Corporate Social Responsibility – A China approach

Karin Buhmann Associate Professor of legal science at the Institute of Food and Resource Economics at the University of Copenhagen ([email protected])

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Developments in Corporate Social Responsibility (CSR) in China creates opportunities as well as risks for CSR concerned companies. A Chinese CSR standard, CSC9000, based on Chinese labour law with references to international law, urges companies to observe the relevant standards. Even if this means only doing what the law says and not going beyond the requirements of the law as expected by most CSR definitions in the West, CSC9000 may in fact contribute considerably to the observance of the relevant human and labour rights standards. Contrary to what is often believed outside China, Chinese labour law itself provides a relatively high level of protection of workers. The real problem is insufficient knowledge and enforcement of the law. That working conditions may not be so bleak in China after all was demonstrated when the US and EU Chambers of Commerce used the consultation process 2006-2007 on a proposed new law on labour contracts to put pressure on China to ease safeguards and compensations that the law would provide for workers to be laid off. The two chambers of commerce argued it might become much more attractive to produce and invest in other countries in the region which provide lower levels of such guarantees.

CSR in China

CSR challenges abound in China. Reports of excessive overtime, coal mine deaths, environmental degradation and human rights problems should be enough to keep any CSR conscious company wary.

Since the late 1970s the market in China has changed from a planned economy to a market based system, creating extensive potential for foreign production and sale. China’s annual GDP growth now stands at around 9 %. With 400 million people lifted from poverty in 30 years and a population of 1.3 billion, the purchasing power is considerable and continually expanding. Many foreign companies strive to be present in this market. Others outsource production to China to benefit from lower wages than in their home states. At the same time, China’s poor reputation within occupational health and safety, other labour rights and human rights create risks for corporate brands and sales to ethically concerned markets. This applies not only to companies present in China but also to those working with Chinese suppliers.

China undoubtedly has problems with regard to environmental sustainability, human rights and workers’ rights. However, there is also no doubt that industrial growth and trade with the outside world are significant for China’s continued economic development and ability to lift even more people from poverty. The Chinese government has an interest in engaging companies, Chinese and foreign alike, in social and environmental activities to contribute to China’s sustainable development. The government also has an interest in establishing frameworks that help foreign companies ensure that they produce socially responsibly in China.

The Chinese government has adopted a different course to CSR than the EU. Most EU states apply the EU Commission’s official definition of CSR being voluntary and therefore understood to be outside governmental regulation. China’s government has made CSR part of its strategy to bring about President Hu’s policy of establishing a ‘harmonious society’ and even out differences between urban and rural areas. Several organizations and local authorities have followed. Partly supported by the government, a Chinese CSR standard, CSC9000T was launched in 2005. Among other examples, local authorities in Shenzhen in highly industrialized South East China where many foreign companies have production facilities or suppliers have developed a set of CSR guidelines for local companies. The Shenzhen stock exchange has produced guidelines on CSR for traded companies.

CSR is increasingly becoming a competition parameter and relevant for risk management and brand protection. Chinese initiatives to develop standards and guidance for companies to be socially responsible not only present potential for companies to contribute to improving the conditions of workers. Standards like CSC9000 also make it easier for companies, Chinese and foreign alike, to assess and document their compliance with China’s quite comprehensive labour law.

In China, as in some other industrializing countries where implementation enforcement of the law is recognized to be a problem, simply observing the law is sometimes recognized to be CSR. This is pushing the understanding of CSR in a European context but in a Chinese context it makes sense, pending higher levels of knowledge, observance and enforcement of the law among companies and authorities, including labour inspectorates and courts.

CSC9000T

The Chinese CSR standard, CSC9000T, so far only applies to the textile and apparel industry (hence the ‘T’). Its coverage may be expanded to other industries in time. The standard was developed by the China National Textile and Apparel Council with the cooperation of the China Federation of Labour Unions which is China’s only trade union. CSC9000T was launched in 2005. It is a sort of a mixture between the management standard ISO9000 and the CSR standard SA8000. SA8000 is based on international labour and human rights law. CSC9000 is based on Chinese labour law. In addition it claims to refer to an extensive list of international human and labour rights declarations and conventions, including the Universal Declaration of Human Rights, the United Nations Convention on the Rights of the Child, the International Covenant on Civil and Political Rights (which China has signed but as yet (early July 2008) not ratified), the International Covenant on Social, Economic and Political Rights, the UN Convention on the Elimination of all Forms of Discrimination Against Women. The list of references also includes ILO Conventions on weekly rest, accident compensation, minimum age, tripartite consultation and equal remuneration.

The standard itself contains a set of principles. The first of these requires the company to set up a CSR management system based on the PCDA (Plan-Do-Check-Act) model. Others concern obligations to provide employees with written employment contracts, to abstain from use of child labour and forced or compulsory labour, to observe legally stipulated working hours and pay legally required wages and welfare. The remainder requires companies to ‘respect the rights of employees to form and join the trade union and to bargain collectively’, not to discriminate against workers, to abstain from harassment and abuse, and to pay attention to occupation health. Most of the principles require businesses to observe rules that are Chinese law. That is, they are required to comply with the law. To the extent that Chinese law provides sufficient rights and guarantees for workers and communities, this may indeed be a help to many companies as well as to concerned workers and communities. However, a company that applies CSC9000 should also be aware that the standard may be subjected to criticism precisely for its lack of reference to independent trade unions, or for being CSC9000 a greenwash tool.

Issues

As is well known, Chinese law does not allow independent trade unions. The trade union law allows employees to establ
ish local or industrial branches of the official trade union, the All China Federation of Trade Unions, but not to establish independent trade unions. The CSC9000 list of referenced ILO conventions does not include ILO instruments on trade union freedom. By referring to Chinese trade union law, CSC9000 creates a possibility for companies to apply a CSR standard that refers to most CSR issues that are generally on ethical consumers’ minds and those included by detailed CSR instruments like SA8000 and the UN Global Compact while exempting the trade union issue. Whether this is acceptable to a company is for the company itself to decide. Even so, a company applying CSC9000 cannot disregard the standard’s requirement that the company respect the rights of employees to form and join the trade union and to bargain collectively. This right which is guaranteed by Chinese labour law was what in 2006-2007 brought about trade union chapters in WalMart China, the first WalMart stores in any country to have trade unions.

In fact, except for independent trade unions, Chinese labour law provides better protection for workers than ILO conventions in a number of areas of CSR importance: with respect to minimum age (the minimum age for work is 15 in China and may be as low as 12 according to ILO law), working hours (Chinese law sets the limit for normal hours at 44 hours whereas ILO accepts 48), and overtime pay (Chinese law requires up to 300 % normal remuneration whereas ILO law just requires ‘a premium rate’).

Application of CSR standards does not by itself solve CSR problems for businesses in China. Conditions in China create numerous CSR challenges for companies. Observing Chinese trade union law puts a company into a dilemma with regard to international standards on trade union freedom. Reports of child labour or forced labour, and companies exhorting extensive overtime from workers without respecting legal minima or overtime pay, and industrial accidents continue to abound. In later years, an average of 100 coal mine workers die – each week. Many of these from work to extract energy to feed not only Chinese stoves or heaters but also industrial works producing goods sold in other countries. With most of these incidents, the problem again is not lack of legislation to protect the rights and interests of workers. It is lack of observance of the applicable rules by employers, due to ignorance or ruthlessness. Effective implementation and enforcement is often hampered by conflicts between central authorities urging observance of the law and local ones being much more hesitant. Examples include central authorities’ reactions to reports of child and forced labour in brick kilns in May 2007 and reports of poor building standards for schools that collapsed in the May 2008 earthquake, and efforts to close down many of the small coal mines in which conditions are often the most dangerous. In as vast a country as China, central authorities can only do so much if local authorities do not support them. For CSR conscious companies, this strengthens the need to pay attention to central as well as local law and to insist on observance.

In this context, CSC9000 may indeed be a useful supplement to official regulation and enforcement agencies.

Companies active in China may be thrown into CSR dilemmas reaching outside their legal obligations and sphere of action. Danish wind mill producer Vestas experienced this a few years ago when human rights organizations argued that Vestas take responsibility for police shooting villagers in Guangdong. Villagers, of whom some died as a result of the shooting, were demonstrating in dissatisfaction with compensation they had been given by local authorities in return for land to be used for a wind mill park. Vestas was a supplier of parts for the wind mills. Human rights NGOs argued that Vestas had a moral responsibility to influence the relevant authorities to investigate the shooting. The situation demonstrates that although CSR in China is seen by some observers, consultants, companies and even the government as complying with law, other stakeholders have different views.

Perspectives

Developments in China have led to CSR not just posing ethical or environmental risks, but also business opportunities. Increased environmental concern within the government and many companies offer foreign companies opportunities to contribute to building an environmentally sustainable industry. Increased concern with observance of labour law and the development of tools like CSC9000 offer companies opportunities to stay on the right side of complex national legislation that in a number of CSR relevant areas complies with international law and to also demonstrate socially responsible corporate citizenship.