The claim that the growth of China towards becoming one of the major world economic power is heavily debated among business persons and scholars alike. As a result, China is increasingly put under international pressure to adhere and adopt to global practices and norms in order to ensure its competitiveness in the international scene. One of such international norm that has integrated into China’s domestic economy is none other than Corporate Social Responsibility (CSR).
This essay assesses the development trend of CSR practices in China, by analysing how the Chinese business culture adapted to the CSR scene in a transitional framework, from its initial deep-rooted socialistic community to its cooperation with the Organisation for Economic Co-operation and Development (OECD) today. The amalgam of global and domestic practices possesses challenges when the global institution and China interpret CSR differently and head towards a divergent direction. Thus, the issue at hand is whether the CSR practices bears a ceremonial or structural function, and the extent in which its institutional convergence with the OECD hamper or boosted the economic growth in this nation. The collision between a rising power and the traditional powers is inevitable and this research finds that there is a need for CSR practices to be “tailor-made” for China – designed to be delivered in China, about China, and for China .
Introduction
Traditionally, CSR is a Western management concept promulgated to encourage business conducts to go beyond compliance with the law and beyond shareholder wealth maximization, and to promote charitable practices. It extends to ethical issues touching upon community development, environmental protection, anti-corruption, human and labour rights. However, it is submitted that CSR carries different meanings in different contexts; influenced by the cultural, political, economic, social and institutional framework of the country. It is also dependent on how responsible business have embedded the culture in their corporate infrastructures and institutional frameworks .
Although Western pioneers have promoted CSR globally, CSR is no foreign concept to China. In retrospect, some Chinese scholars believe that the underlying concepts of CSR materialized some 2500 years ago by Confucius teachings of social harmony . The Confucian school of thought encouraged a culture of ‘diligence, honesty and charity’ among businessmen . In the 21st century however, owing to the unprecedented wave of economic boom, not surprisingly, CSR has given way to industrial growth. Once a socialistic community honing ‘cradle to grave’ welfare provision under Mao’s ruling, where state actors were responsible for providence of healthcare, professional training, housing facilities and so on, a sudden shift to privatisation of these services resulted in an exploitation of fundamental rights to end users. While most companies were State Owned Enterprises (SOEs) under the Communist regime, the market reform in the late 1970s allowed for the growth of private firms and the SOEs were encouraged to pursue their own interests for the maximization of profits.
However, as a result of lack of regulation and failure of the State to implement laws parallel to the rate of economic growth, CSR’s mise en scéne in today’s China may propagate a challenging case – the occurrence of sweatshops and environmental pollution issues in the World’s Factory are no mystery to the media, and the world. At the scale in which it is industrialising, China’s leadership now realises that a negative impression on its business conduct reflects unfavourably on its economic growth. The rapid but uneven economic transition could be the reason why the State has adopted CSR measures as it is incapable of addressing the weight of challenges on its own. This also reflects the commitment of the SOEs to establish themselves as international operators or global brands .
Concerns and efforts has henceforth been raised and the Chinese government is actively cooperating with international organisations and adopted the OECD Guidelines to facilitate in particular, China’s 12th Five Year Plan for National Economic and Social Development . What this entails for the future of CSR in China can be derived from two competing views involving the role of social and environmental standards – it could either be a trade barrier in favour of developed countries or pose as a passport to the global market .
One of the many challenges that China has had to overcome was the rising income inequality. The pace of transformation exacerbated the unequal distribution of income more rapidly than in most emerging economies . In response, the OECD urged in its Review that Chinese policymakers focus on reforming its education policy as evidence shows that completion of secondary and tertiary education boosts income and improves the quality of workforce. Further, they should also integrate internal migrant works into the labour force and avoid labour market dualism . However, in view of its magnitude and geographical vastness, the rural and urban areas experience severe disparities in employment and education opportunities.
Where SOEs exhibits the strongest implementations of CSR owing to its duty and diligence to the government, private enterprises are still reluctant to commit to CSR practices as there are lesser hard laws and principles that require them to. For instance, the Shenzhen Stock Exchange adopted the OECD Guidelines for Multinational Enterprises and used it as a reference tool for the drafting of an instruction manual for social and environmental standards for companies listed on the Exchange. This does not include the smaller private firms. It should also be noted that owing to its cultural expectations and climate, the government is more devoted to addressing environmental rather than human rights issues, so this could be a palpable barrier in the advancement of a truly CSR adoption by Western standards. Therefore, what the OECD prioritises as critical may be at odds to what the Chinese may perceive.
Literature Review
Progress in CSR
The Chinese socialist ideology gave priority to workers, embedded in the Constitution of the People’s Republic of China, which states that the country is led by the proletariat and is based on the alliance of workers and peasants . Under this Constitution, the workers were able to influence policies and participate in decision making in terms of remuneration . Although CSR was not explicitly mentioned in the 1994 Company Law, it included the role of employees into the corporate governance structure and required for companies to protect the advisory roles of employees in the process of corporate decision-making . In that regard, companies were also required by law to seek the consultation of trade unions and employees when adjudicating on significant operational issues . Even though the term ‘social responsibility’ was not yet embodied in the 1994 Company Law, it was clear that labour rights were given recognition under the rein of the Chinese Communist Party.
However, some scholars argued that CSR was purportedly absent in the embodiment of Chinese labour law. They argued that traditional legal scholars were more concerned with corporate profit-maximization and free competition and failed to cope with the development of corporate law in developed countries and the globally changing economy .
It may seem that the Chinese version of CSR is consistent to the Friedman Doctrine, where” a corporate executive’s…” responsibility is to conduct the business in accordance with his employers’ desires, which generally will be to make as much money as possible while conforming to the basic rules of the society, both those embodied in law and those embodied in ethical custom. ” In retrospect, the Chinese initiative, while fundamentally aimed for profit-making, recognizes that they are under high scrutiny from the international community what with the rising emergence of foreign investors and multinational corporations in its State.
As a response, the laws were recently revised, and Article 5 of the 2006 Company Law states: “in the course of doing business, a company must comply with laws and administrative regulations, conform to social morality and business ethics, act in good faith, subject itself to the government and the public supervision, and undertake social responsibility.” . This explicit mention of CSR sees a progress in the advancement of labour rights in the Chinese context. While it can be agreed that the inclusion of CSR in hard law helps companies clarify its purposes: profit-making and social responsibility , others profess that it would ‘endanger the for-profit nature of corporations’ . The plausibility of it being a threat to economic efficiency in the event of the government exploitation of using CSR as a cloak for political intervention to pursue its own political interests has also been raised .
In addition to the amendment in Company Law, a group of industrial association in China jointly introduced the “Social Responsibility Guide of the China Industrial Companies and Industrial Association” . This effort proposes to implement a guideline that “connects with the international trend” to match the business reality in China, by possessing “Chinese characteristics” . What these “characteristics” construe is still incognito to the rest of the world. It was described that this “state-led Chinese CSR initiatives” excludes human rights issues . Some other private initiatives such as the ‘China Social Compliance 9000 for Textile and Apparel Industry’ also has its own elements with differing features from western-based CSR standards, more suitable to the needs of Chinese companies .
In any case, it is undeniable that the government as policy-makers plays a central role in the implementation of CSR. SOEs are reportedly more responsive to producing CSR reports when prompted by the government, in order to secure access to resources held by the authorities – for example, financial resources, government subsidies and tax preferences . However, SOEs are at the same time experiencing a shift in accountability. The changing nature/environment in the Chinese economy is increasingly inclusive of multinational corporations and foreign investors. Instead of domestic pressures, enterprises are now accountable under international CSR standards. The shift in rapport also means SOEs are not only facing pressures from the government now but also from competing foreign investors.
In 2006, the government introduced the notion of a ‘Harmonious Society’ and encouraged social justice and harmony among different interest groups on a national level. Later in 2011, the government reintroduced the notion in the form of a ‘Harmonious World’ – with the objective of bridging the gap between China and the global community. Such motive could be interpreted, on the national level, as China’s attempt to impose higher CSR expectations, and at a global level, as an incentive for Chinse companies to maintain and ‘illustrate their legitimacy’ on the international scene .
China’s reform is, from this viewpoint, motivated largely by its increasingly international economic linkages. For instance, the exposure of the textile and shipping industries to the international market called for deeper restructuring internally. The Chinese enterprises were also pressured to change their practices accordingly when foreign direct investment brought in capitalist labour practices in China. Undoubtedly, to be accepted as a legitimate player in the global economy, China realizes its inclination to be a part of the international community. In effect, Doug Guthrie finds Chinese firms to be imitating foreign firms in a few certain aspects such as hiring practices, grievance filing procedures and approach to international institutions . Therefore, it could be deduced that engagement with international activities have enhanced their tendency to adopt CSR on a deeper level .
Conversely, Cramer expounds that attention needs to be given to the specific social needs and problems that exist within a country in order for CSR to be established . He recognises that the political and socio-cultural context differs according to countries, and in turn CSR practices experiences integration within the specific ‘environment, society and governance factors’ where the organisation is in operation . International standards therefore remain a scope for development, acting purely as a guideline for social responsibility. One report has asserted that CSR can be supported by global standards and corporate signature initiatives, but these strategies are not to be defined by them .
From a more pragmatic standpoint, it is unlikely that China, with its strong state system, will converge with dominant business system of the West . Instead, it will develop its individual form of capitalism. On the other hand, the convergence thesis maintains that dominant forms of CSR, based on international accountability standards, will be ‘diffused and absorbed’ into CSR approaches across the world . From a more neutral perspective, Steinfeld argues that the ‘pursuit of a Western-style modernity in China has not only been socialized by Western rules but has in fact outsourced the reform of its domestic economy and institutions to foreign companies and foreign authorities’ .
Evidently, CSR which has its Western roots is still partly seen as a taboo among its Chinese counterparts. However, it could be reputed that Chinese companies are in a transition period from “iron-bowl policy”; where much of their everyday business was dictated by the government, to adopting the learning process of CSR. Before long, it is believed that they will soon become established as global players and hence norm setters – by bringing forth an alternative form of CSR which is more compatible to the socio-political culture of South East Asian countries .
In essence, the extent of CSR reporting varies also depending on internal institutional factors. Besides pressures from globalisation, one also has to consider the political embeddedness within that region and its normative pressures . Thus far, we have seen the development of CSR in an evolving Chinese initiative. It can be safely derived that CSR in China today is largely kick-started by Western ambition and has metamorphosed itself to an entirely different version, by compiling bits and pieces from the socialistic regime and Western administration of CSR. This new version, perhaps, is different from what Professor John Ruggie envisaged when he drafted the United Nations Guiding Principles. That said, this research finds the application of the OECD Guidelines to be more adaptable to the Chinese CSR initiative, as we will see below, as it encourages the plausibility of engaging both the Chinese and Western perspectives into one melting pot.
Findings
In his speech at the launch of the OECD Investment Policy Review of China, Angel Gurría, the Secretary-General for the OECD confirmed that the Chinese government has been actively implementing ‘laws and rules to encourage responsible business conduct’ . The embodiment of the Labour Contract Law, and China’s first ever property rights law, are a few instances. He added that the OECD team has also been active in chaperoning visits to textile factories in South China. These combined efforts, he concluded, exhibits the application of ‘national standard’ based partly on ‘international standards’.
The OECD published a Review on “China in Focus” in 2012 and stated that its objective was to “facilitate access for Chinese policy makers and experts to relevant OECD reports, which provide an international perspective on China’s situation and challenges”, and to “enhance the understanding of China’s experience in the broader policy community…”. In other words, the OECD aims to converge China’s embedded policies with international standards. In particular, another underlying aim of this Review was to address the issue of transparency on national security screening procedures for foreign investment projects.
Statistically, it may be impossible to measure the extent to which institutional convergence has taken place between global CSR standards and the Chinese definition of responsible business conduct. However, the progress of CSR in Chinese companies can be derived from interviews and surveys, which we will observe below. This section aims to exhibit a few of such surveys conducted by the Embassy of Sweden to China to illustrate the few main issues related to CSR in the Chinese context.
Source 1: Embassy of Sweden, Beijing
In order to determine the success rate of CSR implementation in addressing social and environmental issues in China, the Embassy of Sweden in Beijing, China, conducted an online survey in 2014. They found that 78% of respondents believe that CSR has been effective in that regard, but however, 82% revealed that they are either neutral, or disappointed about the current state of CSR development in the country . This striking discrepancy can be explained by two phenomena.
Firstly, it is a common view that CSR is viewed philanthropically, through the lens of public relations or crisis management by the respondents. Secondly, one may hold the view that the Chinese government is more actively promoting environmental rights than they are addressing human rights issues. Thus, while environmental impacts have been given priority, human rights remain a sensitive area in China, both in local Chinese companies and in the multinational corporations . The prevalence of human rights implementations is at current rated as ‘Rare/Extremely Rare’ in a report produced by the National Chamber Foundation in 2012 .
The OECD however, reported that the Chinese government has increasingly placed greater emphasis on the expansion of human rights, and produced a White Paper to officiate their efforts. This White Paper, is however, criticised as not as encompassing nor wide-ranging as that set out in the Universal Declaration of Human Rights .
Next, our focus will shift to the motivations and incentives for companies in implementing CSR. It is a common contention among CSR scholars and advocates alike that the government and officials are the major driving force for CSR and CSR reporting for Chinese companies at the national level. Thus, it is no surprise that the Chart tabulated below shows that ‘Compliance with Central Government’s policy’ assumes more than half the responses in CSR incentive in China. Globally, CSR may not always be a matter of state regulation much less than it is an obligation of international organisations such as the OECD. In China, on the contrary, owing to its previously planned economy system, companies tend to gravitate towards the State for authoritative assistance. However, the book, “China CSR Development (2006-2013)”, published by China WTO Tribune agrees otherwise. According to them, “Social responsibility has not been raised as a national strategy… There is no national standard… Most of the policies issued by government only call on companies to implement social responsibility, while they lack necessary policies and mechanisms to ensure fair enforcement of laws…The role of government as a model has not been fully played. ” What this observation lacks, is however, the reality that in socialist market economy, the State remains patriarchal and holds the majority of the power to dictate societal rights. In this respect, it is also no surprise that the Government is one of the leading “Key Drivers” in CSR development (Source 2). In fact, this could be associated with the reason why SOEs’ CEOs particularly value CSR practices more than private enterprises. The former’s relationship with the government puts them under high scrutiny and pressure to achieve social and political goals determined through CSR demands by the State .
Source 2: Embassy of Sweden, Beijing
Source 3: Embassy of Sweden
The results of the online surveys may not encapsulate nor conceptualize an exhaustive determination to the rate at which CSR is developing in China. However, it provides us with an overview of the CSR phenomena in the Chinese context and confirms the debate made by scholastic reviews.
Conclusion
An important measure to recognize when projecting CSR is that for it to be truly encompassing and successful in the Chinese context, one has to realize that there is no “one size fits all” solution. The Western trajectory of CSR has to empathize with the fact that China is still considerably a new economy. Indeed, CSR measures were adopted here as a respond to the Asian economic crisis, rather than changing expectations and values. Therefore, the question on whether CSR “is a universal concept with desired means of implementation across the developed and developing world” should be answered by the reality that developing South economies in transition are capable of fostering their own approach to CSR. As one author observed, globalisation creates huge business opportunities, but at the same time, it has also created more ‘out-of-reach’ areas for national regulators. Transnational governance mechanisms have thus emerged from the traditional regulatory territory to capture the “emptiness”. But at the same time, the global regulatory framework will not be practicable if it fails to encapsulate and consider the effects of global regulatory law in any given country.
Conceivably, the Chinese initiative of CSR has created a hybrid between the East and the West. For a deeply rooted socialistic community to accept the ceremonial claim that they are indeed, advocates of CSR, a widely perceived Western principle, is a huge step towards modernisation in a globalizing world. In its attempt to be more responsive to Western perspectives, the functional applicability of CSR seems to be a trade-off from China’s initial ceremonial claim. As the OECD emphasized in their Review, they are working closely with the Chinese government in implementing CSR and stated that the latter has now ratified 5 out of 9 UN Human Rights Covenants – a major improvement from the initial disapproval of human rights measure in the name of economic efficiency. The OECD has also been prompt in addressing their concerns on “uneven enforcement, regional disparities and lack of access to legal process” in China . As can be observed, the OECD as an operational tool was prompt to address the more delicate issues in China; such as corruption and human rights violations. At the same time, they have also been able to empathize with the fact that China is a new economy in transition, and consensus building may be a challenge, but not one which cannot be solved. With an international standard recommended by the OECD to align with its own national standard, the Chinese government is gradually being prompted towards procreating a CSR environment that is competent to its inherent culture and principles.