Chinese investors becoming more socially and legally responsible abroad

In recent years, economic and trade cooperation between China and Latin America has seen steady progress. In 2012, the trade volume between the two sides increased by 8.1 percent, reaching $261.2 billion. It is expected to reach $300 billion in 2013. China has now become the second largest trade partner and the biggest investor in Latin America.

Chinese investment in Latin America possess two major challenges: With an increasing number of Chinese manufacturers setting up factories in the region, they are gradually adapting to local laws and environmental requirements, while also paying more attention to their social responsibilities.

Investment also varies from traditional areas of energy resources, mineral products and textiles, to automobiles, household appliances, electronics, spaceflights and telecommunication. The changes all point to the fact that investments in the region are becoming more stable with greater opportunities.

Investing on manufacturing

In early June, a heavy truck project was sealed in Brazil between the Beiqi Foton Motor Co. Ltd. of China and the Cummins Co. Ltd. of the United States. In addition to vehicle exports, Foton Motor is preparing to set up two auto parts factories in Brazil.

Foton Motor is not the only Chinese investor in Brazil. China's large state-owned enterprises, such as PetroChina International Co. Ltd., Sinopec, China Aluminium and State Grid, have continued to expand their investments in Latin American countries. At the same time, a group of automakers including Great Wall Motor Co. Ltd., Chery Automobile, Jianghuai Auto (JAC) and Hafei Motor Co. Ltd., as well as Sany Heavy Industry and Gree Electric Appliances Inc., have all begun to establish factories in Latin America.

General Manager Rogerio of Mia Leather in Rio De Janeiro, Brazil told People's Daily that 70 percent of Brazil's export products are raw materials, but 90 percent of its industrial finished products are imported, most of which come from China. In recent years, China's household brand names such as JAC Motor Co. Ltd. and Chery Automobile have built factories in Brazil, which will improve the country's industrial structure, Rogerio added.

The entry of China's manufacturing industry into Latin America to set up factories has not only helped provide local employment opportunities, but also upgraded the manufacturing level of the Latin American countries, said Whitield, Director of the School of International Relations of the University of the West Indies. In addition, Chinese enterprises will bring their relatively advanced technologies and quality products to Latin American and Caribbean countries.

Chinese enterprises possess rich management experiences, good technological skills and market competitiveness, providing favorable conditions for Latin American countries to select investors and thus form mutually complementary ties with Brazil and even the entire Latin American region in terms of industrial development, said Andrew Ni, Professor of Market Supervision and Management Research Center of University of Brasilia.

According to China's state-run People's Daily newspaper, a China-Latin America cooperation fund was initiated last year, which will further promote Chinese enterprises to invest in the region. Chinese financial institutions offered $5 billion for the first phase. At the same time, Latin American countries are welcome to jointly invest in cooperative projects in the fields of manufacturing, hi-tech and sustainable development projects.

Corporate responsibilities

Chinese enterprises are increasingly paying attention to environmental protection and sustainable development in the process of expanding their business in Latin American countries. They have also attached great importance to their social responsibilities.

"Chinese investors face steep learning curves with respect to local practices and the contexts in which they are operating -– both cultural and regulatory. But they are showing signs of increased recognition of the importance of sustainability in informing investment decisions and in building long-term relationships and China's reputation in the region. The key test will be putting these good intentions into practice," said Emma Blackmore, the lead author of a report published recently by the International Institute for Environment and Development in Britain.

The report specifically mentioned the Toromocho mining project in Peru, invested in by China Aluminium Corp., saying that the company received recognition from the local government and society after actively conducting extensive discussions with the local community. Data from the China Aluminium Corp. in Peru shows that the company has actively fulfilled its social responsibilities since it purchased Peru's Moromocho copper project in 2007. Before the project started, China Aluminium Corp. invested in and built the Kingsmill Sewage Disposal Plant, which has created jobs for local people and solved the water pollution problem that had plagued local governments and residents for nearly 80 years. China Aluminium Corp. has also built a new town to relocate local residents. To date, about 80 percent of them have moved in.

The report shows that most of the Chinese enterprises abroad rapidly adapt to the rules and regulations on environmental protection made by Latin American countries. In addition, a series of national provisions and guidelines made by the Chinese Government for the country's outbound investment and cooperation have ensured Chinese enterprises understand what is required in Latin American countries.

Local laws

As China restructures its economy, more Chinese enterprises will build their factories in Latin America. One of the biggest challenges they face is how to navigate local investment laws.

Li Ke, President of the Southern South America Regional Division of Huawei, a leading global Information and Communications Technology solutions provider, stressed the importance of adhering to local laws. He said Brazil is one of the countries that has the strictest laws on the protection of laborers and has the most complicated tax system. "If you fully understand Brazil's tax system, you won't be affaid to invest in any other countries," said Li.

According to Li, Huawei has greatly benefited local communities over the past decade in tax revenues, employment, personnel training and in improving their technological level. In 2011 alone, Huawei's investment in Brazil reached $310 million and directly and indirectly created 17,500 jobs. Over the past three years, Huawei paid $700 million in taxes to the Brazilian government.

After entering Latin America, Chinese enterprises must be patient and understand the labor laws in the countries in which they are investing and adhere to environmental protection procedures before starting a project, said a former director of policy department of the Ministry of Foreign Affairs, Costa Rica.

The host country's strong legislation and enforcement is also important in determining the performance standards of Chinese enterprises and in legislating the types of investments that can take place, said Blackmore.