A “Golden Opportunity” for some: Can the visit of President Xi to Latin America improve the practices of Chinese firms in the region?

Amanda Romero, Senior Researcher & Representative for Latin America

As Chinese firms increase their investments in Latin America, human rights due diligence is essential

Version en español

18 November 2016

As China’s President Xi Jinping visits Ecuador, Peru and Chile, the Economist has framed China’s engagement with the region as a “Golden Opportunity”.  

However this will only present a golden opportunity for the people of the region if Chinese firms operating there improve their social and environmental conduct.  On my recent visit to Ecuador I found that Chinese companies are currently the source of many conflicts with local communities.

Indeed they are reaching areas previously considered out-of-bounds for conservation reasons.  For instance, Sinopec, the Chinese oil company, has been contracted by the Ecuadorian oil company Petroamazonas to explore bloc 43 of the Yasuni national park – an area that President Correa had intended to leave untouched but decided to explore in response to falling oil prices.

This is only one of over 25 mega-projects that the Ecuadorian Govt. has signed under “special regime” contracts that have benefited so far about nine Chinese State-owned companies.  Other conflicts relate to Chinese companies not meeting their labour and contractual obligations, something that has led to lawsuits brought by workers, domestic companies and labour rights groups. 

The roots of many of the conflicts have to do with allegations of land grabbing, forced displacement of communities and intimidation, to give room for mining firms such as Explorcobres, Ecuacorrientes, Tonling and Corriente Resources (part of China MinMetals), especially in Ecuador’s southern Cordillera del Condor ridge.

Economic relations between China and Latin America have been expanding in the past years, with new investments in construction (roads, dams, railroads and ports), mining and oil.  In 2015 China signed a group of agreements with countries in the region that promised to double bilateral trade to $500 billion within ten years.  While there are some hurdles to this growth, President Xi’s visit demonstrates the will to maintain the momentum.

The situation in other parts of South America reflects similar patterns to Ecuador.  In Colombia for example, Chinese consortium CUC/DTC built the thermoelectric plant of Gecelca, in the Northern Province of Córdoba – in parallel with a shift within China itself away from coal (to reduce carbon emissions), towards geothermal projects, which come with their own set of environmental issues.  Local residents and indigenous peoples say that this company not only occupies fertile areas that used to be their farming lands, but operates in an area where serious human rights abuses are still occurring, attributed to right-wing paramilitaries.

At the same time, violent clashes have taken place between local community organizations and the police over lack of free prior and informed consent to build and use a road for the Las Bambas project, a huge open-pit mining project in Apurimac, Peru that is being developed by MMG (part of Guoxin International Investment). 

As many observers have noted, Peru is today one of the countries in the region with the largest numbers of community leaders killed or wounded during protests against mining projects.  Mining is polluting water sources, causing health issues connected to air contamination, and local communities have not seen real improvements in their livelihoods, including access to new job opportunities.  Meanwhile Peru’s President Pedro Pablo Kuczynski revealed soon after coming to power in June this year that he plans to significantly prioritize mineral extraction and trade relations with China.

President Xi will deliver a speech to CEOs at the APEC annual meeting in Lima being held on 19-20 November.  Chinese investment in the region can present an important opportunity for development in the region, but only if human rights and the environment are placed at the forefront of these investments.

The Chinese government as well as Chinese industry associations have already issued guidelines for their companies operating overseas.  And at the international level, the UN Guiding Principles on business & human rights have established clear standards to ensure that governments protect against human rights abuses involving business, that companies respect human rights, and that workers and communities have access to remedy. The Sustainable Development Goals also provide an important framework, covering areas such as decent work, climate action and reduced inequality: again, these will only be achieved if business respects basic human rights throughout its operations.

Starting from today, companies operating in the region must move from commitment to implementation of these standards.  This will include, among other actions, undertaking substantive human rights due diligence and consultation of local communities prior to projects getting underway, and providing effective grievance mechanisms.

It will also involve transparency on how social and environmental issues are being dealt with.  In our own outreach to Chinese-headquartered firms over the years we have found that while they are less likely to respond publicly to concerns, when they do, they often respond in more detail than companies headquartered in other regions.  This kind of transparency must be encouraged.  At the same time, companies’ commitments to act in specific contexts must be followed-through with ongoing action and engagement.

It is in companies’ own interests to take social and environmental measures seriously in order to ensure sustainable, successful investments.  And this is essential for the wellbeing of the people of Latin America.

Read more: Chinese investment in Latin America


See also: China Dialogo