Working Group on Development
Chinese Investment and Sustainable Development in Peru: A Comparative Analysis
Chinese investment in Latin America has exploded in recent years, leading observers to worry that Chinese companies may transplant poor labor and environmental practices to the region. In this Discussion Paper, GDAE’s Amos Irwin and Kevin P. Gallagher evaluate the economic, environmental and social impacts of Chinese mining in Latin America and compare that performance to other major foreign and domestic firms in the same sector. Based on new quantitative inspection data from Peru, the researchers find that the Chinese company Shougang Hierro Peru has not performed significantly worse than its foreign or domestic counterparts. In fact, a US-based firm has been among the most egregious violators of Peruvian and global standards as of late.
Chinese investment in the region is so recent that only one mining company has been operating long enough to assess its impact. Shougang Hierro Peru has been widely denounced for its environmental and social record, which has been decried in the literature as far worse than that of comparable foreign-owned companies. Much of this literature blames a “culture clash,” concluding that Chinese companies operate irresponsibly in Latin America because they are predisposed to poor labor and environmental standards.
Using new government data and historical archives, Irwin and Gallagher find that while Shougang performed poorly on many indicators, when compared to other foreign and domestic mining companies its poor performance has not stood out in recent years. Rather, the Peruvian government has continually failed to force mining companies to comply with their investment commitments, respect government and global standards, or negotiate with their unions.
They conclude that the Shougang case study does not necessarily determine that future Chinese mining companies will be more likely to bring poor environmental or labor practices to Latin America than other foreign and domestic competitors. High social and environmental costs are endemic to mining in Latin America. Consistent with the broader literature on the subject, this study shows that nation-states like Peru cannot count on foreign or domestic firms to self-regulate. To truly maximize the benefits from natural resource extraction, and to mitigate the risks, nations need to stiffly regulate, monitor and discipline firms operating in the sector—regardless of the firm's origin.
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