Environmental Rules for Outbound Chinese Investments

June 4, 2009

China’s government has recently completed an initial draft for environmental regulations for the increasing number of Chinese companies that are involved in overseas projects to follow on a mandatory basis.

Drafted by China’s Ministry of Environmental Protection (MEP) and the Ministry of Commerce (MOFCOM), the new regulations are still awaiting approval from the relevant authorities. The new regulations “may become effective in a couple of months” and all Chinese companies with businesses abroad will have to comply with them, a researcher with the Chinese Academy for Environmental Planning (CAEP) stated.

China’s outbound investors will be asked to review any environmental impact their projects might have before initiating their investments, and their projects will have to include environmental protection measures such as sewage and waste treatment facilities.

Chinese companies will be required to abide by international environmental treaties China has signed as well as the green regulations in their host countries. Last year, the Fujian province-based Industrial Bank last reportedly became one of the first Chinese banks to adopt the Equator Principles, a set of environmental and social benchmarks to ensure sustainable development promoted by the World Bank.

China’s investment is reportedly increasing in mining, crude oil production, manufacturing, and infrastructure development in Southeast Asian, African and Latin American countries, where the ecological conditions are already fragile. Although Chinese projects have contributed to the acceleration in local economic growth, investors need to ensure that they live up to their environmental responsibilities.

While large-scaled, State-owned enterprises generally observe environmental protection rules rigorously, small and medium-sized enterprises are more likely to create issues regarding environmental impacts.

Data from MOFCOM showed that the country’s overseas direct investment to non-financial sectors reached $40.7 billion last year, an increase of 63.6 percent from 2007. The figure was $2.5 billion in 2002.

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