By Dr. LIANG Xiaohui

Deputy Chief Economist, China National Textile Information Centre; Chief Researcher & Deputy Director, Office for Social Responsibility, China National Textile and Apparel Council; Adjunct Professor, Peking University Law School

THE FOUNDATION AND FORMATION OF CSR IN CHINA: ECONOMIC REFORMS SINCE 1978

Before the adoption of the “Reform and Opening Up” policy in 1978, there was no modern concept of Corporate Social Responsibility (CSR) in China that was driven by the market and governed by various stakeholders.

From 1978 to 1991 the government focused on moving away from the planned economy. Through the reform of “Delegation of Power and Profit Sharing”, the government relaxed its control over state-owned enterprises (SOEs), enabling companies to better respond to the needs of society. The reform was also effective in incentivizing state-owned enterprise managers and employees, many of whom later became the first generation of owners of private businesses in China. Similar steps were taken in the agricultural sector, through the “Household Responsibility System”, leading to productivity gains already in the first years of its implementation.

During the 1990s, the government set a new goal of establishing a socialist market economy, through a series of fiscal, taxation, financial and corporate system reforms. In the following years, China made notable progress in adjusting and improving its corporate ownership structure, which saw a shift from the dominance of the state-owned economy to the development of enterprises with various types of ownership - comprehensively restructuring many small and medium-sized SOEs.

Despite these significant changes, progress was slow in creating an enabling environment for all market players. As such, the 1990s saw the emergence of heated debates about the upsurge of unethical corporate behavior and the effectiveness of the government’s intervention in business life. Moreover, during these years of sustained economic growth, the development of the legal system and the corporate culture related to a market economy lagged behind and the unconstrained pursuit of profits inevitably caused social tensions.

These challenges, together with pressure coming from global competition following China’s accession to the WTO in 2001, were major drivers behind the evolution of the business eco- system from 2002 to 2012. With Chinese enterprises further accumulating ample resources and gaining greater influence in the public sphere, new concepts, such as sustainable development and responsible business conduct and CSR, started to emerge and gain popularity. At the same time, the rapid expansion of enterprises also generated requirements for stronger regulations and value connections.

These requirements have been central in the years from 2012 onwards – also defined as the “New Era”. During the early years of this period, international trade, overseas investments, and the in-depth integration of China’s economy and the global supply chain provided valuable opportunities for enterprises to develop quickly. This fast development was later slowed down by factors such as the outbreak of COVID-19 and trade frictions. The “dual circulation” approach was adopted to tackle these challenges, which represent the transformation in the drivers of Chinese economy in the 2020s. In this “New Era”, the Chinese government officially incorporated the concept of “Sustainable Development” into its social and economic development policies, creating the core framework to promote sustainable development at home and abroad. This was a key step towards re-balancing growth with social and environmental sustainability and meeting the people’s growing need for a better life.

THE MILESTONES OF CSR AND SUSTAINABLE DEVELOPMENT IN CHINA SINCE 1978

1978-1991: Rapid Emergence of New Social and Environmental Challenges

During the first decade following 1978, there was significant accumulation of wealth and improvements in living standards amongst the Chinese population. Rising household income led to more advanced consumption patterns and the diversification of lifestyles, while economic growth generated greater job opportunities. With growth, however, new challenges emerged. Concerns over counterfeit and low-quality products led the government and public to start taking greater interest in consumer protection. Labor concerns over poor safety and working conditions for instance, also arose, with the protection of labor rights lagging far behind the economic development during this period.

The government started to take action against these challenges, establishing a general legal framework. At the same time, economic and social development provided the space and opportunities for new players to emerge, with the aim of sharing the benefits of China’s growth throughout society. This included government-backed civil society organizations dealing in public interest projects and activities.

1992-2001: Unleashing Entrepreneurs’ Potential and the Emergence of New Social Players

The last decade of the 20th century in China saw a growing attention around the value of different stakeholders in the business ecosystem, such as entrepreneurs and blue-collar workers and the understanding and awareness of CSR by businesses and the public increased. During this period, the challenges that had emerged previously still persisted. Consumer rights infringements, labor law issues, unsustain- able exploitation of natural resources and extensive environmental pollution impacted populations and new types of organizations, such as business associations, foundations and other civil society organizations focusing on economic, but also on social development started to thrive.

2002-2012: Integration into Global Value Chains and Societal Rebalancing

With deeper integration into the global economy following China’s WTO membership, the government reached consensus on the critical role of supply chains in promoting social responsibility in China. Labor-intensive industries, such as textiles, garments and electronics, increased their compliance with relevant international guidelines, promoting good practices and more sustainable, responsible business conduct. During this period, Chinese enterprises developed a stronger understanding of CSR, encouraging them to give back to the community. This led enterprises to become a new driving force for social, as well as economic development. However, rapid growth also had a major negative ecological impact. Public environmental awareness increased, as did collective actions against environmental pollution. In response to these challenges, the government expanded environmental management efforts.

2012-present: Renewed Business Ecosystems for Enhanced Efforts in Sustainable Development

Most recently, projects such as “Going Global” and the “Belt and Road” initiative laid the foundation for the current eco- system. With Chinese enterprises accelerating their investments and operations abroad, the government incorporated policy and strategies that resulted in concepts such as the “Green Belt and Road”. Additionally, business associations also developed guidelines and codes of conduct for overseas investments.

Domestically, following policy guidance from the government, more and more enterprises are contributing to targeted poverty alleviation and rural development and revitalization through industrial outreach, finance, and technology. This has not only promoted economic and social development in poverty-stricken areas, but also opened up new spaces for the development of enterprises themselves. Especially, although environmental concerns persist, China has made break- throughs in environmental protection and climate change. A noteworthy step in environmental governance at this stage is increased public participation, strengthened law enforcement, as well as strong commitments and actions in tackling climate change.

LOOKING INTO THE FUTURE: REFLECTIONS AND RECOMMENDATIONS

Over the past 40 plus years of China’s Reform and Opening Up, Chinese policymakers have continuously transformed the business ecosystem through policy adjustments. This has allowed enterprises to realize their potential, and various stakeholders to emerge and focus on the social and environ- mental impacts of businesses. Together, they have pushed Chinese enterprises to be more responsible and pursue sustainable development, shaping a business ecosystem based on common interests and shared social values.

Looking into the future, pursuing sustainable development across the business ecosystem and society is of great significance not only to China but also globally. Chinese businesses and government should continue to promote a benign business ecosystem and social development, and responsible and sustainable business practices must be integrated in the core business strategies of Chinese enterprises.

Chinese companies, as part of the global supply chain and as foreign investors, should address business and social relationships under economic, social and environmental lenses. The construction of overseas business ecosystems and their impact on local labor forces, communities and society should be effectively addressed.

The government, on the other hand, has the task to improve the policy framework to further empower enterprises to reach their full potential in driving economic growth, while also addressing social and environmental concerns. They should also enhance the corporate sector’s engagement in sustain- able development by setting priorities and milestones for sustainable development targets, as well as effectively implementing and monitoring corporate sustainability progress.

The various stakeholders, including industry associations, social groups, media, and academic institutions in and out- side China, should drive constructive and collective actions at the industry and social levels to build consensus through dialogue and consultation on sustainable development, so as to further raise awareness around sustainability. Beyond this, they can also assist the business in identifying social, environmental and governance risks arising from their activities, collaborate in finding innovative solutions and enhance a pro-sustainability social ecosystem with corporations.

Dr. Liang used to be the Program Coordinator of the Human Rights Master Program at Peking University, China’s first professional human rights education program. He later joined the Office for Social Responsibility of China National Textile and Apparel Council as Chief Researcher, in charge of the development and promotion of CSC9000T, China’s first voluntary CSR initiative and social responsibility management system. Since 2008, Dr. Liang has been the lead expert in the development of other Chinese industry-specific CSR initiatives in China, including international contractors, ICT, communication, automobile, mining and forestry etc. He has participated in the development of various international instruments on social responsibility and responsible business initiated by the United Nations and the OECD. Since 2006, Dr. Liang has taught the course “Business and Human Rights” at Peking University Law School and is the first Chinese scholar teaching this course in China. Dr. Liang is now also a guest professor of China University of Political Science and Law, member of the Human Rights and Labour Rights Working Group of the United Nations Global Compact, and member of the Global Future Council of the World Economic Forum. In 2016, Dr. Liang was recognized by the United Nations Global Compact as one of the world’s first ten Pioneers in Sustainability Development Goals.

Source: More Than A Market Booklet 2021