Corporate Social Responsibility in China


In the contemporary world, a business is traditionally recognized as an essential part of the society that impacts all other spheres of life and has profound influence not only on people, but also on various institutions and the environment itself. Hence, in an attempt to draw attention to the mutual interrelation of a business and the society, the concept of corporate social responsibility has emerged. The concept is relatively new and is quite wide-spread and influential in developed countries, where companies of all types engage in corporate social responsibility activities with the view of retaining their reputation, comply with existing laws and regulations, and ensure sustainable development of their business in particular and the society in general. In turn, in developing countries corporate social responsibility is not always properly understood and practiced with an obvious lack in current legislations and regulations. Logically then, ventures from these countries fail to understand what the concept stands for and how they should engage in such activities, while multinational corporations presented in developing markets shy away from their global activities and launch some shallow initiatives.

The thing is that they are not really interested in truly promoting corporate social responsibility in developing countries and provide an example for local firms to emulate since they are not obliged by law and lack incentives like public pressure, which is present in developed countries. The latter situation is evident in China, that has been rapidly developing with a major focus on economic development, while such issues as sustainable social and environmental development and corporate social responsibility have been neglected for a long time. Nevertheless, the Chinese government, as well as local and international companies operating in the country, have recently realized the significance of corporate social responsibility and its potential to contribute to their success both locally and globally. At the same time, there still exist a lot of challenges relating to comprehension and implementation of corporate social responsibility in the country. Therefore, it is necessary to provide a brief overview of the notion of corporate social responsibility and its peculiarities within the Chinese context with a view of establishing why it is significant in China to promote a consistent implementation and state-wide adoption, as well as whether the existing initiatives aimed at achieving the latte goal have been successful so far.

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Definition of Corporate Social Responsibility and Stakeholder Theory

It is supposed that the notion of corporate social responsibility (hereinafter referred to as the CSR) emerged for the first time in 1924 in the paper by Shelton, yet it gained prominence much later, approximately in the mid-20th centuries with a debate focused on the question about primary beneficiaries of the business. Some claimed that enterprises were primarily concerned with gaining profit and benefitting shareholders, while their opponents emphasized the role of companies in social development and a need to take into account all stakeholders. There exist a lot of currently used definitions like the following one, which can be regarded as a general and universally applicable definition of the notion: Corporate social responsibility can be viewed as voluntary collective choices of companies to benefit the society beyond the requirements of the law and the direct interests of shareholders. However, it should be noted that the above terminology is Western in terms of origin and use and should be adjusted to local contexts of developing countries and their economic, social, and cultural peculiarities.

China is one of the countries that needs adjustment of the definition of the CSR, even though it has been traditionally oriented at ensuring well-being of the society, yet this orientation was present under communism and has undergone significant changes after adoption of the open market view and transformation of socialism with account for capitalism. Nevertheless, even though the notion itself is new, the orientation at social well-being has been present in the country for centuries. For instance, Chinese family businesses always tried to contribute to the community by donating funds and goods to charity and promoting its well-being in numerous other ways. Besides, communism, as interpreted by Marx & Engels, was also concerned with the promotion of the overall well-being of people, in particular of the working class, which had to be freed from oppression and exploitation that it was subjected to by the bourgeoisie. In fact, Friedman even claims that businesses intent to promote desirable social ends and engage in the CSR are preaching pure and unadulterated socialism. Although his ideas are not widely supported in developed countries, which is evident from the significance of the CSR there, they imply that it must have been easy for the socialist China to adopt and internalize the CSR practices. Underlying premises of the CSR are really compliant with the goal of creating a harmonious society in China declared in 2006 by Resolution on Major Issues of Building a Harmonious Socialist Society. Such a society is defined as that is democratic and ruled by law, fair and just, trustworthy and fraternal, full of vitality, stable and orderly, and maintains between man and nature. Irrespective of all these factors, that must have been conducive to the quick spread of the CSR among Chinese businesses, there have been noted misinterpretations and miscomprehension relating to the issue in the reality.

Nowadays, Chinese entrepreneurs and officials offer their own definitions of the notion that they follow while implementing respective initiatives. The legal view of the CSR will be considered in the following section with a focus on relating reforms in the country, while some definitions given by Chinese business people are as follows. One of the managers of the Chinese office of a multinational corporation views the CSR as what we must do so as to build up relationships with our stakeholders. Another manager outlines it as simply being responsible for the environment, our owner, shareholder, and our employees. Actually CSR means we want to bring the benefits to those people. These views on the nature of the CSR are consistent with the stakeholder theory, which serves as one of the underlying premises of CSR initiatives launched in China.

The stakeholder theory emerged as a response to the conventional economic theory of the firm based on Adam Smiths views and was developed by Freeman in mid-1980s. The idea of stakeholder ideology explains the relationship of a company with the external and internal environments through consideration of stakeholders whose interests are directly and indirectly affected by the company. Such effects could be managerial, economic, social, political, and technological. Based on the nature of these effects, stakeholders can be either direct or indirect, which are also referred to as primary and secondary. Initial version of the stakeholder theory has been revised and reinterpreted many times. For instance, Frederick used the theory to single out three types of CSR, including responsibility, responsiveness, and rectitude (Key 1999). In turn, others have attempted to present a classification of stakeholders. Thus, the World Bank has developed its CSR Diamond Model on the basis of the stakeholder theory, which identifies five environments in which the stakeholders exist, including the external environment, internal environment, globalization effect, the macroeconomic environment, and the government. Overall, the above described theoretical framework can be extremely useful for Chinese businesses that attempt to gradually develop their own understanding of what CSR entails for them and how to implement in into their operations with account for local peculiarities, existing legislative framework, applicable regulations, and focus on the global market without a detrimental impact on local activities.

Reforms Relating to Corporate Social Responsibility in China

One of the key differences between the CSR in Western developed countries and China consists in the relation between respective initiatives and the legal framework. Hence, in the West, as noted in the definition above, companies engaged in the CSR are expected to go beyond the legislative norms and obligations in their contribution to the well-being of stakeholders. In turn, in China, the CSR initiatives have emerged largely thanks to the adoption of respective legislative norms and subsequent actions of various NGOs and institutions like stock exchanges. What is more, it should be noted that the concept of social responsibility is not new in China as it was implemented and promoted under the planned economy during Maos era when all state-owned enterprises were obliged to be socially responsible even though this responsibility concerned primarily their employees. However, after the adaptation of the market economy, even state-owned enterprises were encouraged to focus on profits and abandon the costly social activities.

Therefore, the notion of the CSR had to be re-introduced in China in the recent past and the state government had to play a key role in this process because of the governance peculiarities of the country. It has been done primarily through legislative reforms, including the Company Law. The 1994 version of the Company Law did not include any provisions explicitly mentioning the CSR, but rights of employees were still considered and valued, which is evident from an obligation for private companies to include employees into their boards of directors and supervisory boards. Besides, legal rights of employees, their rights to establish unions, participation in the decision-making process relating to corporate governance, and some other rights were guaranteed by the 1994 Company Laws articles. Moreover, a part of Article 14, prescribing for companies to conform to business ethics, strengthen the construction of the socialist civilization could be extended to the CSR premises. In turn, the 2004 amendment of the Company Law that came into effect in 2006 directly refers to the CSR by indicating in Article 5 that in the course of doing business, a firm must comply with laws and administrative regulations, conform to social morality and business ethics, act in good faith, subject itself to the government and the public supervision, and undertake social responsibility. Although the article is subject to multiple interpretations and the law lacks specific details on the enforcement of this provision, it has been a breakthrough for China and a signal for local and multinational companies to engage in the CSR.

Subsequently, a range of other related regulations, recommendations, and policies have emerged all over the country, urging companies of all sizes and ownership forms to undertake the CSR initiatives. For example, in 2008 the State-Owned Assets Supervision and Administration Commission of the State Council published the Guide Opinion on the Social Responsibility Implementation for the State-Owned Enterprises Controlled by the Central Government, which has served since then as a guide not only for SOEs, but also for private companies with operations in the Chinese market. Under this guide, all SOEs have to integrate the CSR into their policies, activities, and reforms and become leading companies in this respect so that all private companies would follow their example with a view to promoting social harmony in the country. In order to do that, companies have to comply with the law, carry out their operations in an honest and ethical way, increase their profits, improve the quality of products and services, ensure the environmental protection, use resources efficiently, commit to promotion of innovations, control and guarantee safety of all products and services, protect employees, and engage in various charity activities. Besides, the document lists a number recommendations on practical implementation of the CSR initiatives in China.

Within the scope of reforms relating to the CSR, environmental reporting under the Regulation on Environmental Information Disclosure adopted by the State Environmental Protection Administration in 2007 has been quite influential. Under this regulation, ventures that are considered to be heavy pollutants of the environment and all environmental agencies are obliged to disclose practical information about their activities to the public, while all other companies are encouraged to do that voluntarily. Furthermore, the Shangai and Shenzhen Stock Exchanges have also adopted social responsibility guides and requirements for listed companies with a view to making more companies publish CSR reports on an annual basis. Other reforms popularizing and developing the CSR practices in China include the promotion of social responsible investing, for instance, by the Bank of China, which has maintained the Sustainable Growth Equity Fund since 2006. Along with other public institutions and banks, it has launched the green credit policy, which provides financial incentives for Chinese companies to be environmentally sustainable in their activities.

Overall, a brief overview of reforms and regulations pertaining to the topic under considerations makes it evident that contrary to the Western countries where NGOs are key drivers of the CSR spread, in China the government and its agencies perform this role. Likewise, it should be noted that none of the above mentioned reforms deals with such topical and sensitive issues as human rights violations. As a matter of fact, the Chinas version of the CSR primarily focuses on employees and environmental protection, while other essential aspects of the policy deemed sensitive and unfavourable for the government are actively avoided and silenced. Therefore, the international community has been worried about the true nature of the CSR reforms in the country and there have been suspicions that the CSR bears only a declarative nature, while nothing is done in practice.

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Critique of Case Studies Focusing on Corporate Social Responsibility in China

In order to find out whether the above suspicions about the implementation of the CSR in China are true, it seems reasonable to provide a critical evaluation of several case studies focusing on the issue under consideration. The study by Chen & Wang is entitled Corporate Social Responsibility and Corporate Financial Performance in China: An Empirical Research from Chinese Firms. The key purpose of the work is to apply the stakeholder theory to the research of the relationship between the CSR and financial performance of Chinese companies. Subsequently, the author assumes that establishing a direct positive correlation between engagement in the CSR and improvements in financial performance can become a powerful incentive for reluctant Chinese companies avoiding integration of social responsibility into their operations. In order to study the issue, the researchers use the resource dependency theory, the stakeholder theory, and the idle resource theory. In terms of methodology, the piece employs descriptive statistics to analyse data obtained from self-designed questionnaires administered to 151 individuals employed by 48 private companies. The authors reveal that companies engagement in the CSR can improve their financial performance in both current and following years and that the CSR and financial performance are positively correlated.

Overall, the study focuses on an interesting topic and employs one of the most suitable methods, yet it still has some shortcomings. As such, the researchers fail to provide an example of surveys, as well as do not specify whether companies included in the survey are local or multinational. The latter distinction might impact the findings, given that Kolk et al. have proven on the example of the retail industry that local and multinational companies significantly differ in their understanding and implementation of the CSR. Moreover, the scholars pay much attention to the statistical analysis, but they dedicate virtually only one passage to the discussion of findings. By the same token, they do not explain how these findings may differ geographically across the country and whether the administered questionnaire can be considered as sufficient tool to come at the presented conclusions.

The CSR activities are tightly interrelated with the way they are presented and communicated to the public and other stakeholders, which also influences the reputation of respective companies and allows for the evaluation of success of the CSR initiatives in general. This issue is studied by Tang & Li in their study entitled Corporate Social Responsibility Communication of Chinese and Global Corporations in China. The work presents a case study of 44 companies with corporate websites in Chinese that contain separate sections dedicated to their CSR and all companies are the Fortune 100 Chinese and global companies. Based on the sample, the researchers conduct a preliminary analysis of the Fortune 100 companies websites to build a sample for the study. Then, they resort to coding and quantitative data analysis to analyse the obtained data on the way Chinese and global companies report on their CSR. Key findings of the study include the distinction of three types of the CSR communication, including CSR as ad hoc philanthropy, CSR as strategic philanthropy, and CSR as ethical business practices. Further, they find out that adherence to one of the three types does not depend on whether the company is local or global, but rather on whether they target consumers or businesses. Even though local and global companies have some similarities in their CSR activities communication, there are differences as well since they follow different principles and have different traditions, for instance, with global companies focusing on human rights issues that are not raised by Chinese companies. It is also worth noting that the finding about similarity of the local and global companies CSR communication contradicts the outcomes of the study by Noronha et al. that Chinese companies do not grasp the essence of the CSR reporting guidelines. Despite the fact that this study is well-conducted and presents justified findings obtained from a well-conducted research, it has failed to mention some issues. Thus, it would have benefitted from the comparison of global companies communication of the CSR present in the Chinese market with those that are not present in the country, which would allow finding out whether the global companies behaviour in this respect in China is similar to their behaviour in other countries. In such a case, the study would be equipped to make conclusions about differences between local and global companies communication of the CSR. Besides, the researchers fail to provide a detailed explanation of how the analysis of communication has been conducted so that readers could verify their findings and analyse some other companies.

Another case study useful for full understanding of the CSR practices in China is entitled Evolving Corporate Social Responsibility in China by Zhang et al. It focuses mainly on the transition from the profit-oriented corporate governance to the CSR in China on the case study of one large SEO and four small private companies operations in the same industrial sector in Zhengzhou within eight years with a detailed description of the previous years of the SEOs operations. Methods employed in the process of the study include semi-structured questionnaire surveys, face-to-face and telephone interviews, observations and there were three phases of the research. Results were then obtained through the analysis of the data. Some of the key findings incorporate the fact that the CSR has been declining in the SOE as expected due to national economic changes, but it has not significantly improved its economic performance. In turn, private firms remain reluctant to engage in the CSR disciplines since they do not see the reason to do that and lack financial incentives, while there is also an assumption that owners with more education are less reluctant to embrace the CSR than their less educated counterparts. Overall, the research seems to be well-structured and provides valuable information about the CSR in the Chinese SOEs and small private firms, which allows comparing their attitudes to this issue. However, a major drawback of the article is its failure to present a comprehensive overview of data analysis strategies employed, as well as absence of information about observations, interviews, and questionnaires, for instance, samples of these methods.

A critical analysis of the above studies shows that the topic of CSR in China has become quite popular with researchers who attempt to understand what such initiatives mean in the Chinese context and how they can be compared with views of multinational companies working on the Chinese market. Nonetheless, findings of such works are not always consistent, with some claiming that local and global companies are completely different in terms of their CSR and others pointing out their general similarity. Accounting for such discrepancies, further studies are yet to be carried out.

Corporate Social Responsibility and Migrant Workers in China

In fact, CSR initiatives of multinational corporations operating in China have been widely studied by researchers concerned with studying the issue under consideration. With respect to these researches, it should be noted that the CSR as practiced by some exemplary multinational companies is also aimed at ensuring well-being of migrant workers in China, which has been a controversial issue because of a large number of accusations about inhumane and half-slavery labour conditions in the country. The study by Lam presents a case study of a Japanese multinational corporation working in the industry of global office equipment and document production that has been represented in China since 1995 and has achieved countless governance rewards in the country. One of the primary directions of the companys CSR undertakings encompasses the improvement of working and living conditions of migrant workers and exchange of its experience with other companies so that this issue would be addressed at the national scale. In order to achieve such purpose, the company has invested a lot of capital into migrant workers programs aimed at improvement of their economic and social conditions. It also assists thousands of young migrant workers with adjusting to the transition from rural areas to urban areas and employment in factories. The company spends substantial means not only on professional training of migrant workers, but also in their social, health, and recreational activities, as well as sharing its experience with suppliers and local NGOs. The commitment of the enterprise in question to migrant workers, as beneficiaries of its CSR, is exemplary and has been consistent over years. That being said, it is necessary to conduct similar studies on the example of other local and global companies employing migrant workers in China in order to study the large-scale situation relating to this group of the population.

Conclusion: Significance of Corporate Social Responsibility in China and Overall Success of Its Implementation

Based on the above overview of the issue of CSR initiatives in China and their implementation by both local and multinational companies operating at the Chinese market, it can be concluded that the country is at the initial stage of adaptation of successful corporate social responsibility undertakings. Moreover, the state government plays a key role in their promotion through adoption of respective laws, rules, and regulations, as well as encouraging private companies to emulate the example set by SOEs in terms of the CSR. Although the government is sometimes accused of being inconsistent and not serious about its commitment to the CSR canons, the above analysed reforms and case studies prove otherwise irrespective of all existing shortcomings in laws and failures in their implementation. Therefore, the CSR is currently well into the implementation process in China, given that it is a relatively new concept for the country that is also Western by nature and hence has to be adjusted for the local circumstances.

Withal, the CSR is essential for further sustainable development of the Chinese economy and society, as well as for environmental preservation that is an extremely topical issue in the country. Since China happens to be among the largest economies in the world, the success of its CSR implementation will impact not only the local community and business, but also the world in general by affecting the international business and other domains of the global communitys life. Further studies are needed to understand the extent and peculiarities of the CSR in China, yet it is evident that instead of criticizing Chinese companies for their failures relating to the CSR, multinational companies and international organizations should assist them with improving on their strengths with a view to benefiting all stakeholders. In such way, the Chinese enterprises entering the global market will be able to undertake CSR initiatives in various local communities in the world, contributing to the worlds development in general.