UNDP, Academy under MOFCOM and Others Issued Reports on Fostering Sustainable Development with the Belt and Road

2019-11-25, by United Nations Development Programme in China (UNDP), Chinese Academy of International Trade and Economic Cooperation of Ministry of Commerce of the People’s Republic of China (CAITEC), All-China Fed,

    

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   During the second BRF, UNDP in China, SiLKS’ partner, and CAITEC released “Report on Fostering Sustainable Development through Chinese Overseas Economic and Trade Cooperation Zones along the Belt and Road: Analysis and Practical Guidelines from Economic, Environmental and Social Perspectives”. UNDP also issued, together with CAITEC and ACFIC“Report on the Sustainable Development of Chinese Private-Owned Enterprises along the Belt and Road”. 

    China’s vision for the Belt and Road Initiative aims to realize diversified, independent, balanced and sustainable development in countries along the Belt and Road, which holds the prospect of many synergies with the 2030 Agenda for Sustainable Development. Both reports aim at advancing Belt-and-Road international cooperation and contributing to the achievement of the Sustainable Development Goals (SDGs) in countries and regions along the Belt and Road.

       1.    Chinese Overseas Economic and Trade Cooperation Zones along the Belt and Road to Foster Sustainable Development

Since the beginning of China’s Reform and Opening-up in the late 1970s, rapid industrialization has lifted hundreds of millions of people out of poverty by providing them with jobs and income. Various types of economic zones have served as important vehicles for kick-starting this process in the 1980s and 1990s and have helped achieve ongoing industrial diversification and upgrading. Since the late 1990s, China has also been establishing economic zones overseas to share its industrialization experience and facilitate economic and trade cooperation with other countries. Today these Chinese Overseas Economic and Trade Cooperation Zones (COCZs) serve as key platforms for promoting investment and trade cooperation under the umbrella of the Belt and Road Initiative. At the same time the Belt and Road Initiative has many potential synergies with the 2030 Sustainable Development Agenda that was launched by all 193 members of the United Nations in 2015. Therefore, COCZs along the Belt and Road have the potential to be much more than just engines of trade and economic growth; they can also represent potentially important instruments to advance environmental and social sustainability and through this the achievement of the SDGs in their respective host countries. While many COCZs have achieved impressive progress toward these goals, there is still considerable room for improvement. This report reviews the contributions of COCZs to sustainable development across Belt and Road countries and provides guidelines for COCZs on how to further improve their efforts towards fostering inclusive and sustainable industrialization and the achievement of the SDGs.

Findings of the report are based on a global survey of COCZs conducted by CAITEC under MOFCOM from December 2018 to February 2019. Findings from the literature review were complemented by first-hand insights from COCZ and SEZ developers, operators, companies and workers through a total of 67 semi-structured interviews conducted in Cambodia, China, Egypt, Ethiopia, Indonesia, Nigeria and South Africa, which laid a solid foundation for the development of a set of practical guidelines to help COCZs address economic, environmental and social sustainability at different management stages (planning, construction and marketisation). Finally, the report puts forward the following three specific recommendations on how to enhance the roles of COCZs in fostering sustainable development along the Belt and Road. 

1) Establish demonstration centers for sustainable COCZ models 

The development of a model sustainable COCZ that demonstrates how to successfully integrate various aspects of economic, environmental and social sustainability could serve as concrete reference and inspiration for other zones to follow. This would be an important step toward realizing the full Belt and Road Initiative vision of a community of shared benefits that contributes to the achievement of the 2030 Agenda for Sustainable Development. The development of such a zone should build on China’s vast domestic experience with the design and operation of eco-industrial parks, low-carbon development zones and green zones. The inclusion of international environmental standards or internationally recognized good practices could further be supported through cooperation with United Nation agencies and other multilateral organizations that have expertise in those areas.

2) Create an experience and knowledge sharing mechanism for COCZs under the Belt and Road Initiative

The report has shown that COCZs have a variety of experiences, insights and good practices on economic, environmental and social sustainability. COCZs that are less advanced could greatly benefit by learning from those that are more advanced in respective areas. Such experience and knowledge-sharing could be of particular importance for new COCZs to ensure that sustainability approaches are reflected in the zone design and operation from the outset. A dedicated mechanism would need to be established for this purpose that facilitates the regular exchange of information among COCZs across countries participating in the Belt and Road Initiative.

3) Identify new paths for COCZ financing

Most of the COCZs highlighted financing as their biggest challenge. Therefore, new ways should be explored both by the COCZ operators and the Chinese financial institutions to overcome this challenge. COCZ operators could consider further diversifying their income streams through for example the development of residential or commercial areas as part of the zone. For financing of sustainable COCZs in developing countries, zone operators should consider triangular cooperation by engaging with development agencies or multilateral funds that aim to foster low-emission and climate-resilient development in the respective host countries. Furthermore, Chinese financial institutions that are guided by the Belt and Road Initiative’s vision should recognize COCZ as important platforms for realizing the Initiative and increase their efforts in devising financing vehicles that can cater for the specific needs of COCZs.

       2.    Sustainable Development of Chinese Private-Owned Enterprises along the Belt and Road

1) Chinese POEs as an Emerging Force in the Belt & Road Initiative and the 2030 Agenda

Private-Owned Enterprises (POEs), accounting for 90% of the total number of companies in China, have played a significant role in driving China’s economic growth and social progress. With their emerging global presence especially along the Belt and Road, Chinese POEs also shoulder more responsibilities in promoting and implementing the global sustainable development agenda.

In terms of trade cooperation, the foreign trade volume of Chinese POEs accounted for 38.5% of China’s total foreign trade volume in 2017, while the total volume of imports and exports between POEs with countries along the Belt and Road amounted to more than US$600 billion. In terms of investment cooperation, by the end of 2017, 25.7% of the enterprises in China that made direct outward foreign investment were solely private-owned. In terms of sectors, POEs are highly diversified. In terms of investment modes, mergers and acquisitions initiated by Chinese POEs with companies along the Belt and Road are gradually increasing.

The survey results show that most Chinese POEs interviewed are willing to contribute to the achievement of the Sustainable Development Goals in host countries; for those POEs who believe that they have already made or are in the process of making an effort to achieve the 2030 Agenda in host countries, their contribution is mainly focused on social- and economic-related goals, while the contribution to environment-related goals remain relatively low.

In order to support and incentivize Chinese POEs’ effective participation in the Belt and Road Initiative and the 2030 Agenda, several Chinese government departments have introduced a number of policy measures to strengthen the policy framework, to liberalize and facilitate investments and trade. Emphasis has also been put on improving overseas compliance as well as the social, environmental and corporate governance sustainability of Chinese enterprises.

2) Chinese POEs and Sustainable Development in Host Countries

a)     Infrastructure Connectivity

Chinese enterprises, both state-owned enterprises (SOEs) and POEs, work on infrastructure construction and upgrading in host countries. Many large-scale POEs participate in infrastructure construction projects through public bidding. Other POEs also participate as contractors or service providers.

b)    Industrial Cooperation

Chinese enterprises engaged in overseas manufacturing investment are mainly POEs. During the process of developing international production capacity, Chinese POEs often draw on the successful experience of China’s domestic development. At the same time, making effective use of local resources and responding to differentiated needs can help the host countries to solve fundamental and key problems that restrict economic development and industrial construction, and subsequently drive forward the development of local industrial chains.

c)     Shared Platforms

The “Going Global” strategies of China’s POEs not only aim to promote exchange of development experience, but also to utilize platforms such as industrial zones and to develop local industrial chains for increased cooperation with the host country. Many COCZs not only provide a platform for Chinese enterprises to “Go Global”, but also to bring large-scale industrial chains and related capital, technology and experience to support the development of host countries.

d)    Job Creation

In the course of “Going Global”, Chinese POEs have provided jobs for local people, which helps boost livelihoods, increases local workers’ technical skills, reduces costs and improves workforce localization. Analysis of the survey results found that many Chinese POEs believe that their influence on job creation in the host country varied between regions along the Belt and Road. Positive impact on providing new jobs is perceived to be more prominent in Africa, South Asia and Southeast Asia; however, in Central and Eastern Europe and the Middle East, more attention has been paid to enhancing the quality of employment.

e)     Technology Cooperation

Technology transfer or spill-over from multinational corporations to local industries usually occurs in two ways: horizontally or vertically. In terms of horizontal transfer, investment and business cooperation by Chinese POEs increases the productivity of domestic firms, which occurs through three main channels: the demonstration effect, labor turnover and the competition effect. Vertically, technology is transferred from Chinese POEs through buyer-supplier linkages towards upstream or downstream industries.  

f)      Social Welfare

The community relations and social responsibility projects of Chinese POEs can be divided into three categories; 1) projects that are initiated or supported by the economic and commercial counsellor’s office of the host country; 2) projects initiated by the chamber of commerce of the POEs and 3) projects independently initiated by enterprises. 

g)     Environmental Protection

POEs have focused most on energy consumption and waste disposal, with less being done in terms of minimizing impacts on biodiversity, animal habitats and physical landscapes. 

h)    Compliance

For Chinese enterprises operating overseas, compliance requirements are threefold: first is compliance with the standards of the host country, second is compliance with the requirements of relevant domestic industries, and third is compliance with the requirements of upstream and downstream enterprises in the supply chain. The survey indicates that Chinese POEs consider “abiding by the laws and regulations of the host country”, “abiding by the UN Guiding Principles on Business and Human Rights” and “adopting responsible procurement-related policies” to be most important. However, “abiding by the relevant policies of anti-bribery and anti-unfair competition” was ranked lower.

3) Recommendations for Stakeholders

Chinese government entities:Improve overseas financial services for POEs; Enhance policy guidance to POEs on sustainable development overseas; Optimize support from embassies and economic councilors’ offices; Strengthen training for POEs to “Go Global”.

Chinese POEs: Acquire technical support from professional agencies; Cultivate international talents; Strengthen cooperation between POEs and SOEs; Improve corporate governance structures.

International organizations: Make full use of their unmatched convening power, global presence and networks, as well as knowledge and expertise on development to further support Chinese POEs in responsible and sustainable business operations; Further policy coordination and promote dialogue and cooperation between stakeholders. 

Host country governments: Play a pro-active role in bridging national SDG efforts, Belt and Road projects and private sector business activities; Set up country-level coordination mechanisms to anchor private investments to fit into the local development context; Utilize existing platforms for stakeholder engagement and coordination to create special windows for jointly designing, co-financing and implementing projects. 


Source: reports from UNDP