Chinese investors pose challenge for NGOs


When the world’s largest hydroelectric dam builder, China’s state-owned Sinohydro, withdrew from the Agua Zarca project in Honduras in 2013, opponents credited a grassroots campaign by local activists. The campaign’s leader, Berta Cáceres, won the Goldman Prize (the “green Nobel”) this year largely as a result of that effort.

But as Cáceres organized members of her indigenous Lenca people to block supply roads to the Agua Zarca construction site, representatives of the U.S.-based environmental group International Rivers (IR) were working behind the scenes in Beijing. They were meeting with Sinohydro executives, providing the kind of information that a Western company’s community-relations team might normally gather on local sentiment and the positions of civil society groups.

While no one can say which, if either, strategy prompted the company’s about-face, the Agua Zarca campaign may prove to be a landmark in the development of relations between Latin American civil society and the increasingly prominent Chinese investors sponsoring megaprojects in the region. Some observers believe that Latin American civil society leaders and Chinese business executives might be starting to learn how to deal with each other. But it could take time. Many Central and South American activists are struggling for ways to understand the modus operandi of these new investors and even how to make initial contact.

“It is very important to find ways to exert influence,” says Esperanza Martínez, co-founder of the Quito-based NGO Acción Ecológica, and perhaps Ecuador’s most prominent environmentalist. “But we don’t understand them well, and civil society there is weaker. We understand Europe and the United States better.”

In recent decades civil society organizations around the world have developed a standard playbook of methods to influence decisions by international investors. Those investors, however, have typically been multilateral financial institutions such as the World Bank and the Inter-American Development Bank (IDB) as well as Western and Japanese companies keen to protect their brand images and stock prices. Multilateral banks have created formal mechanisms to incorporate NGO and community input about the projects they finance. And many Western companies have learned that public protests and legal challenges can prove costly and time consuming. A 2012 report on mining sector trends released by Deloitte, a global consulting firm, stressed the need to address the demands of what it called “restless stakeholders.” By taking extra steps to be good corporate citizens, Western mining company executives believe they can insure themselves against nationalizations, additional regulation, higher taxes, lawsuits, and protests that could hamstring operations.

But civil society groups have had to come to grips as well with the increasingly powerful presence of Chinese investment. In 2010 Chinese loans to Latin America overtook the combined total for the World Bank, Inter-American Development Bank (IDB) and U.S. Export-Import Bank, with US$119 billion of credits flowing to the region during 2005-14, according to Inter-American Dialogue, a Washington, D.C.-based think tank. Chinese foreign direct investment in Latin America averaged $10 billion a year during 2010-13, according to the Economic Commission for Latin America and the Caribbean (ECLAC), a United Nations agency based in Santiago, Chile. The agency does not have a specific estimate for last year, but says the figure was probably higher.

Funds in such deals have been channeled for the most part into large-scale infrastructure projects and extractive endeavors such as the Coca Codo Sinclair dam and the Mirador copper mine in Ecuador. As they have tried to engage with Chinese investors, Latin American activists have found their customary tools wanting. “In Ecuador and around the region, we have figured out how transnationals from the United States, Europe and [Latin America] do business,” says Mario Melo Cevallos, coordinator of the Human Rights Center at the Law School of the Catholic University of Ecuador in Quito. Melo cites pressure that can be put on publicly traded companies, a tactic that Ecuadorian activists used in the high-profile oilfields pollution case brought against Chevron. “When it comes to investors from places such as China, Indonesia or India, we don’t understand anything. We don’t understand their logic.”

Nor does Salvador Quishpe Lozano, who is the prefect, or governor, of Ecuador’s Zamora Chinchipe province, home of the Mirador deposit. “The Canadians were here before, and I know activist groups put pressure on publicly traded companies in the United States, Europe and Canada,” he says. “But with the Chinese it is different because they have a different way of doing things.”

That way of doing things typically means focusing tightly on carrying out the project. Says Stephanie Jensen-Cormier, China program director of International Rivers: “They do not have that [community relations] infrastructure built into their companies.”

With the expected slowdown in the Chinese economy, experts have forecast that the biggest effects for Latin America should be in commodity exports. It is less clear to what extent China’s foreign direct investment will be affected. If new Chinese initiatives were to dry up, there are already enough megaprojects in the pipeline to keep everyone busy for a while.

Paulina Garzón, director of the China-Latin America Sustainable Investments Initiative at American University in Washington, D.C., was among the first to address the shift in foreign investment, some of which also was driven by Brazil. “Starting in 2009 I began to notice the growing importance of new actors like the BNDES [Brazil’s national development bank] and the Chinese banks,” she says. “It became important to figure out how to exert influence on them.”

The first question Garzón asked herself was whether Chinese investors had social and environmental standards and, if so, what they were. Civil society organizations spend much of their efforts trying to persuade multilateral banks to adhere to their own standards, so maybe the same strategy would work with the Chinese. That exercise led to an 80-page booklet for local communities called “Legal Manual on Chinese Environmental and Social Regulations for Foreign Loans and Investments: A Guide for Local Communities.”

Used since December 2014 in training workshops for affected communities in Ecuador, the manual has prompted campaigns of letter writing to Chinese banks about Mirador and the Pacific Refinery, a petroleum refinery project. The manual also has been presented at events in Colombia, Peru and Brazil. Meanwhile, Garzón’s organization has been publishing a newsletter in Spanish about Chinese investment in Latin America.

Rebecca Ray, a research fellow with the Global Economic Governance Initiative at Boston University’s Frederick S. Pardee School of Global Studies, categorizes Garzón’s workshops as one part of a two-pronged strategy. The other, she says, involves informing the public about the environmental and social impacts of Chinese investment projects. (See Q&A—this issue.) She says a Peruvian nonprofit called Law, Environment and Natural Resources (DAR) is “highly effective” at this. Says Ray: “[DAR] holds regular public events to cultivate a dialogue about the ongoing process of Chinese investment in Peru.”

In that vein, DAR is tracking the activities of the New Development Bank, which is operated by the so-called BRICS countries of Brazil, China, India, Russia and South Africa, says Martha Torres Marcos-Ibáñez, an Amazon specialist with DAR.

Many initial efforts parallel the information-gathering strategy. International Rivers recently published a report ranking the social and environmental practices at seven Chinese hydroelectric projects around the world, including two in Ecuador. The U.S. green group Friends of the Earth presented seven case studies addressing Chinese bank financing for overseas investments. Two concern Ecuador: Mirador and the Pacific Refinery. Read one of the central conclusions: “The case studies indicate that Chinese banks lack transparency and sufficient methods of engaging with the public, practices which reduce their access to beneficial information and input that could improve their [good corporate governance] compliance.”

Another strategy is to make inroads on public opinion, and not only in Ecuador. Garzón, Melo and their respective organizations are working to gather information about large Chinese investments in Ecuador and then engage with Chinese opinion leaders. “Gather and spread information—that’s the objective,” says Melo. “And to establish communication with civil society, both in Ecuador and in China. We want to forge better contacts with Chinese universities that might be interested in working together.”

For their part, Latin American student groups are trying to link up with their Chinese counterparts. During the COP 20 climate summit in Lima, Peru, last year, students from Ecuador’s indigenous Yasuní ethnic group reached out to young people from China and elsewhere. With abundant petroleum reserves, Yasuní lands have become a focal point for debates about oil drilling, including by Chinese companies. The students set up an informal network called the Climate Change Non-Adapters. “We have a lot in common with Chinese youth,” says Elena Galvez, a Yasuní youth leader.

Still, a wall of silence often prevails. Mónica López Baltodano, executive director of the Popol Na Foundation, a Nicaraguan nonprofit, describes her organization’s efforts to contact the Chinese company HKND Group, which won the concession to build a canal across her country. (See “Canal project still a puzzle after formal start”—EcoAméricas, Feb. ’15, and “Impact report on Nicaraguan canal issued, but not to public”—EcoAméricas, Aug. ’15.)

Hard to engage

Popol Na’s research revealed HKND not to be a “real” company, but a consortium of 16 others. “It didn’t have an office in the country,” López Baltodano says, adding that its legal local address was that of a Managua law firm. Popol Na says HKND appeared to be using office space at the headquarters of Enatrel, Nicaragua’s state-owned electric power transmission company, but had trouble confirming even that. “They don’t answer the phone,” she says. “They don’t want to receive letters. We have to send messengers. It is impossible to communicate with the company.”

The wall extends to places where physical proximity would seem to make silence impossible. “I don’t have any contact with the Chinese,” says Quishpe, the Ecuadorian provincial governor. “We share the streets and trails of our little city of Zamora with them, because there are a lot of Chinese citizens around. I don’t know what they do, but it seems to me that many of them are common laborers.”

Quishpe believes that instead of trying to pressure the Chinese, local activists should get their own national governments to uphold their laws and standards. “There is no dialogue,” he says. “I have not tried to talk to them myself. I don’t think I have anything to discuss with them. We have a constitution, and our national government is responsible for upholding the law. Our message has always been directed to our national government.” (Repeated efforts to contact officials at the Chinese Embassy in Quito were unsuccessful.)

Back in Beijing, environmental organizations such as International Rivers do their best to convey the kind of input to Chinese companies that Western firms would gather through their community-relations departments. They’ve been talking with executives at Sinohydro regularly for the last five or six years and making contact with other Chinese companies involved in financing and investment in Latin America. “When we bring information [to the companies], they are interested,” says Jensen-Cormier.

Cultural gap

After International Rivers released its above-mentioned report, a Chinese company that had received poor marks for its behavior in Cambodia, partially because of its lack of transparency, contacted the group to clarify its policies, she says. Jensen-Cormier and others note that the corporate cultural gap between China and Latin America might be wider than some people think. That could engender unintended communication breakdowns. “In Latin America people are aware and outspoken,” she says. “It is a different way of doing things. With protests. That is not the norm in China.”

From the point of view of Chinese business executives, “They build to satisfy their clients, which are often governments,” says Jensen-Cormier. “A lot of times they do not have that infrastructure [for community relations] built into their companies.” They don’t realize that a project can fail “if a lot of stakeholders are against it.”

Latin American civil society leaders are quick to say they are not opposed to the concept of Chinese investment. “It is neither necessary nor helpful to demonize Chinese investors, to convert Chinese investors into an enemy,” says Melo. “That would be wrong. Instead we need to better understand their agenda and their strategies; and to understand whether these agendas and strategies are compatible with the long-term agendas and strategies of our country; and find points of agreement.”

Garzón argues that Chinese investors may ultimately be driven to reach out to activists for the same reason as their Western counterparts. “It is in the interest of Chinese investors to begin to establish relationships with civil society where they operate in Latin America,” she says. “The risk you run for not having a ‘social license’ is very high.”

- Bill Hinchberger

(A portion of the reporting for this article was supported by a grant from the Mongabay Foundation.)

Paulina Garzón
China-Latin America Sustainable Investments Initiative
Washington, D.C., United States
Tel: (202) 885-1000
Stephanie Jensen-Cormier
China Program Director
International Rivers
Beijing, China
Tel: +(86 186) 1833-1872
Esperanza Martinez
Acción Ecológica
Quito, Ecuador
Tel: +(593) 3211-103
Mario Melo Cevallos
Human Rights Center, Department of Law
Pontifical Catholic University of Ecuador
Quito, Ecuador
Tel: +(59 32) 2991-700 ext. 1427
Salvador Quishpe Lozano
Prefect (Governor)
Zamora Chinchipe
Zamora, Ecuador
Tel: +(593) 2605-132 ext. 104