Tuesday, November 6, 2007

China Forces Corporate Social Responsibility Down Chinese Exporters’ Throat

The idea of corporate governance and responsibility seems to be gaining quite a bit of traction lately in China.

In the wake of China’s product quality/safety/reputation perfect storm, discussions, new policies and governmental actions regarding corporate governance and responsibility are taking place in China in many spectrums of the society.

The Chinese government has taken a slew of actions to address food safety, and the quality of export products.

Recently, China Vortex, a blog authored by China expert Paul Denlinger, did an excellent post, titled Are Chinese Corporate Earnings Inflated? The post examines the discussions of corporate responsibility by former Chinese official, and it states that such discussions signal “strong internal pressure in China to make corporations more accountable…” [I have added China Vortex to the blogroll.]

I left a comment there:

The days of high corporate earnings without internalizing the externalities related to such income appear, at least in theory, to be nearing their end, at least to the exporters. As you might be aware of already, China has introduced tougher environmental regulations, specifically targeting exporters. Basically, the rules spell out this message–if you pollute, you don’t export for as long as it takes you to clean up.

For concerned people, like Mr. Xu Shanda, this means an advancement of their cause for corporate responsibility, at least in the export industries as of now. The following is an excerpt of the
above-mentioned article by Jane Spencer of [Wall Street Journal] on Nov. 1, 2007:

“China is introducing new antipollution regulations for its booming export industry, in an unusual collaboration between thegovernment’s environmental-enforcement arm and the Ministry of Commerce.
The rules could affect thousands of Chinese suppliers that make goods for multinational companies. Earlier this week, Zhang Lijun, vice director of China’s State Environmental Protection Administration, said export manufacturers that violate China’s pollution laws would be forced to close for one to three years. The policy will be enforced jointly by SEPA and the Ministry of Commerce. The ministry said the prices of Chinese exports are artificially low because factories aren’t …”

This is a good move, and it would be better to expand the rules to cover non-export companies too. After all, a polluter is a polluter, regardless of the nature of the underlying operations. Internalizing externalities should be party of every company’s cost of operations.

Besides, the Nankai University Business School just hosted the 4th International Symposium of Corporate Governance, highlighting current academic research and discourse about corporate governance and social responsibility around the world. One international symposium does not make Chinese corporations improve their governance, nor does it shape them up to be more socially responsible. However, such exchanges of ideas very likely will lead to policy shifts inside China on the very issue of corporate social responsibility, especially in the greater context of growing awareness on the consequences of corporate irresponsibility and a government touting sustainable growth and social harmony.

Even though China has not had its version of Enron and Worldcom, it has the ever-worsening environmental disaster, caused by countless irresponsible corporate polluters. To maintain sustainable growth, policy-makers in China have no other options other than adopting new rules and regulations to cause the birth of responsible corporate governance within companies in China. An international symposium is a good step forward, but definitely not the only step. For a list of papers presented in the symposium, read this (Chinese only). And keep your eyes peeled for policy adjustments on corporate social responsibility in China as it will affect a lot of players out there.

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