Chinese Business Responsibility and Sustainability

Abstract

This study investigates the application of corporate social responsibility practices in China. Focus is made to understand the important role of the Chinese government, as an agent of the state, in promoting CSR practices in the country. Evidence showing the effectiveness of its policies in encouraging state and private corporations to adopt CSR practices is provided and recommendations to create more awareness about the need to account for the social and environmental implications of business are highlighted. The recommendations highlighted in this study will be useful in addressing future challenges of corporate sustainability in China and other developing nations.

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Introduction

Corporate social responsibility (CSR) involves the integration of social, environmental, and economic aspects of business operations into a company’s core strategy. According to Deloitte (2019), CSR refers to a comprehensive approach to implementing managerial plans, whereby profit, social, and stakeholder interests are accounted for in a company’s overall decision-making framework. Therefore, companies that excel in this aspect of corporate performance often maximize their shareholder, economic and social interests (Tan-Mullins, 2014). The CSR concept is closely linked to sustainability, which is an independent discipline of business that focuses on assessing the integration of corporate operations with social and environmental goals. Zhao (2014) attributes this aspect of business operations to conscious management, which is linked to lower costs and improved shareholder relations.

Deloitte (2019) says there is a growing prominence of CSR in the global business environment. The trend has been catalyzed by changing perceptions of the role of businesses in promoting social and environmental goals beyond conventional philanthropic programs and the formulation of impact mitigation plans across various aspects of social and economic development (Tan-Mullins, 2014). Furthermore, the growing prominence of CSR on the global business landscape has been supported by globalization, the growth of capitalism, and the privatization of goods and services in many economies around the world (Davis & Moosmayer, 2014). Conversely, recent studies have shown that there is a rising trend in the development of sustainable business models that not only complement the achievement of social or environmental goals but also encourage companies to create awareness about local issues that impact businesses while pursuing their profit motive (Zhao, 2014; Tan-Mullins, 2014). Most of these CSR initiatives are aimed at fulfilling the needs of different stakeholders, including employees, customers, and governments (Tan-Mullins, 2014).

Governments can use their legislative powers to encourage the adoption of CSR policies in their countries. China has been at the forefront in adopting such policies, subject to the rapid pace of economic development that has characterized the communist nation in the past two decades (Davis & Moosmayer, 2014). Therefore, the justification for selecting China as a case study is rooted in its rising prominence in the global business environment. Based on this motivation, this paper explains how the Chinese government has adopted CSR policies and evaluates how effective they have been. However, before delving into the details of this analysis, first, it is important to understand the context of CSR projects undertaken in China.

CSR Projects Undertaken In China

Industries Affected by CSR Programs

China is among the fastest-growing economies of the world and arguably the most impactful economy in Asia. Being that it has joined the league of one of the most powerful economies of the world, Chinese companies are under increased pressure to adopt CSR practices according to global standards on the same (Shin, 2014). This push has come from the growing middle class in the country, which is demanding a better living environment, safer products, and improved standards of living (Zhao, 2014; Tan-Mullins, 2014). These demands have led to changes in corporate culture as companies struggle to be socially responsible for their economic activities to meet the needs of their consumer population (Davis & Moosmayer, 2014).

In the same context of analysis, conscientious citizens and environmental lobby groups have been tasked with the role of ensuring that these corporations meet their CSR goals (Monti, 2016). Increased social media advocacy has also provided a platform for these groups to sensitize citizens about the need for corporations to undertake effective CSR projects (Shin, 2014). Although the Chinese government is notorious for clamping down on such social media activities, the push for greater CSR accountability has been relentless (Zhao, 2014; Tan-Mullins, 2014). Consequently, within the last 10 years, there has been an increase in CSR projects within the country (Tan-Mullins, 2014).

In the past, Chinese companies did not feel the need to participate in CSR programs because they believed that their economic contribution to society was sufficient enough to stay operational (Monti, 2016). However, from 2006, the government started an initiative to include CSR practices in the country’s corporate law (Shin, 2014). This adjustment set the stage for the preparation of CSR reports by major state corporations and private enterprises (Monti, 2016). The justification for adopting this change was the integration of Chinese companies on the global map of successful and socially responsible organizations (Zhao, 2014; Tan-Mullins, 2014).

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The number of CSR projects undertaken in China within the past two decades varies across different industries (Kun, Nasrin, & Weiquan, 2019). According to figure 1 below, the manufacturing industry has the highest number of CSR projects (60%), while the lowest number is reported in the transportation industry (Kun et al., 2019). A broad overview of the spatial distribution of CSR projects in China is provided in the pie chart below.

 Industry distribution of CSR projects in China.
Figure 1. Industry distribution of CSR projects in China (Source: Kun et al., 2019).

The variation of CSR projects across major Chinese industries is largely attributed to government intervention, through the formulation of effective corporate governance policies (Kun et al., 2019). For example, in 2010, the Chinese government categorized the manufacturing industry as the biggest generator of carbon emissions in the country (Kun et al., 2019). This government declaration is responsible for the high number of CSR projects in the manufacturing sector. Government intervention in China has extended further to influence the trend in CSR adoption within transport, energy, water, and environmental sectors because of their linkage with the dumping of hazardous materials in the environment (Kun et al., 2019). Therefore, companies that operate in these sectors have been linked with CSR projects involving the management of solid and hazardous waste (Kun et al., 2019). Broadly, China has seen companies implement different types of CSR programs over the years, but the role of the government in realising this outcome is still poorly understood. The section below explains its role in promoting the practice.

The Role of the Chinese Government in Promoting CSR

The Chinese government has a role to play in shaping the economic and social trajectory of China because most aspects of its social and political development are hinged on its policies. The government’s role in influencing mainstream social and economic policies in China comes as no surprise because the Communist Party, which is the ruling organization, is the single-most powerful political organ of the country. Consequently, its policies permeate different levels of governance. Relative to the stature of the government as the most impactful organization in China, studies have shown that companies, which have ties with the ruling class are among the most compliant with CSR laws (Schmidpeter, Lu, Stehr, & Huang, 2015; Chen, Huang, Peng, & Zhong, 2015). For example, state-owned corporations are known to be familiar with government bureaucracy and are likely to embrace CSR policies because of their high levels of legal scrutiny (Schmidpeter et al., 2015). For instance, Monti (2016) gives an example of a recent policy introduced by the Chinese government to plant trees, which was openly adopted by most state-owned corporations. Based on the link between politics and business in China, it is increasingly difficult to separate the country’s CSR activities from government policies.

Although CSR has traditionally been a private undertaking, the Chinese government has strived to better its implementation by employing various techniques to encourage its adoption (Vermander, 2014). Unlike other policies adopted to regulate other aspects of business operations, such as the maintenance of health and safety practices in the workplaces, the Chinese government uses soft law policies to encourage local corporations to promote CSR practices. Mostly, these policies are non-intrusive because they are anchored on the goodwill of local corporations to be mindful of the environmental and social impacts of their businesses (Schmidpeter et al., 2015). Consequently, the government is in a powerful position of raising awareness about CSR practices by building capacities for companies to develop their CSR programs. These tasks are important considerations for the future development of CSR policies in China because the practice is largely voluntary. This view is premised on the understanding that increased awareness of the social impact of businesses on society would lead to the creation of solutions to address them (Vermander, 2014).

The Chinese government often provides local companies with information about CSR practices and their impact on businesses and societies. Current government-sponsored guidelines about its implementation help address corporate or industry concerns that may arise from the implementation of such programs. The impact of state-issued guidelines on CSR adoption has helped companies to become more aware of the social and environmental challenges that affect society and how companies can solve them (Schmidpeter et al., 2015). The provision of policy frameworks by the Chinese government has also helped it to improve standard-setting guidelines by encouraging corporations to do more than merely achieve the minimum set guidelines for CSR implementation. The policy-making role undertaken by the Chinese government has also been instrumental in improving interdisciplinary collaboration among industry experts and promoting the amalgamation of CSR projects across different industries. This initiative has also helped to tighten implementation standards across different sectors and create awareness about the need to comply with CSR practices.

Effectiveness of CSR Policies in China

Gains Made

In the context of this study, the effectiveness of CSR policies in China will be determined by reviewing how well companies have met their shareholders’ goals and fulfilled their corporate mandates. This approach is adopted because investors and managers both have an equal say in determining the trajectory of their corporate affairs, including the kind of CSR approaches to be adopted (Chen et al., 2015). Based on these evaluation criteria, CSR projects undertaken in China have had mixed reviews based on their geographical locations and impact on communities. Data gathered across 31 province-level divisions in China support these findings because they show that there is a difference in the effectiveness of CSR projects in rural and urban China (Kun et al., 2019).

Urban China has the most effective CSR programs because its companies have more resources and better incentives to engage in CSR compared to organizations that are based in rural China (Kun et al., 2019). For example, some of the most successful companies in Beijing and Shanghai have had successful CSR programs because they apply international best practices of management in the adoption of CSR (CEIBS, 2018). However, the effectiveness of CSR projects in rural China is undermined by the low number of such initiatives in specific regions. For example, there are about 7,000 CSR projects undertaken in Shanghai every year and only 28 in Gansu Province (Kun et al., 2019). This difference is largely attributed to disparities in socioeconomic dynamics between the two provinces. These differences also affect the number of CSR projects a single company could undertake in a year because it is assumed that a Shanghai-based company would complete about 92 projects in a year, while a Gansu-based company would only participate in seven such projects (Kun et al., 2019). Figure 2 below highlights the geographic disparities of CSR projects in China undertaken between 2006 and 2016 across different provinces.

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Number of CSR projects across different provinces in China
Figure 2. Number of CSR projects across different provinces in China (Source: Kun et al., 2019).

The findings depicted above show that location has a moderating effect on the impact of government policies on CSR in China. Zhao (2014) goes a step further to claim that the country’s gross domestic product (GDP) also has a similar moderating effect on the effectiveness of CSR practices in China. This view is proposed by establishing a correlation between the number of CSR projects undertaken by any given company and the country’s GDP. Stated differently, the higher the GDP, the higher the number of CSR projects and vice versa, whereby a low GDP attracts a low number of CSR projects.

To demonstrate the effectiveness of Chinese laws on CSR, local companies have played an important role in alleviating human suffering in several events and disasters. For instance, local corporations helped to provide humanitarian support to the victims of the Sichuan earthquake of 2008, which displaced more than 5 million people and caused more than 70,000 fatalities (Monti, 2016). Moreover, based on the government-led push to respond to the disaster, more than $1.5 billion was donated by companies and well-wishers to support humanitarian efforts (Monti, 2016). This contribution was made by different types of enterprises in China, meaning that CSR had permeated different industries and sectors.

For example, Apple and Samsung both donated $50 million and $60 million to help victims (Monti, 2016). This event marked a turning point for CSR activities in China because it demonstrated how both small and big companies could collaborate and pursue common non-profit goals (Monti, 2016). The initiative also fostered a culture of philanthropy in the Chinese corporate sector, thereby demonstrating the effectiveness of the country’s policies in encouraging companies to pay attention to social issues affecting the people. This culture has, over the years, morphed into the development of education and philanthropic programs for different sectors of Chinese society (Monti, 2016). Currently, there is little contention that major Chinese corporations are competing with each other to be the most philanthropic (Deloitte, 2019).

The momentum for CSR adoption in China is also demonstrated by the country’s commitment to tackling climate change. For example, it has become increasingly obvious to authorities that the country cannot sustain its economic growth by polluting the environment because doing so would undermine the government’s relationship with its citizens and jeopardize China’s international standing (Deloitte, 2019). To tackle this problem, there has been increased adoption of new technology to substitute old ways that are known to pollute the environment (Monti, 2016). For example, the country is known to have made significant investments in wind power to supplement its energy needs by minimizing the use of fossil fuels. Such investments have increased China’s capacity for wind energy production. It has even surpassed the European Union (EU) (Monti, 2016). In this regard, China is slowly joining the league of nations that are exporting wind energy. Similarly, there has been a sharp increase in the growth of the number of jobs in the energy sector. Broadly, these insights show that the Chinese government has achieved a significant level of effectiveness in encouraging companies to comply with their CSR policies.

Weaknesses Noted

Zhang (2017) has a contrary view of the effectiveness of CSR policies in China because he says that CSR practices. After all, has been dogged by pessimism. In this regard, he argues that few companies and individuals believe that a meaningful impact will suffice because of CSR promotion (Zhang, 2017). Zhao (2014) has also contributed to the debate by contending that although the Chinese government has created a framework for regulating CSR practices, it has not strengthened its administrative techniques for monitoring compliance. Monti (2016) adds that although China has largely had a positive record in the adoption of CSR practices, the government has been criticized for failing to adopt the same CSR policies in its overseas operations.

For example, Chinese companies operating in African countries have been criticized for promoting a neo-colonial agenda, whereby loans are advanced to African countries at exorbitant interest rates and when they are unable to pay, China takes over their natural resources (Monti, 2016). This kind of lending has been characterized as being “predatory” (Monti, 2016). Consequently, the Chinese government has developed plans to protect the reputation of these companies by requiring them to be mindful of their economic activities. Additionally, these companies are encouraged to comply with the CSR laws of host countries in their respective areas of jurisdictions (Monti, 2016).

Conclusion and Recommendations

Conclusion

Overall, the findings highlighted in this study show a significant correlation between CSR practices and corporate performance. In line with this view, CSR projects in China have not only been influenced by government policies but also by the geographic location of the companies involved. In the context of this study, geography could be viewed as a moderating factor for the influence of government policies on CSR practices. Although CSR policies in China are not as well integrated into corporate governance as is the case in western countries, there is still a lot of promise that such initiatives will be fruitful in the short-term and medium-term. In the long-term, the momentum for CSR adoption is expected to be sustained because the practice not only contributes to the social well-being of its citizens but is also a good indicator of sound corporate management policies for local and international investors. Overall, it is important to note that China is not yet one of the leading CSR adopters in the world but its changing social, political and economic landscape shows a lot of promise in the development of a CSR culture.

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Recommendations

Based on the insights highlighted in this paper, the ominous to improve the level of CSR activity in China lies in the need to create more awareness about associated practices by demonstrating to both corporate and social bodies the need to collaborate and engage each other in the formulation of CSR plans. The government’s role in policy development should be supported when such discussions occur because they help to align CSR objectives with national goals on sustainability. Furthermore, they can provide stronger guidelines on implementation by aligning current policies to international standards of implementation. However, the government needs to improve the disclosure and transparency of information it uses to formulate policies to create more awareness among the public and corporate bodies about CSR practices. This way, it will build more confidence among the populace about its benefits. Furthermore, regulating and monitoring policies should be a fundamental role that the government should pursue to increase accountability measures. This initiative would improve corporate commitment to CSR practices, thereby improving industry CSR standards.

References

CEIBS. (2018). Growing CSR in China: First corporate social responsibility index for Chinese listed companies. Web.

Chen, J., Huang, Q., Peng, H., & Zhong, H. (2015). The research report on corporate social responsibility of China. New York, NY: Springer.

Davis, S. M., & Moosmayer, D. C. (2014). Greening the field? How NGOs are shaping corporate social responsibility in China. Journal of Current Chinese Affairs, 43(4), 75-110.

Deloitte. (2019). Sustainability and corporate social responsibility (CSR). Web.

Kun, L., Nasrin, R. K., & Weiquan, C. (2019). Corporate social responsibility practices in China: Trends, context, and impact on company performance. Sustainability, 11(354), 1-19.

Monti, N. (2016). CSR in China: 5 Reasons why China might be the future of corporate social responsibility. Web.

Shin, K. (2014). Corporate social responsibility reporting in China. New York, NY: Springer Science & Business Media.

Schmidpeter, R., Lu, H., Stehr, C., & Huang, H. (Eds.) (2015). Sustainable development and CSR in China: A multi-perspective approach. New York, NY: Springer.

Tan-Mullins, M. (2014). Successes and failures of corporate social responsibility mechanisms in Chinese extractive industries. Journal of Current Chinese Affairs, 43(4), 19-39.

Vermander, B. (2014). Corporate social responsibility in China: A vision, an assessment and a blueprint. New York, NY: World Scientific.

Zhang, D. (2017). Corporate social responsibility in China: Cultural and ownership influences on perceptions and practices. New York, NY: Springer.

Zhao, J. (2014). Corporate social responsibility in contemporary China. London, United Kingdom: Edward Elgar Publishing.

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