how china’s policy banks can support sustainable foreign investment · 2017-11-29 · how...
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HowChina’sPolicyBanksCanSupportSustainableForeignInvestment
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HOWCHINA ’S POL ICY BANKS CANSUPPORT SUSTA INABLE FORE IGN INVESTMENT
AUTHORS:PENGREN,LIWENZHANG,RONGZHU,JINGWEIZHANG
AGEIResearchReport
August2017
HowChina’sPolicyBanksCanSupportSustainableForeignInvestment
TableofContents
AbbreviationsandAcronyms...................................................................................................................1
Foreword...................................................................................................................................................1
1.China’spolicybanksand“goingout”strategy.....................................................................................31.1Policybanksandforeigninvestment............................................................................................................31.2Policybanksandtheenvironmentalandsocialchallengesofforeigninvestment.....................................6
2.Bankpoliciesforthepreventionandcontrolofenvironmentalandsocialimpactsandrisksininvestmentactivities.................................................................................................................................82.1EnvironmentalandSocialPoliciesoftheExport-ImportBankofChina.......................................................92.2TheEnvironmentalandSocialPoliciesoftheChinaDevelopmentBank...................................................142.3TheEnvironmentalandSocialPoliciesoftheWorldBankandtheInternationalFinanceCorporation...172.4TheEnvironmentalandSocialPolicesoftheJapanBankforInternationalCooperation..........................24
3.AcomparisonofenvironmentalandsocialpoliciesbetweenChina’spolicybanksandinternationalfinancialinstitutions...............................................................................................................................293.1WeaknessesoftheenvironmentalandsocialpoliciesofChina’spolicybanks.........................................293.2ProgressivenessoftheenvironmentalandsocialpoliciesofChina'spolicybanks...................................33
4.Casestudies:Roleofpolicybanksinthepreventionandcontrolofenvironmentalandsocialrisks.................................................................................................................................................................424.1AboutSriLanka............................................................................................................................................424.2Case1:CMCandSouthernRailwayproject(EPCmode)............................................................................454.3Case2:CHECandTheColomboPortCityproject(PPPmodel).................................................................49
5.Synthesizedanalysisandsummary....................................................................................................52
6.Appendix:KeyDefinitionandIntroductionofPolicyBanks..............................................................56
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ABBREVIATIONSANDACRONYMS
ADBC AgriculturalDevelopmentBankofChina
BRI BeltandRoadInitiative
CBRC ChinaBankingRegulatoryCommission
CCER ChineseCertifiedEmissionReduction
CDB ChinaDevelopmentBank
CDM CleanDevelopmentMechanism
ChinaEXIMBank TheExport–ImportBankofChina
EHS Environmental,HealthandSafetyGuidelines
EIA EnvironmentalImpactAssessment
ESF EnvironmentalandSocialFramework
ESIA EnvironmentalandSocialImpactAssessment
ESMS EnvironmentalandSocialManagementSystem
GEI GlobalEnvironmentalInstitute
IDA InternationalDevelopmentAssociation
IFC InternationalFinanceCorporation
JBIC JapanBankforInternationalCooperation
M&A mergersandacquisitions
MIIT MinistryofIndustryandInformationTechnology
SAFE StateAdministrationofForeignExchange
WB WorldBank
WTO WorldTradeOrganization
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FOREWORD
Sincethe“goingout”strategywaslaunched,China’sforeigninvestmenthasenjoyedrapidgrowth.In2015,China’sforeigndirectinvestmenthitUSD145.67billion,a54-foldincreaseoverthatof2002.Duringthe“goingout”process,Chineseenterprises,byexpandingoverseasmarketsanddeepeningtechnologyexchanges,havenotonlyimprovedtheirinternationalcompetitiveedgebutalsoinjectedneweconomicdynamicsintothehostcountries.Encouragedbythesmoothdevelopmentofthe“goingout”strategy,theChinesegovernmentproposedtheBeltandRoadInitiative(BRI),settingcross-bordereconomicbeltsastheprimarystrategyforforeigneconomicdevelopment.TheinitiativeplanstoadvancetheinfrastructureconstructioninWestChinaandcountriesalongthe“SilkRoadEconomicBelt”andthe“21stCenturyMaritimeSilkRoad”,inanefforttopromoteregionalconnectivityandeconomicdevelopment.
Althoughtheoverallimplementationof“goingout”strategyhasachievedmajoroutcomes,theenvironmentalandsocialrisksandimpactsofsomeinvestmentprojectshavebecomeincreasinglyprominent,causingdisputesinthehostcountryandtheinternationalcommunityandposingobstaclestothedevelopmentoftheseprojects.TheBRIhasopenedanewwindowofopportunityforChina’sforeigninvestment.WhileChina’soverseasinvestmentwillhavestrongerinfluenceoneconomy,environment,andsociety,italsofacesmoreenvironmentalandsocialrisks.Howtoeffectivelypreventandcontroltheserisksandthenegativeimpactsiskeytothesustainabilityofoverseasinvestmentprojects.
TheGlobalEnvironmentalInstitute(GEI),asaChinesenon-governmentalandnon-profitorganizationspecializedinenvironmentalissues,hasbeencommittedtoaddressingsustainableoverseasinvestmentissuessinceitsinception.Basedonourfieldvisitandresearch,GEIhasproposedtheChinesegovernmenttolaunchenvironmentalpoliciesonoverseasinvestmentsandbuildhostcountry’scapacityinenvironmentalgovernance,andprovidedenvironmentalandsocialadviceforoverseasinvestmententerprises.Inthepastdecade,GEIhasinitiatedandparticipatedinthecompilationofanumberofpolicypapers,includingAGuideonSustainableOverseasSilviculturebyChineseEnterprisesandGuidelinesforEnvironmentalProtectioninForeignInvestmentandCooperation,andpaidcloseattentiontothedevelopmentandimplementationofChina’sforeigninvestmentenvironmentalpolicies.
Throughlong-termobservationandresearch,wefoundthatbanks,asessentialcreditorandinvestorofoverseasdevelopmentprojects,havethemandatetoregulateandguideenterprises’environmentalandsocialbehavioursbyformulatingandimplementingrelatedpolicies,andreducingcreditandinvestmentriskscausedbyenvironmentalandsocialproblems.
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In2012,ChinaBankingRegulatoryCommission(CBRC)launchedtheGreenCreditGuidelines,stipulatingthatbanksshouldeffectivelyidentifyandcontroltheenvironmentalandsocialrisksincreditbusiness,improverelevantcreditpoliciesandworkflowmanagement,andensurethatcreditwillbegrantedtothosewhowillcomplywithenvironmentalprotection,health,andotherrelevantlawsandregulationsofthehostcountry,andfollowrelevantinternationalpracticesorstandards.InAugust2016,thePeople’sBankofChina,alongwiththeMinistryofFinanceandfiveotherministries,issuedtheGuidelinesforEstablishingtheGreenFinancialSystem,suggestingbankingandfinancialinstitutionsdevelopgreencreditandstrengthenenvironmentalriskmanagementoftheprojectsundertheBRIandotherinvestmentframeworksandpromotegreenforeigninvestment.
AsChina’spolicybanks,theExport-ImportBankofChinaandtheChinaDevelopmentBankareimportantfinancialsupportersofthe“goingout”strategyandBRI.Theyarealsothepioneersingreenfinance.Theenvironmentalandsocialpoliciesadoptedbythesetwobanksnotonlyhavesubstantialinfluenceontheenvironmentalandsocialstandardsofoverseasprojects,butalsoplayanexemplaryroleforotherbanksinChinaindevelopingrelatedstandards.
Throughliteratureanalysisandinterview,onbasisofexaminingthecurrentenvironmentalandsocialpoliciesonoverseasprojectsadoptedbytheExport-ImportBankofChinaandtheChinaDevelopmentBank,andbycomparingthesepolicieswiththemeasurestakenbytheWorldBank,theInternationalFinanceCorporation,andtheJapanBankforInternationalCooperation,thisreportexploresChina’spolicybanks’responsibilityandroleinpromotingenterprises’overseasinvestmentsandgreeninvestments,andprovidessuggestionsforthemonoptimizingenvironmentalandsocialpoliciesforsustainableoverseasinvestments.Itishopedthatthisreportwillbeusefulforthoseinterestedinthistopic.
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1.CHINA’SPOLICYBANKSAND“GOINGOUT”STRATEGY
1.1POLICYBANKSANDFOREIGNINVESTMENT
Inthecontextofdeepeningeconomicmarketizationandglobalization,Chinaproposedthe“goingout”strategyandjoinedtheWorldTradeOrganizationorWTOin2001.Sincethen,Chinahasnotonlyopeneditsdoortoforeigncapitalandadvancedtechnologybutalsoencourageditsownenterprisestogoabroadtomakefulluseoftheopportunitiesbroughtbyglobalizationbymakingoverseasinvestments,carryingouteconomiccooperationanddevelopingcross-borderbusinesses.
China’soverseasinvestmentsgohandinhandwithits“goingout”strategy.Drivenbydualincentivesofmarketneedsandpolicyencouragement,China’soverseasinvestmentshaveenjoyedarapidincrease.In2015,China’sforeigndirectinvestmentflowshitarecordhighofUSD145.67billion,accountingfor9.9%oftheworld’stotal,thesecondhighestintheworld.Asoftheendof2015,atotalof20,200domesticinvestorshadopened30,800directforeigninvestmententerprisesin188countries(regions)acrosstheglobe,coveringallsectorsofthenationaleconomywiththetotalassetsofUSD4.37trillion.TheseinvestmentshavenotonlybroughtChina’smoney,technology,productsandequipmenttotherestoftheworldbutalsoenabledtheChineseenterprisestofurtherintegrateintotheeconomicglobalizationthroughmergersandacquisitions(M&A)andgreenfieldinvestments.
Figure1-1:China’sForeignDirectInvestment2002-2015(Unit:billionUSD)
Source:2015StatisticalBulletinofChina'sOutwardForeignDirectInvestment
2.7 2.85 5.5 12.2621.16 26.51
55.91 56.5368.81 74.65
87.8107.84
123.12
145.67
020406080
100120140160
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
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Intheprocessof“goingout”,Chineseenterprisesreceivedessentialsupportfrompolicybankswhichprovidethemwithcapitalandpolicyguidance.In1994,asaresultofthefinancialsystemreform,Chinaestablishedthreepolicybanks,namely,theExport-ImportBankofChina(ChinaEximBank),theChinaDevelopmentBank(CDB),andtheAgriculturalDevelopmentBankofChina(ADBC).Afterthe“goingout”strategywaslaunched,ChinaEximBankwasthefirsttoreceivethedirectivefromthegovernmenttoprovidefinancialsupportfor“goingout”enterprises.In2004,theNationalDevelopmentandReformCommission(NDRC)andChinaEximBankjointlyissuedtheNoticeonGivingCreditSupporttotheKeyOverseasInvestmentProjectsEncouragedbytheState,whichstipulatedthatChinaEximBankshouldarrangeacertainscaleofcreditfundsineachyear'sexportcreditplantosupportkeyoverseasinvestmentprojectsencouragedbytheState.Shortlyafterwards,thankstoitsoutstandingperformanceinfinancingmedium-andlong-termdevelopmentprojects,CDBwasassumedtheresponsibilitytosupportenterprisesininternationalcooperation.In2005,NDRCandCDBjointlyissuedtheNoticeaboutRelevantIssuesonProvidingMoreFinancialSupporttoKeyOverseasInvestmentProjects,whichprovidedthatCDBshouldarrangeaspecialamountofloanfundinitsannualequityloanstosupportkeyoverseasinvestmentprojectsencouragedbythestate.1
Asoftheendof2010,ChinaEximBankhadsupportedmorethan1,300“goingout”projects,coveringmorethan100countriesandregionswiththetotalcontractamountexceedingUSD190billion.2 “Goingout”enterprisescanapplyforexportbuyer’scredit,loansforoverseasprojectcontractingandoverseasinvestment,andothercreditfinancialproductsfromChinaEximBank.In2015,thebanksupportedtheexportofmechanicalandelectronicequipment,high-techproducts,overseascontractingprojectsandinvestmentworthUSD391.2billion.The2015year-endbalancesofoverseasinvestmentloansandinternationalcooperationloanswereUSD30.5billionandUSD84.5billionrespectivelyand84%oftheyear-endbalancesofinternationalcooperationloanswenttooverseascontractingprojects.3 Asidefromsupportingenterprisestogoabroadwiththebank’sordinaryservices,ChinaEximBankalsoprovidespreferentialloansforenterprisesintheiroverseasbusiness.ThetwopreferentialfacilitiesaretheChineseGovernmentConcessionalLoan4 andPreferentialExportBuyer'sCredit.5 Bothfacilitiesmainlyassistborrowingcountriesininfrastructure
1 Zhang Yuzhe. Prospect at China’s financial work meeting: CDB is to be transformed into a commercial bank. Finance [J]. 2007.1.http://bank.jrj.com.cn/2007/01/000001925503.shtml.
2 China Exim Bank reform plan still pending. Shanghai Securities News. http://www.cs.com.cn/yh/02/201103/t20110313_2808722.html
3 Data from the Export-Import Bank of China Annual Report 2015. The USD-CNY exchange rate was 6.764.
4 Chinese Government Concessional Loan includes medium- and long-term low-interest loan in Chinese yuan. Loan funds are raised by China Exim Bank itself, and the government helps subsidize the interest margins. The Loan is operated by the Department of Foreign Assistance under the Ministry of Commerce and the Administration & Law Enforcement Department under the Ministry of Finance.
5 Preferential Export Buyer's Credit aims to promote the economic and trade cooperation between China and key countries and regions. It is provided to foreign entities in the form of export buyer’s credit with certain preferential terms, and is funded by China
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constructionprojects,productionprojects,energyresourceprojects,andsocialwelfareprojectssuchasconstructionofhospitalsandschools.Moreover,ChinaEximBankisalsothemajorsponsorofseveralfunds,includingChina-ASEANInvestmentCooperationFundandChina-CentralandEasternEuropeInvestmentCooperationFund,whichfacilitate,invariousformssuchasequityinvestmentandquasiequityinvestment,theprojectsinareasofinfrastructure,energy,andnaturalresourcesintheASEANandCentralandEasternEuroperegions.
WhereasCDBisnotequippedwiththepolicyfunctionforprovidingtheChineseGovernmentConcessionalLoanandPreferentialExportBuyer'sCredit,ithasmovedfasterandfurtherthanChinaEximBankinsupportingenterprisestobuildoverseaseconomiccooperationthroughvigorouslyexpandingdevelopmentfinancialservices.ThebalanceofCDB’sforeignexchangeloansincreasedfromUSD16.2billiontoUSD267billionfrom2005to2015,a15-foldrise,andformanyyearssince2009CDBhasmaintainedthehighestbalanceofforeignexchangeloansamongallChinesebanks.Itmainlysupportsoverseasprojectsintheareasofenergy,mining,infrastructure,equipmentmanufacturingandagriculturalprocessing.Apartfromitscreditbusinesses,CDBalsoprovidesoverseasprojectswithcommonequityinvestmentproductsandstructuredmezzanineinvestmentproductsviamultipleplatformssuchasitssubsidiaryCDBCapital,China-AfricaDevelopmentFund,ChinaandPortuguese-speakingCountriesCo-operationandDevelopmentFund,andPakistan-ChinaJointInvestmentCompany,inanefforttopromotebothbilateralandmultilateraleconomiccooperationbetweenChinaandothercountries,includingAfricanandPortuguese-speakingcountries.
In2013,theChinesegovernmentproposedtheBRItostrengthentheconstructionoftransport,energy,andcommunicationsinfrastructureinthecountriesalongthe“BeltandRoad”,soastorealizeconnectivityandfacilitateregionaltradeandinvestment.TheBRIshowedenterprisesamoredetailedroadmaptogooutandusheredinnewopportunitiesforoverseasprojectcontractingandinvestment.AsChina’spolicybanks,ChinaEximBankandCDBhaveactivelyrespondedtoandsupportedtheInitiative.Attheendof2014,a40-billion-dollarSilkRoadFundwasco-establishedbyChinaEximBank,CDB,StateAdministrationofForeignExchange(SAFE)andChinaInvestmentCorporationtofinanceeconomicandtradecooperationaswellasmultilateralandbilateralconnectivitywithintheBRIframework.Asoftheendof2015,ChinaEximBankhadmorethan1000outstandingloanprojectsinvariousfieldsincludinghighway,railway,electricityandcommunication,withatotaloutstandingloansofmorethanRMB520billion,accountingfor37%ofthebanks’overseasloans.6 ByJuly2016,CDBhadissuedloanstotalingUSD162.1billiontocountriesalongthe“BeltandRoad”,withabalanceofUSD112.2billion,accountingfor35%ofCDB’soverall
Exim Bank itself as a special loan. The loan is provided in USD dollar. It is managed by the Department of Outward Investment and Economic Cooperation under the Ministry of Commerce and the Finance Department under the Ministry of Finance.
6 China Exim Bank’s BRI loans rose by 50% last year, accounting for 37% of its total overseas loans. Reuters. http://cn.reuters.com/article/eibc-loans-idCNKCS0US2ZW20160114
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internationalbusinesses.7 AstheBRIhasbeengraduallyputintopractice,bothpolicybankswillkeepexpandingfinancialsupportforoverseasinvestmentprojectsandfacilitatingregionalfinancialintegration.
ThecreditfinancialservicesprovidedbyChinaEximBankandCDBhaveplayedanimportantroleinsupportingandadvancingthe“goingout”ofenterprises,particularlytheoverseasmega-projectsintheareasofenergy,mining,infrastructureandequipmentmanufacturing.Meanwhilebothbankshavekeptimprovingandexpandingtheiroverseasbusinessesandhavegraduallyopenedmoreoverseasoffices.Asoftheendof2015,ChinaEximBankhadestablishedParisBranch,RepresentativeOfficeforSouthernandEasternAfrica(Johannesburg),St.PetersburgRepresentativeOfficeandRepresentativeOfficeforNorthernandWesternAfrica(Morocco).Itsbankingnetworkcoversover160countriesandregionsworldwide.In2005,CDBdispatcheditsfirstoverseasworkinggroup.In10years’time,CDBhasgrownintoChina’sbiggestoverseasinvestmentcooperationbankanddevelopmentfinancialinstitutionwiththelargestsizeofglobalassets.IthasopenedoneoffshorebranchinHongKong,sixrepresentativeofficesandmorethan50workinggroupsinCairo,Caracas,London,Moscow,RiodeJaneiroandVientiane.Itsinternationalbusinessescover115countriesandregions.
1.2POLICYBANKSANDTHEENVIRONMENTALANDSOCIALCHALLENGESOFFOREIGNINVESTMENT
The“goingout”strategyhasbeenwellimplementedandChina’sdirectforeigninvestmenthasgrownconsistently,neverthelessthewaytogoouthasbeenratherbumpy.Accordingtothe2014annualaccountingstatementonoverseasinvestmententerprises,22.8%oftheoverseasenterpriseswererunningintheredintheirinvestmentbusinesseswhiletherest77.2%wereintheblackorbreakingeven.Thelossrateofthe2,000state-ownedenterprises’overseasbusinesseswasevenhigher,standingat25.6%.8 Since2014,thecompletionrateofChineseenterprises’cross-borderM&Aisonly67%,farlowerthantherateofbuyersfromdevelopedmarkets.9
Therearevariousreasonsforfailedforeigninvestment,andenvironmentalandsocialrisksaretwoimportantfactorsamongthem.InSoutheastAsia,theMyitsoneDamproject,ChaeyArengHydropowerprojectandLetpadaungCopperMineprojectwerecalledoffduetoenvironmentalconcernsandresettlement-relatedissues.InAfrica,Chineseminingcorporationswerefrequentlyembroiledinlabourconflictswhichsometimesescalatedintostrikesorviolentriots.InLatin
7 CDB’s BRI loans hit $162.1 bn. China Securities Journal. 2016.9.5. http://finance.sina.com.cn/roll/2016-09-05/doc-ifxvqefm5524387.shtml
8 Wang Shifeng, Liu Jing. Ministry of Commerce: Nearly 80% overseas investment enterprises make profits or break even. China Business News. 2015.9.18.
9 BCG Consulting. Chinese enterprises herald new era of overseas M&A; their capacity needs to be improved. http://www.bcg.com.cn/cn/newsandpublications/news/pressreleases/pressrelease20150924001.html
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America,theDragonMartprojectinCancunMexicowascancelledduetoenvironmentalconcerns.DrivenbytheBRI,overseasinvestmentwillinfluencetheeconomy,theenvironment,andthesocietymoreprofoundly,andtheenvironmentalandsocialriskswillbecomemoreprominent,particularlyincountriesandregionswhereenvironmentalgovernanceandsocialsecuritysystemsareweak.Howtoeffectivelypreventandcontroltheserisksandnegativeimpactsiscriticaltothesustainabilityofoverseasinvestment.
TheexacerbationofenvironmentalandsocialproblemscausedbyoverseasinvestmentprojectshasstartedtodrawtheattentionofrelevantChinesegovernmentdepartments,internationalenvironmentalandlabourorganizations,andlocalmediaandcivilsocietyorganizationsinthehostcountriesontheenvironmentalandsocialresponsibilitiesfinancialinstitutionsshouldtakeinsupportingoverseasinvestmentprojects.ChinaBankingRegulatoryCommission(CBRC)launchedtheGreenCreditGuidelinesin2012,stipulatingthatbankinginstitutionsshalleffectivelyidentify,measure,monitorandcontroltheenvironmentalandsocialrisksassociatedwiththeircreditactivities,establishenvironmentalandsocialriskmanagementsystem,andimproverelevantcreditpoliciesandworkflowmanagement.TheGuidelinesalsoprovidesthatbankinginstitutionsshallensuretheowneroftheoverseasprojectsabidebyapplicablelawsandregulationsonenvironment,land,health,safetyofthehostcountry,adoptrelatedinternationalpracticesorinternationalnormsandfollowgoodinternationalpractices.Italsorequiresthatbankinginstitutionsmaketheirgreencreditstrategiesandpoliciespublic,releaserelevantcreditinformationabouttheprojectswithmajorpotentialenvironmentalandsocialrisks,andacceptmonitoringbythemarketandstakeholders.InAugust2016,thePeople’sBankofChina,alongwiththeMinistryofFinanceandotherfivegovernmentalagencies,issuedtheGuidelinesforEstablishingtheGreenFinancialSystem.ThisGuidelinessuggestsfinancialinstitutionstodevelopgreencredit,strengthenenvironmentalriskmanagementofBRIandotheroverseasinvestmentprojects,andpromotegreenoverseasinvestment.
ChinaEximBankandCDBaremajorfinancialsupportersforthe“goingout”strategyandtheBRI.Theirenvironmentalandsocialpoliciesnotonlyplayanimportantroleinrestrictingandguidingtheenvironmentalandsocialbehavioursoftheoverseasprojects,butalsoaffectrelevantstandardsandpracticesinChina’sbankingsector.Policybankscanreducecreditandinvestmentriskscausedbyenvironmentalandsocialproblems,andassistoverseasinvestmententerprisestobetterdealwithenvironmentalandsocialchallengesbystrengtheningtheformulationandimplementationofenvironmentalandsocialpoliciesandstandards.
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2.BANKPOLICIESFORTHEPREVENTIONANDCONTROLOF
ENVIRONMENTALANDSOCIALIMPACTSANDRISKSININVESTMENT
ACTIVITIES
Theinternationalfinancialcommunityhasagreedthatfinancialinstitutionshavetheresponsibilitytoreview,assess,preventandcontroltheenvironmentalandsocialimpactsandrisksarisingfrominvestmentandfinancingactivitiessupportedbythem.Thisunderstandingstartedtotakeforminthe1860swhentheenvironmentalissuesenteredtheeyesofthepublic.In1969,theWorldBank(WB)appointedthefirstenvironmentaladvisor.In1970,WBestablishedtheOfficeofEnvironmentalAffairs.InJune1972,theUnitedNationsConferenceontheHumanEnvironmentwasheldinSweden’scapitalStockholmwheremorethan1,300representativesfrom113countriesandinternationalinstitutionsconvenedforthemeeting.Environmentalissueswereofficiallyincludedinglobalgovernanceagenda.
TheWorldBankandtheInternationalFinanceCorporation(IFC)areglobalpioneersandleadersindevelopingenvironmentalandsocialpoliciesandstandardsforfinancialinstitutions.In1987,forthefirsttime,WBlaidoutrequirementsonenvironmentalassessmentfortheprojectsitsupportedandgraduallydevelopedaseriesofpoliciesforenvironmentalandsocialprotectionandriskpreventionandcontrolsincethen.Thepoliciescovernaturalhabitats,pestmanagement,forests,safetyofdam,involuntaryresettlementandindigenouspeoples.In1997,WBintegrateditscoreenvironmentalandsocialpoliciesintotheframeworkoftheSafeguardPolicies,requiringallsupportedprojectstocomplywiththeprovisionsoftheSafeguardPolicieswhileabidingbythelawsandregulationsoftheirhostcountries.Thisrequirementensuresthatinvestmentanddevelopmentprojectswillliveuptohighenvironmentalandsocialstandardseveniftheirhostcountrieshaveunsoundpoliciesonenvironmentalgovernanceandsocialsafeguard.
ComparedwithWB’sSafeguardPolicies,thePerformanceStandardsonEnvironmentalandSocialSustainabilitylaunchedbyIFCin2006hasexertedamuchmoreprofoundinfluenceuponinternationalfinancialinstitutions.ThePerformanceStandardsprovidedspecificenvironmentalandsocialrequirementsforIFCclients,coveringeightareasincludingassessmentandmanagementofenvironmentalandsocialrisksandimpacts,labourandworkingconditions,resourceefficiencyandpollutionprevention,communityhealth,safetyandsecurity,landacquisitionandinvoluntaryresettlement,biodiversityconservationandsustainablemanagementofbiologicalnaturalresources,indigenouspeoples,andculturalheritage.NotonlydoIFC-supportedinvestmentprojectsneedtocomplywiththeprovisionsofthePerformanceStandards,butthosefinancialintermediariesincollaborationwithIFCalsoneedtoestablishanenvironmentalandsocialassessmentandmanagementsysteminaccordancewithPerformanceStandard1:AssessmentandManagementofEnvironmentalandSocialRisksandImpacts.Bytheendof2016,85financialinstitutionsfrom35
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countrieshaveadoptedtheEquatorPrinciples,aframeworkbasedonIFC’sPerformanceStandardsonEnvironmentalandSocialSustainability,toassessandmanageenvironmentalandsocialimpactsandrisksinprojectfinancing.
TheimplementationofeithertheWB’sSafeguardPoliciesorIFC’sPerformanceStandardsshouldmeettherequirementofinformationdisclosure.Bothpolicieshavebeenunderconstantreviewsandrevisionssincetheirbusinessesandclientsareever-changingandpeople’sunderstandingaboutthevalueandvulnerabilityofglobalpublicresourceskeepsimproving.
WhileChina’spolicybankshavefarlessexperienceindoingoverseasbusinessesthantheWBandtheIFC,expectationsfromenvironmentalanddevelopmentagencies,westernmediaandcommunitiesininvestmentrecipientcountriesarenotlowerforChina’spolicybanks’environmentalandsocialperformancesthanthebestpracticesrequiredbytheWB.BycloselyexaminingtheenvironmentalandsocialpoliciesdevelopedbyChinaEximBankandtheCDB,thisreporthasfoundthatgovernmentregulationssuchastheGreenCreditGuidelinesissuedin2012bytheChinaBankingRegulatoryCommission,haveplayedanoverarchingroleinthepolicy-makingprocess.Thetwobankshaveintegratedthemanagementofenvironmentalandsocialrisksandimpactsarisingfromtheirsupportedprojectsintothewholecreditprocessofpre-loaninvestigation,loanreviewandapproval,andpost-loanmanagement.SimilartotheWBandtheIFC,ChinaEximBankandCDBhaveclassifiedandgradedtheprojects’environmentalandsocialrisksandrequiredthatoverseasprojectsshouldmeettheenvironmentalandsocialrequirementssetupbythegovernmentofthehostcountry.
ItshowsthatChina’spolicybankshavemaderapidprogressinenvironmentalandsocialpoliciesoverthepastdecade.However,China’spolicybanksarestillintheearlystageindisclosingenvironmentalandsocialinformation,andconsultingwithmulti-stakeholdersinpolicydeliberationandformulation.Thischapter,therefore,willanalyzetheenvironmentalandsocialpoliciesoftheChinaEximBank,theCDB,theWBandtheIFCtogaindeeperinsightintothedevelopmenthistoryandbasicknowledgeofthepolicieslaiddownbyChina’spolicybanksandinternationalmultilateraldevelopmentinstitutions.SimilardiscussionswillalsobeconductedontheJapanBankforInternationalCooperation(JBIC),whosefunctionsandgoalsaresimilartothoseoftheChina’spolicybanks,inanefforttoprovidecomparativereferencefortheChinesecounterparts.
2.1ENVIRONMENTALANDSOCIALPOLICIESOFTHEEXPORT-IMPORTBANKOFCHINA
EstablishedonJuly1,1994andheadquarteredinBeijing,theChinaEximBankisapolicybankfullyfundedbyChina’sMinistryofFinance,underthedirectleadershipoftheStateCouncil.ThecreditratingsoftheChinaEximBankarecompatiblewithChina’ssovereigncreditratings.ItsoperationalcapitalsareraisedfromthePeople’sBankofChinaintheformofre-lending,aswellasfrombondissuancebothathomeandabroad.Throughfinancialservices,theChinaEximBankhascommittedtoexpandingtheimportandexportofmechanicalandelectronicproducts,packagedequipmentandhigh-techproducts,promotingcompetitivecorporationstomakeoverseascontractprojectand
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investment,andadvancingthedevelopmentofChina’sforeignrelationsandinternationaleconomicandtradecooperation.
In2015,differenttypesofloansprovidedbytheChinaEximBanktotaledRMB1077.4billion.Themajortypesareforeigntradeloans,overseasinvestmentloans,internationalcooperationloans,loansforsupportinggreateropenness,governmentconcessionalloanandon-lendingloansfromforeigngovernmentsandinternationalfinancialinstitutions.Amongthem,foreigntradeloans,overseasinvestmentloans,internationalcooperationloansandgovernmentconcessionalloanaremainlyofferedascreditsupportforinternationaleconomiccooperation.
EnvironmentalandSocialPolicies
TheChinaEximBankbegantodevelopenvironmentalandsocialpoliciesin2007whenitsetupthegreencreditstrategyto“encouragegreencreditbusinessdevelopmentandactivelycontrolenvironmentalandsocialrisksincreditgranting”andlaunchedtheGuidelinesofEnvironmentalandSocialAssessmentofLendingProjects.10 InaccordancewiththeGuidelines,theChinaEximBankcontrolsenvironmentalandsocialimpactsbyconductingpre-loaninvestigation,in-loanreviewandapproval,andpost-loanmanagementandsupervision.
Asfordomesticprojects,theChinaEximBank,inthelightofnationalpoliciesofenergyconservation,emissionreductionandindustrialrestructuring,hasreduceditscreditsupportforprojectscharacterizedbyhighpollution,highenergyconsumption,excessivecapacityandoutdatedcapacity.Incontrast,moresupporthasbeendedicatedtocleanproduction,recyclingeconomy,environmentalprotection,andtechnologicaltransformationforenergyconservationandemissionreduction.Incasesofviolationofenvironmentlawsorexcessiveenergyconsumption,newloanwon’tbegrantedtotheborrowerandtheexistingloanwillbegraduallywithdrawn.Apartfromreviewingtheenvironmentalandenergyconsumptionrecords,thebankwillalsoassesstheenvironmentalimpactsofconstructionprojectsinlinewithcommentsfromenvironmentalprotectionauthorities.Anyprojectthatfailedtopasstheenvironmentalapprovalwillnotbeabletogetloans.
Asfortheenvironmentalandsocialimpactsofoverseasprojects,theGuidelinessetenvironmentpoliciesandstandardsofthehostcountryasthebenchmarkforassessment.Whensubmittingloanapplication,theborrowerortheprojectownershouldalsosubmitapprovaldocumentsissuedbytheauthoritiesofthehostcountry,togetherwithanassessmentreportontheenvironmentalandsocialimpactsoftheproject.ChinaEximBankwillgrantloanstoanyprojectthathasfailedtogetapprovalfromthehostcountry.TheGuidelinesalsopointedoutthatifrelatedpoliciesorstandardsarenotinplaceinthehostcountrytoassesstheenvironmentalandsocialimpacts,theprojectshouldrefertoChinesestandardsorinternationalpractices;theprojectshouldrespectlocalresidents’rightstoland
10 Practice Green Finance and Promote Green Development. People’s Daily. 2016.6.24.
http://www.eximbank.gov.cn/tm/medialist/index_26_29111.html
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andresourcesandproperlyhandleimmigrationissues;anynegativeimpactscausedbytheprojectshouldholdpublicconsultationattherequestofthehostcountry.
Inpost-loanmanagementandsupervision,theChinaEximBankwillexamineandsupervisetheconstructionandoperationoftheproject,inaccordancewiththeassessmentresultsoftheenvironmentalandsocialimpactsoftheproject.Ifgraveenvironmentalandsocialproblemsemergeintheconstructionandoperationoftheproject,thebankwillrequiretheprojecttotakeremedialorpreventivemeasures,orthebankwillterminatetheloan.
In2015,theChinaEximBankreplacedGuidelinesofEnvironmentalandSocialAssessmentofLendingProjectswithGreenCreditGuidelines.Asthenewestpolicytopromotegreencredit,theGreenCreditGuidelineslaidoutmorecomprehensiveandspecificrequirementsforagreen,low-carbonandrecyclingeconomyandastrongerenvironmentalandsocialriskmanagement.Itcoversarangeofaspectsincludingorganizationalmanagement,policysystem,workflowmanagement,internalcontrolmanagement,andinformationdisclosure.ComparedwiththepreviousGuidelines,theGreenCreditGuidelineshasmadenewregulationsinthefollowingaspects:
- Specifiedcapacitiesofeachdepartmentintheformulationandimplementationofthegreencredit
strategy.
- ClassifiedclientsintoA,BandCthreedifferenttypesinviewofthedegreeofthepotentialenvironmentalandsocialimpactsandrisksarisingfromtheirconstruction,productionandoperation.
Thedynamicclassificationmanagementwillhelpthebankgiveclientsratings,grantloans,reviewandapproveloansandimprovepost-loanmanagement.
- Integratedworkrelatedtoenvironmentalandsocialrisksintoduediligenceofcreditgranting,e.g.landacquisitionandinvoluntaryresettlement,biodiversityconservationandsustainablemanagementofbiologicalnaturalresources.Clientratingandcreditgrantingdepartmentatalllevelsshouldissuewrittenreviewsonenvironmentalandsocialrisksoftheclients.
- Includedenvironmentalandsocialresponsibilitiesintoloancontractsforbothdomesticandoverseasprojects.Loanapplicationrequiresdomesticprojectstosubmitpre-approvalorapprovaloflanduse,
documentsonsafeproductionandhygienic/healthstandards,aswellasenvironmentalimpactassessment(EIA)fromtheenvironmentalauthorities.
- RequiredfixedassetsprojectsclassifiedasTypeAtoestablishcomplaintresponsemechanisms,channelsconducivetocommunicatingwithstakeholders,andemergencyplanstodealwithmajorenvironmentalandsocialrisks.
- Requiredpost-loanreporttoincludeinformationonenvironmentalandsocialimpacts,andhighlighttheassessmentofenvironmentalandsocialimpactsofTypeAandBprojectsinthereport.Incaseofemergentenvironmentalandsocialevents,theborrowerortheprojectownershouldtakemeasurestoeliminatetheimpacts.
- Establishedaninternalreportingandaccountabilitysystem,takingintoconsiderationtheenvironmentalandsocialriskmanagementwhennon-performingloansandbaddebtstakeplace.
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- Openedgreencreditexpressservicetoprioritizeclientsingreen,low-carbonandrecyclingeconomyforcreditgranting.
ApartfromtheGreenCreditGuidelines,theChinaEximBankalsodevelopedtailoredcredit-grantingguidanceforseveralindustries.Withthesedifferentialcreditpolicies,thebankhelpsleadenterpriseswithhighenergy-consumptionandhighpollutiontoconserveenergy,reduceemission andrealizeindustrialtransformationandupgrading.Thebankalsoestablishesgreencreditidentificationandstatisticalsystem,soastoimprovethemanagementofgreencreditbusinesses.11Table2-1listedChinaEximBank’skeyenvironmentalmanagementsectionsofloanprojects.
Table2-1:ChinaEximBank’skeyenvironmentalmanagementsectionsofloanprojects
LoanLife-cycle Requirementsforenvironmentalandsocialriskmanagementandcontrol
Pre-loan
investigation
Collectinformationonenvironmentalandsocialrisksofclients’orproject’senergy
consumptionandenvironmentalcompliance.Initiallyclassifyclientsaccordingtoitsenvironmentalandsocialrisktype.
Loanreviewand
approval
Conductathoroughinvestigationintotheenvironmentalandsocialrisksoftheclientor
project.Departmentsresponsibleforcreditrating,grantingandexaminationshouldpresentwrittenreviewsontheenvironmentalandsocialrisksfacedbytheclientinthe
reviewandapprovalreport(includingpre-review).Opinionsontheclient’spotentialenvironmentalandsocialrisks,measurestobetakenbytheclientforthemanagementoftheenvironmentalandsocialrisks(ifapplicable),andclassificationoftheclient’senvironmentalandsocialrisksshouldbeincluded.
Projectsthatfailedtogettheapprovalandenvironmentaldocumentsbythehostcountryshouldnotbegrantedcredit.Clientsinsupportofagreen,low-carbonandcirculareconomyshouldbegiventhepriorityintermsofcreditreviewandapproval.
Contract
management
Includeenvironmentalandsocialresponsibilitiesinloancontracttomonitorandconstraintheborrower’sbehaviours.
RequireprojectsclassifiedTypeAtoestablishcomplaintresponsemechanisms,channelsconducivetocommunicatingwithstakeholders,andemergencyplanstodealwithmajorenvironmentalandsocialrisks.
Loangranting Suspendorterminatetheloanifseverepotentialriskswerefoundduringloangrantingandpaymentreviewprocess.
11 Ditto
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Post-loan
Management
Includeinformationontheenvironmentalandsocialimpactsinpost-loanexamination
report.Forprojectsunderconstruction,examinemainlytheactualenvironmentalandsocialimpactsoftheprojects,andmonitortheimplementationofmeasurestocontrolandeliminatethe.Forcompletedprojects,theexaminationshouldfocusonwhetherthe
borrowerortheprojectownerhasobtainedtheenvironmentalprotectionacceptancedocumentsuponcompletionoftheproject.Keeptrackoftheenvironmentalandsocialriskupdatesoftheoperatingprojects.
SupportingMeasuresforGreenInvestment
TheChinaEximBank’ssupportforgreeninvestmentismainlydemonstratedinitsgreencreditstrategies.Ontheonehand,itenhancedsupportforgreen,low-carbonandrecyclingeconomybyestablishingexpressservicesforthereviewandapprovalofgreencredit.Ontheotherhand,itisabletoidentifyandmanagetheenvironmentalandsocialrisksincreditgrantingbyestablishinganenvironmentalandsocialriskmanagementsystem.In2015,domesticandoverseasprojectssupportedbytheChinaEximBankmanagedtoreduceatotalconsumptionof5.0572milliontonsofstandardcoal,emissionof14.0199milliontonsofcarbondioxide,24.1thousandtonsofsulfurdioxideand4,790.29tonsofnitrogenoxides. 12
Apartfromgreencredit,thebankhasalsolaunchedmultipleequityinvestmentfunds,suchastheJapan-ChinaEnergyandEnvironmentConservationFund,topromotethedevelopmentofenergyconservationandenvironmentalprotectionindustriesathomeandabroadintheformoffinancialcooperation.Forexample,morethan55%oftheChina-CEEFund’sinvestmentgoestocleanenergyfieldsuchaswindpowergenerationandphotovoltaicpowergeneration.TheseprojectshavehelpedreduceCO2emissionbynearlytwomilliontonsinPolandandtheCzechRepublic.Also,theMombasa-NairobiRailwayprojectsupportedbytheChinaEximBank,inlinewiththeanimalroutesprovidedbytheKenyaWildnessService,hassetup14specialpathways,600culvertsand61bridgesforanimalstopass.Theconstructionhasbeenflexiblyadjustedtosuitanimals’sleepingtimeandlivinghabits.13
Meanwhile,followingcloselythedevelopmentoftheemissiontradingmarket,theChinaEximBanklaunchedcarbonfinanceserviceswiththefocusoncarbonassetconsultation.ThefinancialintelligenceserviceshelpedenterprisestodevelopCleanDevelopmentMechanism(CDM)intheinternationalmarket,managecarbonassetsanddevelopChineseCertifiedEmissionReduction(CCER)projectsinthedomesticmarket. 14
12 The Export-Import Bank of China. Green Credit. http://www.eximbank.gov.cn/tm/Gcp/index_63.html.
13 The Export-Import Bank of China Promotes the Protection of Global Ecological Environment and Green Development, People’s Daily,2016.6.29,http://blog.sina.com.cn/s/blog_13d4156730102x6fu.html
14 The Export-Import Bank of China. Green Credit. http://www.eximbank.gov.cn/tm/Gcp/index_63.html
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2.2THEENVIRONMENTALANDSOCIALPOLICIESOFTHECHINADEVELOPMENTBANK
TheChinaDevelopmentBank(CDB)wasfoundedin1994asadevelopmentandpolicy-basedfinancialinstitution,underthedirectleadershipofChina’sStateCouncil.Itprovidesmedium-andlong-termfinancingfacilitiestoserveChina’smajormedium-andlong-termnationaleconomicdevelopmentstrategies.Domestically,theCDBsupportskeydevelopmentareassuchasinfrastructure,basicindustries,pillarindustries,strategicemergingindustriesandmajornationalprojects.Italsosupportstherebuildingofshantytownsanddevelopment-orientedpovertyreductionprojectstoimprovepeople’slivelihoods.Internationally,itendeavorstohelpChinesecorporationsto“goout”andsupportstheBRIstrategy.
Bytheendof2015,CDB’stotalassetsamountedtoRMB12.3trillion,makingitthelargestChinesebankforforeigninvestmentandfinancingcooperation,long-termlendingandbondissuance,andtheworld’slargestdevelopmentfinanceinstitution.Atpresent,CDBhas40domesticbranches,sixoverseasrepresentativeoffices,andfoursubsidiariesincludingtheChinaDevelopmentBankCapital,theChinaDevelopmentBankSecurities,theChinaDevelopmentBankLeasingandtheChina-AfricaDevelopmentFund.
EnvironmentalandSocialPolicies
TheCDBisoneofthefirstbanksinChinatohaveestablishedenvironmentalandsocialpolicies.Asearlyasin2005,itrequiredalllendingprojectstocarryoutEnvironmentalImpactAssessment(EIA)inaccordancewiththelaw. 15 In2006,CDBbecamethefirstChinesefinancialinstitutiontojointheUnitedNationsGlobalCompactandpledgetoabidebyUNCG’s10principlesinhumanrights,labourstandards,environment,andanti-corruption.Inthesameyear,thebankjoinedtheUnitedNationsEnvironmentProgramme–FinanceInitiativeandstartedtotrysustainablefinancepractices. 16Since2007,CDBhasrolledouttheannualWorkingPlanofCDBforLoanstoReducePollutionandEmissions.Byadjustingtheloanstructure,itaimstoreducelendingtoindustrieswithhighenergyconsumption,highpollutionandoutdatedcapacity,andincreasefinancialsupporttomajorenergy-saving,emissionreductionandpollutionpreventionandgovernanceprojects. 17 In2014,theCDBfurtherimproveditsenvironmentalandsocialpoliciesbydevelopingtheGreenCreditWorkPlanandtheInterimMeasuresforGreenCreditManagementandintegratedtheassessmentofenvironmentalandsocialrisksintothewholelendingprocessfromprojectdevelopment,reviewandapprovalforcreditgranting,andpost-lendingmanagement: 18
15 Banktrack, Friends of the Earth. China Development Bank's Overseas Investments: An Assessment of Environmental and Social Policies and Practices.
16 Hu Huaibang: Promote Sustainable Development by Developmental Finance. People’s Daily. 2016.10.21.http://www.cdb.com.cn/xwzx/mtjj/201610/t20161021_3726.html
17 Zeng Jinhua. The China Development Bank’s Overseas Green Credit Promotes Win-win Cooperation. 2016.8.4. http://www.cdb.com.cn/xwzx/mtjj/201608/t20160805_3572.html
18 Shan Shigao. The Pioneer of Green Finance: The CDB’s Practice and Exploration in Zhejiang. Zhejiang Online. 2016.9.1. http://biz.zjol.com.cn/system/2016/09/01/021284917.shtml
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- Duringtheprojectpreparationperiod,payhighattentiontothesolutionsintheconstructionplanofpollutioncontrol,health,immigrationandotherissues,andrequiretheprojecttomeettheapplicablestandardsandrequirementsonenvironmentalprotection,emissionreduction,safeproductionandoccupationalsafetyandhealth;
- Duringtheprojectreviewandapprovalperiod,setupaspecialcreditratingindicatorfor
“environmentalbehaviours”,integratethemanagementofenvironmentalandsocialrisksintotheprocessofcreditratingandthereviewforcreditgranting.Forindustriesthatarelikelytocausesevereenvironmentalandsocialimpacts,make“alistofenvironmentalandsocialrisksofmajorclientsintheindustries”andreviewtheprojectrisksinaccordancewiththelist;
- Duringthepost-loanmanagementperiod,buildafeedbackmechanismforthetrackingandpredictionofcreditrisks,tomonitortheenvironmentalrisksoftheprojectandconductactive
preventionandaprioridynamicriskalarmingmanagement.Incaseofenvironmentalrulesandregulationviolationsormajorsafetyaccidents,downgradethecompany’sassetqualityrating. Loanswillbelimitedorterminatedforsevereviolations.
In2015,theCDBlaunchedCircularonworkongreencreditmanagementondomesticRMBloanproject,Proposalonworkconcerninggreencredit2015,andoncontentsofimplementinggreencreditinForeignExchangeLoanContractandthesupplementarycontractandFrameworkdocumentonenvironmentalandsocialrisksmanagementofforeignexchangeloans. 19 Thethreedocumentsmadefurtherrequirementsfortheimplementationofgreencreditpoliciesandthemanagementofenvironmentalandsocialrisksforinternationalcooperationprojects:bothdomesticRMBloanprojectsandinternationalcooperativeforeignexchangeloanprojectsshouldfollowthesamegreencreditprinciplestoevaluatetheenvironmentalandsocialrisks.Itevaluatesall-roundrisksthroughthewholecreditprocessfromloancontractsigning,loanpayment,topost-loanmanagementwithdifferentiatedapproach.
SupportingMeasuresforGreenInvestment
TheCDBpromotesgreeninvestmentmainlybyprovidingcreditsupportforprojectsinthegreen,low-carbonandrecyclingeconomicsectorssuchaspollutioncontrol,renewableenergy,energyconservationandenvironmentalprotection,andmodernagriculture.From2011to2015,theCDBhasissuedloansworthRMB300billiontotherenewableenergyindustryandsupportedmorethan1,000domesticnewenergyprojects. 20 In2013,theCDBformulatedtheCorporateSocialResponsibilitySpecialPlanning,whichlaidoutsustainabledevelopmentmodel,includedenvironmentalprotectionintostrategicallyimportantareas,andcommitteditselftofinancingforsustainableeconomic,socialandenvironmentaldevelopment.In2015,theCDBissuedloansofRMB
19 China Development Bank 2015 Sustainability Report
20 Ditto.
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191.9billiontoenergyconservationandenvironmentalprotection,andbytheendof2015,thebalanceofthegreenloansstoodatRMB1.57trillion. 21
TheCDBhastakenthe“planinadvance”approachtoactivelyengagewiththegovernmentindrawingupeconomicandsocialdevelopmentplansandprovidingcorrespondingsupportivesystematicfinancingfornationalgreendevelopmentstrategies.In2015,forexample,theCDBandtheMinistryofIndustryandInformationTechnology(MIIT)jointlyissuedNoticeonRecommendingKeyProjectsforIndustrialEnergyConservationandGreenDevelopmentin2015-2016.Thenoticesingledoutthefollowingkeyareasformainfinancialsupport:technologicalrenovationforindustrialenergyandwaterconservation,digitalenergyefficiencyimprovement,cleanproductiontransformationforkeyindustriesandcorporations,comprehensiveutilizationofsolidwastesandrenewableenergyresources,energyconservationandenvironmentalprotectionindustries.MIITformedtheCatalogueofRecommendedKeyProjectsforIndustrialEnergyConservationandGreenDevelopment,basedontherecommendationsfromallprovinces,autonomousregionsandmunicipalitiesdirectlyunderthecentralgovernment.TheCDBtookthehelmofcreditreviewandapprovaltoprovidefinancingandothercomprehensivefinancialservicesfortheprojectsinthecatalogue. 22
Moreover,theCDBhasalsoactivelydevelopednewtypesofgreenfinancialproductsandtakenaleadingroleinproducinggreenbonds,green“loan-debt-fundportfolio”andotherinnovativefinancingmodels.In2015,theCDBjoinedthenewly-foundedGreenFinanceCommitteeunderChinaSocietyforFinance&Bankingasoneofitsfirststandingmembers.ItformedthefirstteamwiththeIFCandtheIndustrialandCommercialBankofChina(ICBC)toconductresearchinfinancialproductandserviceinnovation.InMarch2016,theCDBwastheleadunderwriterofthecountry'sfirstsinglenon-financialenterprisegreenbonds;inMay,theCDBbecametheleadunderwriterofthefirstgreenperpetualbondinthecountry;andinJuly,theCDBwastheleadunderwriterofthefirstgreenmultilateralbond.InOctober2016,CDBservedastheleadunderwriterofthemedium-termnoteofthe“debt-loan-fundportfolio”fortheWuhanMetroGroupCo.,Ltd.,andservedasthecomprehensivefinancingcoordinatortomanagethesource,disposalandrepaymentofprojectfundsthroughacomprehensiveintegrationofbonds,CDB’smedium-andlong-termloansandCDBDevelopmentFundandCDBCapital’sfunds. 23
21 Zeng Jinhua. The China Development Bank’s Overseas Green Credit Promotes Win-win Cooperation. 2016.8.4. http://www.cdb.com.cn/xwzx/mtjj/201608/t20160805_3572.html
22 MIIT and CDB Jointly Issued the Notice on Recommending Key Projects for Industrial Energy Conservation and Green Development for 2015-2016. China Carbon Emission Trading. 2015.9.16.http://www.tanpaifang.com/zhengcefagui/2015/091647537.html
23 Gao Guohua. China’s First Medium-term Note of “debt-loan-fund portfolio” Is Successfully Launched and CDB has Initiated a New Mode of Financial Service — “Green Finance”. Financial Times. http://www.financialnews.com.cn/yh/yw/201610/t20161026_106545.html
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2.3THEENVIRONMENTALANDSOCIALPOLICIESOFTHEWORLDBANKANDTHEINTERNATIONALFINANCECORPORATION
TheWBandtheIFCarebothsubsidiariesoftheWorldBankGroup.Theyserverespectivelyasacreditproviderandamobilizerofinvestmentandfinancingactivities,torealizetheGroup’smissionsof“endingextremepovertyby2030andboostingsharedprosperityinasustainablemanner.”Bothplayanequallyimportantroleinglobaldevelopmentprojects.TheWBandtheIFCarepioneeringfinancialinstitutionstopayattentiontoenvironmentalissues.Theirenvironmentalandsocialpoliciesandstandardssetgoodexamplesforotherfinancialinstitutionstofollowandcreatedprofoundinfluenceamongstfinancialinstitutionsacrosstheworld.
TheEnvironmentalandSocialPoliciesoftheWorldBank
TheWorldBankstartedtopayattentiontoenvironmentalandsocialaffairsinthe1870swhenenvironmentalissueswereplacedonglobalgovernanceagenda.In1969,theWBappointeditsfirstenvironmentaladviserandin1970establishedtheOfficeofEnvironmentalAffairs.In1984,theWorldBanklaunchedOperationalManualStatementonEnvironmentalAspectsofWorldBankWork24,heraldingtheintegrationoftheenvironmentalandsocialimpactsintothebank’soperatingprocedures.In1987,forthefirsttime,theBankformulatedregulationsonenvironmentalassessmentinitsOperationalDirective4.00.Sincethen,asetofoperationaldirectiveshavebeenmade,updatedandamendedbythebanktoevaluateandmanagetheenvironmentalandsocialimpacts.
In1997,theWorldBankproposedtheEnvironmentalandSocialSafeguardPoliciesasitsmajorregulationsforthepreventionandcontrolofadverseenvironmentalandsocialimpacts.TheSafeguardPoliciesaremadeupofOperationalPolicies(OP)andBankProcedures(BP).TheOPlaidoutenvironmentalandsocialrequirementsandBPprovidedguidanceforthebankingstaffonthemeasurestobetakenintheprocessofprojectapproval,preparation,assessment,implementation,andafterprojectcompletion.SafeguardPoliciesarecomposedoffiveenvironmentalpolicies,threesocialpoliciesandtwolegalpolicies,allofwhichareapplicabletotheWB’sinvestmentandloanprojects,DevelopmentPolicyLoans(DPLs)andProgramforResults(PforR). 25 Sinceitsinceptionin1997,theSafeguardPolicieshaveundergoneconstantimprovementsandhavebeeninusetothisday.Amongallthosepolicies,theOP/BP4.01EnvironmentalAssessmentisaprogrammaticdocumentforthepreventionandcontrolofenvironmentalandsocialimpacts.Borrowersshouldnotonlycomplywiththelawsandregulationsofthehostcountry,butalsocarryoutenvironmentalassessmentinaccordancewiththeOP4.01.OP/BP4.01,togetherwiththeotherninesafeguardpolicies,providesprotectionoftheenvironmentandthevulnerablegroups,andminimizestheadverseimpactsoftheprojectsfundedbytheWB(Table2-4).
24 Operational Manual Statement on Environmental Aspects of World Bank Work. 1984.
25 The World Bank’s Safeguard Policies, Proposed Review and Update, Approach Paper. 2012.10.10.
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Table2-2:TheWorldBank’sSafeguardPolicies26
PolicyType PolicyTitle MainContent
Environmental OP/BP4.01
Environmental
Assessment27
ThroughtheimplementationoftheOP/BP4.01,theWBaimsto
determinethepotentialenvironmentalandsocialimpactsofits
supportedprojects,makesurewhetherothersafeguardpoliciesshould
beapplied(e.g.theinvoluntaryresettlementpolicy)andpropose
measurestomitigatetheimpacts.Itclassifiestheproposedprojectinto
oneofthefourcategoriesincludingCategoryA,CategoryB,CategoryC
andCategoryFI,dependingonthescaleofitsenvironmentalandsocial
impacts.Theborrowershouldmakeanenvironmentalassessmentin
accordancewiththeenvironmentalpoliciesofthehostcountryandthe
requirementsprovidedintheOP4.01,includingenvironmentalimpact
assessment,alternativeanalysisandplanmakingforenvironmental
management.ForprojectsclassifiedasCategoryAandCategoryB,it
shouldmakepublicconsultationanddiscloserelevantinformationtothe
public.
OP/BP4.04
Natural
Habitats
AccordingtoOP/BP4.04,theWBdoesnotsupportprojectsthatinvolve
significantconversionordegradation–of“criticalnaturalhabitats.” 28
TheWorldBankalsodoesnotsupportprojectsinvolvingthesignificant
conversionofnaturalhabitatsunlesstherearenofeasiblealternatives
fortheprojectanditssiting,andcomprehensiveanalysisdemonstrates
thatoverallbenefitsfromtheprojectsubstantiallyoutweighthe
environmentalcosts.
OP/BP4.09
Pest
Management
TheobjectiveoftheOP/BP4.09istopromotepestmanagement
methodssuchasbiologicaltreatmentandenvironmentaltreatment,and
toreducetheuseofagro-chemicals.Apartfromitssupportforbiological
treatmentforpestmanagement,theOP/BP4.09hasalsoprovided
criteriatoapplytotheselectionanduseofpesticidesinitssupported
projects,requiringthatpesticidesprocuredthroughitsfinancingsupport
26 Safeguard Policies. The World Bank; Serial Report on Belt and Road Initiative and Green Finance: Research on International Experience of Environmental and Social Management Framework for Multilateral Development Banks. WWF. 2015.11.
27 Items for Environmental Assessment: Natural Environment (Air, Water and Land), Human Safety and Health, Society (Involuntary Resettlement, Indigenous Peoples and Cultural Heritage) and Cross-border and Global Environmental Problems.
28 The “Critical Natural Habitats” Defined by the World Bank Include: existing protected areas and areas officially proposed by governments as protected areas, areas initially recognized as protected by traditional local communities, sites that maintain conditions vital for the viability of these protected areas, and sites identified on supplementary lists prepared by the Bank or an authoritative source determined by the Regional environment sector unit.
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mustbemanufactured,packaged,labeled,handled,stored,disposedof,
andappliedaccordingtostandardsacceptabletotheWorldBank.
OP/BP4.36
Forests
TheobjectiveoftheOP/BP4.36istoassistborrowerstoharnessthe
potentialofforestsinasustainablemannerandprotectvitalforest
resources.TheWBdoesnotsupportfinanceprojectsthatwouldinvolve
significantconversionordegradationofcriticalnaturalhabitats,
includingprojectsthatinvolvecommercialharvestingrelatedtocritical
forestsorcriticalnaturalhabitats.Ifaprojectinvolvesthesignificant
conversionordegradationofnaturalforestsorrelatednaturalhabitats
thattheBankdeterminesarenotcritical,andtheBankdeterminesthat
therearenofeasiblealternativestotheprojectanditssiting,and
comprehensiveanalysisdemonstratesthatoverallbenefitsfromthe
projectsubstantiallyoutweightheenvironmentalcosts,theWorldBank
mayfinancetheprojectprovidedthatitincorporatesappropriate
mitigationmeasures.
OP/BP4.37
SafetyofDams
TheOP/BP4.37providessafetymeasurestobecompliedwithbythe
projectsthatinvolvenewdams,existingdamsanddamsunder
construction,toensurethatforthelifeofanydam,theborrowertakes
appropriatemeasuresandprovidessufficientresourcesforthesafetyof
dams.Thepolicyhighlightstheroleofanindependentpanelofexperts
ininvestigation,design,constructionandinitialreview.Where
appropriate,aspartofpolicydialoguewiththecountry,WorldBank
staffdiscussanymeasuresnecessarytostrengthentheregulatory
frame-worksfordamsafetyprogramsinthecountry. 29
Social OP/BP4.11
Physical
Cultural
Resources
TheobjectiveoftheOP/BP4.11istopromotetheprotectionofphysical
culturalresourcesandavoidorminimize,asmuchaspossible,the
damagecausedbytheprojectssupportedbytheWorldBanktophysical
culturalresources,suchashistoricalrelicsanduniquenaturalscenery.
Accordingtoitspolicyrequirements,theWorldBankdoesnotfinance
projectsthatinvolvesignificantdamagetophysicalculturalresources,
andwheretheprojectsinvolvephysicalculturalresources,protection
shouldbeprovidedandimprovementbemade.
OP/BP4.12
Involuntary
Resettlement
TheOP/BP4.12appliestoprojectsthatresultininvoluntary
resettlementbecauseofrelocationorlossesofland,assetsorincome
sources.Thispolicyrequiresthatinvoluntaryresettlementshouldbe
avoidedwherefeasible,orminimized.Whereitisnotfeasibletoavoid
29 Chen Yongchang, Zhou Kefa, Wang Xiaohang. Dam Safety Assessment as Provided in the World Bank’s OP 4.37— Safety of Dams. Dam & Safety [J]. 2013.5.
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resettlement,theborrowershouldassistdisplacedpersonsintheir
effortstoimprovetheirlivelihoodsandstandardsoflivingoratleastto
restorethem,inrealterms,topre-displacementlevels.
OP/BP4.20
Indigenous
Peoples
AccordingtoOP/BP4.20,TheprojectssupportedbytheWorldBank
shouldbringaboutculturallyappropriatesocialandeconomicbenefits
forindigenouspeoples,andavoid,orifnotfeasible,minimize,adverse
effects.Ifindigenouspeoplesareidentifiedintheprojectarea,or
relationofdependenceisidentifiedbetweenindigenouspeoplesand
theproject,theborrowershouldconductsocialimpactassessmenton
theproject,andineverystageofprojectpreparationand
implementation,provideallrelevantinformationinaculturally
appropriatemanner.TheWorldBankfinancesprojectsonlyafterthe
borrowerhasconductedfree,priorandinformedpublicconsultations
andwonsupportfromaffectedindigenouscommunitiesfortheproject.
Damagesshouldbepaidtotheindigenouspeopleswhohavesuffered
lossesfromtheproject.
Legal OP/BP7.50
Projectson
International
Waterways
TheobjectiveoftheOP/BP7.50istoavoidenvironmentalandsocial
impactscausedtothecountriesalongtheinternationalwaterways
involvedininternationalwaterwayprojects,aswellastheinternational
disputescausedtherefrom.Thepolicyprovidesmeasurestobetakenby
theWorldBankandtheborrowerandamechanismforcommunication
withthecountriesalongtheinternationalwaterways.
OP/BP7.60
Projectsin
DisputedAreas
AccordingtotheOP/BP7.60,onlyifthetwosidestothedisputedarea
havenoobjectiontotheprojectorunderspecialcircumstances,should
theWorldBankwarrantsupportoftheproject.Suchspecial
circumstancesarespecifiedinthepolicy.
ThehighrecognitionofinformationtransparencyandthegreatimportanceattachedtoitbytheWBhelpedtheimplementationofthesafeguardpolicies.AccordingtotheWB,informationdisclosureistheprerequisitetopublicparticipationandsupervisioninensuringthetransparencyofprojects.Itwillnotonlyhelptheprojectidentifypotentialproblems,butalsobringmorecomprehensivesolutionstosolvesuchproblems.Inthissense,informationdisclosurecouldplayakeyroleinstrengtheninggoodgovernance,improvingoperationeffectsandrealizingpovertyreduction.In1994,theWBpublishedthefirstinformationdisclosurepolicy,basedonwhichupdatesweremadein2002and2010toexpandthescopeofinformationtobedisclosed,inanattempttoimprovetheopenness,transparencyandaccountabilityoftheWB.
AccordingtoWorldBankPolicyonAccesstoInformationlaunchedin2010,theWBwillmakepublicalltheinformationinitspossessionthatisnotonitslistofexceptions.Thedisclosedinformation
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includesbutarenotlimitedto30:theWB’s“OperationalPolicies”(OP)and“BankProcedures”(BP);“ProjectInformationDocument”(PID)forpendingprojects;“ProjectAppraisalDocument”(PAD)forprojectscurrentlybeingfinanced;the“EnvironmentalAssessmentReports”(EA)accessibletoproject-affectedgroupsandlocalNGOsinaccordancewithOP/BP4.01;“ResettlementInstruments”(RIs)and“IndigenousPeoples’DevelopmentPlans”(IPDPs)submittedbytheborrowerinaccordancewithOP/BP4.12andOP/BP4.20;majordecisionsmadeinprojectdevelopmentandimplementationprocesses,includingdecisionsmadeatprojectconceptreviewconferencesandinprojectsupervisionandmid-termprojectreviews;the“ImplementationCompletionReport”(ICR)availableaftertheprojectiscompleted;the“ProjectPerformanceAssessmentReports”(PPARs)andthe“ImpactEvaluationReports”(IERs)designedforprojectsselectedbyassessmentdepartments.
TheinformationdisclosedbytheWBisavailableonitsofficialwebsiteandmorethan100publicinformationcentersacrosstheworld.Forinformationnotavailableonthewebsites,thepublicmaysubmitonlinerequestandthebankwillconfirmreceiptoftherequestwithinfiveworkingdaysandoffercomprehensiverepliesundernormalcircumstances,oritwillprovideacomprehensiveresponsetorequestswithin20workingdays,incaseofcomplexrequeststhatmayneedadditionaltime.31 TherequestercanfileanappealifheorshecanshowthatthebankhasviolatedthePolicyonAccesstoInformationbyimproperlyorunreasonablyrestrictingaccesstoinformationthatitwouldnormallydiscloseunderthePolicy.
Recognizingthefactorsincludingthechangingborrowerprofiles,increasedawarenessofthevalueandvulnerabilityoftheglobalcommons,changingoperationsofthebankandthegrowingroleoftheprivatesector,theWBlaunchedthereviewandupdateoftheenvironmentalandsocialpoliciesin2012.Thereviewandupdatewasbuiltontheexistingcoreprinciplesofthesafeguardpolicies.Throughunderstandingtheborrowers’needsandconsultingwithabroadrangeofstakeholders,thereviewaimstoestablishacomprehensiveenvironmentalandsocialsafeguardframeworkincludingprinciples,policies,proceduresanddirectives.ItwillfacilitatethegeneralprogressofsustainabledevelopmentpolicydevelopmentinborrowingcountriesandimprovethelendingefficiencyoftheWB.
InAugust2016,theWB’sBoardofExecutiveDirectorsapprovedanewEnvironmentalandSocialFramework(ESF).Theframeworkintroducedcomprehensivelabourandworkingconditionprotectionsandcommunityhealthandsafetymeasuresthataddressroadsafety,emergencyresponseanddisastermitigation.TheresponsibilityoftheWBandoftheborrowerisgivenaclear-cutdistinctionintheframework,whichalsorequiresthestakeholderengagementthroughouttheprojectcycle.TheWBplanstostartapreparationandtrainingperiodfor12-18monthstoprepareforthetransitiontothenewframework,whichisscheduledtogointoeffectinearly2018.The
30 The World Bank Policy on Disclosure of Information. 2002.6; World Bank Broadens Public Access to Information. The World Bank Website. http://www.shihang.org/zh/news/feature/2010/07/01/world-bank-broadens-public-access-to-information
31 World Bank Broadens Access to Information. The World Bank website. http://www.shihang.org/zh/news/feature/2010/07/01/world-bank-broadens-public-access-to-information
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currentsafeguardsareexpectedtoruninparalleltonewESFforaboutsevenyearstogovernapprovedprojectsbeforetheeffectivenessdateofthenewESF. 32
TheEnvironmentalandSocialPoliciesoftheInternationalFinanceCorporation
TheIFChasmadestringentenvironmentalandsocialpoliciesandstandardstoregulateinvestmentactivitiesfortheprivatesector,andthesepoliciesandstandardshaveundergoneconstantreviewsandupdates.TheenvironmentalandsocialpoliciesandstandardscurrentlyusedbyIFCwereupdatedin2012andhavethreeparts:theInternationalFinanceCorporation’sPolicyonEnvironmentalandSocialSustainability(SustainabilityPolicy),theInternationalFinanceCorporation’sPerformanceStandardsonEnvironmentalandSocialSustainability(PerformanceStandards),andtheInternationalFinanceCorporationAccesstoInformationPolicy(AccesstoInformationPolicy).
IFC’sPolicyonEnvironmentalandSocialSustainabilityisasetofgoverningpoliciesfortheenvironmentalandsocialmanagementofIFC-supportedprojects.ItpointsoutIFC’seffortstocarryoutinvestmentandadvisoryactivitieswiththeintentto‘donoharm’topeopleandtheenvironment,toenhancethesustainabilityofprivatesectoroperationsandthemarketstheyworkin,andtoachievepositivedevelopmentoutcomes.TheSustainabilityPolicyintroducesthefunctionsandrequirementsofthePerformanceStandardsandtheAccesstoInformationPolicy,andspecifiesIFC’senvironmentalandsocialobligationsandresponsibilities. 33
ThePerformanceStandardslaysouttheenvironmentalandsocialrequirementsforitsclients,andreviewsandmanagestheenvironmentalandsocialrisksandimpacts.Itspecifiesstandardsineightareas,includinglabourandworkingconditions,resourceefficiencyandpollutionprevention,communityhealth,safetyandsecurity,landacquisitionandinvoluntaryresettlement,biodiversityconservationandsustainablemanagementoflivingnaturalresources,indigenouspeople,andculturalheritage.Inthecaseofdirectinvestment(includingprojectandcorporatefinanceprovidedthroughfinancialintermediaries),IFCrequiresitsclientstoapplythePerformanceStandardstomanageenvironmentalandsocialrisksandimpacts,andcomplywithapplicablenationallaws,including internationallawsthatareadoptedandapprovedbyhostcountries. 34
TheIFCwillcarryoutduediligenceagainstthePerformanceStandardsforintendedinvestmentprojects,andwillonlyprovidefinancialsupportfortheprojectsthatareexpectedtomeettherequirementsofthePerformanceStandardswithinreasonabletime.TheIFCwillalsoassistitsclientsinidentifyingopportunitiestoimprovetheirenvironmentalandsocialperformancesandtakingmeasuresinaccordancewiththePerformanceStandardstopreventenvironmentalandsocialimpacts.Forinstance,theGuidanceNotesandtheInterpretationNoteonFinancialIntermediaries
32 Fact Sheet The World Bank’s New Environmental and Social Framework. The World Bank. 2016.8.4.
33 The International Finance Corporation. The International Finance Corporation’s Policy on Environmental and Social Sustainability. 2012.1.1.
34 The International Finance Corporation. The International Finance Corporation’s Performance Standards on Environmental and Social Sustainability. 2012.1.1.
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offerguidanceforclientsonhowtoimplementthePerformanceStandards.Throughoutthelifeofaproject,IFCwillmonitortheenvironmentalandsocialperformancesofitsclients.ProjectappraisalconductedbyIFCwillfollowthegeneralandindustry-specificgoodinternationalpracticeslistedinthetechnicalreferencedocumentsoftheEnvironmental,HealthandSafetyGuidelines(EHSGuidelines).WhenhostcountryregulationsdifferfromthelevelsandmeasurespresentedintheEHSGuidelines,projectsareexpectedtoachievewhicheverismorestringent. 35
TheAccesstoInformationPolicyprovidesIFC’scommitmenttotransparencyandspecifiesIFC’spolicyregardingthescopeofinformationthatitmakesavailabletothepubliceitherasaroutinematteroruponrequest.TheinformationIFCmakesavailableinaccordancewiththeAccesstoInformationPolicycanbecategorizedasinstitutionalinformationaboutIFCandproject-levelinformationregardinginvestmentsandadvisoryservicessupportedbyIFC,whichwouldenableitsclients,partnersandstakeholders(includingAffectedCommunities),andotherinterestedmembersofthepublictobetterunderstandIFC’sbusinessactivities,developmentoutcomesandotherimpactsofitsactivities.Foreachproposedinvestment,IFCwilldiscloseaSummaryofInvestmentInformation(SII),whichprovidesbasicinformationabouttheprojectorinvestment,aswellastheenvironmentalandsocialimpactsoftheproject.Forprojectsandinvestmentswithpotentialsignificantadverseenvironmentalorsocialrisksand/orimpacts,IFCwillendeavortoprovideaccesstothedraftEnvironmentalandSocialImpactAssessment(ESIA)preparedbytheclientevenbeforeIFChasstartedthereviewofitsinvestment. 36
ItshouldbenotedthatIFC’senvironmentalandsocialpolicieshaveexertedprofoundinfluenceuponenvironmentalandsocialstandardsadoptedbythefinancialsectorandhavealsobeenwidelyacknowledgedbytheprivatesector.TheIFCrequiresnotonlyitsdirectlyinvestedprojectstoabidebythePerformanceStandards,butalsothosefinancialintermediariesincollaborationwithIFCtodevelopandoperateanEnvironmentalandSocialManagementSystem(ESMS)thatiscommensuratewiththelevelofenvironmentalandsocialrisksintheirportfolioandprospectivebusinessactivities.TheESMSshouldincorporaterelevantprinciplesofthePerformanceStandard1:AssessmentandManagementofEnvironmentalandSocialRisksandImpacts.Bytheendof2016,85financialinstitutionsfrom35countrieshaveadoptedtheEquatorPrinciples,aframeworkbasedonIFC’sPerformanceStandardsonEnvironmentalandSocialSustainability,toassessandmanageenvironmentalandsocialimpactsandrisksinprojectfinancing.TheWB,initsnewlylaunchedEnvironmentalandSocialFramework,hassubstituted10safeguardpolicieswith10environmentalandsocialstandards,amongstwhichthefirsttotheeighthenvironmentalandsocialstandardshaveadoptedtheframeworkofthePerformanceStandards.
35 Ditto.
36 The International Finance Corporation. The International Finance Corporation Access to Information Policy. 2012.1.1.
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TheSupportingMeasuresoftheWorldBankandtheInternationalFinanceCorporationforGreenInvestment
Ontheonehand,theWBandtheIFChavebeencommittedtoimprovingtheirenvironmentalandsocialpoliciestopreventadverseenvironmentalandsocialimpactsfromtheirinvestmentactivities,andontheotherhand,theyhavealsodevotedthemselvestosupportinggreeninvestmentbyissuinggreenbondsandgrantingloanstosupportthemanagementofenvironmentalandnaturalresources.
In2016,theInternationalBankforReconstructionandDevelopment(IBRD)issuedUSD3.75billionofloansforthemanagementofenvironmentalandnaturalresources,andtheInternationalDevelopmentAssociation(IDA)issuedUSD1.12billionofloansforthesamepurpose,accountingfor12.6%and7.7%ofthetotalnewloansissuedthatyearbythetwoinstitutionsrespectively. 37 TheIBRDisthepioneerandlargestissuerofgreenbondsandhasissued125greenbondssince2008,raisingUSD9billion. 38 Thefundsaremainlyraisedforadaptationandmitigationprojectstocopewithclimatechange,involvingsolarandwindpowers,energy-efficientbuildingsandsustainableforestmanagement,etc. 39 TheIFClauncheditsgreenbondprogrammein2010,andfrom2010to2016atotalofUSD5.7billionofgreenbondshasbeenissued, 40 raisingfundsforenergyefficiency,renewableenergy,resourceefficiency,cleantechnologyproductionandsustainableforestry. 41
2.4THEENVIRONMENTALANDSOCIALPOLICESOFTHEJAPANBANKFORINTERNATIONALCOOPERATION
AsJapan’spolicybank,theJapanBankforInternationalCooperationactivelydevelopsoverseasbusinessandteamsupwithJapanesecompaniesinoverseasinvestmentprojects.Ithasestablished16overseasrepresentativeofficesincitiessuchasBangkok,Beijing,London,Manila,MexicoCity,NewYork,andSingapore.42 Overtherecentyears,JBIChaspaidmoreattentiontoissuesintheenvironmentalprotectionareaandformulateditsownenvironmentalandsocialpolicieswithreferencetothepoliciesoftheWBandtheUnitedInternationalBank.GraduallyJBICshifteditsoverseaspriorityfinancingareatoenvironmentalprotection.ByMarch2015,JBIC’scapitalhasreachedUSD13.51billion,itsoutstandingloansandequityparticipationhasamountedtoUSD142.71billionanditsoutstandingguaranteehasreachedUSD24.98billion.64%ofthebank’sloans,equityparticipationsandguaranteecommitmentfundsareusedtosupport,maintainandimprove
37 The World Bank Annual Report 2016.
38 The World Bank. World Bank Group Loans Top $61 billion in Fiscal Year 2016. 2016.7.13.
39 The World Bank Green Bond Fact Sheet. 2015.7. http://treasury.worldbank.org/cmd/pdf/WorldBank_GreenBondFactsheet.pdf
40 The International Finance Corporation Website. Overview of IFC’s Green Bonds;The World Bank. World Bank Group Support Tops $61 billion in Fiscal Year 2016. 2016.7.13.
41 IFC Green Bond Impact Report 2015.
42 Ditto.
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theinternationalcompetitivenessofJapaneseindustries;33%isusedtopromotetheexplorationandsecurementofimportantoverseasresourcesforJapan;and3%isusedtodevelopoverseasbusinesswiththepurposeofenvironmentalprotectionsuchasglobalwarmingprevention.43
EnvironmentalandSocialPolicies
JBIChasbeenstronglycriticizedbeforefortheadverseenvironmentalandsocialimpactscausedbytheprojectsunderitssupport,e.g.theKotopanjanDamprojectinIndonesiaandthewastewatermanagementprojectinSamutPrakarn,Thailandin1990s.JBIC’ssetbacksinthedevelopingcountriescanbeimputabletothelackofclear-cutevaluationstandards,aninformationdisclosurepolicy,aneffectivesupervisionandmonitoringmechanismandarectificationsystem.Havingrealizedtheimportantenvironmentalandsocialimpactsitsprojectscouldexertuponthehostcountries,JBIClaunchedtheJapanBankforInternationalCooperationGuidelinesforConfirmationofEnvironmentalandSocialConsiderations44 (hereafterreferredtoas“EnvironmentalGuidelines”)in2003,totackletheissuesmentionedabove.
TheEnvironmentalGuidelinesstipulatestheassessmentstandardsfortheenvironmentalandsocialimpactscausedbyJBIC-supportedprojects,theenvironmentalandsocialrequirementsthatprojectsshouldmeet,andrelevantoperationalprocedures.ItrequiresallJBIC-supportedprojectstobecarriedoutwiththepurposeofprotectingtheenvironmentandthesociety.InJuly2009,JBICamendedtheEnvironmentalGuidelines,expandingthescopeofinformationavailabletothepublic,specifyingtheinternationalstandardsofenvironmentalandsocialimpacts,andaddingcontentsconcerningecosystemprotection,involuntaryresettlementandindigenouspeoples.Between2013and2014,thesecondroundofreviewontheEnvironmentalGuidelinesbroughtinviewsfromallstakeholdersincludingNGOrepresentatives,relatedindustriesandgovernmentdepartments.ThecurrentEnvironmentalGuidelinescameintoeffectinJanuary2015.
TheEnvironmentalGuidelineshighlightedtheimportanceofcommunicationsamongJBIC,thegovernmentofthehostcountry,borrower,andprojectproponentinordertodeterminetherightmeasuresforenvironmentalandsocialprotectionwiththeengagementofaffectedlocalresidentsandNGOs.Itstressedtheimportanceoftransparencyduringthewholeprocess.TheEnvironmentalGuidelinesrequiresthatbeforedeterminingwhethertosupportaproject,JBICshouldclassifyprojectsintooneofthecategoriesofA,B,CandFIbasedonthedegreeoftheirenvironmentalimpacts,andenvironmentalassessmentshouldthenbeconductedinlinewiththeenvironmentalandsocialrequirementsoutlinedineachcategorytoconfirmwhetherappropriatemeasureshavebeentakentopreventandcontroladverseimpacts(Table2-3).
43 Japan Bank for International Cooperation. The Role and Function of the Japan Bank for International Cooperation. https://www.jbic.go.jp/wp-content/uploads/page/2013/08/43936/jbic-brochure-chinese.pdf.
44 Japan Bank for International Cooperation. Japan Bank for International Cooperation Guidelines for Confirmation of Environmental and Social Considerations. 2003.10.
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Table2-3:EnvironmentalCategoriesandAssessmentRequirements45
Category Definition AssessmentRequirements
CategoryA
Aproposedprojectthatislikelytohave
asignificantadverseimpactonthe
environment.
JBICwillassessthepotentialadverse
environmentalandsocialimpactsofaproject
andthecorrespondingmeasuresforthe
preventionandcontrolofsuchimpacts.The
assessmentwillbeundertakenonthebasis
ofthefollowingdocumentssubmittedbythe
borrower:EnvironmentalImpactAssessment
(EIA)reportsandenvironmentalpermit
certificatesissuedbythehostgovernments;
forprojectsthatwillresultinlarge-scale
involuntaryresettlementorprojectsthatwill
requiremeasuresforindigenouspeoples,
resettlementactionplans,livelihood
restorationplansandindigenouspeoples’
plans.
CategoryB
Aproposedprojectthatitspotential
adverseenvironmentalimpactisless
adversethanthatofCategoryA
projects.
JBICwillassessthepotentialadverse
environmentalandsocialimpactsofaproject
andthecorrespondingmeasuresforthe
preventionandcontrolofsuchimpacts.
CategoryBprojectsaresimilartothoseof
CategoryAintermsofassessment,butthe
scopeofenvironmentalreviewsforCategory
Bprojectsisnarrower.Wherean
environmentimpactassessmentprocedure
hasbeenconducted,JBICmayrefertothe
EIAreportsandpermitcertificates.However,
thisisnotamandatoryrequirement.
CategoryC
Aproposedprojectthatislikelytohave
minimalornoadverseenvironmental
impact.
Forprojectsinthiscategory,JBICdoesnot
undertakeenvironmentalreviewsbeyond
screening.
CategoryFI Aproposedprojectthatsatisfiesallof
thefollowing:JBIC’sfundingofthe
JBICchecksthroughthefinancial
intermediarytoseewhetherappropriate
45 Japan Bank for International Cooperation. Japan Bank for International Cooperation Guidelines for Confirmation of Environmental and Social Considerations. 2015.1.
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projectisprovidedtoafinancial
intermediary;theselectionand
assessmentoftheactualsub-projectsis
substantiallyundertakenbysuchan
institutionafterJBIC’sapprovalofthe
funding,andtherefore,thesub-projects
cannotbespecifiedpriortoJBIC’s
approvaloffunding(orassessmentof
theproject);andthosesub-projectsare
expectedtohavepotentialimpacton
theenvironment.
environmentalandsocialconsiderationsas
statedintheGuidelinesareensuredfor
projectsinthiscategory.
Toconductenvironmentalimpactassessmentandensureproperenvironmentalandsocialprotectionmeasuresareinplace,JBICreferstonotonlytheenvironmentallaws,regulations,standardsandplansofthehostcountry,butalsoIFC’sPerformanceStandardsonEnvironmentalandSocialSustainabilityandtheWorldBank’sEnvironmental,HealthandSafetyGuidelines.Iftheenvironmentalreviewshowsthattheenvironmentalandsocialprotectionmeasuresaredeficient,JBICwillurgetheprojecttoundertakeappropriateenvironmentalandsocialconsiderations.Iftheprojectfailstotaketheseconsiderations,JBICmightnotmaketheinvestmentorprovidetheloans.
Aftertheloanisapproved,theborrower’sobligationsforenvironmentalandsocialprotectionwillbeincludedinitsloancontract.Forinstance,theborrowershallreporttoJBIConmeasuresandmonitoringrelatedtoenvironmentalandsocialconsiderationsundertakenbytheprojectproponents;ifanyproblemsregardingenvironmentalandsocialconsiderationsarise,theborrowershallmakeeffortsfordiscussionstobeheldbetweentheprojectproponentsandprojectstakeholders.Intheprocessofpost-loanmanagement,JBICwillmonitortheactualimplementationofenvironmentalandsocialconsiderationsforCategoryAandBprojects,soastoensurerelevantconsiderationsareeffectivelyimplemented.IfJBICjudgesthatenvironmentalandsocialconsiderationsarenotappropriatelyimplemented,itmayasktheprojectproponenttotakeappropriateaction.Iftheresponseoftheprojectproponentisinappropriate,JBICmaysuspenditsinvestmentandloans,orrequiretheborrowertorepaytheloansinadvance.
JBICwelcomesinformationprovidedbystakeholders,sothatitmayconductmorecomprehensivereviewsandmonitoringofenvironmentalandsocialimpactsandconsiderations.InaccordancewiththeEnvironmentalGuidelines,JBICdisclosesthename,country,locationandcategoryclassificationoftheproject,andforCategoryAandBprojects,theEIAreportsandpermitcertificates.ForCategoriesA,B,andFIprojects,JBICdisclosesresultsofenvironmentalreviewsandresultsofthemonitoringconductedbytheprojectproponentsaftersigningtheloanagreements.
SupportingMeasuresforGreenInvestment
Ontheonehand,JBIChasconstantlyimproveditsEnvironmentalGuidelinestopreventandcontroladverseenvironmentalandsocialimpactscausedbyJBIC-supportedprojects.Ontheotherhand,
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JBICpushesforwardgreeninvestmentprojectsbyprovidingpreferentialloanpoliciesforprojectsthataimtoprotectandimprovetheenvironmentandestablishingspecialmechanismsandbusinessservices.
InApril2008,JBIClaunched“JBICFacilityforAsiaCooperationandEnvironment”(FACE)tostrengthenitssupportforAsiandevelopingcountriestocopewithclimatechange.Threeyearslater,JBICdevelopedandexpandedFACEandtransformeditinto“EnhancedFacilityforGlobalCooperationinLowCarbonInfrastructureandEquityInvestment”(E-FACE),underwhichthebankaimstomobilizeprivatesectorfundingtothelargestextentandpromotestrategicprojectssuchasoverseassystematicallyintegratedinfrastructureprojects
.InMarch2010,JBIClaunchedtheGlobalactionforReconcilingEconomicgrowthandEnvironmentalpreservation(GREEN),inanattempttoworkincooperationwithinternationalorganizationsandlocalfinancialinstitutionsindevelopingcountriestoprovidesupportforprojectswithafocusonenvironmentalconservationandrenewableenergies,suchasthoseanticipatedtomakecontributiontoreducinggreenhousegas.
Sincethereformin2012,asoneofthemainmissionsofJBIC,ithaspromotedthepreventionofglobalwarmingandotheroverseasbusinessesaimedatprotectingtheenvironment.Infiscalyear2014,3%ofitsloans,equityparticipationsandguaranteecommitmentfundsweredevotedtooverseasbusinesswiththepurposeofpreservingglobalenvironment.
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3.ACOMPARISONOFENVIRONMENTALANDSOCIALPOLICIESBETWEEN
CHINA’SPOLICYBANKSANDINTERNATIONALFINANCIALINSTITUTIONS
3.1WEAKNESSESOFTHEENVIRONMENTALANDSOCIALPOLICIESOFCHINA’SPOLICYBANKS
AcomparisonoftheenvironmentalandsocialpoliciesbetweentheCDBandtheChinaEximBankandthoseoftheWB,theIFCandtheJBICshowstheimmaturityofChina’spolicybanksandtheneedforthemtodrawexperiencesfromadvancedinternationalpracticesforself-improvement.Themainweaknessesinclude:thereisnoenvironmentalandsocialdepartmentestablished;thereisnotailoredandspecificpoliciesforenvironmentalandsocialissues,andtheadoptedenvironmentalandsocialstandardsarenotstrictenough;thereisnourgeforimprovementduringthepre-loanreviewandnoindependentfieldvisitinprojectmanagementandsupervisionphases;andthereisnocomplaintmechanismwhiletheinformationdisclosuresystemneedsimprovement.Moreover,theCDBhasnotyetfollowedtheinternationalnormstoclassifyprojectsintermsofenvironmentalrisks,andlackedpublicconsultationswiththecommunityaffectedbytheproject.
Nospecificclassificationsfordifferentenvironmentalandsocialissues
Regardingenvironmentalandsocialpolicies,theWBhasmadearelativelydetailedclassificationandstipulationondifferentissues.Itsenvironmentalpoliciesinvolveenvironmentalassessment,naturalhabitats,pestmanagement,forestandsafetyofdams;itssocialpoliciesinvolvephysicalculturalresources,involuntaryresettlementandindigenouspeoples;legalpoliciesinvolveprojectsoninternationalwaterways,andprojectsindisputedareas.ThenewPolicyFrameworkintroducedcomprehensivelabourandworkingconditionprotectionsandcommunityhealthandsafetymeasuresthataddressroadsafety,emergencyresponseanddisastermitigation.Similarly,IFCstipulatesinitsPerformanceStandardsthattheassessmentandmanagementofenvironmentalandsocialrisksandimpactsshouldbemeasuredineightaspects,includinglabourandworkingconditions,resourceefficiencyandpollutionprevention,communityhealth,safetyandsecurity,landacquisitionandinvoluntaryresettlement,biodiversityconservationandsustainablemanagementoflivingnaturalresources,indigenouspeoplesandculturalheritage.TherelevantpoliciesofJBICaremainlyfocusedon:1.people’shealthandsafetyandnaturalenvironmentalissues:air,water,soilpollution,wateruse,ecosystemsandbiologicalcommunities,aswellascross-borderandglobalenvironmentalissues;2.socialissues:humanrightsprotection,involuntaryresettlement,indigenouspeoples,culturalheritage,landscape,gender,childrights,infectiousdiseases,andcommunityhealthandsafety.
Incontrast,theenvironmentalandsocialpoliciesoftheCDBandtheChinaEximBankhaveanarrowerscopeandtheissuesarenotspecificallyclassified.TheenvironmentalandsocialaspectsclearlystatedbyChinaEximBankincludeenergyconservationandemissionreduction(tosupportthenationalindustrialplan),biodiversityconservationandsustainablenaturalresourcemanagement,aswellaslandacquisitionandinvoluntaryresettlement.CDB’senvironmentaland
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socialpoliciesaremainlyconcernedaboutissuessuchaspollutionpreventionandcontrol,healthandmigration.
Nospecializedenvironmentalandsocialdepartment
TheWBsetupanOfficeofEnvironmentalAffairsshortlyafterhiringitsfirstenvironmentaladvisorin1969. 46 TheIFChasadedicatedenvironmentalandsocialgovernancedepartmenttohelpclientsunderstandandmanageenvironmentalandsocialrisks.47 JBIC'screditsectorhasalsoestablishedanEnvironmentalAssessmentOffice.However,similararrangementswerenotfoundintheinstitutionalsettingoftheChinaEximBankandtheCDB.Withoutadedicateddepartment,itisimpossibletoensurethedevelopmentandimplementationofenvironmentalandsocialreview,supervisionandevaluation,causingambiguityofauthorityandresponsibility.
Lenientenvironmentalandsocialstandards
TheenvironmentalandsocialstandardsadoptedbytheWB,theIFCandtheJBICincludenotonlylawsandpoliciesofthehostcountrybutalsotheenvironmentalandsocialnormsdevelopedbythemselves.Intheeventthatthestandardsareinconsistent,theWBandtheIFCfollowthestricteroneandadoptthemorestringentstandardofthetwo,andJBICwillalsorefertotheenvironmentalandsocialstandardsfollowedbyWBandIFC.
AlthoughtheCDBandtheChinaEximBank,likeotherinternationalfinancialinstitutions,clearlyrequirethattheprojectsshallabidebyrelevantenvironmentalandsociallawsandpoliciesofthehostcountry,thereisalackoffurtherstringentrequirements.OnlyintheabsenceofsuchstandardswouldChinaEximBankconsiderapplicablestandardsinChinaandinternationalpractice;CDB'senvironmentalandsocialstandardsarealsomainlybasedonthehostcountry’slawsandpolicies.Generallyspeaking,China’spolicybanksadoptamorelenientlendingprinciplethanotherinternationalfinancialinstitutions.
Thepre-loanreviewlackssupporttoimproveproject’senvironmentalandsocialplans
Followingcustomarypracticesintheindustry,China’spolicybankswillconductapre-loanreviewtoassesstheenvironmentalandsocialrisksoftheproject,andliketheIFCandtheJBIC,theywillusethereviewresultsasgaugefortheinvestment.However,theWB,theIFC,andtheJBICalsoincludestepstoimprovetheprojectduringthereviewprocess:theWBwillassisttheprojectwithhugeenvironmentalsocialriskstofindanalternativeandformulateanenvironmentalmanagementplan;theIFCwillhelpclientswithoutcapacitytomanageenvironmentalandsocialriskstoformulateimprovementplans;theJBICwillassesstheproject’senvironmentalandsocialmeasures,givesuggestionstothosewithweakprotectionmeasures,andonlyrefusetoofferinvestmentsorloanstotheprojectsthatfailtomakesuchimprovementsassuggested.Incontrast,theCDBandtheChinaEximBankwilldecidewhethertograntcreditandfinancialsupportdirectlybasedonthereview46 Jeremy J. Warford, Zeinab Parton. Evolution of the World Bank’s Environmental Policy. http://www.cfeph.cn/cfeph/finance.nsf/102009b942ff90464825672e001acac8/1a1ffd7cadc6ff1748256820001f3979
47 International Financial Corporation website. http://www.ifc.org/wps/wcm/connect/Topics_Ext_Content/IFC_External_Corporate_Site/Sustainability-At-IFC
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results,withoutprovidinganyassistanceinimprovingtheenvironmentalandsocialplansoftheproject.
CDBdoesnotclassifyprojectsaccordingtoenvironmentalandsocialrisks
TheChinaEximBank,theWB,andtheJBICclassifytheirclientsaccordingtoenvironmentalandsocialrisks,andsetspecialrequirementsforhigh-riskprojects.TheWBrequiresclassAandBprojectstodopublicconsultationandinformationdisclosure.TheJBICrequiresprojectsinclassA,BandFItoassessenvironmentalandsocialprotectionmeasuresandwillmonitortheimplementationofclassAandBprojects,andestablishanexpertcommitteetoprovideconsultationsandsuggestionsforprojectswithpotentialofsubstantialnegativeenvironmentalimpacts.TheIFC,thoughwithoutexplicitlydefinedclassificationofclientsaccordingtoenvironmentalandsocialrisks,willalsopayspecialattentiontohigh-riskprojects.Forexample,theIFCwillprovidesupportforcommunityatdifferentlevelsanddisclosetheenvironmentalandsocialimpactassessmentspreparedbyclients.SimilartotheWBandtheJBIC,ChinaEximBankalsoconductsspecialenvironmentalandsocialrisksassessmentsonclassAandBprojects,andincludesthepost-loanassessmentsintheinspectionreport.ClassAprojectswillhavetosolicitpublicconsultationasrequiredbythehostcountry,andtheborrowerwillneedtoestablishagrievance-responsivemechanism,acommunicationchannelwithstakeholders,andanemergencyplanforseriousenvironmentalrisks,andcarryoutregularspecialinspectionsduringthelifeoftheproject.
TheCDBhasnotyetdevelopedaspecialprojectenvironmentalclassificationstandards.In2015,theCDBproposedtofollowtheprincipleoftailoredmanagement,integratingenvironmentalandsocialriskmanagementintothecreditratingandcreditassessmentprocess,andmakinga“listofkeyindustryclientswithenvironmentalandsocialrisks”forindustrieswithrelativelybiggerenvironmentandsocialimpact.
Lackingindependentfieldvisitinthemanagementandsupervisionofprojectoperations
LiketheIFCandtheJBIC,theCDBandtheChinaEximBankalsoconductsupervisionduringtheoperationandmanagementoftheprojects.TheWBhasnotyetenactedsuchregulations.TheIFCmonitorsclients’socialandenvironmentalperformancesthroughoutthelifeoftheproject:ontheonehand,theIFCcarriesoutfieldvisitstotheproject;ontheotherhand,clientsarerequiredtosubmitmonitoringreportsonaregularbasis;moreover,thecompliancedepartmentalsoprovidesadditionalsupervision.JBICsupervisestheactualimplementationofclassAandBprojectsbasedonthereportssubmittedbytheborrowers,andwilllaunchinvestigationifnecessary(incaseofreportbyathirdparty).
Incontrast,China’spolicybanksrelyontheinformationandreportsprovidedbyborrowerstoconductsupervisionupontheenvironmentalimpactoftheprojects.TheChinaEximBankconductstheauditoftheborrower'senergyconsumptionandenvironmentalcomplianceatthetimeofthefirstandsubsequentissuanceoftheloanfunds,andinspectsandsupervisestheconstructionandoperationoftheprojectaccordingtotheenvironmentalandsocialimpactassessmentresultsoftheproject.AlthoughtheCDBhassetuparisk-trackingforecastingandfeedbackmechanism,itsenvironmentalimpactassessment(EIA)riskmonitoringisalsoachievedthroughtheborrower'
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periodicreportsonenvironmentalandsocialriskmanagementandprevention.48 NeitherpolicybanksofChinahaveformulatedrequirementsforfieldvisitonenvironmentalandsocialimpactsintheirenvironmentalandsocialpolicies.
Relativelyunsoundinformationdisclosuresystemandlackofcomplaintmechanism
TheWB,theIFC,andtheJBIChaveallmadeexplicitprovisionsontheinformationdisclosureintheirenvironmentalandsocialpolicies.Amongthem,theWBandtheIFChavedevelopedspecificinformationdisclosurepolicies.TheWBhasthewidestscopeofdisclosedinformation(anythingthatisnotonitslistofexceptions),followedbytheIFC(includingroutinepublicinformationandinformationrequiredbythepublic),andtheJBIConlyrequiresdisclosureofbasicinformationabouttheprojectandrelateddocumentsandreports.Also,theWBhasthemostdiversifiedchannelsforinformationdisclosure:apartfromitsofficialwebsite,ithasmorethan100publicinformationcentersandpublicapplicationchannels.TheIFCandtheJBICmainlyusetheirofficialwebsitestodiscloseinformation.Inaddition,theWBandtheIFCalsoprovidecomplaintmechanismsforinformationdisclosure.
Incontrast,theCDBandtheChinaEximBankhavenotyetestablishedamatureinformationdisclosuresystemandacomplaintmechanism,andinformationdisclosureismissingintheirenvironmentalandsocialpolicies.Inpractice,thereisnoonlinesearchingfunctionforenvironmentalandsocialinformationanddocumentsoftheprojectsontheofficialwebsitesoftheCDBandtheChinaEximBank.TheCDBevenchoosesnottopublicizemostofitsenvironmentalandsocialpolicydocuments.
CDBlacksopencommunicationandconsultationmechanismswithlocalcommunitiesandstakeholders
AllfivefinancialinstitutionsexcepttheCDBhaveincludedpublicconsultationwiththecommunitiesaffectedbytheprojectintheirenvironmentalandsocialpolicies.TheWBrequiresborrowerstoconductfreeandinformedpublicconsultationinadvanceandonlyprovidesfinancingforprojectsthatarebroadlysupportedbytheaffectedindigenouscommunity.TheJBICrequiresinitsEnvironmentalGuidelinesthattheprojectshouldattachimportancetodialogueswithstakeholdersandtransparentparticipationoftheaffectedindigenouscommunity.TheChinaEximBankrequiresclassAprojectstosolicitpublicconsultationasrequiredbythehostcountry,andrequirestheborrowertoestablishacomplaintresponsemechanismandacommunicationmechanismwithstakeholders.TheCDBhasnotyetpublicizedsuchregulations,norestablishedanyeffectivecommunicationmechanismwithlocalcommunities.Especiallywhenspecificenvironmentalandsocialissuesemergeinthelifeoftheproject,noconsultationchannelwithaffectedcommunitieswillleadtopeople’scomplaints.
48 China Development Bank: “Green Development for Mutual Benefit and Win-win Results – A Record of CDB’s Overseas Green Credit Business”. http://www.cdb.com.cn/xwzx/khdt/201607/t20160707_3493.html
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3.2PROGRESSIVENESSOFTHEENVIRONMENTALANDSOCIALPOLICIESOFCHINA'SPOLICYBANKS
ComparedwiththeWBandotherinternationalfinancialinstitutions,China'spolicybanksstillhavealongwaytogotoimproveenvironmentalandsocialpolicies.However,theCDBandtheChinaEximBankhavemadepioneeringattemptstodevelopworld-leadingregulations.Thetwobanks’requirementsforenvironmentalandsocialriskcontrolandfortherelatedreviewdocumentsaremuchclearerandmorestandardized.Theyalsohavestricterpunishmentsforviolatingenvironmentalregulations.Inaddition,theCDBandtheChinaEximBankhavealsotakensomeconstructivemeasuresinsupportofgreeninvestment.
Bettercontrolofenvironmentalandsocialrisks
TheCDBandtheChinaEximBank,liketheirinternationalcounterparts,haveincludedenvironmentalandsocialresponsibilitiesinthecontractstocontroltheenvironmentalandsocialrisksandimpacts.Thecontrolgoesthrougheverysegmentoftheinvestmentprojectfrompre-loantopost-loan,thesamestandardizedprocessasotherinternationalfinancialinstitutions.Infact,China’spolicybankshavemorerefinedproceduresthantheIFCortheJBIC.TheCDBandtheChinaEximBankhavedividedenvironmentalandsocialriskscontrolintospecificandclear-cutsegments,includingpre-loaninvestigation,loanreview,contractmanagement,loanissuanceandpost-loanmanagement.TheyalsorequireanEIAafterthecompletionoftheprojectandtheCDBwentevenfurthertointroduceastandardreviewprocedure,whichismoreadvancedthanthecurrentproceduresoftheWBandtheIFC.49 Incontrast,IFCandJBIChavedefinedtheircontrollingproceduresinarelativelybroadway,thoughcontrolofenvironmentalandsocialrisksgothroughawholeprocessfrompre-loantopost-loanforbothbanks.TheIFCrequiresbothpre-loanandpost-loaninvestigationsandoverallsupervisionofaninvestmentproject.TheJBIConlyrequirespre-loanreviewandpost-loanfollow-uptocontrolenvironmentalandsocialrisks,inshortoffurtherdefinitionandspecification.
Specifiedrequirementsforreviewmaterialsanddocuments
CDB,ChinaEximBankandJBIChaveclearrequirementsforthetypesofdocumentstobesubmittedforprojectreviewandapproval.JBICalsorequiresthatthetypesofmaterialsmightvaryfromprojecttoprojectdependingontheenvironmentalandsocialriskassessmentratings.CDBprovidesthattheborrowermustobtaintheEIAdocumentofficiallyapprovedbythehostcountry(region)beforetheloancontractissigned. 50 ChinaEximBankrequirestheclienttoprovidereviewdocumentsissuedbyrelevantdepartmentsinthehostcountry,environmentalandsocialimpactassessmentreport,andwrittenopinioninthecreditgrantingreviewreportbyrelevantdepartmentspecifyingtheenvironmentalandsocialrisksoftheclient(includingPre-review).JBICprovidesthatclassAprojectsshallsubmitEnvironmentalandSocialImpactAssessmentreportsandenvironmentalpermitcertificatesissuedbythehostgovernmentorotherappropriateauthority.Forprojectsthat
49 Paulson Institute: Profiting from Precaution.
50 China Devlopment Bank: “Green Development for Mutual Benefit and Win-win Results – A Record of CDB’s Overseas Green Credit Business”.
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willresultinlarge-scaleinvoluntaryresettlementorlossofmeansoflivelihood,resettlementactionplansshouldbesubmitted,includinglivelihoodrestorationplansandindigenouspeople’splanswherenecessary.ClassFIprojectsshallsubmittheclassificationandassessmentresultsprovidedbyfinancialintermediaries,andclassBprojectsshallsubmitmaterialsvoluntarily.ClassCprojectshavenoneedtoprovidematerialsconcerningenvironmentalissues.AccordingtopoliciesoftheWBandtheIFC,theclientscanvoluntarilysubmitdocumentsandkeyinformationconcerningenvironmentalandsocialassessment.Toconclude,policybanksinChinaandJapanhavestricterandmorespecificrequirementsonthereviewmaterialswhiletheWBandtheIFCaremoreflexible.
Morestringentpunishmentmeasuresforviolationsagainstenvironmentalregulations
Whenitcomestotheresponseandpunishmentmechanismsagainsttheenvironmentalandsocialrisksdiscoveredinthemonitoring,CDB,ChinaEximBank,IFCandJBICwillallissueearlywarningorurgerectificationfirst.Fortheprojectsthatfailtorectifyasrequired,CDB,ChinaEximBankandJBIChavesetfurtherpunishments,amongwhichthetwoChina’spolicybanksaremorestringent.Iftheprojectfailstorectifyasrequired,ChinaEximBankwillstopprovidingcreditsupportandwillconsidertheprojectwithsuchenvironmentalandsocialriskmanagementconditionasnon-performingloansandbaddebts.CDBwilldowngradetheassetlevel,limittheloansandevenstopprovidingloanstotheenterpriseforviolatingenvironmentalregulationsorcausingseveresafetyaccidents.51 JBICwillalsosuspendissuanceoffundforprojectswhoseenvironmentalandsocialmeasuresarenotinplace.Settinguppowerfulpunishmentmeasureshelpsurgeborrowerstofulfilltheirenvironmentalandsocialresponsibilitiesandmitigatenegativeimpacts.
Effortsinsupportofgreeninvestment
LikeWB,IFCandJBIC,bothCDBandChinaEximBankhavespecializedbusinessestosupportgreeninvestmentandprovidepreferentialpoliciesandconvenienceforgreenprojects.CDBprovidescreditsupportforprojectsintheareasofpollutionpreventionandcontrol,renewableenergy,energysavingandenvironmentalprotection,andmodernagriculture,andactivelydevelopsnewtypesoffinancialproductssuchasgreenbondsandgreen"loan,debtandfund"andotherinnovativefinancingfacilities.ChinaEximBankhaslaunchedexpressservicesforgreencreditapproval,energy-savingenvironmentalprotectionfund,andcarbonfinanceservicesfocusedoncarbonassetconsultation,inanefforttostrengthenthesupportforgreenandlow-carbonrecyclingeconomy.TheWBhasissuedalargenumberofgreenbondstosupportclimateinvestmentindevelopingcountriesandestablisheda“GreenBondImpactReport”totrackandstudytheuseofitsearnings.TheIFCalsoprovidespreferentialconditionsforprojectsthatarebeneficialtoenvironmentalprotectionandimprovement,andhassetupspecializedmechanismsandoperationsforgreeninvestmentprojects.
51 Ibid.
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Table3-1:AComparisonofenvironmentalandsocialpoliciesamongfivefinancialinstitutions:
ChinaDevelopmentBankExport-ImportBankof
ChinaWorldBank
InternationalFinance
Corporation
JapanBankof
International
Cooperation
Majorfinancing
sectors
Electricity,highway,
railway,petroleumand
petrochemical,coal,post
andtelecommunications,
agriculture,forestryand
waterconservancy,
urbanpublicfacilities,
etc.
Chineseenterprises’
exportofmechanicaland
electricalproducts,
completesetsof
equipment,high-tech
productsexports,foreign
contractedprojectsand
overseasinvestment.
Mainlyinfrastructure
andservicesin
developingcountries.
Financialindustry,
infrastructure
constructionand
agroforestry.
Energyandnatural
resources,infrastructure,
manufacturing,and
environmental
protection.
Theearliest
environmental
andsocial
policies
NoticeoftheGeneral
OfficeoftheState
DevelopmentBankon
ImplementingCredit
PolicyandStrengthening
Environmental
Protection,1995.
TheExport-ImportBank
ofChinaLoanProject
EnvironmentalandSocial
EvaluationGuidance,
2007.
OperationalManual
Statementon
EnvironmentalAspects
ofWorldBankWork,
1984.
IFC’sEnvironmental
AnalysisandReviewof
InternationalFinance
CorporationProjects,
1993
JapanBankfor
International
CooperationGuidelines
forConfirmationof
EnvironmentalandSocial
Considerations,2003.
Current
environmental
andsocial
policies
Aseriesofdocuments
relevanttoGreenCredit
in2015
Export-ImportBankof
ChinaGreenCredit
Guidance,2015
TheWorldBank’s
Safeguardpoliciessince
1997
IFCEnvironmentaland
SocialSustainability
Policy,IFC's
EnvironmentalandSocial
PerformanceStandards,
JapanBankfor
International
CooperationGuidelines
forConfirmationof
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IFCAccessto
InformationPolicy,2012
EnvironmentalandSocial
Considerations,2015
Proposed
updatesofthe
policies
N N
TheEnvironmentaland
SocialFramework,2016
(estimatedtobe
enforcedin2018)
N N
The
environmental
andsocial
issuesinvolved
Pollutioncontrol,health,
immigration,etc.
Energyconservation,
landacquisitionand
involuntarymigration,
biodiversityconservation
andsustainablenatural
resourcemanagement,
etc.
Currentpolicycontains
issuesofenvironmental
assessment,natural
habitats,pest
management,indigenous
peoples,physicalcultural
resources,involuntary
resettlement,forests,
safetyofdams,projectsin
disputedareas,projects
onInternational
Waterways.
Thenewframeworkwill
alsoincludeissuesof
comprehensiveprotection
oflaborandworking
conditions,general
principlesofnon-
Environmentalandsocial
risksandimpacts,labor
andworkingconditions,
resourceefficiencyand
pollutioncontrol,
communityhealth,
safetyandsecurity,land
acquisitionandnon-
resourcetransfer,
biodiversityconservation
andsustainable
managementof
biologicalnatural
resources,indigenous
residents,cultural
heritage.
Environmentalimpact
includesimpactonHuman
healthandsafetyaswell
asnaturalenvironment
throughair,water,soil,
waste,accidents,water
usage,ecosystemand
biota.
Socialconcernsincludes
respectforhumanrights,
suchasinvoluntary
resettlement,indigenous
people,culturalheritage,
landscape,gender,
children’srights,
communicablediseases,
workingconditionsand
communityhealthysafety
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discrimination,social
healthandsafety
measuresforroadsafety,
emergencyresponseand
disasterreduction.
andsecurity.Andimpact
thatmayleadtotrans-
boundaryandglobal
environmentalproblems.
Processof
environmental
andsocialrisk/
impactcontrol
Projectdevelopment,
creditapproval,contract
management,post-loan
managementetc.
Supervisionwillbe
throughoutthecredit
process.
Pre-loaninvestigation,
loanreview,contract
management,loan
issuanceandpost-loan
management
Projectapproval,
preparation,evaluation,
implementationprocess
andaftertheproject.
Riskcontrolis
throughoutthe
investmentcycle
Pre-loanreview(asearly
aspossiblefromthe
planningstage)andpost-
loanmanagement
The
environmental
andsocial
standards
employed
Referringtolawsand
policiesofthehost
countries.
Evaluationisinlinewith
hostcountries’lawsand
policies,atwhose
absencetheChinese
standardorinternational
practicewillbereferred
to.
Projectsshallmeetboth
therequirementsofhost
countries’lawsand
policiesandOP4.01.
Whenthetwoare
inconsistent,followthe
strictestrulesofthe
standards.
Therequirementsinthe
PerformanceStandard
shallbemet,details
referringtothe
Environmental,Health
andSafetyGuidelines.
Internationalpractices
andlawsinhostcountry
shouldalsobe
considered.When
differentstandardsare
inconsistent,followthe
strictestone.
Hostcountry’slawsand
policiesonenvironment,
IFC'sEnvironmentaland
SocialPerformance
Standards,theWorld
BankGroup
Environmental,Health
andSafetyGuidelines.
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Setupan
environmental-
socialsector
N N Y Y Y
Pre-loanreview
asabasisfor
credit
Y Y Y Y Y
Categorize
customers
accordingto
environmental
andsocialrisks
N Y Y N Y
Relevant
environmental
andsocial
documents
required
EIAdocumentofficially
approvedbyhost
countrygovernment.
Theapprovaldocument
ofthecompetent
departmentofthehost
country,theEIAreport,
andawrittenreviewof
theclient'sexposureto
environmentalandsocial
risksintheclient'scredit
review(including
preliminary)report.
Documentscontain
environmentalandsocial
evaluation.
Customersarerequired
toprovidekey
informationaboutasset
andenvironmentalsocial
risksandimpact
management.
ProjectsinCategoryAare
requiredtoprovidetheEIA
report,Government
EnvironmentPermit
Document.Projects
resultinginlarge-scale
involuntaryresettlement
andhavinganimpactonthe
aboriginesshallprovide
resettlementlivelihood
recoveryplanandthe
originalindigenous
program.
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FICategoryprojectsare
requiredtoprovidethe
classificationandevaluation
resultsbyfinancial
intermediaries.
Voluntaryprovisionof
relatedmaterialsforB
categoryprojects.
Open
communication
and
consultation
mechanism
withthelocal
community
N Y Y Y Y
Differential
managementof
high-risk
projects
Y Y Y Y Y
Fieldresearch
andsupervision
onenv’tissues
inoperation
N N N Y Y
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Riskcopingand
disciplinary
mechanismin
project
implementation
Advanceanddynamic
riskwarningmechanism.
Degradationofasset
quality,loanlimitand
ceaseoflendingfor
enterprisesobserved
violationsofthelawand
majorsecurityaccidents.
Requiretheborroweror
projectownertotake
measurestoeliminatethe
impactintime.Failureto
complywiththe
requirementswillstopthe
creditsupport.
Inadequateenvironmental
andsocialrisk
managementwillalsobe
consideredasnon-
performingloansandbad
debtsidentification.
N/A
Disclosureofcustomers’
violationagainstthe
PerformanceStandard,
andhelpthemidentify
opportunitiestoimprove
theenvironmentaland
socialperformanceof
theproject.
Improper
implementationof
environmentalandsocial
protectionmeasures
requirerectification;if
therectificationisnotin
place,paymentoffunds
willbesuspended.
Specialized
business
supporting
Green
Investment
Y Y Y Y Y
Develop
information
disclosure
policy
N N Y Y Y
Rangeof
Informationto
bedisclosed
Notspecified. Notspecified.
Informationoutsidethe
exceptionlistshallbe
disclosed.
Bothroutinelydisclosed
informationand
informationprovidedto
ProjectsincategoryAand
BshallpublishtheIEA
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thepublicbyrequest,
mainlyincludingproject
informationand
expectedenvironmental,
socialanddevelopment
impactetc.
reportandenvironment
permitdocuments.
ProjectsincategoryA,B
andFIShalldisclosethe
environmentalreview
results,andproject
implementationunitsshall
announcethe
environmentalandsocial
protectionmeasurestest
report.
Environmental
information
disclosure
channels
TheWBwebsite,more
than100public
informationcenters,
publicapplicationchannel
andcomplaint
mechanism.
IFCwebsite,public
applicationchanneland
compliantmechanism.
JBICwebsite
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4.CASESTUDIES:ROLEOFPOLICYBANKSINTHEPREVENTIONANDCONTROLOFENVIRONMENTALANDSOCIALRISKS
InordertofurtherverifytheeffectofenvironmentalandsocialpoliciesimplementedbyChina'spolicybanksinrealpractice,aresearchteamoffourincludingGEIstaffsandexpertswenttoColombo,capitalofSriLankainMarch2017,andvisitedsomeChineseenterprisesworkingoninvestmentandcontractingprojectsinSriLanka,andinterviewedtheirgeneralmanagersandprojectleaders.Duringthefivedaysvisit,theteaminterviewedrepresentativesfromsixstate-ownedenterprisesandoneprivateenterprise,obtainedfirst-handinformationabouttheenvironmentalandsocialriskstheseenterpriseshadcomeacrossinSriLanka,andconductedin-depthstudiesinthepreventativemeasuresprovidedbybanks’lendingpolicies.ThischapterwilldiscusstwocasesinvolvingtwoprojectscontractedandinvestedbyChineseenterpriseswithfinancialsupportfromChina’spolicybanks:SriLankaSouthernRailwayprojectandColomboPortCityproject.BasedonfieldresearchandinterviewswithrepresentativesfromtheChineseenterprises,thedetailedrecountincludesinformationonthefinancingmodelsoftheprojects,theirenvironmentalimpactassessment,andthecrisesofprojectsuspension.Itwillalsolookintotheimplementationofbank’senvironmentalandsocialpoliciesintheprojectsandanalyzetheremainingchallengesforcurrentpoliciesinpreventingandcontrollingenvironmentalandsocialrisks.
4.1ABOUTSRILANKA
StatisticsonChina’sinvestmentandcontractinginSriLanka
StatisticsfromChina’sMinistryofCommerceshowthatChina’snon-financialforeigndirectinvestmentflowinSriLankawasUSD75.39millionin2014.Asoftheendof2014,China’sforeigndirectinvestmentstockinSriLankastoodatUSD477million.Inthepastfiveyears,Chineseenterpriseshavemadeleap-forwarddevelopmentininvestmentinSriLankaandsignedseverallarge-scaleinvestmentprojects,includingColomboSouthContainerTerminalinvestedbyChinaMerchantsGroup,ColomboPortCityinvestedbyChinaCommunicationsConstructionGroupCo.,Ltd.,andtheAVICAstorialuxuryapartmentprojectinColomboinvestedbyAVICInternationalHoldingHKLtd.Inaddition,investmentbyChineseprivateenterprisesinSriLankahasseenrapiddevelopmentinvariousfieldssuchashotel,tourism,agriculturalproductprocessing,fishery,furnituremanufacturing,textile,feeding,biomasspowergeneration,bicyclemanufacturing,warehousingandlogistics.
AccordingtoChina’sMinistryofCommerce,in2014,thenewlysignedcontractamountofChineseenterprisesinSriLankareachedUSD2,798millionandtheturnoveramountedtoUSD2,191million.1,667Chinesecontractworkersweredispatchedin2014andbytheyearend,therewerealtogether3,350contractworkersinSriLanka.Newlysignedlarge-scaleprojectcontractingprojectsincludetheGin-NilwalaDiversionProjectconstructedbyChinaCAMCEngineeringCo.,Ltd,thePitigalaDamProjectconstructedbySinohydroCorporation,andtheconsultationfortheextensionofSriLanka’sSouthernExpresswaycontractedbyChinaRailwayFirstSurvey&DesignInstituteGroupLtd.
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Atpresent,47ChineseenterprisesareregisteredattheEconomicandCommercialCounselor’sOfficeoftheChineseEmbassyinSriLanka,includingChinaHarborEngineering,ChinaStateConstructionEngineering,ChinaGeo-Engineering,SinohydroCorporation,ChinaNationalAero-TechnologyImport&ExportCorporation,ZTECorporation,andChinaNationalCorporationforOverseasEconomicCooperation.Theirbusinessesmainlyincludecontractingprojects,investmentandtradeandothercommercialactivities.
ChineseenterprisesinSriLankaarecommonlyfinancedthroughexportbuyer'screditandthepackagedcross-borderfinancialservicesprovidedbydomesticbanks.
SriLanka’spoliciesonoverseasinvestmentandcontractprojects
TheSriLankangovernmentestablishedaBoardofInvestment(BOI)toencourageforeignenterprisesorgovernmentstoinvestinSriLankaandreviewandapproveoverseasinvestment. 52 SriLanka’smajorareasforforeigninvestmentincludetourismandentertainment,road,bridge,port,electricity,communications,watersupplyanddrainageandotherinfrastructureconstructionprojects,informationtechnology,textile,agricultureandanimalhusbandry,importreplacementindustryandexport-orientedindustry.ThereisnorestrictiononmeansofinvestmentinSriLanka.ForeignenterprisesareencouragedtoparticipateinSriLanka’sinfrastructureconstructionandinvestinanyindustrythroughBOTandPPPexceptforsomerestrictedareas.However,theoverseasinvestmentpoliciesmaybeadjusted,asthegovernmentisstillintransitionafterthepresidentialelectionandparliamentaryelectionin2014.Severallarge-scaleprojectsincludingsomeinvestedandcontractedbyChineseenterpriseshavebeensuspended.ThesituationforforeigninvestmentinSriLankaneedsfurtherobservation.
ForeignenterprisesaremainlyinvolvedinthreetypesofcontractprojectsinSriLanka.Eachtypehasitsprosandconsforforeignenterprises,asshowninTable4-1.
52 Sri Lanka’s Market Access Regulations on Foreign Investment. 2015.08.19. http://lk.mofcom.gov.cn/article/ddfg/201508/20150801085257.shtml
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Table4-1ContractprojectsinSriLankaandforeignenterprises’advantages
Types Advantages
1. Projectsfinancedbytheowner;localcompaniesareabletocontract.
Foreignenterprisesarenotforbiddenbythegovernmenttoparticipate,butcomparedwithlocalcompanies,theydonothaveanyadvantageinwinningthecontract.
2. Projectsfinancedbyinternationalinvestmentorindependentgovernmentalfund;localcompaniesarenotabletocontract.
Foreignandlocalcontractorscancompeteinaninternationalbidding.TheSriLankangovernmentencouragesforeignandlocalcontractorstoestablishjointventurestoparticipateinthebiddingandconstruction.Oncesucceeded,theywillenjoypreferentialtaxrates.Bothforeignandlocalenterprisesarerequiredtoparticipateandcompeteaccordingtothebiddingprocedures.
3. Privateprojectsinvestedbyindividualsornongovernmentalentities.
Thebiddingoftheprojectsdependsontheproceduresandregulationsoftheprivateowner.SriLankahasregulationsonforeigncompaniesparticipatingintheprojectbidding.Foreigncompanyshallpassrelevantpre-qualificationsandChinesecompanyshallbecertifiedorrecommendedbytheEconomicandCommercialCounselor’sOfficeofChineseEmbassyinSriLanka.
MostprojectsinSriLankaareconductedthroughinternationalpublicbiddingwhilesomeothercontractorsusefinancingtonegotiatebids,whichisnotopenandcompetitivebecausetheownerandthecontractorreachagreementthroughone-on-onenegotiations.
Investmentrisks
AccordingtotheNationalInvestmentandBusinessFacilitationStatusReport2016issuedbySinoRatingDepartmentofChineseExport&CreditInsuranceCorporation,severalratingagencieshavegivenSriLanka'ssovereigncreditratingin2016belowaverageandanegativeprospectforinvestmentinSriLanka.SriLanka'sCorruptionPerceptionsIndexrankingin2015andtheWorldBankEaseofDoingBusinessIndexrankingin2017werealsoaroundorbelowaverage.Similarly,theCountry-riskRatingofOverseasInvestmentfromChina2016publishedbytheWorldHistoryInstituteofChineseAcademyofSocialSciencesalsoclassifiedSriLankaintoaveragelevel.Thereportemphaticallycitedseveralreappraisedandindefinitelysuspendedcases,includingChina-aidedportproject,astypicaldauntedorfailedinvestments.
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Table4-2EaseofinvestmentandbusinessinSriLanka
RatingAgency TimeofRating SovereignCreditRating Prospect
FitchRatings 2016.3 B+ Negative
S&P 2016.3 B+ Negative
Moody's 2016.7 B1 Negative
Sinosure 2016.10 CCC(7/9)Stable
2015CorruptionPerceptionsIndex 83/168
2017WorldBankEaseofDoingBusinessIndex 110/190
4.2CASE1:CMCANDSOUTHERNRAILWAYPROJECT(EPCMODE)
AboutCMC
Foundedin1950,ChinaMachineryImport&Export(Group)Co.,Ltd.(CMC)isChina’sfirstlarge-scalestate-ownedforeigntradecompanyspecializedinimportandexportofmechanicalandelectricalproductsaswellasinternationalengineeringcontractingbusiness.In1998,CMCbecameawholly-ownedenterpriseofChinaGeneralTechnology(Group)HoldingLtd.underthedirectsupervisionofthecentralgovernment.CMC’sinternationalengineeringandcontractingbusinessescovervariousfields,includingenergy,railwaytransportation,chemicals,buildingmaterials,andshipbuilding.Itsbusinessnetworkreaches160countriesandregions,andithasexportedcompletesetsoflargeandmedium-sizedequipmenttomorethan20countriesandregions.Atpresent,thecompanyhasoverseasrepresentativeofficesin13countries,includingPakistan,Bangladesh,France,Germany,Indonesia,Iran,Japan,Malaysia,Myanmar,Russia,SriLanka,TurkeyandVietnam.
CMC’srepresentativeofficeinSriLankaismainlyspecializedinrailway,energy,chemicalindustry,infrastructureconstruction,large-scalecomplete-setequipmentexportandnewenergydevelopment.Meanwhile,theofficeistakingtheSouthernRailwayprojectasanopportunitytomakeitsPhaseIarolemodelprojecttoextendittoPhaseII,PhaseIIIandotherextensionprojects.Theofficeendeavorstodeveloprailwayprojects,energyprojects,watertreatmentprojectsandship,vehiclesandcomplete-setequipmentexportprojectsinanefforttoexpandthescopeofbusinessandmarketshareofthecompanyinSriLanka. 53
Abouttheproject
TheSouthernRailwayinSriLankastartsfromMataraofSouthernProvinceandendsintheKataragamaofUvaProvince,withatotallengthof127km.Theprojectisdividedintothreephases.PhaseI,fromMataratoBeliatta26.7-kmlong,ledbyCMCandco-constructedbyChinaRailwayNo.
53 Official website of China Machinery Import & Export (Group) Co., Ltd 2017.04.26. http://www.cmc.com.cn
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5EngineeringGroup.Theprojectwillbuildasingle-trackrailwaypoweredbyaninternalcombustionengine,plusstations,tunnels,bridges,andculvertsalongtherailway.Thedesignspeedofthetrainis120km/h,thefastestinSriLanka’shistory.Itwillbethefirstrailwayconstructedinthepast90yearsinthecountry.ItisexpectedtohelppromotetheupgradingoftheSriLanka’srailwaynetwork,drivethedevelopmentoftourismalongtherailroad,andrevitalizethepost-wareconomyinSriLanka.
TheSouthernRailwayprojectisthefirstrailwayprojectcontractedbyaChineseenterpriseintheformofEPCinSriLanka.CMCsignedanofficialagreementonSouthernRailwayPhaseIwiththegovernmentofSouthernProvincein2010atacontractvalueofUSD278million.Theprojectisfinancedbythe“twopreferentialloans”(ConcessionalLoanandPreferentialExportBuyer’sCredit,seeTable3)providedbyChinaEximBanktoSriLanka’sMinistryofTransport,withUSD200millionintheformofPreferentialExportBuyer'sCreditandtherestUSD78.2millionintheformofChineseGovernmentConcessionalLoan,atanannualinterestrateof2%andarepaymentperiodof20yearsincludingafive-yeargraceperiod. 54
AccordingtoCMC’sdirectorinSriLanka,thecompanyhastriedtoopenmarketsinBangladesh,SriLankaandotherSouthAsiancountriessince2004andalsotriedtopromoteChinaEximBank’s“twopreferentialloans”inresponsetoChina’s“goingout”initiative.Afteryearsofmarketingandinteractionwiththelocalgovernment,CMCfinallysignedanofficialagreementwithSriLankanGovernmentontheSouthernRailwayprojectin2010.In2013,CMCobtainedtheloanfromChinaEximBankandstartedconstructioninAugust2013.
Table4-3Aboutthe“twopreferentialloans”
ChinaEximBankistheonlybankappointedbytheChinesegovernmenttoimplementthe“twopreferentialloans”.ThesetwofacilitiesareanarrangementmadebytheChineseGovernmenttosupportotherdevelopingcountrieswithconcessionalfundingprovidedbypolicybank’spreferentialloans.The“twopreferentialloans”aretheChineseGovernmentConcessionalLoanandPreferentialExportBuyer'sCredit.TheChineseGovernmentConcessionalLoanreferstothemediumandlongterm,lowinterestrateloanfacilitywiththefeatureofgovernmentaidandgrant.PreferentialBuyer’sCreditreferstotheloanfacilitywithconcessionaltermstopromotetheeconomicandtradecooperationbetweenChinaandkeycountriesandregionsapprovedbytheStateCouncil.55 The“twopreferentialloans”aresovereigndebts.Theborroweristhesovereigninstitutionoftheprojectortheentityappointedandguaranteedbythesovereigninstitution.ThesovereigninstitutionreferstotheMinistryofFinanceortheCentralBank.
Suspensioncrisis
InJanuary2015afterMaithripalaSirisenacameintoofficeasSriLanka’snewPresident,severallarge-scaleprojectsendorsedbytheformergovernmentandinvestedandconstructedbyChineseenterpriseswerecalledoff,includingtheSouthernRailwayproject.InAugust2015,theSriLankanGovernmentdeclaredthatCMCdidnotbidontheprojectandthecostoftheprojectwasbeyondestimate,insinuatingitwasrelatedtothecorruptionallegationsagainstformerPresidentMahindaRajapaksa.Accordingly,SriLanka’sExternalResourcesDepartmentlaunchedaninvestigationintoseveralproceduraldocumentsincludingfeasibilityresearchandenvironmentalimpactassessment,
54 China will provide loan and support for Sri Lanka Railway. Reuters. 2013.03.05. http://cn.reuters.com/article/cn-loan-sri-lanka-rrl-idCNCNE9240AU20130305
55 On China’s “Going Out” Strategy and ChinaEximBank’s Two Preferential Loans. 2015.10.08. http://www.ntfec.gov.cn/rcpx/contents/2396/14843.html
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causingasuspensionofmorethansixmonthsfortheproject.Thecontractperiodwasprolongedaccordingly. 56,57 Theprojectwasoriginallyscheduledtobecompletedby2016,yetbyMarch2017whentheGEIteamvisitedtheconstructionsite,theconstructionofPhaseIwasrushingtocompletion.TheprojectwasnowexpectedtocompletebytheendofSeptember2017.
Oneofthereasonsforthesuspensionisconcernedaboutenvironmentalimpactassessment.ChinaEximBankspecifiedthatwhenapplyingfor“twopreferentialloans”thegovernmentoftheborrowercountryshouldsubmitafeasibilityresearchreport(proposal)andanenvironmentalimpactassessmentreport.ThefeasibilityresearchandenvironmentalimpactassessmentoftheSouthernRailwayprojectwereconductedbytheSriLankangovernment.CMC,asthecontractoroftheproject,wasnotdirectlyinvolvedintheenvironmentalimpactassessmentprocessbutwasonlyresponsibleforurgingthegovernmenttocompletetheenvironmentalimpactassessmenttofacilitateChinaEximBank’sloanapproval.Similarly,theSriLankangovernment,astheowneroftheproject,alsohandledlandacquisition,resettlementandotherissuestakingplaceduringtherailwayconstructionwhileCMC’srolewastoprovidetechnicalsupport.
AccordingtotheCMCdirector,thegovernmentandthepeopleofSriLankahavehighawarenessofenvironmentalprotectionandhighrequirementsforenterprisestofollowrelevantrules.Forexample,theSriLankangovernmentestablishedCentralEnvironmentalAuthority,oneofwhichfunctionsistoapprovelarge-scaleprojectsbasedontheenvironmentalimpactassessmentconductedbyoneofitsdepartments.58 Thehigh-handedsystemimposeshighenvironmentalandsocialrequirementsontheenterprises.CMChassetupaDepartmentofEnvironmentalHealthandSafety(EHS)fortheSouthernRailwayproject,responsibletoworkwiththeEIAdepartmentoftheCentralEnvironmentAuthorityandimplementingmeasuresproposedintheEIAreport,suchascleaningtheconstructionvehiclesbeforedriving,stoppingconstructionbefore7p.m.everydaytoavoidaffectingsurroundingresidents,andconductingmonthlysoundtests,drainagesamplecollectionandsoilcollection.Inaddition,SriLanka'sengineeringdesignandconstructionfollowsrelativelystringentBritishstandards,andtheprojectsupervisorisdirectlyemployedbytheprojectownertoensurestrictimplementationoftheengineeringstandards.59 Thereforewithinformationathandfromtheinvestigation,noobviousproblemswerefoundconcerningtheproject’senvironmentalaspect,andithadcausednofurtherobstacletotheprogressoftheproject.
Infact,compliancewiththehighstandardsadoptedbySriLankaandothersimilarcountrieswillposechallengesforChineseenterprises,suchasslowprogressoftheprojectandconsequentlyhighercostthanexpected.Apartfromthesix-monthsuspension,thedelayoftheSouthernRailwaywasalsocausedbytheunpreparednessforthestrictrequirementsbytheSriLankangovernment.TheywerebeyondtheexpectationoftheCMCwhosedomesticandoverseasexperiencesseemlessthanusefulinthiscase.Forexample,localworkerswerenotabletoworkonnightshiftlikeChineseworkersdo,andsomepartsoftheconstructionwererequiredbylocalsupervisortoberedesignedandrebuiltbecausetheywouldnotrecognizeChineseconstructionstandardsandexperience.WhilealltheserequirementsledtoChineseenterprises’timeandrevenueloss,thesearestillimportant56Sri Lanka says Indian, Chinese railway projects cost too much. EconomyNext.com. 2017.04.28. http://www.economynext.com/Sri_Lanka_says_Indian,_Chinese_railway_projects_cost_too_much-3-2577-.html
57 Interviews with CMC in field research. 2017.03.26.
58 Environmental Impact Assessment (EIA) Procedure in Sri Lanka. Central Environment Authority. 2013.11.14. http://www.cea.lk/web/index.php/en/environmental-impact-assessment-eia-procedure-in-sri-lanka
59 Interviews with CMC in field research. 2017.03.26.
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measurestoensurethequalityoftheprojectandcontroltheenvironmentalandsocialrisks.Forenterprisesandfinancinginstitutions,thesemeasurescanpreventtheprojectfrombeingquestioned,boycottedorevencalledoff.
ChinaEximBankandtheenvironmentalandsocialriskmanagementoftheproject
AsrequiredbyChinaEximBankandtheSriLankangovernment,theenvironmentalimpactassessmentoftheSouthernRailwayprojectwasthedutyoftheSriLankangovernmentwhiletheenterprisewasplayingasupportingandsupervisoryrole.TheconsiderationbehindChinaEximBank’srequirementthatthegovernmentisresponsibletocarryoutenvironmentalimpactassessmentismorewithconsiderationofavoidingenvironmentalandsocialrisksinaformofgovernmentwarranty.However,inthecaseoftheSouthernRailwayproject,eventhoughthegovernmenthastakentheresponsibilityforconductingenvironmentalimpactassessmentandsolvingrelocationandotherrelatedcommunityissues,itdidnothelpmitigateenvironmentalandsocialrisksfortheenterprise,butinsteadputtheChineseenterpriseintoapassiveposition.Astheenterpriseisnotthemajorimplementeroftheenvironmentalimpactassessment,relocationandotherissues,itwasunabletorespondinatimelyandprofessionalmannerwhentheywerequestionedbythepublicbutpassivelysufferedtheeconomiclosscausedbytheprojectsuspension.Moreover,environmentalandsocialissuesmayprovokethelocalcommunitytoboycotttheenterprise,harmtheirsocialreputation,andproducepotentialnegativeimpactontheirfuturebusinessdevelopmentinthelocalcontext.Withthepurposeofprotectingenterprise’sinterestsandeffectivelypreventingandcontrollingrisks,itwillbemorehelpfulifbanksrequiretheenvironmentalimpactassessmentbeconductedbytheenterpriseitselforathirdparty,andadoptahigherstandardthanthatofthehostcountry.Itwillhelptheenterprisetogaincontroloverthepublicdiscoursewhenquestionedorthreatenedtobecalledoff,andprotectitslegitimateinterestsandavoidlosses.
Ontheotherhand,ChinaEximBankonlyrequirestheborrower'sgovernmenttocompletetheenvironmentalimpactassessmentwhenprovidingthe"twopreferentialloans",butitdoesn’tverifyormonitoritscontentandquality,soitisnotpossibletopreventorcontrolpotentialenvironmentalandsocialrisks.Intermsoforganizationalstructure,ChinaEximBankdoesnothaveaspecializedenvironmentalimpactassessmentdepartmentorpersonnellikeJBICdoestoaccesstheEIAwork,thereforeChinaEximBankisnotplayingasubstantialroleinpractice.Intermsofinformationdisclosure,ChinaEximBankdoesnotdiscloseinformationaboutthetypesofenvironmentalrisksortheenvironmentalimpactassessmentoftheloanprojectsonitsofficialwebsiteoranyotherpublicplatforms,whichmaycausecomplaintsanddistrustamongthehostcountrycommunitiesandotherstakeholders.Theymayinterpretthenon-disclosureofinformationasirresponsibilityoftheChineseenterpriseandfinancialinstitution.
Howeverintermsofengagementoflocalcommunitiesinaproject,ChinaEximBankplayedanactiverole.ItrequiresClassAprojectstoholdpublicconsultation,requiringprojectswithpotentialimpacttothecommunitytoconductpublicnegotiationandcommunication.Theinvolvementofthecommunitystakeholdersintoenvironmentalimpactassessmentatanearlystagecanhelpalleviatethequestioningandresistancefromlocalcommunitieswhenproblemsoccur,asinthecaseoftheSouthernRailwayproject.
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4.3CASE2:CHECANDTHECOLOMBOPORTCITYPROJECT(PPPMODEL)
AboutCHEC
ChinaHarborEngineeringCo.,Ltd.(CHEC)wasestablishedinthe1980s,andisasubsidiaryofChinaCommunicationsConstructionCo.,Ltd.(CCCC),oneoftheworld’stop500enterprises.ItaimsatexpandingoverseasmarketsonbehalfofCCCC.Ithasmorethan70subsidiariesandofficesacrosstheglobe,coveringmorethan80countriesandregions,withacurrentcontractamountexceedingUSD19billionandemployingmorethan10,000peoplearoundtheworld.CHECismainlyengagedininfrastructureconstructionincludingmarineengineering,dredgingandreclamation,roadandbridgebuilding,railwayandrailtransportation,aviationhubsandrelatedequipmentsupplyandinstallation.Itprovidesintegratedservicesincludingcontractedconstructionandinvestment.60
In1998,CHECofficiallyenteredtheSriLankanmarketbycontractingafishingportproject.Sincethen,CHEChascontinuedtocontractseveralotherframeworkprojectsincludingthetributaryportproject,theSouthernHighwayproject,andtheHambanatotaPortproject.In2011,CHECestablisheditsregionalcompanyinSriLankatochasetheColomboPortCityprojectinresponsetotheCHECheadquarter’sproposaltotransitionandupgradefromengineeringcompanytoinvestmentcompany.OnSeptember17,2014,ChinesePresidentXiJinpingvisitedSriLanka,andlaunchedthePortCityprojecttogetherwithSriLanka’sPresidentMahindaRajapaksa. 61
Abouttheproject
TheColomboPortCityprojectisalargelandreclamationprojectaimingtobuildanurbancomplexintegratingfinance,businessandresidence.AdjacenttothecentralbusinessdistrictofColomboandtheinternationalcontainerport,thePortCityisdesignedtocoveranareaofmorethan5.3millionsquaremeters.Thereclamationof276acresoflandwillbecompletedinthreeyears,thecitywilltakeshapeinfivetoeightyears,andtheconstructionwillbefullycompletedin20to25years.62
TheColomboPortCityprojectwasjointlydevelopedbyCCCCandSriLankaPortsAuthority.Asawholly-ownedsubsidyofCCCC,CHECiscommittedtoexpandingoverseasmarketsonbehalfofCCCCandconstructingtheproject.CHECraisedUSD1.4billioninitsdirectinvestmentforprojects,broughtUSD13billionofsecondarydevelopmentinvestmentandcreatingmorethan83,000jobs.Differentfromotherlarge-scaleprojectsmanagedbystate-ownedenterprisesinSriLanka,theColomboPortCityisnotaprojectunderinter-governmentalagreementbutisinvestedandfinancedintheformofpublic-privatepartnership(PPP).CHECisresponsibleforinvestmentandfinancing,planning,constructionandoperationwhiletheSriLankangovernmentisresponsibleforprovidingvariouslicensesonenvironment,planningandconstruction.70%ofitsfundscomesfromthecommercialloanprovidedbyCDB.ThisprojectisbyfarthelargestforeigndirectinvestmentprojectinSriLanka’shistoryandoneofthemostimportantprojectsundertheBeltandRoadInitiative.Itis
60 Website of China Harbor Engineering Co., Ltd. 2017.05.05. http://www.chec.bj.cn/tabid/686/Default.aspx
61 Zhang Xiaoqiang. My 15 years in Sri Lanka. Asia Pacific Daily. 2014.11.24. http://cn.apdnews.com/srilanka/quyugongsi/118280.html
62CHEC and Sri Lanka co-build Colombo Port City: A USD 1.4 billion landfill project. Guanchacn. 2014.09.16. http://www.guancha.cn/Neighbors/2014_09_16_267496.shtml
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alsooneimportantstepinCHEC’stransitioneffortfromanengineeringcontractortoaninvestmentcompany.
Suspensioncrisis
InMarch2015,thesimilarsuspensioncrisisalsohappenedtotheColomboPortCityproject.ThenewSriLankangovernmentcontendedthatsomeoftheprojectsendorsedbythepreviousgovernmenthadnotundergonecompleteinternalproceduresandsuspendedtheColomboPortCityprojectthroughtheCabinetmeeting,requiringCHECtoprovideallrelevantlicenses.ThelocalpublicopinionmainlyfocusedontheenvironmentalimpactassessmentofthePortCity.AccordingtotheCHECdirector,thePPPmodelandthesignedcontractrequiredtheSriLankangovernmenttoberesponsiblefortheenvironmentalimpactassessmentandprovidetheresultoftheassessmenttotheenterprise.Whentheprojectwassuspended,theenterpriseshadobtainedalltheEIAlicenses,writtennoticeofconstructioncommencement,andotherrelevantdocuments.63
Accordingtothecontract,CHECshouldnotbeartheconsequencesofthesuspensionandtheSriLankangovernmentalsoclarifiedthattheresponsibilityshouldnotlieinCHEC,yetthesuspensionstillcreatednegativeimpacttothecompanyandtheproject.Theprojectsufferedaone-yearsuspension,causingalossofasmuchasUSD380,000perdayandworseningthelivelihoodsofmorethan5,000projectworkers.Infact,morethanathousandworkersoftheprojectheldrallyonMarch10,2015inprotestagainstthegovernment’ssuspension.64
InMarch2016,theSriLankangovernmentliftedthesuspensionafterayear.InAugust,thegovernmentannouncedanagreementwiththeCHECthatthelatterhadwithdrawnitsUSD140millioncompensationclaim,andthegovernmentallocatedanother2hectaresoflandtoCHECinreturn.Asidefromthat,theSriLankangovernmentalsodecidedtocancelthefreeholdofthe20hectaresoflandbytheChinesesideinthepreviousagreement,andchangedtheleaseperiodofallthelandusedbytheChinesesideinto99years.TheSriLankangovernmentwasreportedtoadmitthatthenewPresidentMaithripalaSirisenasuspendedtheprojectandchangedtheperpetuityintoa99-yearleasebecauseofthepressurefromIndiaanditsconcernaboutSriLanka’ssovereignty.65
CDBandtheenvironmentalandsocialriskmanagementoftheproject
ThecorereasonsforthesuspensionoftheColomboPortCityproject,similartothatoftheSouthernRailwayproject,wereanewroundoftussleforbenefitsincurredafterthechangeofSriLankangovernmentanditsprudencetostrikeabalancebetweenbigpowersundertheinfluenceofgeopolitics.Theproceduralproblemintheenvironmentalimpactassessmentservedasthedirectreasonforthesuspension.TheCHECdirectorinSriLankamentionedthattheenvironmentalimpactassessmentwasunquantifiableandtheapprovaloftheEIAreviewdidnotmeantheEIAreportwas
63 Colombo Port City incident: China’s footsteps and China’s protection. Shanghai Shipping. 2015.09.18. http://news.hsdhw.com/147868
64 A Guide on Overseas Investment in Sri Lanka 2016. “Going Out” Public Service Platform under the Ministry of Commerce. 2017.05.08. http://fec.mofcom.gov.cn/article/gbdqzn/upload/sililanka.pdf
65 US media: Indian pressure behind Sri Lanka’s halt of Chinese port city project in Sri Lanka. Reference News. 2016.08.06. http://www.cankaoxiaoxi.com/world/20160806/1258709.shtml
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comprehensive,reasonableandeffective.66 Inthiscase,theenvironmentalandsocialrisksbecamepartofthepoliticalrisks,andtheassessmentandpreventionofprojectrisksshouldtakebothfactorsintoaccount.Enterprisesandfinancialinstitutionsneedtoregulateandimprovethewholeoperationprocessofenvironmentalimpactassessmentagainstthepossibilityofbeingusedasexcusestoinstigatepoliticalcrisis,becomingthetargetofpubliccriticismandleadingtootherpotentialrisks.
Asacontractproject,ColomboPortCitytakesapublic-privatepartnership(PPP)mode.Theenterpriseandthehostcountrygovernmentagreedthattheenvironmentalimpactassessmentshallbeconductedbythegovernment.SimilartotheEIAinEPCinvestment,thePPPmodelcanhelptheenterprisesavecostsandavoidpotentialenvironmentalandsocialrisks.IncasesofprotestsorsuspensionagainsttheEIA,theenterprisewillnotbearanylossesasstipulatedinthecontract.TheCDB,thefinancingbankofthisproject,clearlystipulatesthattheborrowermustobtaintheEIAdocumentofficiallyapprovedbythelocalgovernmentbeforesigningtheloancontract.Thestrictrequirementsoftheproceduresanddocumentscanserveasevidenceforenterprisesinfaceofsimilarrisks.
AttemptstosearchinformationandnewsabouttheColomboPortCityprojectshowthattheCDBdisclosedlimitedinformationabouttheproject,andthekeydocumentssuchasfeasibilitystudyorenvironmentalimpactassessmentreportwerenotavailableonitsofficialwebsite.Duringourinterview,CMCdirectorsaidthattheCDBwouldregularlyconductpost-loanexaminationandduediligenceinvestigation, 67 howeversuchinformationcannotbefoundinanypublicdocumentsornewsrecords.ThereforeitfailedtoprovetowhatextenttheCDBhasplayeditsroleofcontrollingandmonitoringenvironmentalandsocialimpacts.Asidefromthat,theCDB,likeChinaEximBank,hasnotsetupanyspecializedenvironmentalandsocialdepartmentorpersonneltokeeptrackontheenvironmentalandsocialimpactsoftheproject,makingithardtoassessandsupervisetheenvironmentalimpactseffectively.ThatisoneoftheweaknessesofChina’spolicybanksinenvironmentalandsocialpolicies.
66 Interviews with CHEC in field research. 2017.03.28
67 Ibid.
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5.SYNTHESIZEDANALYSISANDSUMMARY
BycloselyexaminingtheenvironmentalandsocialpoliciesofCDB,ChinaEximBank,WB,IFCandJBIC,andcomparingthesimilaritiesanddifferencesoftheenvironmentalandsocialstandardsandproceduresbetweenChina’spolicybanksandinternationalfinancialinstitutions,thereportsummarizedthestrengthsandtheweaknessesofChina’spolicybanks’policiesandsystems.TobetterunderstandtheactualroleChina’spolicybanksplayinenvironmentalandsocialriskmanagementofoverseasprojects,thereportdedicatedlastchaptertointroduceanddiscussthetwocasesinSriLankavisitedandinvestigatedbytheGEIteam.TheSouthernRailwayprojectisanEPCcontractprojectfinancedbyChinaEximBankwith“Twopreferentialloans”andtheColomboPortCityprojectisaPPPinvestmentprojectsupportedbytheCDB.Althoughfinancinginstitutionsandprojectmodelsaredifferent,thetwoprojectsencounteredsimilarissuesandsufferedenormousenvironmentalandsocialrisksagainstthepoliticalbackdropofgovernmentchangeinSriLanka.
Across-checkonthepoliciesofthefivefinancialinstitutionsandthetwoprojectcasesshowsthatChina’spolicybankshavestandardizedandimproveddocumentcomplianceandproceduralsetting,andsomepoliciesarebetterdesignedthantheirinternationalcounterparts.However,theystillfacechallengesinenvironmentalandsocialriskmanagementandneedtocontinuouslyoptimizetheenvironmentalandsocialpoliciestoimprovetheabilitytorespondtotheserisks.Itissuggestedthatmoreeffortsshouldbemadeinthefollowingaspects:
Institutionalsetting
Establishspecializedenvironmentalandsocialdepartmenttoundertakecorrespondingresponsibilitiesandimplementthereview,supervision,managementandassessmentoftheproject’senvironmentalandsocialimpactswithclearresponsibilityandauthority.NeitherChinaEximBanknorCDBestablishedspecializedenvironmentalandsocialdepartment.ThetwocasesofSriLanka’sSouthernRailwayprojectandColomboPortCityprojectunderscoredtheweaknessoftheorganizationalstructure.TheabsenceofthedepartmentmakesitdifficultforthebanktooverseetheunfoldingoftheEIAandreviewingofitscontent,coordinatethepublicconsultationandcommunicationwiththelocalcommunityandotherstakeholders,helptheprojecttoimprovetheenvironmentalandsocialimpacts,andkeeptrackofsubsequentimplementation.Thebankwillalsonotbeabletotimelyfollowtheenvironmentalandsocialrisksandtakeeffectivepreventativemeasures.ThereforeestablishinganindependentenvironmentalandsocialdepartmentisameasureworthconsideringforChina’spolicybankinordertoimprovetheenvironmentalandsocialaspectsofitswork.
Policycontent
Formulateindependent,strictandfeasibleenvironmentalassessmentstandards.ChinaEximBankandCDBrequireoverseasprojectstoadoptenvironmental,socialandlegalpoliciesofthehostcountry,becausethetwoChinesepolicybankshavenotsetupasetofstrictandindependentenvironmentalstandardsoftheirown,unliketheWB,IFCandJBIC.EvenifthehostcountryhashighenvironmentalawarenessandrelativelyhighstandardslikeSriLankadoes,andtheenvironmentalandsocialimpactscanbecontrolledtoacertainextentbyadoptingtheirstandards,itisinsufficient
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tosafeguardtheprojectfromlatentenvironmentalandsocialrisksanditislikelythattheprojectwillbequestionedandprotestedbylocalresidents,NGOsandotherstakeholders.Becauseitisthegovernmentofthehostcountrywhodoestheenvironmentalimpactassessment,theChineseenterpriseshavenosaywhenfacedwiththecrisiscausedbyenvironmentalissuesandtendtosufferuncontrollableeconomiclosses.Assuch,inordertoprotecttheenterprises’interests,banksmayrequiretheprojecttorefertooradopttheenvironmentalandsocialstandardshigherthanthoseofthehostcountry.InvestmentprojectsmayusethePPPmodeladoptedbyColomboPortCityprojectasanexampleforreference:whileclarifyingtheresponsibilityofthehostcountryforenvironmentalassessment,banksandenterprisesshouldalsogetinvolvedinthesupervisionoftheassessmentprocessandkeeprecordofsupervisionforpossiblequestioningsinthefutures.
Furtherenrichandrefinetheenvironmentalandsocialissuesinthepoliciesandformulatespecificregulationsaccordingtodifferentissues.China’spolicybankshavepaidhighattentiontopollutionpreventionandcontrol,biodiversityconservation,naturalresourcesmanagement,landacquisition,resettlementandotherenvironmentalandsocialissues,asreflectedintheirenvironmentalandsocialpolicies.However,comparedwiththeirinternationalcounterparts,theseregulationscanbefurtherspecifiedandrefined.Thegeneralizationoftheenvironmentalandsocialissueswillrestrainthefeasibilityofthepoliciesandwaterdowntheireffectiveness.CBDandChinaEximBankcanrefertothetypesofenvironmentalandsocialissuesclassifiedbyWBandIFC,addingcontentsoflabourprotection,sustainabledevelopmentofcommunities,climatechange,indigenouspeoples,andculturalheritageamongothers.Theycanalsosetupspecificregulationsandstandardsfordifferenttypesofnaturalresourcesandpollutions.
Projectprocedures
Strengthenthepre-loanreviewoftheenvironmentalandsocialplanandproposesuggestionstorectifyweaknesses.Itisunderstoodthatenterprises’maininterestinaprojectdoesn’tlieinsolvingenvironmentalandsocialissues.Nothighlymotivatednorequippedwiththeexpertiseandtechnologies,theymayrelyonthefinancinginstitutionstoimprovetheenvironmentalandsocialplans.WB,IFCandJBICmakefulluseoftheirprofessionalknowledgetoimprovethepre-loanenvironmentalandsocialplansfortheclients.Forprojectswithhighenvironmentalandsocialrisks,toovercometheweaknessesintheenvironmentalandsocialplansdevelopedbytheenterprise,thebankswilltrytofindanalternative,formulateenvironmentalmanagementplan,orbringforwardimprovementsuggestionsandmakeimprovementplans.
TheinvestigationbyGEIteamshowsthatChinaEximBankandCDBwerenotmuchinvolvedintheenvironmentalassessmentanddidnotcontroltheenvironmentalandsocialplansgiventhatSriLanka’senvironmentalstandardswererelativelystrict.Inotherdevelopingcountrieswhereenvironmentalstandardsarenotasstrict,financialinstitutions,asthethirdpartyindependentoftheenterpriseandthehostcountrygovernment,shouldplayamoresignificantroleinsupervisionandassistance.China’spolicybanksneedtoprovidemoreprofessionalservicestourgetheborrowertoimproveitsenvironmentalandsocialperformanceinoverseasprojectandreduceenvironmentalandsocialrisks.Apartfromtheenvironmentalandsocialrequirementsimposedontheprojectinthedecision-makingprocess,thebankscanalsoprovideprofessionalconsultationstopushforimprovementsontheenvironmentalandsocialplansandsetfeasiblepreventativeandcontrolmeasuresforrisksandimpacts.
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Paymoreattentiontofieldvisitinpost-loanmanagementandsupervision.InthetwocasesofSriLanka’sSouthernRailwayprojectandColomboPortCityproject,althoughtheCDBandtheChinaEximBankestablishedofficesinSriLanka,thestaffmembersarenotresponsiblefortheinvestigationandsupervisionoftheenvironmentalandsocialimpactsoftheprojectandtheyrarelyinterveneintheprojectoperation.Theirmainsourcesofinformationonenvironmentalandsocialrisksareperiodicalreports.Incomparison,theenvironmentalandsocialpoliciesoftheinternationalinstitutionsandJBICallprovidethatfieldvisitandinvestigationshouldbeconductedwhennecessary.China’spolicybanksshouldlearnfromthisarrangementtostrengthentheeffectivenessofsupervision.Fieldvisitcanhelpthebankstoplayamoreactiveroleinoverseasprojectsandenhancetheirimageofbeingenvironmentallyandsociallyresponsible.Inaddition,enlistingthirdpartytoconductinvestigationandassessmentontheenvironmentalandsocialimpactscouldbeanotheroption.
Mechanismbuilding
Strengtheninformationdisclosureandimplementcomplaintmechanism.Strengtheninginformationdisclosureisthetrendofreformininternationalfinancialinstitutions,whereasChina’spolicybanksonlymadethefirststepinthisendeavor.InthetwocasesinSriLanka,noneofthebasicinformationabouttheproject,environmentalriskratingandtheenvironmentalassessmentweremadepublicontheofficialwebsiteofthetwobanks,andtheenterpriseswerenotrequiredtodisclosetheseinformationonotherpublicplatformseither.Missingofprojectinformationonpublicchannelstendtoescalatepubliccomplaintsandquestioningsintheeventofsuspensioncrises.Insufficientinformationdisclosureiscloselyrelatedtotheabsenceofrelevantpolicies.NeitherCDBnorChinaEximBankhasformulatedinformationdisclosurepoliciesordefinedthescopeandchannelsofdisclosedinformation.Withouthardandfastrules,theCDBevenundiscloseditsmainenvironmentalandsocialdocuments.China’spolicybanksthereforeneedtoimprovetheregulationsoninformationdisclosureintheirenvironmentalandsocialpolicies,definethescopeandchannelsforinformationdisclosure,andstrengtheninformationdisclosurewithinthescopeoflaw.Moreover,theycanlearnfromtheWBandIFCtobringincomplaintmechanismtofurtherensurethatallstakeholdersareinformedandengaged.
Buildacommunicationandconsultationmechanismwiththelocalcommunity.ThetwoChineseprojectsinSriLankabothsufferedsomeextraresistancefromthepublic,partlyduetoalackoftransparencyoftheprojectandpartlyduetoalackofcommunicationandinteractionwithlocalcommunitiesmakingitdifficulttoknowpublicattitudes,opinionsandlatentactiontowardstheproject.China’spolicybanksneedtopaymoreattentiontothecommunicationwiththecommunitiesaffectedbytheproject,establishaconsultationmechanism,providechannelstointeractandtalkwiththelocalcommunityandresidents.Communicationandconsultationcanhelpclearupmisunderstanding,mitigateoppositionsentiment,andreducetheunnecessaryresistance.
Insummary,environmentalandsocialriskmanagementisvitalforthesuccessofoverseascontractandinvestmentprojects.Toensuretheorderlyoperationoftheproject,avoidpublicquestioningandboycottandpreventunnecessaryeconomiclosses,banksshouldstrengthenthecontroloffinancingprocessfrompre-loantopost-loan,adopthigherandstricterstandards,setupprofessionalpositionsforsuchjob,provideprofessionalresources,andimproveinformationdisclosureandconsultationwiththecommunity.Particularlyinthehostcountrieswithdiminvestmentprospect,as
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manyenterpriseshopetotransformfromprojectcontractingtoinvestment,banksshouldpaymoreattentiontoenvironmentalandsocialriskmanagementtoavoidnegligenceoftheseaspectswhichwillgeneratenegativeimpactsonthereputationofChineseenterprisesandChina’soverseasimage.
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6.APPENDIX:KEYDEFINITIONANDINTRODUCTIONOFPOLICYBANKS
Policybank
Apolicybankisanonprofitfinancialinstitutionfoundedorguaranteedbythegovernmenttoimplementthenationalindustrialpoliciesandregionaldevelopmentpolicieswithspecialfinancingprinciples.Thedevelopmentprojectssupportedbypolicybanksareimportanttothenationaleconomicdevelopmentandsocialstability,however,theyareusuallycharacterizedbylarge-scale,longlifecycle,sloweconomicreturnsandlongreplenishmentsocommercialbanksarereluctanttofinanceorincapableoffinancingtheseprojects.
China’spolicybankswerefirstlyfoundedin1994whenTheExport-ImportBank(ChinaEximBank),theChinaDevelopmentBank(CDB)andtheAgriculturalDevelopmentBank(ADBC)wereestablished.ThethreebanksareunderdirectleadershipoftheStateCouncilandguidedandsupervisedbythePeople’sBankofChina.Whennewlyfounded,thethreebankshadclear-cutbusinessorientations:theChinaEximBankmainlysupportedforeigntradeandexportofmechanicalandelectricalproducts;theCDBmainlysupportedthenationalinfrastructureconstruction,basicindustry,andpillarindustry;theADBC’smainsupportwenttoagriculturaldevelopmentespeciallyinunderdevelopedareas,andtheproduction,collection,storageandsalesofgrain,cottonandedibleoil.
However,theirbusinessscopehasundergoneconstantadjustmentsinsyncwiththechangingnationalpoliciesandeconomicscenarios.In1990sChina’snationaltreasury,financiallystrained,wasunabletoprovidefinancingandsubsidiesforthepolicybanks.TheCDB,throughbondfinancingandotherself-financingprojects,workedoutitsown“developmentfinancingmodel”,whichcanbesummarizedas“servingnationalstrategy,relyingoncreditsupport,subsidy-free,marketoriented,independentoperation,far-sightednessforlong-term,lowbutsustainableprofit.” 68 Itsbusinesspriorityareashaveshiftedfrominfrastructure,basicindustryandpillarindustrytourbanization,shantytownrebuilding,and“goingout”enterprises.Similarly,ChinaEximBankandADBCalsostartedself-operatingbusinesses.69 ADBChasexpandeditsbusinessfromcollectionandstorageofagriculturalproductstoall-roundsupportfornewruralconstruction.ChinaEximBank’sprioritybusinesshasbeenshiftedfromexportofcapitalgoodstoprovidingpolicycreditandsupport“goingout”enterprisesforforeigncontractingprojectandinvestment. 70
Realizingthatthepolicybankshaveexpandedtheirfinancingchannelssuchasbondfinancingratherthanrelyingonstatetreasuryandopenedself-operatingbusinessesandevencommercialbusinesses,theChinesegovernmentplacedthereformofpolicybanksonitsagendain2007.Then
68 Zhou Xiaochuan talks about reform of policy banks:the core is capital constraint, China Business News. http://finance.ifeng.com/a/20150820/13921101_0.shtml
69 “Self-operating business” refers to self-determined, self-sustaining business at its own risks, but the business still serves the national strategy and policies, so it is different from commercial business.
70 Policy banks’ re-orientation. Caijing Magazine. 2015 Vol.13. http://magazine.caijing.com.cn/20150510/3878980.shtml
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ChinesePrimeMinisterWenJiabaopointedoutatthethirdfinancialworkmeetingthatthepolicybankreformshouldfollowprincipleoftargetedguidanceand“onebankonepolicy.”Thereformaimstoredefinetheboundarybetweenpolicybusinessandcommercialbusiness,solvetheproblemsoflowcapitaladequacyratioandhighnon-performingloanratioofChinaEximBankandADBC,inthehopeofthepolicybanksbeingself-operating,self-sustainingattheirownrisks. 71
ThereformstartedwiththeCDB.Inearly2008,theStateCouncilapprovedChinaDevelopmentBankOverallReformImplementationPlan.Bytheendoftheyear,theCDBhastransformedintoalimitedliabilitycompany,fullyimplementingcommercialoperation.ItisadifferentscenariowiththeChinaEximBankandtheADBC,whosereformsweredelayed.In2009,thePeople’sBankofChinatooktheleadinestablishingaworkingteamtopushforwardthereformofChinaEximBank.Theteamagreedthatthebankcanopenself-operatingbusinessesinadditiontoitspolicybusinessesbutrequiredthebanktomanagethetwokindsofbusinessesunderseparateaccounts.It’shopedthatthereformcanhelpthebanksupplementcapital,strengthenpoliciesandimprovegoverningstructure.72
Afterbeingshelvedandrepeatedlydiscussed,ADBC’sreformplanwasfinallyapprovedbytheStateCouncilattheendof2014.Marchnextyear,anotherplantodeepenthereformoftheCDBandtheimplementationplantoreformChinaEximBankwerealsoapproved,whichmarksthefinalizationofreformplansforallthreepolicybanks.Thereformhasclearlyredefinedthebusinessorientationofthethreebanks:theCDBstickstodevelopmentfinancinginstitutionstatuswhileChinaEximBankandADBCcontinuetoperformpolicyfunctions.Thereformaimstoincreasethecapitaladequacyratioofthethreebanks,establishcapitalconstraintmechanism,furtherimprovetheorganizationalandgoverningstructure,improvetheirassetqualityandrealizesteadyandsustainableoperation.InJuly2015,StateAdministrationofForeignExchangeinjectedUSD48billionandUSD45milliontotheChinaEximBankandtheCDBrespectively,successfullyincreasingthecapitaladequacyratioofthetwobanks.
WorldBank
WorldBankGroupisamultilateraldevelopmentinstitutionundertheUNsystem,consistingoffivedevelopmentorganizations:InternationalBankforReconstructionandDevelopment(IBRD),InternationalDevelopmentAssociation(IDA),InternationalFinanceCorporation(IFC),MultilateralInvestmentGuaranteeAgency(MIGA)andInternationalCentreforSettlementofInvestmentDisputes(ICSID).TheWorldBankGroupisdifferenttheWorldBankwhichisaninternationalfinancialinstitutioncomposedofIBRDandIDA.IBRDandIDAhavethesamegoal,thesamestaffandthesameworkplaceandtheyfollowthesameprojectassessmentstandard,buttheyprovidedifferentservicesandtheirfinancingapproachesaredifferent.
71 MinistryofCommerceofPRC,NationalBureauofStatisticsofPRC,StateAdministrationofForeignExchange2015StatisticalBulletinofChina’sOutwardForeignDirectInvestment.
72 Yan Rui, Zhu Xuechen. Li Ruogu:Policy banks won’t commercializ. 英才[J]. 2010(5). http://finance.sina.com.cn/china/jrxw/20100428/10257842428.shtml
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IBRD’scapitalcomesfromthepaid-incapitalcontributedbymembergovernmentsandfundsfrominternationalcapitalmarketsthroughbondissues.Itprovidesloans,guaranteesandriskmanagementproductsandconsultationservicestomiddle-incomemembercountryandlow-incomecountrieswithgoodcredittoimprovetheireconomicandsocialdevelopment.Infiscalyear2016,IBRDcommittedUSD29.7billionofnewloansfor114projects,coveringpolicybuilding,energyandmining,transportation,municipalinfrastructureconstruction,industryandtrade,finance,healthandothersocialservices.TheloanbalancestoodatUSD167.6billion.
Figure6-1:Fiscalyear2016mainsectorssupportedbyIBRD
WorldBankGroup
IDA’scapitalcomesfromthecontributionsfromthedevelopedcountriesandmiddle-incomecountries,transferfromtheIBRD,theIFCandreplenishmentsfromborrowercountries.Itprovidesconcessionalloans,donationsandguaranteestopoorestmembercountries.Infiscalyear2016,IDAcommittednewfundsofUSD16.2billion,includingloansofUSD14.4billion,donationofUSD1.3billionandguaranteeofUSD500million,coveringhealthandothersocialservices,policybuilding,energyandmining,transportation,agriculture,fisheryandforestryandinfrastructureconstruction.TheloanbalanceisUSD132.8billion.73
73 IBRD Financial Statements for September 30, 2016. http://siteresources.worldbank.org/EXTABOUTUS/Resources/29707-1280852909811/IBRD_Sep_16.pdf; IDA Financial Statements for September 30, 2016.http://siteresources.worldbank.org/EXTABOUTUS/Resources/29707-1280852909811/IDA_Sep_16.pdf.
publicmanagement,law
andjudicary19%
energyandmining15%
transportation15%
watersupply,sanitationandflood
prevention14%
industryandtrade11%
finance9%
healthandothersocialservices
8%education
6%
agriculture,fisheryandforestry
2%
informationcommunication
1%
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Figure6-2:fiscalyear2016mainsectorssupportedbyIDA
WorldBankGroup
TheInternationalFinanceCorporation(IFC)isfundedby184membercountiesandcommittedtoofferingadiversityoffinancingsupportfortheprivatesectorsinthedevelopingcountriesandtheemergingmarkets,includingequityinvestment,long-termdebtinvestment,fundandstructuringfinancing,tohelpthedevelopingcountriesachievesustainabledevelopment.IFC’sbusinesscoversmorethan100countriesintheworld.Itspolicieswereformulatedbyallmembercountries.IFC’smainbusinessesincludeinvestmentandadvisoryproducts.Investmentproductswithlongertenorinclude:directlendingtoprivatesectorcompanies(includingcorporateandprojectfinance);lendingtovarioustypesoffinancialintermediariesaswellasthroughfundsandfacilities;minorityequitystakesincompanies,includinginfinancialinstitutions;andguaranteefacilities,municipalfinance,aswellasinvestmentsmanagedbyIFC’sAssetManagementCompanyoranyotherIFCsubsidiary.Advisoryproductsincludetechnical,financialand/orregulatoryadvice,projectstructuringaswellastrainingtocompanies,industries,andgovernments.74
Infiscalyear2016,IFCmadenewinvestmentofUSD11.1billionto344projectsin78countries.Thoseinvestmentsmainlywenttofinancialsectorfollowedbyinfrastructureconstruction,agricultureandforestry(graphic2-5). 75 IFC’sstrategicprioritiesincluderaisingawarenessofthemarginalmarket,solvingissuesaroundclimatechange,ensuringthesustainabilityofthe
74IFC. International Finance Corporation’s Policy on Environmental and Social Sustainability. 2012.1.1.
75 IFC Annual Report 2016 Experience Matters. http://www.ifc.org/wps/wcm/connect/CORP_EXT_Content/IFC_External_Corporate_Site/Annual+Report.
publicmanagement,law
andjudicary18%
energyandmining16%
transportation13%watersupply,
sanitationandfloodprevention
7%
industryandtrade5%
finance3%
healthandothersocialservices
20%
education8%
agriculature,fisheryandforestry
10%
informationcommunication
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environmentandthesociety,eradicatingprivatesector’sgrowthconstraintsininfrastructure,health,education,foodsupplychain,developinglocalfinancialmarketandbuildinglong-termpartnershipwithclientsintheemergingmarket. 76 Toachievethestrategicgoals,theIFCwillpaymoreattentiontothepoorestcountriesandconflictareasandincreaseinvestmentstoagriculture,climatechangeandinfrastructure.Infiscal2016,60%ofIFC’sconsultationserviceswereprovidedforthepoorestcountrieseligibleforapplyingforIDAloansandUSD1billionwereinvestedinfragileandconflictareas,a50%increaseoverfiscal2015.
Figure6-3:Fiscalyear2016mainsectorssupportedbyIFC
WorldBankGroup
JapanBankInternationalCooperation(JBIC)isapolicy-basedfinancialinstitutioninJapan,fullyownedbytheJapanesegovernment.In1999,formerExport-ImportBankofJapan(JEXIM)andOverseasEconomicCooperationFund(OECF)mergedintoJBIC.Whenfirstestablished,JBIC’smainbusinesswasprovideJapan’sofficialexportcreditandofficialdevelopmentaid.
JBIChadtwomajorreformsin2008and2012asaresultofchangingJapaneseeconomiclandscapeandforeignaidpolicies.In2008,theJapanesegovernmentremoveddevelopmentaidbusinessfromJBICandmergedJBICwithTheNationalLifeFinanceCorporation(NLFC),TheAgriculture,ForestryandFisheriesFinanceCorporation(AFC)andTheJapanFinanceCorporationforSmallandMediumEnterprise(JASME)intoJapanFinanceCorporation(JFC).JBICwasmainlyresponsibleforthe
76 Into of IFC. IFC website. http://www.ifc.org/wps/wcm/connect/Multilingual_Ext_Content/IFC_External_Corporate_Site/Home_CN.
finance40%
infrastructureconstruction
16%
agricultureandforestry10%
customerandsocialservices9%
manufacturing8%
oil,gasandmining7%
informationcommunication
5%
fund5%
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internationalfinancialoperations.On2May2011,JapanBankforInternationalCooperationAct(JBICAct)cameintoeffect.JBICbecameindependentfromJFCaccordingtothelaw.
JBIC’smissionssince2012hasbeentocontributetothesounddevelopmentofJapanandtheinternationaleconomybypromotingtheoverseasdevelopmentandsecurementofresourceswhichareimportantforJapan,maintainingandimprovingtheinternationalcompetitivenessofJapaneseindustries,promotingtheoverseasbusinesshavingthepurposeofpreservingtheglobalenvironmentsuchaspreventingglobalwarming,preventingdisruptionstointernationalfinancialorderortakingappropriatemeasureswithrespecttodamagescausedbysuchdisruptions.Infiscalyear2014,64%ofJBIC’sloans,equityparticipationsandguaranteecommitmentfundshavebeenusedtomaintainandimprovetheinternationalcompetitivenessofJapaneseindustries,33%havebeenusedtodevelopandsecureresourcesand3%hasbeenusedtopromoteoverseasbusinesswiththepurposeofpreservingglobalenvironmentincludingpreventingglobalwarming. 77
AsofMarch2015,JBIC’scapitalamountedtoUSD13.51billion.OutstandingloansandequityparticipationsstoodatUSD142.707billion.OutstandingguaranteesreachedUSD24.98billion.Ithasopened16representativeofficesinBangkok,Beijing,London,Manila,MexicoCityNewYork,Singaporeandothercities.Accordingtothesecondmedium-termbusinessplandraftedin2012,JBICwillmainlysupportoverseasinvestmentintheareasofenergyandnaturalresource,infrastructure,manufacturingandenvironment,andmid-tierenterprisesandSMEsintheiroverseasbusinessexpansion.
JBIC’ssupportforJapaneseenterprisesinoverseasinvestmentincludesthefollowingfacilities:exportandimportloans,overseasinvestmentloans,unitedloans,equityparticipations,bridgeloansandguarantees.Sincethereformin2012,JBIChasseenasubstantialincreaseoftheratioofoverseasinvestmentloansinitsannualtotalamountofloans,equityparticipationsandguarantees,from60%in2011to75%in2012,atthesametime,theratiooftheimportloanshasdecreasedannuallyandplummetedtozeroin2014. 78
77JBIC. JBIC’s role and function. https://www.jbic.go.jp/wp-content/uploads/page/2013/08/43936/jbic-brochure-chinese.pdf.
78 JBIC.JBICAnnualReport2015.