From textiles to information technology, the goods that most multinational corporations produce inevitably move through China’s factories. However, loose environmental regulation and pressure to cut costs have resulted in significant pollution in and around China.
Ma Jun, an environmentalist and the director of the Institute of Public and Environmental Affairs, explains how these multinationals are both the cause of and the solution to China’s pollution problem. Multinational corporations need to take the first crucial step of setting environmental-protection standards for their suppliers.
- How do multinational corporations contribute to China’s environmental problems?
- Why do these corporations find it difficult to regulate their operations?
- How can multinational corporations be held accountable?
- What can be done at the international level to regulate the pollution emitted by multinational corporations?
How do multinational corporations contribute to China’s environmental problems?
Multinationals primarily impact China’s environment by exploiting legal loopholes in regulations. While some corporations have made a very strong commitment to high standards of environmental protection, nearly every multinational outsources production to local suppliers in China. And the corporations are not directly accountable for what the local suppliers do.
These multinationals choose to put their manufacturing operations in China for a reason—Chinese enforcement of these regulations is weak. Lawsuits for environmental violations are difficult, if not impossible, to file in China. As a result, the Chinese government relies on these corporations to regulate themselves and manage the processing and removal of their suppliers’ waste on their own.
Chinese suppliers are under constant pressure to cut costs to remain competitive in the fight for multinationals’ manufacturing contracts. Since Chinese fines for noncompliance with regulations are low and rarely enforced, suppliers have little incentive to shoulder the additional cost to regulate their pollution levels by properly processing waste.
Prices of key resources like water are also far below their real value, which means corporations have no incentive to conserve or treat the water. And that results in massive amounts of pollution. This cycle is perpetuated because the price of water is held artificially low (as low as one renminbi per pound) in places like southern China to make those Chinese sites competitive locations for multinationals’ manufacturing hubs.
Why do these corporations find it difficult to regulate their operations?
China’s manufacturing industry struggles because of the persistence of resource-intensive processes in China and the lack of proper oversight in the supply chain.
Because the corporate social responsibility movement has been successful in improving multinationals’ oversight of the treatment of labor in China, labor costs are rising sharply in China, making Chinese workers much more expensive than those in Bangladesh, Cambodia, Thailand, or Indonesia. Corporations, looking to save money, naturally move their labor-intensive operations to the lowest-cost country. And some labor-intensive operations have indeed moved out of China.
But that has not affected the resource-intensive part of manufacturing. And that part of the process actually emits the most pollution. Processes like fabric-dying remain in China and continue to pollute the environment there.
Managers at the corporate level need to maintain transparency between the supplier in China and the corporation. But as supply chains grow larger and larger, their unwieldy size has become a convenient excuse for suppliers’ environmental pollution.
Moreover, multinationals’ suppliers often use different tactics that cause more pollution in order to cut costs—once again, it is cheaper to get around environmental regulations than to comply. And multinational corporations often lack upper-level management with the right technical skills in environmental science or engineering to provide the proper oversight of these operations. Rather than address the problem, this technical deficit is yet another excuse for multinational corporations to not take action.
How can multinational corporations be held accountable?
Accountability is best established by raising the cost of pollution for these corporations—not just financially but the costs to the corporation’s brand or image as well. The bad publicity that comes with being labeled environmentally irresponsible is very problematic for corporations that are intent on maintaining customer trust in their brand.
Consumer trends toward “green” brands have prompted multinationals to take steps toward projecting an environmentally-friendly image. To capitalize on the constant competition between different corporations, the most effective way to increase the potential damage to a corporation’s brand is to focus on one industry at a time. Corporations within a given industry can be directly compared and ranked against one another.
Organizations like the Institute of Public and Environmental Affairs have taken up this effort, establishing tools the China Water Pollution Map that lists all the factories that are polluting China’s waterways. This kind of information can be used by multinationals like Nike, Walmart, GE, Adidas, H&M, and Espirit to block contracts with suppliers not complying with Chinese environmental laws and regulations
And managers know that costly auditing will follow any public release of their corporations’ pollution levels. As a result, the financial cost of information like that presented in the China Water Pollution Map is also pushing multinationals to address the issue of poor supply chain management.
What can be done at the international level to regulate the pollution emitted by multinational corporations?
One way that pollution regulation can cross borders is through the targeting of industry standards. For example, there are already discussions about setting up international standards for the IT industry so that production is not outsourced to suppliers that are known to not comply with regulations.
But it is important to recognize that there are already multiple stakeholders involved with regulating at the international level—many NGOs are involved and various UN agencies. The main task is finding a way for these stakeholders to coordinate with one another to create more effective international regulation.
Information technology needs to be used more frequently in the creation of these international platforms for regulating pollution and ensuring environmental protection. Thanks to improving technology and decreasing costs, more people have gained access to the internet. The information it provides and connections it can make across the world allow consumers, NGOs, and governments to monitor, track, and distribute data on the pollution emitted by corporations. The increased access to this information and its ability to be widely distributed encourages greater transparency between the corporations and the customer.
This is actually helpful for multinational corporations. Without external supervision, they will only focus on cutting costs and ignore any consequences their cost-cutting processes are having on the environment. Society needs to help establish a sense of accountability.
Ma Jun is the director of the Institute of Public and Environmental Affairs.
This article was published as part of the Window into China series
