and foreign companies to see what corporate responsibility activities they were engaged in.

Chinese domestic companies revealed the following results:

• 10% of the surveyed companies reported no information related to any of the 12 elements on their English website but did report information about their respective CSR activities on their Chinese websites.
• 70% of the companies indicated that they were actively involved in different levels of philanthropy.
• 26% conducted activities related to cleaner production and eco-efficiency, health and safety, and environmental management systems.
• 23% of the companies’ surveyed reported activity in community investment.
• 20% reported waste and recycling activities.
• 13% offered information on having a code of conduct.
• 10% reported that they published an annual CSR report and have anti-corruption policies.
• 7% actively engaged with stakeholders.
• 3% had HIV/Aids programmes and indicated the inclusion of a labour rights programme.
• 3% reported no information relating to any of the 12 CSR categories.
• None of the companies provided information on equality and diversity.

Research of the foreign multinational companies’ websites revealed the following:

• 20% of the companies reported no information on their Chinese website concerning the 12 CSR elements.
• 77% were actively engaged in community investment.
• 50% reported publishing a CSR report and were actively engaged in cleaner production and eco-efficiency.
• 37% included information regarding health and safety programmes.
• 33% reported having environmental management systems.
• 30% reported that they engaged with stakeholders and reported waste and recycling operations.
• 20% explicitly stated that they had codes of conduct and labour rights.
• 10% reported equality and diversity policies and included HIV/Aids programmes.
• None of the foreign multinationals reported issues related to anti-corruption policies on their respective websites.

Source: www.chinacsrproject.org

Case study: Tetra Pak

A prime example of a convergence in CR is Sweden’s Tetra Pak, the world’s leading supplier of packaging. Having been operating in China for 30 years, the company has Chinese investments of more than €250m.

Tetra Pak is one company that issues a China corporate responsibility report, in which it breaks downs its projects in China into three elements: its Food for Development programme, environmental sustainability and philanthropy. Li Hexun, Tetra Pak’s China president says: “I hope we can do more CSR work in China, since the greatest significance of an enterprise in society is no less than the value it creates for others.”

Tetra Pak has been involved in a school food programme, which it claims has been a major success. The programme provides milk to school children in poorer provinces, arranging cheaper prices for milk between local governments and suppliers.
According to Yang Lei, communications manager for Tetra Pak China: “120m yuan [€12.9m] has been committed to the school food programme so save milk costs and promote health education since 2000.”

So far 170 primary and middle schools in 24 provinces and cities have received milk in Tetra Pak packages at low prices – totalling 3.5m portions per day. Obviously Tetra Pak, a major supplier of packaging to China’s burgeoning dairy industry, has an interest in more people drinking milk. But the company also believes its programme will spur the development of local agriculture, according to Ulla Holm, Tetra Pak’s global head of Food for Development.

Tetra Pak has also worked to raise environmental consciousness – aiming to reduce its carbon emissions in China by 10% in 2010 and sponsoring environmental awareness adverts on Chinese TV. The company has also upped its philanthropic contributions and is the biggest patron of the Maternal and Infant Health Project of the China Foundation for Poverty Alleviation (CFPA). It donated $1.5m during the Sichuan earthquake which was spent on reclaiming damaged farmland.

Tetra Pak’s activities are typical of the areas foreign companies are now moving into as they attempt to be seen as good corporate citizens in China and build their initiatives that are more visible to the Chinese people. Cynics may say that this is all just business – Tetra Pak wants more milk to be bought, Tetra Pak encourages recycling because they sell the processing machinery for recyclable containers, Tetra Pak donates money to please the government. But, it is the case that Tetra Pak, like many other foreign brands, is increasingly talking to a more aware and questioning Chinese consumer.