Beyond regulation: a comparative look at state-centric corporate social responsibility and the law in China.

• Author: Ho, Virginia Harper
• Position: III. State Sponsorship of CSR in China C. Subnational CSR Initiatives through VII. Appendix, with footnotes, p. 409-442

3. Subnational CSR Initiatives

   Because of the lack of a national CSR policy or coordination, subnational government programs in China represent a key source of policy innovation. The following discussion surveys their role in advancing CSR. Examples are reported on Table 1 in the Appendix and more comprehensively below. (180)

   1. Endorsing

      Governments at all levels have been active in raising awareness of CSR principles. Six provincial-level governments sponsor CSR award programs, and Shanghai, Shandong, and Zhejiang provinces have issued formal policy statements publicly endorsing CSR goals and urging companies to adopt responsible business practices, (181) Provincial and local governments, including Shanghai, Shenzhen, and several cities in Shandong and Zhejiang provinces, issue CSR progress reports for their jurisdictions or highlight CSR leaders, (182) Many of these same governments host conferences and other events to promote CSR within the business community, (183) and some are actively promoting corporate philanthropy as well. (184)

   2. Facilitating.

      Many governments endorse and incentivize legal compliance and "beyond compliance" by creating specific institutions to promote CSR, introducing local CSR guideline and audit programs, directing capacity building through firm CSR training and research, and providing financial incentives. These incentive structures are directly entwined with alternative enforcement strategies in use by many administrative agencies at the local level and merge voluntary commitments with existing legal requirements.

      Under China's Administrative Penalties Law (APL), enacted in 1996, enforcement authorities are subject to procedural limits that are intended to prevent abuse of official discretion, (185) Under the APL, administrative penalties can only be levied if a firm refuses to remedy the violation upon notice. (186) Because enforcement authorities cannot always threaten serious penalties even with policy backing, (187) many regulatory agencies regularly use a range of compliance-oriented tools to incentivize compliance and allocate scarce enforcement resources. These strategies promote responsible business practice up to and beyond compliance, and so overlap with state-sponsored CSR programs.

      For example, the MEP's green finance programs are implemented at the provincial and local levels via voluntary programs that offer tax incentives and direct subsidies to motivate firms' environmental compliance, (188) Environmental information disclosure programs, introduced in 2007 and widely implemented by environmental protection bureaus (EPBs) across China, publicly blacklist polluters and also publish the names and compliance ratings of top performers. (189) Similar "naming and shaming" strategies are also widely used by local labor bureaus and quality control inspectors. (190) Like many Western regulatory agencies, some authorities grant enforcement waivers to firms that have consistently attained an exemplary compliance standard, relieving them from standard inspections and reporting obligations for a period of time. (191) Other local governments deny violators access to preferential benefits or subsidies in lieu of direct penalties. (192)

      Local CSR guideline and audit programs are the centerpiece of many subnational governments' CSR-facilitation efforts and have been adopted by governments in four provinces, as well as in Tianjin and Shanghai. (193) Some have been developed with external technical assistance from MOFCOM or international experts, but many are the product of policy entrepreneurs within the provincial or local government. (194) They are generally modeled on international CSR reporting and audit guidelines, such as the GRI reporting framework, (195) and local governments, like their counterparts in the United Kingdom, see these guidelines as a way to move companies gradually toward higher international standards. (196)

      Local audit programs have typically been run by a CSR working body set up under the direction of the local Party committee (shiwei [TEXT NOT REPRODUCIBLE IN ASCII]) and local government, often within a government-affiliated trade association or trade union office. For example, the Hangzhou City Trade Union spearheaded the establishment of the Hangzhou CSR Leaders' Working Group, which included seventy officials and Hangzhou's mayor. (197) Together, the participants represent twenty-two government units, including the courts. The core working body includes the heads of eight key departments, such as the local EPB and the municipal administration of industry and commerce. The working group engaged academics and other consultants to develop the guidelines and audit system and coordinates multiple local agencies during the audit process. (198)

      CSR audit systems vary to some extent, but are generally composed of anywhere from sixty to two hundred discrete measures that form a point-based matrix covering an entire range of stakeholders--employees, consumers, business partners, the government, and disadvantaged populations. (199) They are intended to "guide companies to better emphasize legal compliance and business integrity." (200) Many audit guidelines are striking both for their sophistication and for their inclusion of basic legal compliance and core business practice. For example, under Shanghai Pudong's audit matrix, which is a model for many other governments, basic legal compliance, such as paying taxes or implementing labor contracts per Chinese labor law, allows a company to achieve a minimum standard in each area, but serious violations, such as employing child labor or experiencing an occupational fatality in the relevant period, automatically disqualify a firm. (201) Corporate philanthropy or a firm's adoption of international CSR standards, such as SA8000, also earn the firm extra points toward local CSR certification, but no extra points are earned based on the amount of charitable contributions. State policy plays a role as well; for example, establishing a trade union is required to achieve a minimum score for labor issues, even though it is not required by Chinese labor law. Similarly, engaging in collective labor negotiations, which is also encouraged but not mandated, justifies additional points. (202)

      Firms voluntarily apply to participate in a two-or three-stage process that, depending on the jurisdiction, includes a self-audit, a review by all relevant regulatory authorities of the company's compliance record, and, in some jurisdictions, an independent third-party audit as well. (203) Because of concerns about the legitimacy of administrative agency audits and resource constraints, most local CSR guideline and audit programs rely entirely or in part on third-party auditors that the public will perceive to be independent of government and familiar with international standards. (204) Many governments have also adopted pre-award public-notice procedures, (205) which reduce the likelihood that firms earning CSR awards or certifications will turn out to be the culprits in a compliance-related scandal. In established programs, passage is far from automatic--in 2012, only 200 of the 1500 firms in Shanghai's Pudong district that applied for CSR certification passed. (206)

      Governments that have adopted explicit CSR guideline or award programs use the same types of incentives as enforcement agencies, such as regulatory waivers, publicity, access to preferential financing, expedited permitting, and preference in public procurement; (207) other financial incentives are identical to those that have long been used by local governments to attract investors. (208)

   3. Partnering

      Governments at the forefront of CSR in China increasingly frame their goals in terms of a partnership with business and new relationships with civil society actors. For example, Zhejiang Province's 2008 Opinion on Promoting Enterprises to Vigorously Fulfill Social Responsibilities stresses that "government guides and enterprises play a leading role." (209) Shanghai Pudong's CSR strategy envisions a "four-party responsibility system" in which "government guides, business voluntarily [adopts], industry self-regulates, and the public oversees." (210) Nonetheless, most public-private partnerships are focused on projects rather than policy, and governments have not yet directly involved local organizations in CSR working groups.

      In recent years, the Sino-German/MOFCOM CSR initiative has focused on developing public-private partnerships between local governments and firms to promote sustainability, CSR reporting, and firm self-regulation. (211) Between 2008 and 2012, the project sponsored one-year CSR training programs for certain firms identified by local governments in Hebei and Zhejiang provinces in order to increase local firm interest in CSR. (212) A number of governments, including the Shandong and Guangdong provincial governments and Shanghai Pudong's district government, have initiated various research projects and conferences around CSR, some of which are conducted in cooperation with local trade associations and academic institutions. Others directly solicit corporate contributions to development or charitable projects sponsored by state-approved organizations. (213)

   4. Mandating

      In a number of jurisdictions, the introduction of state-backed CSR has explicitly been matched by enhanced enforcement of environmental, labor, and consumer-protection laws. (214) Most Chinese sources on state sponsorship of CSR tend to highlight core legislation as primary evidence of state commitments. (215) However, few subnational governments are experimenting with mandatory CSR requirements. Exceptions include Shenzhen's public procurement requirements, which incorporate CSR standards; (216) Shandong's rules that include CSR within the quality inspection bureau's brand evaluation system; (217) and a few cities that are including all local enterprises in their CSR audit systems...