Mission to China, 29 June to 6 July 2015
END OF MISSION STATEMENT
Beijing, 6 July 2015
Today I end my official country visit to the People’s Republic of China which began on 29 June 2015. I would like to thank the Government of China for inviting me, its full cooperation during the visit and the willingness of all persons I met to engage in an open and frank dialogue on issues of common concern.
I have benefitted from discussions with Government officials from the ministries of Foreign Affairs, Education, Finance, Public Security, Human Resources and Social Security, Housing and Urban-Rural Development, Commerce, the State Council Information Office, the National Health and Family Planning Commission, the People’s Bank of China and the China Banking Regulatory Commission. The programme also included meetings with representatives of the China Development Bank, EXIM Bank China, and the Chinese Enterprises Confederation, including the China Chamber of Metals, Minerals and Chemical Importers and Exporters, as well as with scholars and civil society organisations. I was also very pleased to meet with Mr. Jin Liqun, Secretary General of the Multilateral Interim Secretariat for Establishing the Asian Infrastructure Investment Bank.
Last Friday I had the pleasure to visit China’s mayor financial centre, Shanghai, where I received an overview of the infrastructure development and urban planning in this city and the efforts of the municipal government to turn Shanghai into an international financial centre. The city will soon host the New Development Bank, initiated by the BRICs Group of States.
As Independent Expert appointed by the Human Rights Council of the United Nations I have several tasks. One of them is to study any human rights issue falling within the broad scope of my mandate related to foreign debt. The Human Rights Council has as well requested me to study the impact of illicit financial flows on the enjoyment of human rights.
Another task is to carry out visits to countries. For example, in December last year I visited Iceland to analyse how the country dealt with its 2008 banking collapse, studying the efforts of the Icelandic government to secure economic, social and cultural rights during after the collapse and identifying gaps that require to be addressed. On Friday last week, I received an official invitation of the Hellenic Republic of Greece in response to my request to undertake a fact finding mission to Greece. Obviously the economic and social crisis in Greece, including reports about emerging shortages of food and medical supplies are a concern to me. I have as well requested meetings with institutions of the European Union to hear their views and remind them about their human rights obligations. I am saying this to underline that my mandate is of a global nature and that my visit to China forms part of my mandate to study the situation in countries in all regions of the world.
China’s foreign debt and economic, social and cultural rights within China
According to World Bank International Debt Statistics, China’s foreign debt is currently not a major concern. China’s external debt plays only a secondary role in funding the corporate and government space. Yet, as most of the external debt may be regarded as short term liabilities, I recommend to closely following these financial flows in order to prevent speculative phenomena.
A greater challenge facing China is the restructuring of China’s local government financing system. In March this year, the Ministry of Finance allowed to swap as much as 1 trillion RMB (163 billion USD) in local government debt for bonds with lower financing costs. A number of regional governments have become dependent on revenues associated with land sales, in many cases making up about one third of government revenue and in some regions more than half of income. The economic slowdown coupled with reduced tax inflows has for some local governments put pressure on public finances and their ability to fund public services essential for the realization of economic, social and cultural rights. The situation needs to be carefully monitored.
I would like to congratulate China for the efforts it has made in achieving various Millennium Development Goals, in particular its efforts to eradicate extreme poverty and hunger, the achievement of universal primary education and reduction of maternal mortality. At the same time, a number of challenges remain, including the disparities of living standards between regions and between urban and rural areas, difficulties faced by rural-to-urban migrants, and adverse environmental effects of industrial pollution and their negative impact on the right to an adequate standard of living and health. I have noted that there is a large and growing social consensus about the need to address these issues.
Illicit financial flows and human rights
I received information about efforts made by China to combat illicit financial outflows which in many countries shrink the fiscal space available to Governments to realize social, economic and cultural rights. As there is a need to address illicit financial flows in a holistic manner, I would encourage further academic research to estimate more accurately the size, composition and nature of illicit financial flows leaving or entering China, particularly in the area of tax evasion and avoidance.
I welcome in this context the ratification last week of the Multilateral Convention on Mutual Administrative Assistance in Tax Matters which will facilitate exchange of tax information as a means of fighting tax evasion. I was also briefed about the work of the Anti-Monetary Laundering Bureau of the People’s Bank of China, China’s Central Bank, and Operation Fox Hunt and Skynet to extend anti-corruption efforts to officials that had fled abroad and repatriate misappropriated assets. In this regard, and in line with the general recommendations made in my interim report on illicit financial flows (1) and my comments on the draft outcome document of the Third International Conference on Financing for Development to be held next week in Addis Ababa (2), I have stressed as well the need to ensure the protection of whistle-blowers, reporting persons and civil society organisations working on transparency measures in accordance with international human rights law and Articles 13 and 33 of the United Nations Convention against Corruption ratified by China in 2006.
Human rights in international lending
The main reason why I requested to visit China is the following: I think certain lessons can be learned from China’s international lending and development during the last two decades, both internally and externally. China, while still a developing nation, has become a global player in the world economy and a mayor international lender. Loans from the China Development Bank and the EXIM Bank China to investments in foreign countries have outnumbered the lending of the World Bank. China’s lending and expertise in infrastructure development, health care, agricultural development and other sectors is an important contribution to the realization of economic, social and cultural rights and the right to development in a number of countries.
In addition, China has provided foreign aid in the form of grants, interest free loans and concessional loans to over 120 countries and Chinese companies have since several years embarked on a “going out” strategy with the support of Chinese financial institutions. This is a relatively recent trend that has accelerated during the last decade.
With China’s leadership role in foreign investment come responsibilities. For example the new Belt and Road initiative to connect China and Asian countries may hopefully be a major push for growth, create jobs, improve access to markets and help realising many social and economic rights. However, as is the case with any other mayor infrastructure project, careful planning is required to ensure that the rights of affected individuals and communities are respected and protected. What might be beneficial to a majority of people should not be at the expense or in disregard of those that may be negatively affected. No one should be left behind.
In order to maximise positive human rights impacts for all, it is necessary to mobilise local labour markets in foreign countries, ensure technology transfers, and labour conditions that comply with international labour and human rights standards. The right to a clean, safe and healthy environment, which China has stressed as an important economic, social and cultural right in its current National Human Rights Action Plan, must be fully respected. Careful planning, independent impact assessments and consultation should ensure that negative social, environmental or human rights impacts are avoided as much as possible, and that any such impacts are mitigated and compensated in a timely, fair and equal manner. The key principle of the United Nations Declaration on the Right to Development that the human person is the central subject of development and should be its active participant and beneficiary should guide not only Chinese bilateral and multilateral lending and foreign investment, but also that of any other country or international financial institution.
China is learning from its own experiences about the need to listen carefully not only to Government officials and business people, but also to the very people on the ground who will be affected by development projects. To use Chinese terminology: I would like to see that the Chinese “going out” strategy does not only result in a “win-win” situation for Governments and business enterprises, but also for the people on the ground, both in China and abroad.
I posed this question in almost every meeting during this visit: how to reconcile the principle of non-intervention in domestic affairs with the idea of protecting and promoting human rights abroad? There is in China a sense that this is a delicate, complex but much needed task to be carried out. In my view the solution should be to stress local ownership and the own development priorities of partner countries to achieve social inclusive and sustainable development in line with international human rights standards.
This is much more than an intellectual exercise. While there are as well studies highlighting the positive impact of Chinese financial assistance in developing countries (3) , there have also been reports raising social, environmental and human rights concerns about Chinese foreign investments (4). One purpose of this visit was to identify some of the challenges faced and discuss forward looking solutions that need to be collectively conceived and implemented. In this spirit, I have as well brought specific concerns to the attention of lending institutions and the Government, with the intention to facilitate dialogue between affected individuals, their representatives and Chinese institutions and Government officials. In doing so, I am seeking to offer my good offices as UN Independent Expert to facilitate and initiate dialogue between concerned parties.
Regulatory framework to ensure rights compliance in outbound investment
During this mission I have learned a lot about the efforts made within China to improve its regulatory framework to ensure that China’s international lending is clean, green, efficient and transparent and compliant to international human rights standards. Key Governmental regulations include the Guidance on Environmental Protection in Foreign Investment and Cooperation of the Ministry of Commerce (2013), the Green Credit Guidelines of the Central Banking Regulatory Commission (2012) and most recently the Guidelines for Social Responsibility in Outbound Mining Investments of the Chinese Chamber of Commerce and Minerals, Metals and Chemical Importers and Exporters (CCCMC).
The 2012 Green Credit Guidelines stipulate inter alia that Chinese banking institutions shall “establish and constantly improve policies, systems and processes for environmental and social risk management” and oblige clients facing major environmental and social risks to have in place risk response plans and establish sufficient, effective stakeholder communication mechanisms, including third party assessments of such risks. Article 21 of these Guidelines stipulates that banking institutions shall strengthen as well the environmental and social risk management for overseas projects to which credit will be granted and make sure project sponsors abide by applicable laws and regulations on environmental protection, land, health, safety, etc. of the country or jurisdiction where the project is located. The Guidelines further underline that “banking institutions shall make promise in public that appropriate international practices or international norms will be followed as far as such overseas projects are concerned, so as to ensure alignment with good international practices.”
Applicable international norms include of course not only international environmental and labour law, but as well all international human rights standards, in particular binding human rights obligations that partner countries have assumed.
While I congratulate China for its Green Credit Guidelines, which set a milestone for social and environmental responsible lending, my impression is that the main challenge is still ahead. There is an implementation gap in operational practice in effectively implementing international and national norms relating to international lending and investment. I have for example been informed that so far no sanction has been applied by the Chinese authorities to Chinese lenders and corporations for overseas investments that may have contradicted the Green Credit Guidelines.
International human rights standards and guidelines are in particular relevant when China provides funding for projects in countries with high risks, experiencing internal armed conflicts, weak governance structures or a lack of effective enforcement of national and international law by national authorities. This is a challenge for any financial institution or company, and as Chinese institutions and companies are relatively new to foreign markets there is a need for guidance on how to operate in difficult political and social environments in full respect for human rights and in compliance with applicable national and international laws in the respective host country. There is agreement that there is room for improvement, and that capacity building, exchange of experiences and technical cooperation in this area are needed.
I welcome very much that China has endorsed the Guiding Principles on Foreign Debt and Human Rights and the Guiding Principles on Business and Human Rights which set out key international human rights principles that lenders and borrowers, Governments and Business enterprises, including public and private financial institutions have to respect. I have encouraged the Chinese authorities to strengthen further their regulative framework through incorporating these two international instruments explicitly and robustly into the national framework applied to foreign lending and financial assistance and into its next National Human Rights Action Plan covering the years 2016-2020.
I invite the Chinese government to consider endorsing the UNCTAD Principles on Responsible Sovereign Lending and Borrowing as they aim, based on the notion of co-responsibility of lenders and borrowers, to ensure that proper due diligence processes are put in place to provide economic benefit to both sovereign borrowers and their lenders. These Principles reflect already existing practices and norms in China (5). I would also like to reiterate the recommendations of the UN Committee on Economic, Social and Cultural Rights, which in May last year called upon China to adopt a human rights based approach to policies of international cooperation by undertaking a systematic and independent human rights impact assessment prior to making funding decisions. The Committee called upon China to establish effective monitoring mechanism to regularly assess human rights impacts of its policies and projects in the receiving countries and take remedial measures when required; and to ensure that there is an accessible complaint mechanism for violations of economic, social and cultural rights in the receiving countries.
I would in particular highlight the need to establish complementary non-judicial grievance mechanisms by business enterprises that are effective and accessible for adversely affected individuals and communities at operational level so that it is possible that any grievances can be addressed early and remediated directly as recommended by the Guiding Principles on Business and Human Rights.
Representatives from different affected communities have informed me prior to this visit that Chinese companies and lending institutions appear occasionally to have been difficult to approach or insensitive to respond to concerns raised. Lack of an open and responsive dialogue with persons protesting against development projects can frequently be a seed for larger trouble, enhance social tensions, and generate additional conflict.
They can not only endanger the success of any development project, but have contributed in several countries to serious violations of human rights, including forced evictions, arbitrary detention, and violations of the right to life.
My impression is that there is a growing awareness within Chinese governmental, business and lending institutions about the need to have more robust social and environmental safeguard policies in place. Yet, market discipline alone is insufficient to ensure human rights compliant business conduct. Therefore the leadership of the Chinese Government is essential.
It is important to nurture these efforts and make use of existing national and international expertise. In this respect I would welcome to see a larger group of Chinese experts from the business, academic governmental and non-governmental sectors participating in the annual Forum on Business and Human Rights of the United Nations in Geneva. I also recommend to deepening efforts by Chinese business enterprises to work on this topic in the context of the Chinese Responsible Business Forum, the Global Compact Network China and other national and international initiatives aimed at integrating human rights and social responsibility in international lending and business practice.
I also hope that China will continue to participate actively in the inter-governmental efforts aimed at establishing an international normative framework for businesses and human rights in the Human Rights Council and in the process in the General Assembly intended to establish a legal framework for debt restructurings. I am very pleased that China was amongst the supporters of these initiatives.
Making new multi-lateral development banks rights sensitive
China has a leadership role as well in the establishment of two multi-lateral development banks, the Asian Infrastructure Investment Bank (AIIB) in Beijing and the New Development Bank in Shanghai. These new development banks should fit the 21st century and address infrastructure gaps in many developing countries in a more efficient, social and environmental responsible manner. Last Monday 50 countries signed the Articles of Agreement of the AIIB here in Beijing. The AIIB aims at being more efficient, clean, green and transparent than all other existing multi-lateral development banks. Efficiency and results orientation is not a contradiction to ensuring respect for human rights, labour standards or the right to environment.
I would like to see that these two new multilateral development banks headquartered in China will realise social and environmental sustainable projects without repeating the mistakes of other development banks whose record on the ground has in several instances caused concern. A narrow idea of efficiency in which human rights plays a limited role should not find its way into these two banks, more specifically in the safeguards that will guide their lending activities. Jointly with fellow Special Procedures mandate holders I have stressed the same point in an open letter to the President of the World Bank which is currently reviewing its safeguard policies (6).
Transparency implies that the consultations on the institutional policies in the field of social and environmental safeguards should as well be open to inputs from civil society.
There is a need to control moral hazard: those who take lending decisions should not exclusively be in charge of evaluating the soundness and human rights impacts of lending decisions they have taken. There is a need for an independent mechanism to monitor the implementation of social and environmental safeguards.
The two new development banks will need to address one important issue with care: what to do when a recipient country has economic or financial problems to repay the loans. A formal space for a timely, fair and efficient mechanism for debt relief without attaching egregious conditionalities should be considered. This is in the interest of the borrowers but also on the interest of the State members of both banks: some market discipline needs to be applied to these institutions.
The AIIB and the New Development Bank in Shanghai should strive for a very good record of risk management, consultation with affected individuals and communities, and show that projects financed by them will avoid and mitigate negative social impacts better than others. Then and only then, will these two new institutions live up to their aspirations to foster sustainable development in a comprehensive, rights based, and social inclusive manner.
(1) Interim report on illicit financial flows, human rights and the post 2015 development agenda (A/HRC/28/60).
(2) “Human rights must be at the core of development financing,” 26 May 2015, available at http://www.ohchr.org/Documents/Issues/IEDebt/Paper3FFD22May2015.pdf
(3) See for example Timothy Webster, China’s Human Rights Footprint in Africa, Columbia Journal of Transnational Law, Vol. 51, 2013, pp. 626-663.
(4) See for example submissions by civil society organisations to the 2014 review of China by the UN Committee on Social, Eeconomic and Cultural rights, available at http://tbinternet.ohchr.org/_layouts/TreatyBodyExternal/Countries.aspx?CountryCode=CHN&Lang=EN; and reports and responses (if received) by Chinese companies and financial institutions relating to abroad business impacts available at: http://business-humanrights.org/en/chinese-firms-impacts-abroad.
(5) See Goldmann, Matthias, ‘Responsible Sovereign Lending and Borrowing: The View from Domestic Jurisdictions. A Comparative Survey Written for the United Nations Conference on Trade and Development’, UNCTAD Working Document, February 2012, Geneva, available at http://www.unctad.info/upload/Debt%20Portal/RSLB_MGoldmann_02-2012.pdf
(6) Open letter to the President of the World Bank by Special Procedures mandate holders, from 12 December 2014 available at: http://www.ohchr.org/Documents/Issues/EPoverty/WorldBank.pdf