Regulation of Chinese infrastructure companies’ environmental and social impacts in host countries overseas: A study of the Chinese-built standard gauge railway project in Kenya

• Date: 15 August 2018
• Author: Liu, B.
• Citation: (2017) 23 SAJELP 101
• Published date: 15 August 2018
• Pages: 101-141

101

REGULATION OF CHINESE

INFRASTRUCTURE COMPANIES’

ENVIRONMENTAL AND SOCIAL IMPACTS

IN HOST COUNTRIES OVERSEAS:

A STUDY OF THE CHINESE-BUILT

STANDARD GAUGE RAILWAY PROJECT IN

KENYA

Bingyu Liu*

Abstract

China has rapidly become one of the world’s biggest overseas investors, and

has increasingly encouraged more companies to go abroad. As part of China’s

‘One Belt One Road’ Initiative, Kenya’s Standard Gauge Railway (SGR) aims

to promote trade and investment for Kenya and other countries in Eastern

Africa. The railway construction is done by the China Road and Bridge

Corporation (CRBC). Since the construction of the project, the SGR has sparked

controversy on its community and environment impact, contracting practices,

and financing arrangements. This article will analyze the environmental and

social impact of the second phase of SGR’s construction (Mombasa-Nairobi)

on the local communities and people. Specifically, the article addresses three

questions: What is the CRBC’s environmental and social performance in the

Mombasa-Nairobi SGR project in practice? What are the most important

factors that influence the CRBC’s environmental and social behavior? What

are the legal implications of the SGR project on other Chinese infrastructure

building investments overseas in the future? This research was conducted

through in-depth interviews with over 30 stakeholders, extensive review of

publicly available documents, and two field visits to project sites between

September and December 2016. The article uses the Mombasa-Nairobi SGR

project as a case study to show how this Chinese state-owned company has

tried to tackle environmental and social pressures, comply with Kenyan

domestic and international environmental standards, and fulfill its corporate

social responsibilities during construction. It examines the role of different

stakeholders, including the Kenya government, the Chinese government, the

China Export-Import Bank, the CRBC and third-party monitoring parties

during the environmental and social impact assessment (ESIA) stage of the

project. The article then examines the regulatory factors that have asserted

* PhD Candidate in Law at the Peter Allard School of Law, University of

British Columbia, Canada. Email: gloria.bingyu.liu@alumni.ubc.ca

(2017) 23 SAJELP 101

© Juta and Company (Pty) Ltd

102

SOUTH AFRICAN JOURNAL OF ENVIRONMENTAL LAW AND POLICY

the greatest impact on the CRBC’s environmental behaviors, and hence, the

implication of this project for Chinese infrastructure construction companies

in the future. The article will show that the SGR case, in demonstrating good

cooperation between the home country government, host country government,

financial institution, overseas infrastructure company and third-party

monitoring parties involved in the project, can serve as a model for future

Chinese infrastructure investment in African countries.

Keywords: China, regulation of Chinese infrastructure, environmental and

social impact

1 INTRODUCTION

1.1 The OBOR Initiative and Chinese Companies’ Foreign

Investment in Africa

In 2013, Chinese President Xi Jinping announced China’s

intention to develop the ‘One Belt and One Road’ (OBOR)

Initiative. China’s efforts are expected to enhance inter-regional

connectivity by focusing on five areas: policy coordination,

facilities connectivity, unimpeded trade, financial integration

and people-to-people bonds.1 The routes will encompass over

60 countries, accounting for 60% of the world’s population

and a collective GDP equivalent to 33% of the world’s wealth.2

China has rapidly become one of the world’s biggest overseas

investors and has increasingly encouraged more companies to

go abroad. As of the end of 2017, China’s non-financial outward

direct investment amounted to US $120 billion in 6236 overseas

companies in 174 countries and regions.3

1 2017 Report on the Sustainable Development of Chinese Enterprises

Overseas Supporting—The Belt and Road Regions to Achieve the 2030

Agenda for Sustainable Development, online:< http://www.cn.undp.org/

content/dam/china/docs/Publications/2017%20Report%20on%20the%20

Sustainable%20Development%20of%20Chinese%20Enterprises%20

Overseas.pdf?download>, accessed on 25 May 2017.

2 Ibid.

3 Database of Commerce of the People’s Republic of China, online:

<http://www.mofcom.gov.cn/article/tongjiziliao>, accessed in January, 2018.

For more information on One Belt One Road, see National Development

and Reform Commission, ‘Vision and Actions on Jointly Building Silk Road

Economic Belt and 21st-Century Maritime Silk Road’ (2015), online: <http://

en.ndrc.gov.cn/newsrelease/201503/t20150330_669367.html>, accessed on

7 September 2016.

© Juta and Company (Pty) Ltd

103

REGULATION OF CHINESE INFRASTRUCTURE COMPANIES’

ENVIRONMENTAL AND SOCIAL IMPACTS

Africa is given considerable attention in the OBOR Initiative,

making it clear that the region will become an integral part of

the OBOR.4 The investments in Africa are mainly concentrated

in infrastructure building and natural resources industries. Over

the past decade, African trade and investment with China has

risen dramatically and China. Approximately 77% of China’s

foreign investment in Africa is made by Chinese SOEs. Chinese

companies’ investment in Africa and beyond is likely to expand

in the future given China’s surging need to boost external demand

by taking advantage of China’s excess manufacturing capacity.5

Chinese overseas companies have made significant contributions

to the economic and social development of countries, especially

in improving infrastructure, upgrading industries, creating jobs,

transferring technology, contributing to social well-being.6

Together with the principle of South-South cooperation7, another

key thrust of China’s current investment and trade strategy that

encourages developing countries in the ‘Global South’ to learn

from each others’ experiences and assist each other,8 the OBOR

will promote investment, funding and technology transfer

between China and other (African) developing countries.9 China’s

investments in African countries have assisted those countries

to improve their infrastructure and balance their investment

interests, which were previously dominated by relationships with

developed western countries. Recently, China announced that it

4‘China’s ‘‘One Belt, One Road’’ Initiative and its Implications for Sino-

African Investment Relations’ (2016) 8(3) Transnational Corporations Review.

5et al (ed) (2016). National Strategy: Policy and Investment of ‘Belt and

Road’ Initiative, Zhejiang University.

6Blue Book of Outbound Investment and Risks. Annual Report on China’s

Outbound Direct Investment and Host Country Risk (Social Science Academic

Press China, 2017).

7United Nations Office for South-South Cooperation, online: <http://ssc.

undp.org/content/ssc/national_dg_space/China/aboutus.html>, assessed on

9 September 2016.

8United Nations Office for South-South Cooperation, online: <http://ssc.

undp.org/content/ssc/national_dg_space/China/aboutus.html>, assessed on

9 September 2016.

9China and South-South Cooperation, online: <http://www.cn.undp.

org/content/china/en/home/ourwork/south-south-cooperation/south-south-

cooperation.html>, accessed on 9 September 2016.

© Juta and Company (Pty) Ltd