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Case Study on Chinese FDI in Peruvian Natural Resources: A Teacher's Guide

Discussion questions for "Do Chinese Companies Exploit More?"—a Fall 2011 AQ article by Barbara Kotschwar, Theodore Moran and Julia Muir that assesses the record of Chinese mining companies on labor rights and the environment.

Teachers: Print the full-text of the AQ article and then use the below complementary study guide for classroom discussion. A PDF of the study guide can also be accessed here.

To inquire about AQ study guides, please contact Wilda Escarfuller at wescarfuller@as-coa.org


Increased Chinese investment has aroused concern that Chinese efforts to procure raw materials might be exacerbating the problems of strong demand—“locking up” natural resource supplies, gaining preferential access to available output and extending control over the world’s extractive industries. The contrary argument is that Chinese investments in natural resources might help expand, diversify, and make more competitive the global supply base.

•    Think about the four types of natural resource investments set out in the article.  What are the implications of each?  What is the significance of how Chinese investments fit into these categories?

•    How would you fit each of these Chinese cases—Shougang and Chinalco—into these four patterns of natural resource procurement?

•    What are the implications of Chinese investments in the extractive sector for consumers around the world?

•    How would you assess the arguments supporting or refuting the claim that China is “locking up” natural resource supplies?

Chinese companies, backed by the Chinese government, have been acquiring equity stakes in natural resource companies, extending loans to mining and petroleum investors, and writing long-term procurement contracts for oil and minerals in Latin America and other resource-rich regions. What role can these types of large scale investment (in some cases—Venezuela—up to $20 billion) play in low income countries such as Peru?

•    What are the positive impacts that natural resource investments might have for a country like Peru?  What are the negative impacts that natural resource investment might have for a country like Peru?

•    What is meant by the phrase “resource curse?” Do you think that Chinese investments in Peru can be considered a case of the “resource curse?” Why, or why not?

Chinese foreign direct investment (FDI) in Latin America has increased nearly seven-fold from $226 million in 2003 to $1.6 billion in 2009. Now more than half of Chinese foreign investment in natural resources is in Latin America.

•    Is increased Chinese investment good for Latin America?  Explain.

•    What are some lessons from other regions that should inform Latin American policymakers’ approach to Chinese investors?

•    How can Latin American governments ensure that large mining and industrial projects provide an engine for growth and development on the community level?

Peru’s attitude towards business, privatization and civil society has changed over the past two decades. Governance indicators show a greater role for civil society and political stability. Despite improvements, indicators on corruption and government effectiveness remain poor.

•    Based upon your reading of this article, what role do you think the host-government should play in the operation of foreign companies?

•    What regulation/policies/incentives would you recommend to ensure that foreign companies behave as good corporate citizens in foreign countries?

•    What makes a company a good corporate citizen?

•    What role could free-trade agreements (FTAs) play in the facilitation of more responsible FDI?

•    What, in your opinion, has had more of an influence on these four mining companies in terms of worker's welfare, CSR etc. The change in Peru's domestic/political environment or external pressures, policy changes (NGOs, New Chinese 5-year plan, sensitivity to community relations)? Explain.

“The Chinese are used to top-down management, [whereas] Peru functions more along the lines of a bottom-up approach. Learning how to work in Peru is a cultural quantum leap for China.”

•    What challenges do Chinese companies face as they begin to invest in Latin America?  What advice would you give the Chinese manager of a large mining enterprise as he or she begins to operate in Peru or Chile or Ecuador?

•    How can government structure policies to ensure that companies follow “best practices”? And how can governments ensure compliance?

Group Activities

•    Divide students into groups of 4 or 5 and ask them to brainstorm about one of the following questions, then write a short paper (3-5 pages) summarizing the results of their deliberations.

•    Consider the case of Chinese companies in the mining sector in Peru.  Why might Chinese companies behave differently in Latin America than in Africa or in Europe?  Identify indicators to illustrate your argument and write a short (3-5) page paper explaining your reasoning.

•    Assume that you are the new Minister of Mining in the Humala administration.  Shougang Hierro Peru applies to invest an additional $1.3 billion in exploration and development.  How do you react?  What measures do you propose that your and related ministries take to maximize Peru’s benefits from such an investment, if approved?

•    What lessons would Peru put forth if asked to share its experience with Chinese mining companies to develop a set of best practices for other Latin American countries considering attracting Chinese investors?  Explain.

Debate:  Should Latin American countries welcome Chinese investment?

•    Divide students into two groups.  Allow half the class time (or one class period) to prepare to defend one of the two positions.  For the debate, allow each side 20 minutes to present their initial argument, then 10 minutes to respond to the other side.  Take a 15 minute break for group consultation, then allow 15 minutes for each to summarize their position. Resume class discussion and have students evaluate each others’ arguments.

Yes: Chinese investment is necessary to maintain and expand economic growth and development.
No: Chinese investment produces more harm than good.  Latin America needs more, rather than less socially responsible companies and should put measures in place to prevent being exploited by greedy Chinese companies.

Simulation

Assign students or small groups of students the following roles:

•    Representative of Peru’s Ministry of Energy and Mines (MINEM)
•    Representative of Peru’s Ministry of Environment
•    Representative of Peru's environmental regulator (OEFA or its successor)
•    Representatives from Civil Society, including NGOs, regional districts and towns
•    Representatives from labor unions
•    Representative from the EITI
•    Representative(s) from Chinese mining companies interested in investing in Peru
•    Other actors identified by the students

Simulate a negotiation between a representative of Peru and the Chinese mining companies. The negotiations should be a two-phase process:  Phase 1 includes internal consultations with the relevant national and international entities, Phase 2 is the negotiations with the company.

 

 



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