In the Post-COVID-19 Era, How Should Chinese Overseas Mining Address Sustainable Development?

By Guanxi Liu and Roy Chen

“If a corporate has social responsibility, it does not need corporate social responsibility,” said professor Jenik from Columbia University, who has taught me through a research project about Chinese overseas mining.

While corporate social responsibility (CSR) sometimes means “using charity to conduct white wash after making profit”, social responsibility suggested by professor Jenik means that while the corporations should make profits and follow the legal processes, it should also take the environment, the experience of the consumers and the contribution to the society into account, or else, they wouldn’t and shouldn’t be welcomed in the local communities.

Chinese mining today is all over the world, creating local economic development as well as environmental damage, community conflicts, human right violation. From Africa to Latin America, our research team could see a lot of sustainable development cases regarding Chinese overseas mining, in which I found the case of Shougang Hierro Peru most interesting because they have a conflict with the local community that could be used to describe the problems in international communication, which I believe can be used to illustrate the importance of social responsibility.

Marcona is a small town located on the south-west shore of Peru. There sits the only operating iron mine in Peru, and one of China’s earliest overseas mining projects. Around 20 Chinese managers live there, managing a mine that employs most of the town’s population.

Although the Chinese workers here eat in their own separate dining room, when previous Chinese researcher visited the Marcona office of Shougang Hierro Peru, the Chinese people seemed to get along well with their Peruvian colleagues. But appearances can be deceiving—in fact, this mining company has had a tortured relationship with its workers, not to mention the Peruvian Ministry of Labor.

However, is that really the case? In my opinion, the Chinese company has failed to address the aspect of social responsibility. Of course, in order to figure out the truth, more information is required.

In 1992, even before China officially launched its “Going Out” Strategy to engage in outbound foreign direct investment, one of China’s largest state-owned steel companies, Shougang, completed one of the first overseas acquisitions by a Chinese company when it bought the poorly-run Marcona Iron Mining from the Peruvian government and made it the first Chinese mining project in South America. Shougang turned Marcona’s mine into a profitable business, but has done so amidst 20 years of continuous labor conflicts with its workers’ union due to the lack of communication with the company the neglect of listening to the desires of the local people, which caused the people from the local community unable to see the value the Chinese company bring and only noticing the company’s refusal of respecting them and their country, making it one of the most notorious mining companies in Peru.

According to one local government officer, any agreement about wage and working conditions must be negotiated and agreed upon between a company and its union. But Shougang has refused to negotiate with its union in most of the conditions that the latter has raised—like working conditions—and stood firm on the few conditions that it is willing to talk about, mostly basic wage.

Although it is understandable that the company simply want to maximize its profit, but the lack of consideration on the local people’s behalf lowered the likelihood of having a good reputation among the locals to almost zero because instead of treating the locals fairly and providing them with a better life, the companies wanted nothing other than making money, so they failed to have a good relationship with the native community, which caused the people to feel that they were being mistreated.

The failure, or unwillingness, to negotiate has a price. According to the most recent comparative study by Tuft University, Shougang’s conditions are acceptable when compared to its Peruvian peers. However, Shougang suffers an unusually high number of strikes, costing the company approximately half a million U.S. dollars for every day that a legal strike shuts down production. Some years, the number of strike days at Shougang exceeds 40. From my point of view, this kind of behavior is completely justifiable since the locals would most likely feel that Shougang wasn’t caring for their rights for a better life and the policy of their country.

Shougang professes to be frustrated with its status quo. The manager of the company insists, “It is not we who do not want to negotiate. It is the union who does not want to negotiate.” He and most of the Chinese managers in Shougang have privately portrayed union leaders as “ungrateful” and “using endless fights to score political points” on Shougang’s dime. In their eyes, because the union is never satisfied and has asked for impossible concessions, there can be no real agreement. Although I do agree that if the union did make some outlandish requisites, Shougang has every right to refuse, we can’t look at things from only one angle.

The manager recalled one recent Saturday evening negotiating session, which appeared to end with agreement between the union and the company. He says he was so tired afterward that he wanted to head home, but at midnight, union representatives returned to ask for more conditions. “I was very angry — we had already finished our negotiation, hadn’t we?” He said.

According to western research, Shougang tried its best to satisfy its union until 1996, when the company realized it was more beneficial to say no. Sources within Shougang who have asked to remain anonymous say that the change since 1996 reflects a natural learning process: when Shougang realized the union would never be satisfied, management determined that the Peruvian people have a different mindset and work ethic than Chinese, and began a policy of intransigence in the face of union demands.

From these quotes from the manager, I have come to the conclusion that the conflict between Shougang and Peruvian people lies in the cultural and political differences, which should be resolved soon unless they want the mine to completely shut down with all the strikes going on.

“This problem should be blamed on our strong union and on the Peruvian social system. In the foreseeable future, I do not see any solution to our problem. Shougang is still going to suffer many strikes and the costs will be shared between the company and its workers,” said a high- ranking Shougang manager who was not willing to disclose his name.

However, instead of completely cutting off the route of negotiation, I believe it is also mandatory that Shougang learn from the Peruvian governments and figure out how to deal with this kind of situation.

The Chinese manager also blames Peruvian authorities for failing to establish clear regulations to provide a baseline against which both Shougang and union proposals can be judged. “If the Ministry of Labor sets up clear standards about wage increases and so on, we would be happy to follow,” he said.

But the Ministry of Labor is not willing to set the wage bar, and it believes it lacks the right to do so.

Local government officer argues, “This is not government’s role. We believe such a negotiation should be conducted between the company and its union.” He said he believes the back and forth of negotiation is common, and that Shougang, as a foreign company, has to learn and adapt. And this is the part where the Ministry of Labor failed to uphold their end of the line in the area social responsibility. One of the governments’ jobs was to keep the order and make sure that the civilians won’t get out of hand in their protests, but this is exactly what is happening now, the local government failed to keep the strikes to a level that won’t affect the production, nor did they look for ways to regulate the wage, so I believe that social responsibility have different angles and all parties in this situation should do their part.

But the Ministry of Labor has been adjusting as well as it strives to deal with entrenched and long-lasting problems such as Shougang’s. In the past, following failed private negotiations, the government could only try to intervene on issues like basic wages and wage increases, not working conditions or other detailed union demands. However, since 2011, the Ministry of Labor has been trying to impose more powerful regulations on big companies like Shougang, giving the Ministry the power to force arbitration if it determines a party is not negotiating in good faith.

The new regulation was issued in the midst of yet another Shougang-union conflict. The company triggered the statute, and Shougang had to face its first arbitration last year. However, Shougang filed suit against the Ministry of Labor, protesting the new law. The result of the forced arbitration is thus in limbo, pending resolution of Shougang’s suit. According to the Ministry of Labor, sending unfavorable outcomes into legal limbo has been Shougang’s ongoing strategy.

Chinese investment in Peru is expected to reach 10 billion dollars in the coming five years and mining area is the focus, among which Shougang’s new expansion is going to be around 1.2 billion, according to Peruvian Times .

As Chinese mining investment floods into Peru, manager of Shougang argues that Shougang has become a model for Chinese companies. Chinese-owned Chinalco, which just started project in Peru, seems to have learned from its forerunner’s troubles — it hires mostly Peruvian and international managers. Before any mining operation, Chinalco invests around US$300 million to build living and waste water treatment facilities, and its relationship with the Ministry of Mining is good. Perhaps the future for Chinese mining in Peru will be a more positive one, but Shougang will continue to serve as a cautionary tale.

I have no doubt Chinese overseas mining companies are potentially creating benefits to local communities, but they need to further adapt to local situation and rules that they may not be very familiar with. Especially under Covid-19, the world has a lot of suspicion and hostility about Chinese and Chinese oversea businesses, Chinese mining company needs to be even more aware and prepared.

However, social responsibility isn’t one-sided —- the local side should work on its end as well. While Shougang does need to do their research on the Peruvian Politics and culture, the Ministry of Labor ought to set out more active and clear restrictions and regulations so that the union’s wouldn’t make so many demands that the companies became annoyed with them. All in all, the social responsibility must be upheld by all the responsible parties.

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