CORPORATE SOCIAL RESPONSIBILITY IN GENERAL
1. CSR values and practices, including levels of support from government, business and the general public
CSR is a relatively new concept in China and up until now it has not been a major governmental or popular concern. Before the economic reforms of the late 1970s, modern China’s economic activities were largely conducted through a vast system of administrative units based on central and local government planning. Through these administrative units, central and local governments were responsible for the well-being of employees and their families, as well as other aspects of social welfare. It was only after the economic reforms that companies entirely or partially independent from government re-emerged as the primary vehicles for economic interaction. But whether, and to what extent, these companies will bear the social responsibilities that used to be borne by governments is still subject to heated debate. As a result, CSR has not become a widely accepted governmental and social value, and is not a legal obligation for Chinese corporations. China does not have uniform CSR legislation. Instead, CSR obligations are scattered in a number of specific laws on areas including human rights, corporate governance, labour rights, and environmental protection.
More and more Chinese companies, though, are recognising CSR values and obligations for reasons other than legal, governmental or social. For example, Chinese corporations voluntarily subject themselves to CSR obligations under pressure arising from their commercial activity. A good example of this is the gradual acceptance in China of the Social Accountability 8000 (SA8000) certification system. Some European and American multinational corporations require that their upstream suppliers and other business partners qualify for SA8000 certification, and this effectively forced Chinese corporations with existing or potential commercial relationships with these multinational corporations to accept the SA8000 system. As of February 2004, 54 enterprises in China had obtained SA8000 certification.
The Chinese government has not established any special supervisory or administrative authorities to regulate or supervise social responsibility. However, it is paying more and more attention to international CSR standards, including SA8000. The China Certification and Accreditation Administration has recognised the need for a joint effort from all sectors of society and government bodies to develop China’s own CSR standards; it has also cautioned against blindly following the standards set by developed countries and ignoring China’s reality as a developing country. Recently the administration concluded that the SA8000 certification system was not suitable for government endorsement; specifically, it identified certain criteria laid down by SA8000, such as freedom of association, collective bargaining rights, and prohibition against discrimination, that are not supported by China’s social ideology and infrastructure. The Chinese government and authorised certification authorities have therefore not included SA8000 certification in the scope of their supervision. On the other hand, even enterprises that qualify for SA8000 certification may not fully perform their social responsibilities.
The International Organisation for Standardisation (ISO) held a meeting in June 2004 to establish a working group which will develop global standards for social responsibility. This will be in the form of a guidance document, written in plain language, usable by nonspecialists and “not intended for use in certification”. China’s Certification and Accreditation Administration, together with other government departments, will actively monitor and participate in the development of the Social Responsibility Guide and, at the same time, prepare China’s own solutions. In addition, China’s Standardisation Administration has stated that it intends to take about five years to improve the proportion of national standards that conform to international standards from the current 38 per cent to roughly 70 per cent, including social responsibility certification. Officials of the Ministry of Commerce said that it has been paying close attention to issues related to SA8000.
2. Laws, statutes, government publications or other significant framework documents
Currently there is no specific law, regulation, document, or governmental publication on CSR in China. The provisions on CSR related to human rights, corporate governance, labour rights, and environment protection are set out in several special laws and regulations (see section 6).
3. International treaties, conventions or standards
China ratified the 1992 Basel Convention on the Control of Transboundary Movements of Hazardous Wastes and their Disposal, but did not sign the 1999 Basel Protocol on Liability and Compensation. Furthermore, 44 Chinese companies participated in the UN Global Compact. On 1 September 1978, China rejoined ISO, and is now an active member of 145 technical committees and 356 sub-committees of ISO, and an observer of 49 technical committees and 238 sub-committees. As mentioned above, the ISO agreed in June 2004 to establish a special team to prepare a Social Responsibility Guide as a general guiding document, and China will actively participate. Section 6 below further discusses the international treaties signed or recognised by China in the fields of human rights, labour rights, and environment protection.
4. Non-statutory sources of liability for companies
In July 2002, the China Enterprise Confederation and China Enterprise Directors Association (CEDA) published the Principles of Operation with Good Faith and Self-Discipline for Enterprises, which provided guidelines on enterprises’ social liabilities. The Principles require enterprises to enhance the recognition of good faith, align enterprises’ business interests with social interests, and prohibit unethical behaviour. The Principles also require enterprises to protect employees’ interests, comply with labour contracts, enhance safety management, and protect employees’ health and safety during production. They prohibit behaviour that undermines employees’ interests, such as late payment of wages, breach of contract, and practices endangering life and health, etc. The Principles further require that enterprises maintain social stability, perform social responsibilities, and strictly comply with various regulations and measures on natural environment protection and sustainable development.
In 2001, CEDA, representing Chinese enterprises, acceded to the UN Global Compact facilitated by United Nations Development Programme (UNDP), to commit Chinese enterprises and entrepreneurs to certain social responsibilities while promoting enterprises’ development. More than 20 leading Chinese enterprises have recently become members of the UN Global Compact, bringing the total to more than 50. The new accessions include large-scaled state-owned enterprises, such as China Unicom and China Railway Engineering, and private enterprises, such as Huawei Technologies, New Hope Group and Li Fan. Those that joined previously include Sinopec, Shanghai Baosteel Group, and Haier.
5. Principal institutions, government agencies and/or major non-governmental organisations (NGOs)
æ CEDA. In recent years, CEDA has paid constant attention to Chinese enterprises’ social responsibilities. It issued the Principles of Operation with Good Faith and Self-Discipline for Enterprises (discussed above), maintained communication on CSR with international NGOs such as the World Business Council for Sustainable Development, and made progress in developing international co-operation in the research of Chinese and international enterprises’ sustainable development and clean production. CEDA also established the China Business Council for Sustainable Development, to facilitate enterprises shouldering social responsibilities and to promote Chinese businesses’ sustainable development.
æ The China Social Labour Association’s Committee of Corporate Citizenship is dedicated to becoming the most active promoter of CSR in China, and acts as consultant on Chinese enterprises’ charitable activities. Its mission is to ensure that enterprises undertake more social responsibilities.
æ Guangdong CSR and Welfare Business Research Centre. The duties of the centre, which was established on 14 October 2003, are to carry out CSR research in enterprises in the Pearl River Delta Region, to assess the state of, and problems of, CSR in Guangdong’s enterprises, and to make strategic suggestions to the government on promoting CSR. The centre undertakes international co-operation and communication, and builds relationships with multilateral CSR organisations. It also conducts research on themes including corporate citizenship, the corporation and the neighbourhood, enterprise social investment, etc. It further provides CSR training to local governmental officers, entrepreneurs, and senior management of enterprises.
æ The Institute of Contemporary Observation in Shenzhen, established on 18 March 2001, is a civil organisation focusing on labour, law and CSR. Its areas of research and activity cover labour, law, public policy, protection of human rights, global supply chain management, environmental protection, occupational health and safety, public hygiene, gender, civil society, community development, and capacity construction of civil organisations. The institute has played an active role in mainland China, Hong Kong and Macao, with special attention to migrant workers in factories producing for international markets along the southeast coast of China, as well as women, cases of industrial disablement and other disadvantaged and marginalised communities in the Pearl River Delta Region. Up to March 2004, the institute had helped more than 200,000 persons.
SPECIFIC AREAS OF CORPORATE SOCIAL RESPONSIBILITY
6. Human rights
The Chinese legal regime does not have any specific regulations on human rights protection. The Constitution of the People’s Republic of China is the supreme legislation in this regard, and its 2004 Amendment developed provisions on human rights protection. The Constitution provides that the state shall respect and protect human rights, protect citizens’ ownership of private property and compensate for land expropriated or requisitioned by the state. In addition to the Constitution, China has promulgated laws and regulations on human rights protection, covering citizens’ rights and liberties; human rights protection in judicial enforcement; economic, social and cultural rights; rights of women, children, older people and the disabled; and rights and interests of ethnic minorities, returned overseas Chinese and family members of overseas Chinese. The Basic Laws of Hong Kong and Macao Special Administrative Regions also provide human rights protection.
So far China has acceded to 24 human rights conventions of the UN and other international organisations, among which are the International Covenant on Economic, Social and Cultural Rights, the International Covenant on Civil and Political Rights, and the Convention on the Elimination of All Forms of Discrimination against Women. In respect of CSR, the above-mentioned laws and international conventions mainly focus on the protection of employees’ rights and interests when employers become bankrupt, prohibition of the employment of children, and employment and labour protection for women and disabled people.
The official authorities for human rights protection in China include the National People’s Congress and local people’s congresses at different levels, the Ministry of Labour and Social Security, the National Working Committee for Women and Children under the State Council, the State Ethnic Affairs Commission, the Ministry of Civil Affairs and the judiciary. The main NGOs include the All-China Federation of Trade Unions, the All-China Women’s Federation, the All-China Youth Federation and the China Disabled Persons’ Federation. Some human rights research institutes have been established in China, such as the China Society for Human Rights Studies, the China Human Rights Development Fund and the human rights research centres of many universities.
7. Corruption
Bribery and corruption have been addressed in the Criminal Law of the People’s Republic of China. Chapter 8 of the Criminal Law stipulates that should an entity extract or illicitly accept articles of property from other people and try to obtain gain for other people to a serious extent, or, during economic activities, secretly accept, outside the account, kick-back or service charges of various types, the entity shall be sentenced to a fine. Moreover, personnel who are directly in charge, and other personnel who are directly held responsible for the crime, are to be sentenced to no more than five years imprisonment or to criminal detention. In accordance with the stipulations of the Supreme People’s Procuracy on the scope of its cases, bribery and corruption committed by entities shall be directly investigated by the Procuracy.
8. Corporate governance and business ethics
In China, the essence of corporate governance is to protect the interests of investors or shareholders, which, through the legal regime, is implemented through power distribution and balance among corporate organisations. The relevant laws and regulations include the Company Law, the Directions Concerning Articles of Association of Listed Companies, and the Principles of Corporate Governance of Listed Companies. The latter Principles, and the Directory Opinions of the China Securities Regulatory Commission on the Establishment of an Independent Director System in Listed Companies, require that listed companies have independent directors, and set out the qualifications and duties of such independent directors.
There are only a few fragmentary regulations on the procedures and systems under which parties other than shareholders, eg creditors and employees, may participate in corporate governance. As far as employees’ participation is concerned, the Company Law stipulates that employee representatives must be present at meetings of the supervisory board of wholly state-owned companies; the Directions Concerning Articles of Association of Listed Companies stipulate that supervisors of listed companies shall include shareholders’ representatives and representatives of employees, with the latter amounting to no less than one third of the total supervisors. The law is silent on the procedures and systems by which creditors may participate in corporate governance, and creditors’ interests are protected mainly through asset supervision and liquidation, as well as the prohibition of unauthorised disposal of the company’s assets upon bankruptcy. In addition, the Company Law also protects creditors’ interests by granting them rights to exercise the relevant debtors’ rights in certain situations and rescind fraudulent conveyances or other illegal actions by the debtors.
In general, the State Administration for Industry and Commerce and local industrial and commercial administrations at different levels are the supervisory authorities over companies, while in specific industries, or where foreign investment is involved, the Ministry of Commerce or local departments for foreign trade and economic co-operation are the jointly responsible authorities. Moreover, the China Securities Regulatory Commission is the principal supervisory authority for listed companies, while stock exchanges should also formulate guidance opinions or principles on the supervision and administration of listed companies.
9. Corporate responsibility to employees
The Labour Law of the People’s Republic of China, promulgated in 1994, is the basic labour statute, covering employment promotion, labour contracts, collective contracts, wages, social insurance, professional training, labour security and health, protection of female and younger employees, and labour dispute settlement. To better implement the basic principles set forth in the Labour Law, the Chinese authorities have formulated separate laws and regulations including the Employment Promotion Law, the Labour Contract Law, the Wages Law, the Safe Production Law, the Labour Protection Law, the Law on the Development of Professional Skills, the Social Insurance Law, the Labour Dispute Settlement Law and the Labour Supervision Law. The Safe Production Law was promulgated in 2002; and the Ministry of Labour and Social Security is working on the draft of the other laws mentioned in several batches. In addition, the State Council, and local authorities and departments, have formulated various administrative regulations and departmental rules.
As for equal employment and anti-discrimination measures, the Labour Law provides that with regard to employment, employees shall not be subject to discrimination on the grounds of ethnicity, race, gender or religious beliefs. Women shall enjoy the same employment rights as men. With respect to labour protection for women, the State Council has implemented Regulations on the Labour Protection for Female Employees, stipulating that employers shall not refuse to employ female employees for work that is suitable for them, nor shall the basic wage be lowered or labour contracts be terminated with female employees during the period of pregnancy, maternity and breast-feeding. The Ministry of Labour and Social Security has issued a series of answers to questions on the Regulations on the Labour Protection for Female Employees, which specify that they shall be applicable to all enterprises in China, including those with foreign investment, and provide definitions and clarifications of issues covered, to ensure better implementation of law.
With respect to labour protection for disabled people, the Law on the Protection for Disabled People and the Certain Opinions on Improving Employment for Disabled People set out rules for employers under which they must employ certain proportions of disabled people. Under the Interim Regulations on the Administration of the Employment Security Fund for Disabled People, employers failing to meet these targets shall make payment to the employment security fund for disabled persons.
With respect to working time, the Labour Law stipulates that the state shall operate a system of no more than eight hours per day and no more than 44 hours per week. Under the Decision of the State Council on the Modification to Employee Working Time, however, working hours are limited to eight hours per day and 40 hours per week. The Labour Law provides that, if necessary for operations, working time may be extended by no more than one hour per day as a general principle, subject to the employer’s consultation with the trade union and employees, and that if needed under special circumstances, working time may be extended by no more than three hours per day without prejudice to employees’ health, and may not be extended by more than 36 hours per month.
With respect to workplace safety, the Safe Production Law 2002 attributes to production and operation units the obligation to make production safe, as well as the liability for safety accidents, requiring that production and operation units shall carry out emergency rescue and subsequent investigations, and setting out penalties for violation. In addition, before and after the promulgation and implementation of the Safe Production Law, the State Council and some of its departments published regulations and departmental rules concerning safe production and accidents in specific industries such as cement, coal and construction.
The Chinese laws and regulations concerning social insurance include the decision of the State Council on the establishment of a unitary basic pension insurance system for corporate employees, the decision of the State Council on the establishment of a basic medical insurance system for urban employees, the decision of the State Council on the further reform of urban housing system and acceleration of housing construction, and the rules for unemployment insurance. These laws and regulations set forth the legal fundamentals of the Chinese social insurance system of ‘three insurances and one fund’, under which Chinese enterprises are required to pay, at specified minimum percentages, certain pension, medical and unemployment insurances, and a housing fund for employees.
From an international perspective, China has ratified 23 international labour conventions, including the Equal Remuneration Convention 1951 (ILO Convention No 100); the Minimum Age Convention 1973 (ILO Convention No 138); and the 1999 Convention on the Worst Forms of Child Labour (ILO Convention No 182). Regulation of labour and employment is overseen by the Ministry of Labour and Social Security of the People’s Republic of China and the labour departments of local governments at different levels.
10. Corporate responsibility towards the environment
China has promulgated a number of laws, regulations and rules on, or relating to, environmental protection, including the Environmental Protection Law, the Air Pollution Prevention and Control Law, the Marine Environment Protection Law, the Law on the Prevention and Control of Environmental Pollution Caused by Solid Waste, the Water and Soil Conservation Law, the Grassland Law, the Law on the Prevention and Control of Environmental Noise Pollution, the Law on the Prevention and Control of Water Pollution, the Wild Animal Protection Law and the Implementing Rules of the Wild Animal Protection Law. Such legislation has imposed obligations and liabilities on both corporations and individuals to protect air, water, ocean, soil, mines, forests, grasslands, wild animals, natural and cultural relics, natural reserves, natural landscape, and urban and rural areas. The state also collects pollution discharge fees based on the type and amount of each contaminant. Where pollution emissions exceed the state or local standards, the discharge fees will be doubled.
As for liabilities resulting from the breach of environmental laws or regulations, the General Principles of the Civil Law and the Environmental Protection Law make clear that the payment of the pollution discharge fee or the imposition of relevant administrative liabilities will not exempt offenders from civil liabilities for damages caused by environmental pollution. Criminal liabilities and penalties can also be imposed on corporations or individuals who emit poisonous and hazardous waste, illicitly import or use solid waste, hunt and kill, purchase, transport or sell nationally-protected wild animals, illicitly engage in mining operation, or illicitly log forest and trees.
On the international level, China is a party to 31 international treaties on environmental protection, including the Montreal Protocol on Substances that Deplete the Ozone Layer, the Convention on Biological Diversity and the International Convention for the Prevention of Pollution of the Sea by Oil. According to Article 46 of China’s Environmental Protection Law, if an international treaty regarding environmental protection concluded or acceded to by China contains provisions differing from or conflicting with those contained in the laws of China, the provisions of the international treaty shall apply, unless the provisions are ones on which China has announced reservations. At national level, the state environmental protection agency is responsible for the supervision and administration of environmental protection nationwide, while the environmental protection departments of local governments at different levels shall be responsible for local supervision and administration.
11. Corporate responsibility to communities
In China, no statutory liability towards communities has been imposed on companies. Section 1 of Article 14 of the Company Law provides that a company should, when engaging in business activities, abide by law, observe professional ethics, strengthen the construction of socialist culture and ideology, and accept supervision by the government and the public. This provision is deemed by academic commentators to be the legal and theoretical foundation for the requirement that a company shall undertake social responsibility.
Under Chinese law, a company’s responsibilities towards communities mainly concern security and development of communities. Article 31 of the Law of the People’s Republic of China on Environmental Protection provides that if any corporation is responsible for an accident or any other emergency that has caused or threatens to cause accidental pollution, it must promptly take measures to prevent and control the pollution, and make the situation known to those entities and inhabitants that are likely to be endangered. The corporation must also report the accident to the appropriate department of the environmental protection administration of the locality and other relevant departments for investigation and sanction. Enterprises and institutions that are likely to cause severe pollution must adopt measures for effective prevention.
Two other instruments based on Article 31 of the Law on Environmental Protection – ie the Law on the Prevention and Control of Atmospheric Pollution and the Law on the Prevention and Control of Environmental Noise Pollution – set out more detailed legal requirements with respect to the effect of a company’s production on communities’ environment.
To encourage donations for public welfare and relief, the Law on Donation to Public Welfare Undertakings provides for preferential tax treatment, under which donations made by companies and other enterprises in the nature of public welfare and relief, of or below three per cent of the taxable income or amount, are permitted for deduction. Donations through non-profit organisations and governmental departments to the Red Cross, welfare and non-profit institutions of aid to the elderly, compulsory education in rural areas and welfare recreation places for juveniles can be fully deducted from enterprises’ taxable income base. National and local governments also give out awards for individuals, legal persons or other entities who make outstanding contributions to public welfare undertakings. Donors to public welfare projects may have their names recorded, and projects donated or sponsored by a single donor may be named after such donor upon approval by the government at or above the county level.
12. Corporate responsibility for overseas activities
Currently there is no relevant law or practice in China in this area.
13. Procurement
The Government Procurement Law stipulates that government procurement shall help to achieve the objectives of economic and social development of the state, including protecting the environment, supporting underdeveloped areas and ethnic minority areas, and promoting the development of small and medium-sized enterprises.
14. CSR reporting and socially responsible investing
Currently there is no relevant law or practice in China in this area.
SOURCES
Books:
Liu, Junhai, Corporate Social Responsibility, Law Press, 1999.
Zhou, Guoyin and Zhang, Shaobiao, Implementation Guide to the International
Standards of Social Responsibility, Haitian Publishing House, 2002.
Lu, Daifu, Corporate Social Responsibility from the Economic and Legal Perspective, Law
Press, 2002.
Yu, Xiaomin, ‘Economic Globalisation and Production Principles of Multinational
Companies’, in Labour and Social Security under Globalisation, edited by Zheng,
Gongcheng and Zheng, Yushuo, China Labour and Social Security Publishing House,
2002.
Tan, Shen and Liu Kaiming, The Social Responsibility of Multinational Companies and
Chinese Society, Social Science Document Publishing House, January 2003.
Essay:
Chang, Kai, ‘Economic Globalisation and the Movement of Corporate Social Responsibility’, published in Theory and Practice of Trade Unions, Volume IV (2003), pages one to five.
News release:
Interpretation by State Certification Accreditation Administration on Certification of Corporate Social Responsibility.
