China Struggles with Socio-environmental Standards in Latin America

For the construction of the suspended Yucatán Solar Park on the Yucatán peninsula in southeastern Mexico, the site was only partially cleared. Like most infrastructure projects involving Chinese companies and banks in Latin America, the plant lacks socio-environmental standards. CREDIT: Courtesy of Asamblea Múuch' Xíinbal

For the construction of the suspended Yucatán Solar Park on the Yucatán peninsula in southeastern Mexico, the site was only partially cleared. Like most infrastructure projects involving Chinese companies and banks in Latin America, the plant lacks socio-environmental standards. CREDIT: Courtesy of Asamblea Múuch’ Xíinbal

By Emilio Godoy
MEXICO CITY, Aug 4 2021 – In southeast Mexico, work on the Yucatan Solar Park, owned by the Chinese company Jinko Solar, has been halted since 2020 for lack of proper consultation with indigenous communities, after affected local residents filed an injunction against the project.

In February 2019, residents of several Mayan indigenous villages in the municipalities of Cuncunul and Valladolid, in the state of Yucatan, demanded a halt to work on the park, run by Jinko Solar Investment Pte Ltd. Months later, a court ordered the suspension of the 71.5 million dollar project.

The conflict illustrates the need for Chinese corporations and banks to include socio-environmental safeguards in the financing, design, construction and operation of works in Latin America and the Caribbean, where there are at least 983 conflicts over mining, energy, transportation and communications projects, some of which are financed by Chinese firms.

Paulina Garzón from Ecuador, who is director of the non-governmental Latinoamerica Sustentable (LAS), said that although standards exist in China, they have not been internalised by the institutions.

“China has not included the economic cost in its developmentalist and extractivist vision, a cost that is paid in the long term by the affected populations and by the debtor countries. But these costs are not taken into account when the viability of granting the loan is assessed,” the head of LAS’ China-Latin America Sustainable Investments Initiative (CLASII), told IPS by telephone from Washington.

CLASII is about to publish research on the application of the environmental guidelines of the China Development Bank (CDB). These guidelines, established in 2004, are secret and there is no channel for denouncing the negative impacts of projects.

The organisation found eight Chinese guidelines for companies and investors, nine for financial institutions and seven sectoral guidelines for infrastructure, mining and forestry. The Chinese government will soon publish new regulations for the ministries of trade and environment on outbound investment.

In Argentina, the hydroelectric power plants under construction, named “Presidente Néstor Kirchner” and “Gobernador Jorge Cepernic”, with a combined capacity of 1,310 megawatts on the Santa Cruz River in Patagonia, in the south of the country, represent another emblematic case of the vicissitudes of projects that have Chinese financing.

In 2016 the Argentine Supreme Court halted work on the project, financed by the CDB and the Industrial and Commercial Bank of China (ICBC), until a public hearing and a new environmental impact assessment were conducted. The project was thus suspended for two years.

Construction of two hydropower plants in the Patagonia region of southern Argentina, financed by the China Development Bank, was stalled between 2016 and 2018 due to an order by the country's highest court for a new environmental impact assessment and other unmet requirements. China is stumbling over socio-environmental safeguards as it makes headway in Latin America. CREDIT: IEASA

Construction of two hydropower plants in the Patagonia region of southern Argentina, financed by the China Development Bank, was stalled between 2016 and 2018 due to an order by the country’s highest court for a new environmental impact assessment and other unmet requirements. China is stumbling over socio-environmental safeguards as it makes headway in Latin America. CREDIT: IEASA

In a 2016 letter, the BDC Corporation reminded the Argentine Ministry of Finance and Treasury of several force majeure clauses for approving the power plants and their dams, such as the necessary approval by the lender of any contractual modifications.

The parties signed the 4.7 billion dollar financing agreement in 2014 and linked it to a similar one in 2012 for the 2.1 billion dollar upgrading of the Belgrano Cargas railway, which runs across northern Argentina.

“We wish to insist that the ongoing and successful implementation of the project is not only mutually beneficial and a bilateral win-win, but will also lay the foundation for deeper future economic cooperation” between the parties, the 2016 letter states, while warning of the risk of cross-default, should Argentina default on the 2014 agreement for the dams.

Gradual adherence to multilateral guidelines

Although several Chinese financial institutions have signed up to various voluntary socio-environmental guidelines, in practice none of the ones with a significant presence in infrastructure projects in Latin America have adhered, with the exception of ICBC, the largest of its kind in China and with operations in Argentina, Brazil, Mexico, Panama and Peru.

The Yucatan Solar Park, owned by Chinese company Jinko Solar, has been on hold in Mexico since 2019 due to a lack of adequate consultation with local indigenous communities. The image shows the planned location of the power plant, in the middle of the jungle in the southeastern state of Yucatan and, top right, the city of Valladolid. CREDIT: Justice Atlas

The Yucatan Solar Park, owned by Chinese company Jinko Solar, has been on hold in Mexico since 2019 due to a lack of adequate consultation with local indigenous communities. The image shows the planned location of the power plant, in the middle of the jungle in the southeastern state of Yucatan and, top right, the city of Valladolid. CREDIT: Justice Atlas

Three Chinese institutions have adhered to the United Nations Principles for Responsible Investment, a set of six socio-environmental safeguards.

Nine Chinese banks signed the Principles of Responsible Banking, with six other standards on environmental impact, sustainability, participation and transparency.

In addition, seven Chinese banks adopted the Equator Principles, a framework for defining, assessing and managing the socio-environmental risks of projects.

The Asian Infrastructure Investment Bank (AIIB), founded in 2015 to finance the “Belt and Road Initiative” (BRI), has only validated one project in Latin America out of 134 approved worldwide. However, the project, in Ecuador, does not involve infrastructure, but addresses the COVID-19 pandemic.

Although in 2019 several Chinese banks, such as the BDC and ICBC, signed the “Green Investment Principles” (GIP) to assess the potential social and environmental effects of BRI investments, there is still no evidence of their application by this initiative that emerged to promote a maritime and rail network from the Asian powerhouse to the western end of Europe and to Latin America.

For Enrique Dussel, director of the Centre for China-Mexico Studies at the National Autonomous University of Mexico (UNAM), the debate on safeguards is a novel one in the Asian giant.

“Historically, Chinese companies have shown great political pragmatism, the banks are interested in doing business and it did not matter if it was in activities that could be questioned from an environmental standpoint. The question was to mark a presence and participate in the Latin American market. Chinese pragmatism in these aspects practically leaves the responsibility up to the counterpart,” Dussel told IPS.

A magnet

The region attracted 138 Chinese infrastructure projects worth 94.09 billion dollars for the 2005-2020 period, according to the “Monitor of Chinese Infrastructure in Latin America and the Caribbean 2021“, drawn up by the Latin American and Caribbean Academic Network on China.

South America has been the biggest pole of attraction for Chinese investment, as Ecuador obtained 11 of the 40 infrastructure projects during the 2010-2014 period, while from 2015 to 2020 Argentina and Brazil accounted for 23 and 11 of the 92 projects in the region, respectively.

The projection of one of the two hydroelectric power plants financed by Chinese institutions in southern Patagonia, Argentina, whose construction generated tensions between Bejing and Buenos Aires due to intervention by the South American country's justice system to verify compliance with socio-environmental requirements, which suspended the mega-projects for two years. CREDIT: Government of Argentina

The projection of one of the two hydroelectric power plants financed by Chinese institutions in southern Patagonia, Argentina, whose construction generated tensions between Bejing and Buenos Aires due to intervention by the South American country’s justice system to verify compliance with socio-environmental requirements, which suspended the mega-projects for two years. CREDIT: Government of Argentina

Chile, Colombia and Mexico carried out infrastructure projects with Chinese companies and financing for the first time in the 2015-2020 period.

Energy, transportation, communications and telecommunications are among the main areas of Chinese involvement in the region. The incursion of the Asian giant has been based on public and some private companies, backed by funds from Chinese banks.

To shore up its foothold in Latin America, Beijing has created instruments into which it has injected multimillion-dollar funds, such as the Special Loan Programme for China-Latin America Infrastructure Project and the China-LAC Industrial Cooperation Investment Fund and bilateral cooperation funds.

That strategy is linked to the BRI, which several Latin American countries have joined, in an attempt to draw investment, and which is helping China fill the void left by the United States since 2016.

In December 2020, a group of international advisors to the BRI suggested that China adopt stricter environmental controls for its foreign investments.

According to this scheme, projects that could cause significant and irreversible environmental damage would be marked red, works of moderate and mitigable impact would be marked yellow, and projects without significant negative effects would be marked green.

Garzón and Dussel said there have been some changes.

“It is a process that we are going to see gradually. The institutions recognise the need to improve things and have taken a step to improve environmental behavior. The worrying thing is if this at some point becomes just a slogan that aims to improve the ability to approve projects and obtain a social license, rather than a serious practice,” said the head of CLASII.

Dussel noted, for his part, that “the AIIB is explicitly seeking to integrate environmental issues. There are many initiatives in this regard in China itself, to evaluate projects, attempting to compare the criteria for evaluation and implementation of Chinese infrastructure versus Western ones, specifically the World Bank’s. There is clearly a learning process.”

As the Chinese Infrastructure Monitor anticipates, infrastructure initiatives in the region will grow, with their attendant social and environmental fallout.

Comments are closed.