This article explores the dynamics whereby large-scale Chinese investment is inserted into the political and economic structures of African host states. Using case study material that locates Chinese investment in relation to other foreign mining companies operating in Zambia's copper sector, the article aims to address the knowledge gap that remains in our understanding of Chinese foreign direct investment (FDI) into Africa.Footnote 1 The discussion holds particular relevance for Chinese state-owned enterprises (SOEs) operating either as long-term investors in African assets, such as resource-extraction and manufacturing, or as contractors in construction and infrastructure sectors.
The article begins by considering the growing presence of Chinese investment on the African continent, noting widely held views of such investment as strategic, politically motivated and of a long-term nature that is “different” from “Western” foreign capital. In order to examine this view the article first presents the governance and regulatory setting shared by many African countries, characterized by regulatory capacity constraints, limited transparency and political intervention. It argues that such an environment gives prominence to foreign investors' specific governance features in determining how host-country relationships are negotiated and interpreted over time. The article then identifies and examines two sets of corporate governance characteristics of Chinese investors: first the role of state-ownership and industrial policy, and second the firm-level strategy, structure and norms espoused by the firm. The second part of the article presents the relevance of Zambia as a site within which to explore the social, economic and political role of Chinese investors. Evidence suggests that these corporate governance features translate into the pursuit of short-term strategies. It also indicates that although the conduct of Chinese firms has improved markedly since their arrival in Zambia, an unwillingness and inability to internalize legitimate stakeholder concerns remains, threatening to undermine the longer-term stability and viability of these investments.
A Growing but Contested Presence
Between 2001 and 2006 FDI into sub-Saharan Africa nearly doubled,Footnote 2 reflecting high international commodity prices and widespread liberalization of trade and investment policies throughout the 1990s. As part of this trend, Chinese large-scale FDI has quickly become a notable new feature of Africa's economic and political landscape, most visibly in extractive industries and infrastructure sectors. It has been suggested that firms involved with sectors considered strategic may operate according to a political rather than economic logic, playing a central role in the People's Republic of China's (PRC) foreign policy.Footnote 3 Taylor cites interviews with representatives of Chinese development companies who argue that “Chinese companies have a longer vision than western companies and are not constrained by the very high profit returns demanded by western shareholders.”Footnote 4 Recent policy announcements indicate a move towards a more proactive management of social and environmental issues,Footnote 5 also suggesting that the Chinese government sees value in addressing such longer-term issues in its African investments. However, whether this translates into behaviour “on the ground” that is consistent with such objectives is open to question: observers often point to Chinese firms' rapid implementation of projects,Footnote 6 through a form of engagement that appears focused on outcomes rather than processes.Footnote 7 Zambia's Minister of Commerce points to perceptions that the modalities of foreign capital vary: “The Chinese start to work behind the scenes, but they come and make a decision there and then. After that, they start to work backward, asking for data on the projects … [the] Chinese do and assess, while Indians assess and do.”Footnote 8 This highlights the need to query how mining and other essentially long-term investment is implemented, and whether investors' practices support or detract from their contributions to development.
The need to explore the processes whereby foreign capital becomes embedded over time is motivated by examples of labour issues causing social tensions, at times violent. In the case of Chinese investment, such grievances often centre on a tendency to use a high proportion of expatriate Chinese skilled and unskilled labourFootnote 9 as well as allegations over poor working conditions, including salaries, training, health and safety. Examples include Zambia's 2006 elections, which provided an opportunity to express growing dissatisfaction with Chinese business interests. Chinese managers have been targeted in NigerFootnote 10 and demands for better working conditions have led to abductions of Chinese professionals in Nigeria.Footnote 11 Close links to governments have also implicated Chinese investors in local political conflicts: Chinese Sinopec was targeted by the separatist group ONLF in Ethiopia, leading to violence and the death of nine Chinese workers in April 2007.Footnote 12
In theory, the conduct and practices of any investor are governed by host country regulations – including through the legislation and enforcement of environmental, health and safety standards – to ensure that corporate practices do not undermine public interest.Footnote 13 However, in many African states the regulatory framework is characterized by a lack of capacity, outdated legislation and a shift towards a greater role for industry self-regulation.Footnote 14 These features of the political economy reflect widespread liberalization in the 1980s, and are frequently coupled with a centralized bureaucracy and significant political intervention,Footnote 15 resulting in constraints on enforcement capacity.Footnote 16 This regulatory context accentuates the relevance of firm-level characteristics in understanding the behaviour of foreign investors in Africa. For instance, the ability of regulators to monitor and enforce government policy is complicated by the limited transparency surrounding Chinese projects, preventing civil society from effectively exercising an oversight role.Footnote 17 This has raised fears that the corollary of Chinese projects' often rapid execution may be reduced attention to best practices, stakeholder consultations and standards.Footnote 18
Features of Chinese Corporate Governance
This section discusses two sets of corporate governance characteristics in order to explore whether long-term objectives inherent in the discourse of the PRC's “strategic partnership” with Africa are matched by corresponding conduct “on the ground.” Corporate governance is defined as “the structure of rights and responsibilities among the parties with a stake in the firm,”Footnote 19 and includes relationships with capital providers as well as among functional departments within an organization. The first characteristic is the multifaceted relationship between Chinese TNCs' overseas African operations and home-country shareholders and regulators. In the case of the large Chinese SOEs that are the focus of this study, the dual nature of the PRC as shareholder and policy maker introduces political considerations into firms' decision making, resulting in the political embeddedness of corporate interests. The second is a set of characteristics that emphasizes organizational features of Chinese SOEs' overseas operations: firm-level strategy, structure and norms. Together these governance characteristics provide a frame within which managers' actions towards local actors are explained and legitimated, thereby shaping managers' choices between longer-term and shorter-term strategies. As such choices are difficult to observe directly,Footnote 20 the article conceptualizes short-term strategies as those practices that tend to undermine the sustainability of social relations and economic development.
Political embeddedness
Reforms since 1978 have reduced the role of the PRC central government relative to provincial governmentsFootnote 21 and decentralized approval processes for outward FDI.Footnote 22 However the PRC's Africa policy published in January 2006 places heavy emphasis on economic co-operation, and central government continues to play a significant role in the promotion of outward investmentFootnote 23: by 2008 there were over 150 “national champions” specifically targeted with incentives and loans from ExIm Bank, 22 of which were among China's top 30 outward investors.Footnote 24 According to the “going out” (zou chuqu 走出去) policy formalized in 2001,Footnote 25 the government will encourage investment that fits with one or more of four objectives: providing a market for Chinese products, improving resource security, enabling technology transfer, and promoting research and development. This policy includes financial incentives, provision of market intelligenceFootnote 26 and co-ordination through the Ministry of Commerce, whereby Chinese overseas contractors are notified when a partner country is to receive grants or loans.Footnote 27 Reflecting these incentives and services, Chinese investors in Africa surveyed by Broadman rank “government support” as the second most important reason for going abroad.Footnote 28
The Chinese government does not get involved in the day-to-day operations of overseas Chinese enterprises but has a strong interest in setting policy objectives and monitoring firms' alignment with them.Footnote 29 Policy implementation takes place through an institutional framework of bureaucratic entities under the PRC State Council. However this system may not be as formalized as suggested by Gill and Reilly.Footnote 30 First, in a highly hierarchical state structure where strategically important firms are closely associated with political decision makers, some SOE executives are higher up the chain of command than State-owned Assets Supervision and Administration Committee (SASAC) officials. A deputy director working for the Ministry of Commerce notes: “Some of the managers/CEOs of the big SOEs, their position in the system of China's officials is higher than the leader of the SASAC – so it is difficult, if the SASAC wants to change that person, maybe they have to get the support of the Premier. And sometimes they will even require President Hu Jintao.”Footnote 31 Effective implementation of the SASAC's oversight role thus necessitates a credible threat of intervention by senior Communist Party officials. Second, as policy makers have been waking up to the risks that limited oversight brings to China's long-term interests in Africa, several policy expressions have emerged that aim to strengthen this oversight. In August 2006 the Ministry of Commerce released a set of policy guidelines “to strengthen regulations in order to avoid conflicts … in order to protect the national interest.”Footnote 32 In January 2008 the SASAC issued “instructing opinions” regarding SOEs' social responsibilities, urging firms to strengthen environmental protection, workers rights, health and safety, and community relations.Footnote 33 Lastly, the use of Party committees in the governance of large companies constitutes another institutional mechanism of control. These committees operate as a form of parallel board – staffed with Communist Party cadres and headed by the local Party secretary – tasked with appointing top executives and directors.Footnote 34
The current PRC system of government oversight thus emphasizes post hoc and discretionary enforcement. The use of “suggestion” to guide corporate behaviour reflects a tradition of governance through the threat of sanctions – such as withholding of services, funding or promotions – that retains a purpose as long as China's system of formal property rights remains underdeveloped. Such pronouncements nevertheless have real implications for Chinese managers who are held accountable via the threat of replacement or other sanctions through the political process.Footnote 35 When faced with an opaque regulatory environment featuring threats of discretionary enforcement, Chinese firms may respond by pursuing short-term returns and diversification strategies.Footnote 36
Strategies, structures and norms
Large Chinese firms are relative late-comers in Africa and aggressive acquisitions reflect a strategy to establish a presence in African markets. Once established, shareholders accustomed to high “Chinese” growth rates may insist on continued rapid growth: in a survey of Chinese, Indian, South African and “Western” investors in Africa, Henley et al. note that despite a high “previous year's sales growth” (48 per cent), Chinese investors are “the least positive among investors from the South … perhaps reflect[ing] the high growth expectations Chinese firms bring with them from China where doubling sales every year has not been uncommon.”Footnote 37 There is also evidence that Chinese businesses tend to follow strategies of vertical integration across the value chain, resulting in organizational structures that are geographically concentrated. Research to date indicates that linkages with local economies have often been limited.Footnote 38
The way in which Chinese business communities in Africa organize themselves in relation to host societies is also shaped by norms and shared culture, often serving to reinforce more formal institutions. As Bräutigam points out, the extent and depth of local economic linkages depend on the existence of longer-term diasporic Chinese communities as well as host-country policies.Footnote 39 Overseas Chinese communities have a long history of limited integration with host societies,Footnote 40 and for expatriates working for SOEs this tendency is reinforced by explicit corporate policies that normally dictate a short (such as three-year) contract and restrict employees from bringing their spouses and family to Africa.Footnote 41 To the extent that these expatriates see a stint in Africa's promised land as a purely economic opportunity,Footnote 42 they are unlikely to see the value in establishing open relationships with communities and stakeholders. Alternatively, norms and shared culture may serve as a complement to underdeveloped formal institutions.Footnote 43 For instance, research noting Chinese migrants' lack of “trust” in local populationsFootnote 44 can help explain the observed preference for Chinese labour: trust can function as a complement to formal contracting. The use of Chinese workers may increase Chinese managers' operational predictability, necessary in order to meet aggressive production targets.
Chinese Investment in a Comparative Perspective – The Case of Copper Mining in Zambia
The second part of this article begins by presenting the relevance of Zambia's copper mining sector as a case study, and the methods of inquiry. It first gives a brief overview of the political economy of mining in Zambia, placing Chinese investment in a comparative perspective. The discussion that follows explores how the governance features highlighted above shape Chinese investors' behaviour and propensity to engage in short-term strategies, and what this means for China's contribution to African development.
Motivation and methods
Zambia is a relevant location to explore China–Africa relations because of the historical relationship between China and Zambia, the strategic role of Zambia in Beijing's current foreign policy, and the contested nature of some more recent experiences of local engagement with Chinese economic interests. Historically, the 1970–75 construction of the TAZARA railway between Zambia and Tanzania constituted a highly symbolic gesture by China towards a recently decolonized African continent. The execution of such a large and visible project, emblematic of modernization, represented a Chinese foreign policy achievementFootnote 45 and is repeatedly referred to in the political discourse of both countries. Zambia's strategic role within Beijing's present-day foreign policy is evidenced by the decision to locate the first of China's five African preferential trade and investment “special economic zones” (SEZ) in Zambia, as announced at the Forum on China–Africa Co-operation in 2006. Reflecting the country's role as Africa's largest copper producer, Chinese investment into Zambia has to date focused on the mining sector.Footnote 46
However China's Zambian experience in more recent times is more socially and politically contested. The aftermath of an accident that destroyed the Chinese BGRIMM explosives factory in April 2005Footnote 47 – taking the lives of over 50 Zambian workers – highlighted breaches in safety and other regulationsFootnote 48 and served to galvanize anti-Chinese sentiment ahead of general elections in October 2006. In the lead-up to these elections the populist opposition party Patriotic Front, led by Michael Sata, campaigned on throwing out the Chinese and re-establishing ties with Taiwan, and posed a real threat to the incumbent Movement for Multi-Party Democracy.Footnote 49 Three months later, in February 2007, the spectre of protests prevented President Hu from travelling to Chambishi on the Zambian Copperbelt to inaugurate the SEZ. In March 2008 some 500 Zambian workers constructing the Chambishi Copper Smelter in the SEZ downed tools and attacked Chinese management over stalls in wage negotiations.Footnote 50
The following analysis draws on five months of PhD fieldwork in Zambia between July and December 2007. I conducted semi-structured interviews with representatives of various groups comprising the political economy of copper mining in Zambia: mining companies (25 individuals), government and regulatory agencies (14), mining sector suppliers (15), civil society including labour unions (15) and international donors (nine). Following initial contacts with key actors, subsequent respondents were chosen principally through snowball sampling, reflecting the need to establish trustworthiness among informants. Data collection focused on four foreign mining companies: NFC Africa (NFCA, eight interviews), Konkola Copper Mines (KCM, seven), First Quantum (eight) and Chambishi Metals (six), firms that accounted for approximately half of Zambia's copper production in 2007 (see Table 1).
Overview of Zambia's Copper Mining Sector
Notes:
Table excludes small and medium-size companies, as well as companies at various stages of prospecting and development.
Source:
Bank of Zambia.
The Zambian mining sector today
The parastatal Zambia Consolidated Copper Mines (ZCCM) was privatized between 1997 and 2002.Footnote 51 High international copper prices during 2004–08 motivated significant investments, and copper production more than doubled from a historic low of 257 kilotonnes in 2000 to 561 kilotonnes in 2007. However the new mine-owners have faced criticism for the limited payment of taxes and royalties,Footnote 52 and, varyingly, poor working conditions and environmental management, a tendency to import inputs rather than procure locally, and providing insufficient community services. In reflection of these issues, post-privatization strikes have been common.Footnote 53 Tensions also reflect new investors' (understandable) failure to live up to the standards of pre-privatization ZCCM, when the mines provided a wide range of social services. Moreover, the neo-liberal discourse that underpins government policy makes a striking link between foreign investment and development, despite evidence that high FDI-driven economic growth has failed to decrease poverty levels.Footnote 54 This discourse leaves little room for the analysis of actual development impactsFootnote 55 and obscures the empirically tenuous association between FDI and sustainable development.Footnote 56 Within this context I now explore the two corporate governance themes identified in the first part of this article.
Governance of Chinese Mining Interests in Zambia
Political embeddedness
NFCA is the largest of eight Chinese mining companies operating in Zambia.Footnote 57 Its operations are politically embedded in China's Africa policy through the role that NFCA plays in establishing the Chambishi SEZ. An initial investment of $800 m has been targeted for the zoneFootnote 58 – the area of which corresponds to NFCA's 42 km2 mining surface right – to establish the Chambishi Copper Smelter and other mining-ancillary activities in order to service NFCA as well as third parties.Footnote 59 Commercial ties between NFCA and new investments into this tax-free zone are mirrored in organizational governance structures: the Chambishi SEZ will be managed by a “zone development company,” headed by former NFCA CEO Tao Xinghu, which will select companies to invest.Footnote 60
Negotiations over the terms of entry of new Chinese investment are conducted and announced with the involvement of Chinese as well as Zambian political appointees.Footnote 61 With regard to ongoing operations, a finance professional at NFCA notes that:
Usually you have representation coming through the Chinese government, through the CNMC, then they will have chats with the government [of Zambia], just like when they were signing in this Chambishi SEZ, it was for the government representatives from China to sit with the government representative of Zambia … So in a way, even the government-to-government discussions, they help to streamline the way we operate.Footnote 62
However following completion of mine rehabilitation and commencement of copper production in 2003, the Chinese government no longer provides financial assistance and the company is expected to be financially self-reliant.Footnote 63
Close links with local political elites constitute another form of political embeddedness. Rather than engaging directly with affected parties, NFCA expects the Zambian government to broker the company's relationships with local actors.Footnote 64 So, for example, on a visit to Zambia in February 2008, Chinese Deputy Minister of Commerce Gao Hucheng called on the Zambian government to ensure that meetings were held with stakeholders to brief them on projects and their impacts.Footnote 65 The Zambian government's broker role is facilitated by the legitimizing effect of its “FDI-friendly” discourse, as well as by direct interaction which may be either formal – through the board representation provided by the minority equity stakes retained by government – or through informal mechanisms. The latter include ad hoc “courtesy calls,”Footnote 66 visits by firms to the Ministry of Mines, as well as the practice whereby large mining companies in Zambia are expected to visit and brief the President on their investment plans.Footnote 67 This broker role is to a certain extent offered to all the mines – such as when the President invited parties involved in a 2007 strike at First Quantum's Kansanshi mine to come and hold talks at State HouseFootnote 68 – yet appears to be more fully developed in the case of Chinese investors. Charles Muchimba at the Mineworkers Union of Zambia talks about NFCA as having the “tacit approval” of the Zambian government, pointing to the discrepancy between local experiences and the government discourse on FDI:
There are a number of comments or positions which our President has said about FDI, and Chinese investment, which hasn't rung well in the ears of the Zambians. Because the government has brought so much praise, and yet you deal with them on the ground, they are very rough … You almost have to have the approval of government, or you have to be seen in the proper light for them to deal with you.Footnote 69
These practices point to a politics of extraversion,Footnote 70 whereby political elites secure financial or other support by providing external capital interests with protection. The willingness of government to provide this function is consistent with the short-term goals of political elites, what the Executive Director of Transparency International of Zambia refers to as President Mwanawasa's “preference for quick wins.”Footnote 71
Strategy, structure and norms
In exploring the strategy, structures and norms underpinning NFCA's activities on the Copperbelt, a first observation concerns its organizational structure. The firm operates within a network of apparently autonomous “sister companies,” including Sino-Metals, Sino-Acid, the Chambishi Foundry (all of which provide inputs into NFCA's production process) and the Chambishi Copper Smelter. In contrast, other mining companies on the Copperbelt tend to organize refineries, acid-plants and so on within larger operating entities, such as what KCM refers to as “integrated business units.”
These sister companies are closely linked to NFCA which facilitates their entrance into the area. This includes help with international procurement as well as the provision of policies and procedures, often copied directly from NFCA.Footnote 72 The preference for vertically integrated suppliers is also illustrated in NFCA's excavation and mine-development activities, conducted through a semi-autonomous “Mining Department.” The relationship between these entities confounds auditors and appears not to conform to international accounting standards.Footnote 73 Another feature of NFCA is that, compared to other mines surveyed, it appears to import a greater share of its inputs from abroad, much of it procured via the parent CNMC. Extensive inter-company transactions, nonchalance towards international accounting standards and capacity constraints at the Zambia Revenue AuthorityFootnote 74 jointly serve to undermine accountability and encourage tax evasion.Footnote 75
Among the companies surveyed, there was a clear tendency for respondents to identify the Chinese and Indian companies with low-cost strategies. Reflecting over NFCA, a veteran supplier to all foreign-owned mines on the Copperbelt notes:
They have a funny way of working, they somehow live hand-to-mouth, they buy something when they need it. They don't have a stocking, you know, warehousing system like KCM and MCM, where if something breaks down they have something to follow. They Chinese don't do that. They say how many boxes do we need today? Ten? OK we'll buy again when it finishes. They are very careful with their costs … they don't want to prioritize value, quality, they don't do that, that's the biggest problem they have. Everything must be cheap. And in the long run they have paid four times what they are looking for.Footnote 76
Low-cost strategies promote the use of existing infrastructure wherever possible – a potentially hazardous approach when the infrastructure on the Copperbelt suffers from decades of under-investment. In November 2006 KCM discharged highly acidic waste material into the Kafue river, one of Zambia's main water arteries. Investigations by the Environmental Council of Zambia (ECZ), the environmental regulator, concluded that KCM had continued discharging acidic waste through a worn-down pipeline, despite having run out of the lime required for neutralization. This incident did not, however, become as politically sensitive as the BGRIMM accident. First, KCM did not cause a direct loss of life. Second, outrage over Kafue was concentrated on the ECZ's perceived impotence in its handling of the case: just as the ECZ was about bring legal charges against KCM, the government intervened through a provision that allows the Minister of Environment to overturn decisions made by the regulator.Footnote 77 Among communities around Chambishi, on the other hand, there was deep-seated anticipation that the government would respond strongly in condemnation of what was seen as reflecting a deeper set of problems at NFCA. The abject failure of the government to side with communities led to disillusionment, taking its expression through increased support for the political opposition.
International copper prices in the latter half of 2007 were more than three times higher than at privatization, giving incentives to firms to prioritize production (rather than development or maintenance) where possible. This tendency was particularly evident in stakeholders' perceptions of NFCA's cost management, with one supplier noting that “the Chinese have a funny thing – they believe you have to spend directly on production.”Footnote 78 A reluctance to spend on non-core activities is shown by the unwillingness among management to spend money on social activities such as HIV/AIDS programmes,Footnote 79 and long delays in publication of the company's Environmental Management Plan. There is evidence that such attitudes engender an unwillingness to invest in maintenance, putting at risk the personal safety and environment of workers and communities.Footnote 80
A strong preference to minimize costs would not be a big issue in a world of perfect regulatory enforcement. However, Zambian government agencies face significant capacity constraints that prevent the Mines Safety Department as well as ECZ from monitoring effectively. NFCA's networked business model further complicates enforcement: the greater the number of separate corporate entities to be dealt with, the more the effectiveness of both government regulation and civil society oversight is undermined. For example, it enables smaller sister companies to flaunt labour regulations, thereby minimizing labour-related costs further. Vincent Lengwe at the Mineworkers Union of Zambia notes that the aforementioned emphasis on production targets extends among some companies to relationships with workers: “It is rare that you have salaries that are not monthly … those situations are happening mostly at the Chinese. At the foundry they are paid depending on how many mill-balls they produce. There are those situations, very few, where you get employees being paid according to production.”Footnote 81
A desire to minimize labour-related costs – NFCA pays the lowest salaries among the mining companiesFootnote 82 – also leads to a fickle labour force that only remain with the firm in the absence of other opportunities. As one respondent notes: “I think a happy employee works better, so it is good for the company in the long run. What you find is that at NFCA, people are always resigning, there is always a vacancy … That is the first clue they should get that something is wrong … That is a company where you always find a vacancy, they are always interviewing.”Footnote 83
At NFCA, the typical time Chinese managers spend in Zambia is three years. Other companies surveyed tend to retain managerial staff, even following changes in shareholders (such as at KCM in 2004 and at Chambishi Metals in 2003).Footnote 84 First Quantum similarly retains many managers and staff who have been with the firm since the late 1990s.Footnote 85 Most of the mining companies also stress the value of training Zambian staff, for instance through KCM's “global leadership” programme whereby Zambians go to India for between six months and two years.Footnote 86 At NFCA, however, there are no similar programmes to promote long-term development of human capital; on the contrary, a prominent organizational feature is the limited interaction between Chinese and Zambians, even at administrative levels. Here the segregated engagement often observed with regard to living arrangements extends to intra-company relationships: at NFCA Zambians have very little insight into what is going on in their company, the vast majority of internal memos appear in Mandarin only, and Zambians are wary of being seen as “asking too many questions.”Footnote 87
Discussion – The Potential for Organizational Change
Deputy CEO Gao Xiang is keen to emphasize NFCA's continuous improvement and adaptation: “In the beginning in 2003 people felt the benefits were not enough. But every year we keep improving. I told them, we are the young boy, ten years old, others they are 40–50, they are adults … But they are becoming older!”Footnote 88 Several respondents from the government as well as civil society confirm the changing nature of NFCA's engagement with stakeholders. Officials from both the ECZ and the Mines Safety Department acknowledge significant improvements in compliance since Chinese investors arrived in the copper sector in 1998.Footnote 89 Industrial relations have also improved,Footnote 90 and following pressure from unions NFCA has extended medical coverage from one dependent to two or more.Footnote 91 The company also recently brought in a new Chinese manager from London as a translator between Chinese and Zambians in its mining department.Footnote 92 However, despite these indicators of change, the governance practices described above simultaneously reduce both the incentives and ability of Chinese managers to appreciate and address longer-term stakeholder concerns.
Incentives to address longer-term issues are reduced, first, because of a focus on maximizing production and minimizing costs. This discourages spending on non-core activities, including social benefits and staff training. In a context of weakly enforced regulations it may also reduce investment in environmental, health and safety systems. This short-term profit-motive is partly explained by the observation that following commencement of copper production in 2003, the company was left to fend for itself financially. Second, short stays in Zambia are likely to limit managers' interest in building long-term sustainable relationships with stakeholders beyond those required to safeguard production.
NFCA's ability to appreciate and adapt to social tensions surrounding its investment is also reduced for several reasons. First, the social segregation within the firm breeds suspicion and reduces the scope for the company to benefit from the experience and knowledge of non-Chinese staff. It means that Zambian “voices” and their concerns or suggestions are less likely to be heard. Second, the low-cost strategy undermines the firm's ability to attract and retain qualified staff, who after accumulating experience may quickly move on once given the opportunity. Third, NFCA's reliance on PRC and Zambian governments to broker their social relations also limits first-hand experience of stakeholder concerns, constraining the space of civil society to engage over issues of labour practices, transparency and standards. This can be explained with reference to aggressive production objectives that leave little room for time-consuming dialogue, as well as Chinese managers' limited experience in dealing with pluralist non-state actors' interests.
FDI generally occurs through a process of incremental engagement and evolving relationships with host-country actors. Over time as the firm responds to incentives embedded in the host-country's institutional environment,Footnote 93 its own practices evolve through a process of organizational learning.Footnote 94 The discussion above points to two tendencies for NFCA's learning processes. First, learning appears to be superficial rather than transformational: changes in behaviour and practices occur within existing systems of rules and norms, rather than through reflection and transformation of these rules and norms. Despite the common views among regulators and union representatives that NFCA is improving its practices, an anonymous informant notes that the sense of an internal divide and the reluctance to entertain public inquiries has remained largely unchanged.Footnote 95 Second, learning processes appear to be reactive rather than proactive: only following the BGRIMM accident and subsequent pressure from home and host governments did NFCA install a Zambian human resources manager.Footnote 96 Similarly, the decision to bring in a Chinese manager with good English to NFCA's mining department in 2007 came too late for those affected by previous accidents and fatalities as a result of poor communication between Zambians and the Chinese.Footnote 97
Concluding Remarks
This article has explored how foreign investors' governance characteristics can explain their behaviour and prospects for long-term integration into host societies. With reference to the case of Zambia, it has argued that governance features of Chinese companies (such as a networked business model, low-cost strategies and a reliance on the support of the Zambian government) affect Chinese managers' incentives as well as ability to engage constructively with long-term labour and social issues. Thus, although mining investment is by nature a long-term endeavour, in this case the way it is implemented actually promotes short-term strategies that fail to address the social and environmental impacts of mining activities.
As Clapham remarks, investors' reliance on the state as broker may actually undermine the long-term stability of these investments, as their prospects become intertwined with the political fortunes of rulers in office.Footnote 98 The reliance on the host-country government to function in this role appears to reflect an implicit assumption in China's “non-interference” policy paradigm that overestimates the capacity of African states to exercise effective control over their domestic political economy. Such an assumption, however, sits uneasily with the highly contested nature of many African countries' politics, vocal civil societies and relatively open media. Here the ostrich-like approach of not engaging directly with public criticism may be a strategy that runs counter to China's long-term interest, as it only serves to let critical voices run rampant.Footnote 99
There is evidence of NFCA, over time, adapting its practices in response to local concerns; however the tendency towards short-term strategies leads to organizational learning that appears to be superficial and reactive. This limits reflection over underlying systems, processes and values, and reduces exposure to competing views, leading to risk analysis that can only be “generalized and one-dimensional.”Footnote 100 Reactive learning resonates with the way Chinese SOEs are governed by the Chinese state – through informal guidance and discretionary enforcement – thereby increasing managers' uncertainty and making them more likely to prioritize short-term strategies. However one interesting feature of NFCA's networked business model is its ability to increase the speed of market integration of subsequent investors by allowing an early entrant to co-ordinate customs and development of company policies and procedures. In other words, any organizational learning that takes place at NFCA is more likely to be replicated across the network of Chinese sister companies, so that the latter will not have to “learn the hard way.”
To what extent can the more general conclusions drawn from this case study – that Chinese SOEs within current governance frameworks pursue short-term strategies, in contrast to the longer-term objectives inherent in policy discourse – be applied elsewhere? The arguments put forward are explicitly located at the nexus of Chinese investor preferences and local regulatory structures, demands and expectations, and should not be unthinkingly transplanted out of context. Indeed, the very notion of political embeddedness highlighted in this article emphasizes interdependence and the relevance of local contexts in shaping China's preferred forms of engagement, a view supported by prior research.Footnote 101 Bearing this in mind, the analysis will be most relevant in African countries that share Zambia's predicament of resource dependence, thriving yet unequal political contestation, regulatory capacity constraints and political intervention, as well as where Chinese investment targets geographically concentrated zones (including Mauritius, Tanzania, Egypt and Nigeria). The way in which political embeddedness is exercised, and its impacts on the trade-off between longer and shorter-term objectives, could fruitfully be explored further in the contexts of large-scale Chinese loans-for-resources programmes – involving joint natural resource and construction investments – being implemented in Angola, Democratic Republic of the Congo, Nigeria, Ghana, Gabon and Guinea.Footnote 102
The case study concludes that the Chinese SOE it examines is not a simple extension of Beijing's foreign policy. Nevertheless, it suggests that policy and governance frameworks that originate in China heavily influence the incentives of managers of overseas operations. In particular, the absence of financial support from the Chinese government results in a stronger profit motive, which in the context of weakly enforced regulation is likely to lead to cost-cutting that threatens development and undermines longer-term social stability. More research is needed to clarify and add precision to our understanding of the governance of Chinese investors, and how it informs managers' choices of who, when and how to engage with local stakeholders. This can elucidate the processes of mutual learning that are taking place, and point towards the future role that large Chinese investments will play in Africa's long-term development.
