The Asia-Pacific Journal | Japan Focus Volume 8 | Issue 17 | Number 2 | Article ID 3347 | Apr 26, 2010

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China's Overseas Dam Builders: from Rogue Players toResponsible Actors?　　中国の国外ダム建設業者——ならず者から責任感ある姿へ？

Peter Bosshard

China’s Overseas Dam Builders:from Rogue Players to ResponsibleA c t o r s ? ( U p d a t e d(http://admin.japanfocus.org/data/update.pdf))

Peter Bosshard

In the early years of the new century, Chinesedam builders and financiers appeared on theglobal hydropower market with a bang. ChinaExim Bank and companies such as Sinohydro,China Gezhouba Group and China SouthernPower Grid started to take on large, destructiveprojects in countries like Burma and Sudan,which had previously been shunned by theinternational community. Their emergencethreatened to roll back progress regardinghuman rights and the environment which civilsociety had achieved over many years.However, new evidence suggests that Chinesedam builders and financiers are trying tobecome good corporate citizens rather thanrogue players on the global market. Here is aprogress report from the perspective of aninternational civil society advocate.

In December 2003, China Exim Bank approved$519 million in loans for the Merowe Dam inSudan. The Chinese government’s export creditagency thus helped kick off a project whichwould displace more than 50,000 people fromthe fertile Nile Valley into desert locations, andfor which the Sudanese government had failedto attract funders for many years. China EximBank also provided support to projects inBurma such as the Yeywa and Lower

Paunglaung dams, which no other funder wasprepared to touch. “The Bank specializes infinancing projects that no other financialinstitutions would fund”, International Riversand Friends of the Earth warned in July 2004.

The Merowe Dam, Sudan, a SinohydroCorporation Project

Once they acquired the technology to buildlarge hydropower projects, Chinese damcompanies wasted no time rolling up theinternational market. Low costs, access tocheap loans and a big portfolio of domesticprojects make them attractive partners forclients around the world. We are aware of atleast 216 dam projects in 49 countries whichhave some form of Chinese involvement – andcounting. Chinese companies are currentlybui lding 19 of the world’s 24 largesthydropower stations. The President of

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Sinohydro recently estimated that his companycontrols half the global hydropower market.

The primary interest of Chinese dam builders intheir new “going out” strategy is to wininternational contracts, which typically havemuch bigger profit margins than projects inChina. Companies such as China SouthernPower Grid and the Yunnan Joint PowerDevelopment Company are also buildingprojects in Burma and Laos in order to supplyelectricity to the Chinese home market.

The rapid emergence of China’s overseas dambuilders alarmed environmental organizationsand the Western dam builders and financiers,which had controlled the global market fordecades. “The competition of the Chinesebanks is clear”, Philippe Maystadt, thePresident of the European Investment Bank,warned in 2006. “They don’t bother aboutsocial or human rights conditions.” Maystadtclaimed that Chinese banks had snatchedprojects from under his bank’s nose in Africaand Asia, after offering to undercut itsconditions on labor standards and theenvironment. The following year, the OECDrecommended tha t Ch ina “ improvegovernmental oversight and environmentalperformance in the overseas operations ofChinese corporations”.

Like every country, China tends to export itsown development philosophy when financingand investing in overseas projects. Throughoutthe second half of the 20th century, theChinese government built dams and other largeinfrastructure projects without regard to theirsocial and environmental impacts. This growth-first approach is exacting a huge toll on theenvironment and public health. The World Bankestimates that water and air pollution cause750,000 premature deaths in China every year.In the last few years, the government hasstrengthened environmental regulations,created a Ministry of Environmental Protection,and become the world’s leading promoter of

renewable energy options.

Chinese dam projects have triggered strongprotests among affected communities,environmental organizations and trade unionsin countries such as Sudan, Botswana, Zambiaand Burma. With a certain time lag, thegovernment’s growing concern for theenvironment has also left its mark on China’soverseas investment policy. In 2006, the StateCouncil called on Chinese investors to “protectthe legitimate rights and interests of localemployees, pay attention to environmentalresource protection, care and support of thelocal community and people’s livelihood cause”,and to “preserve our good image and a goodcorporate reputation”. The Ministries ofEnvironmental Protection and Commerce arecurrently preparing a guideline which will urgeChinese investors to apply China’s domesticenvironmental laws in overseas projects if hostcountry standards are too weak.

International Rivers has witnessed the growingconcern for the environment in our own workwith Chinese dam builders and financiers. Afterwe first warned about the role of China EximBank in funding rogue dam projects in 2004, abank manager wrote back saying: “To myknowledge, [the Bank] actually cares about theenvironmental issues of its projects. Maybe itsstandard cannot reach yours or internationalcommon practice. Since it is one of exportcredit agencies in the world it really needs tomeet the international practice.”

Two years later I had the chance to meet thePresident of China Exim Bank. He insisted thatcountries needed to reach a certain level ofprosperity to care about the environment, butagreed that his institution shared anenvironmental responsibility for the projects itfunds. The Bank adopted an environmentalpolicy in 2004, and made it public after arequest from NGOs in 2007. More detailedguidelines followed in 2008.

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The author meets the president of theChina Exim Bank

In late 2008 the China Exim President toldDeborah Brautigam, an expert on Chinese aidpractices, that his institution only worked withWestern agencies for the assessment ofenvironmental impacts. They were “morecredible”, the President said, and: “We do notwant the environment to be an issue.”

Seeing some progress with China’s mainfinancier of overseas dams, International Riversdecided to approach the biggest hydropowercompany next. In February 2009 a coalition ofnon-governmental organizations called onS i n o h y d r o(http://www.internationalrivers.org/en/node/3600/) to “establish a world-class environmentalpolicy and strengthen its relations with the hostcommunities of its international projects”. TheNGOs also offered to enter into a dialogue withthe company on how it could achieve this goal.In response, Sinohydro’s management invitedme to meet with them. In what was likely thefirst dialogue between a Chinese state-ownedenterprise and an international advocacygroup, the management expressed acommitment to protecting the environment,and said that they would consider preparing anenvironmental policy.

Late last year, Sinohydro announced that itplanned to get listed at the Shanghai stock

exchange. Through an initial public offering(IPO), a company defines its profile forinternational investors: Does it plan to take oncontracts at any cost to the environment? Ord o e s i t t r y t o m i n i m i z e s o c i a l a n denvironmental risks as a good corporatecitizen? We strongly suggested that ifSinohydro wanted to become a world classbrand, it needed to adopt and implement aworld class environmental policy.

As part of its green credit policy, China’sMinistry of Environmental Protection needs toclear IPOs of companies in polluting sectors. Inearly March, the Ministry invited the public tocomment on the Environmental Audit Reportwhich Sinohydro had prepared for its publicoffering. At the same time, Sinohydro informedInternational Rivers that it was now indeedpreparing an environmental policy, and invitedour recommendations. Working together withpartner groups from China and other countries,we again recommended that the companyadopt highest international standards if itwanted to become a leading global brand, andsubmitted specific suggestions. We will alsoconveyed this message to Sinohydro’s potentialinvestors.

Policy changes at the leading Chinese dambuilder and financier are important first steps.Yet as we know from other institutions,including the World Bank and Western banks,there i s o f ten a b ig gap between anenvironmental policy and actual practice on theground. The proof of the pudding is in theeating. What is happening there?

In December 2009, we learned that Turkey hadinvited China to build the Ilisu Dam on theTigris. The project in Eastern Anatolia hadbecome a cause célèbre among NGOs due tothe strong resistance by the local population.After an independent committee of experts haddocumented per s i s t en t soc i a l andenvironmental policy violations, the German,Austrian and Swiss export credit agencies

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pulled out of the project in July 2009. Now theTurkish government was trying to fill the gapwhich the Western financiers had left. TurkishNGOs and International Rivers immediatelywrote to the Chinese authorities to warnagainst such involvement. Chinese support forthe dam wou ld enab le a soc i a l andenvironmental disaster in Turkey, andundermine the international efforts tostrengthen the social and environmentalstandards in big infrastructure projects.

Ilisu is a test case for the future role of Chinesedam builders and financiers. We expectedChina’s involvement to be confirmed byJanuary, but so far, there has been no suchnews. The Chinese ambassador in Ankara hasrepeatedly stressed that China was not gettinginvolved in Ilisu. Have Chinese dam buildersand financiers indeed opted against this projecteven if it meant offending an importantgovernment and passing up a lucrative deal?

The Ilisu dam in Southeastern Turkey onthe Tigris, the nation’s largest dam

While the jury is still out on Ilisu, we havewitnessed progress on the ground in Gabon.With support from China Exim Bank, Chineseinvestors plan to develop a huge iron oredeposit in this West African country, completewith a hydropower dam, railway line and port.Brainforest, Gabon’s inspiring environmental

NGO, sent a letter to the Exim Bank pointingout that the proposed dam was to be built in anat ional park, and would v io late i tsenvironmental guidelines. In due course,Brainforest learnt from the Gabonesegovernment that China Exim Bank hadsuspended the project over environmentalconcerns.

In a separate development, Sinohydro agreedto work together with the Global EnvironmentalInstitute, a Chinese NGO, in an effort toaddress the social and environmental impactsof the Nam Ngum 5 Dam, a $200 millionhydropower project in Laos. Sinohydro alsoapplied for a guarantee by the World Bank’sMultilateral Investment Guarantee Agency(MIGA), evidently to learn more about howinternational financial institutions are applyingtheir safeguard policies.

Nam Ngum 1 dam outside Vientiane

While there has been significant progress, wewill not let our guard down. While Sinohydro ispreparing an environmental policy, there areserious problems in several of its ongoingprojects, including the Bakun Dam in Malaysia,the Bui Dam in Ghana, and the Shweli andTarpein dams in Burma. Sinohydro has alsoexpressed an interest in extremely problematic

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projects such as the Paklay Dam on the Mekongmainstream and the Gibe 4 Dam in Ethiopia.The Mekong hosts the world’s most importantinland fisheries, and if built, the Paklay Damcould seriously impact the main protein sourceof millions of people.

While China Exim Bank and Sinohydro haveembarked on a process of environmentalreform, many smaller Chinese actors stilldisregard social and environmental concerns atwill. Companies such as China GezhoubaGroup, Yunnan Machinery Equipment Import &Export Co. and China Power InvestmentCorporation are building rogue dams in Burmaunder horrific conditions. China SouthernPower Grid, which is also building several damsin the Mekong Basin, has so far ignored allinquiries from civil society. On April 17, 2010, aseries of bomb blasts rocked the constructionsite of China Power Investment Corporation’sMytsone Dam in Kachin State, and according tounconfirmed sources, killed several Chineseworkers.

In conclusion, the most important institutionsin China’s hydropower sector have expresseda n i n t e r e s t i n f o l l o w i n ginternational environmental standards, and areopen for civil society concerns. After wewarned about rogue dam builders a few yearsago, we are happy to acknowledge progressnow. We wil l work to ensure that thenew environmental policy principles translateinto changes on the ground, and that theenvironmental stragglers fall in line.

Peter Bosshard is the Policy Director ofInternational Rivers, an environmentalorganization with staff in four continents. Hehas a PhD from Zurich University, and hasworked to s trengthen internat ionalenvironmental standards for more than 20years. Before joining International Rivers,Bosshard was the coordinator of the BerneDeclaration, a Swiss development organization.

He frequently visits China and is currentlylearning Chinese.

This article, written for The Asia-PacificJournal, is an expanded version of a text thatwas originally published at International Rivers(http://www.internationalrivers.org/en/node/5233).

Recommended citation: Peter Bosshard,"China’s Overseas Dam Builders: from RoguePlayers to Responsible Actors?" The Asia-Pacific Journal, 17-2-10, April 26, 2010.

See the following related articles:

• P e t e r B o s s h a r d(http://japanfocus.org/-Peter-Bosshard/3262 ),Lessons from China’s Three Gorges Dam

• M i c h a e l R i c h a r d s o n(http://japanfocus.org/-Michael-Richardson/3210), Dams in China Turn the Mekong Into aRiver of Discord: Rivers Know No Borders, ButDams Do

• M a s a n o A t s u k o(http://japanfocus.org/-Masano-Atsuko/3280),The Immense Cost of Japanese Dams and Dam-Related Landslides and Earthquakes

• Geoffrey Gunn and Brian McCartan(http://japanfocus.org/-Geoffrey-Gunn/2865),Chinese Dams and the Great Mekong Floods of2008

• M i l t o n O s b o r n e(http://japanfocus.org/-Milton-Osborne/2448),The Water Politics of China and SoutheastAsia: Rivers, Dams, Cargo Boats and theEnvironment

• K e n n e t h P o m e r a n z(http://japanfocus.org/-Kenneth-Pomeranz/3195), The Great Himalayan Watershed: WaterShortages, Mega-Projects and EnvironmentalPolitics in China, India, and Southeast Asia

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