By Francisco Paris, Regional Director at the EITI International Secretariat
- For an update on China and the EITI, find our latest blog and related publication on Chinese companies reporting in EITI countries
China has expressed its support for the EITI in several international fora, notably supporting the UN General Assembly Resolution which emphasizes that transparency should be promoted by all Member States and the G20 Pittsburgh declaration that support participation in the EITI. Chinese companies have reported under the EITI framework in countries such as Gabon, Kazakhstan, Mongolia and Nigeria. The EITI offers China an opportunity to improve its energy security and protect its interests in the extractive sectors worldwide. This blog discusses how China would directly benefit from giving the EITI further political support, as it would enhance its relation with suppliers, mitigate operational risks for Chinese companies abroad and attract greater investment in Chinese companies.
Energy and commodities needs
China's unparalleled economic expansion has made it the second largest global energy consumer and a prime consumer of many other commodities. As China has come late to these markets, it has had to work harder to secure stable supplies. To date, China's strategy has focussed on developing its energy firms, extensive foreign direct investment, and a series of infrastructure-for-energy-or-commodities package deals. This strategy has led China to pursue relatively new commodity sources such as Sub Saharan Africa. In doing so, China has encountered challenging political and operating environments. China‘s increasing need for energy and other commodities require mechanisms that reinforce the stability of supplies and mitigate the operational and reputational risks to its companies in the most challenging environments.
Many of China's main commodity suppliers are countries which face latent conflicts, acute poverty and weak institutions. Many of them have suffered or are exposed to what has been termed as the “resource curse”. The EITI is one of the tools that are aimed at improving the governance conditions in resource rich countries by bringing stakeholders together. The EITI requires that governments publish what they have received in the form of revenues, royalties and other payments, from extractive companies; and companies publish what they have paid to governments. These figures are reconciled in EITI Reports and disseminated among the wider public. By doing this accounting exercise stakeholders and the wider public benefit from a better knowledge of the contribution (actual or potential) from the extractive sector. The EITI platform becomes a mechanism for understanding how the extractive sector works, mineral tax regimes, contractual arrangements and distribution of revenues.
China policies and policymaking
China’s foreign policy is often characterized by “non-interference” in domestic political issues. EITI Principle No.2 states “we affirm that management of natural resource wealth for the benefit of a country’s citizens is in the domain of sovereign governments to be exercised in the interests of their national development”. The EITI process is led and implemented by governments that have seen is in their interest to bring improved financial transparency to their extractive sectors. Chinese companies have been participating in EITI reporting in countries such as Gabon, Kazakhstan, Mongolia and Nigeria. The EITI offers China a tool that serves as an instrument to promote more stable conditions in supplier countries that is consistent with its policy of “non-interference”.
Large Chinese oil and gas companies have the mandate to secure supplies and act independently. Financial institutions such as the China Development Bank and the China Exim Bank are a significant source of financing for China energy giants. As these large Chinese banks and national oil companies (NOCs) expand their activities overseas they also seek to adhere to international social and environmental standards such the Equator Principles in their activities and investments. On behalf of the central government, the state-owned, Assets Supervision and Administration Commission issued in January 2008 CSR guidelines to more than 150 state-owned enterprises (SOE) including the oil companies CNPC, Sinopec and CNOOC. These guidelines cover reporting on activities to stakeholders and society in general. The EITI complements SOE’s reporting requirements, and by bringing more transparency on NOCs activities overseas, China will be demonstrating its commitment to the best international business and investment practices. The EITI would not add any requirements for the Chinese companies or put them at any commercial disadvantage. In fact, in an increasing number of countries, Nigeria, Liberia and Norway among them, companies operating in the country’s extractive sector are bound by law to report their payments to the Government in accordance with the EITI.
By joining the supporters of the EITI, both the Chinese Government and extractive companies will be, not only moving further from multilateral diplomatic support and reporting at country level but will be “playing an important role in achieving global energy availability and access, while contributing to sustainable development”, as the G8 and 16 other Energy Ministers put it in a declaration last May. China’s active support for the EITI will contribute towards good governance of extractive resources and a level-playing field.