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Eye On Multinationals
Cover Stories Series 2011> Eye On Multinationals
UPDATED: September 23, 2011 NO. 39 SEPTEMBER 29, 2011
Time to Regulate

As multinationals flock to China, the country has become the world's largest recipient of foreign direct investment. Undoubtedly, foreign investment has played an important and positive role in China's development in many areas, including economic growth, social progress, technology upgrading and introducing strategic resources. But some misconducts by multinationals in China in recent years caused a backlash across the country. Chinese people are concerned about the absence of social responsibility on the part of multinationals and have called for strengthened supervision on social responsibility mechanisms over them.

Ever since China's accession to the WTO, many preferential policies for foreign-invested companies have been called off gradually in accordance with WTO rules. But many local government officials—in a bid to lure more foreign investment for higher GDP figure—continued to offer preferential treatment for foreign investors. Some local authorities even indulge and cover up multinationals' unlawful acts out of the misconception that taxation and jobs come before social responsibility.

Some multinationals handle social responsibility standards in China differently than those in their home countries—and some go as far as breaking those standards. They transferred industries with high energy consumption and high pollution to China, which have caused serious environmental problems here. Some of them loosened their product quality controls or lowered service standards for their China operations.

Equality is fundamental to modern human society. Chinese people are entitled to requirements placed on multinationals to provide the same products and services as the companies do in their parent countries or in line with common international practices and standards. In this sense, the Chinese Government must enhance its supervision and control over multinationals. Relevant governmental departments should also guide multinationals to adopt social responsibilities conforming to current situations.

Environmental pollution tops the agenda of tasks multinationals must tackle. It is urgent for the Chinese Government to establish an environmental monitoring system for foreign-invested companies. High standard for environmental quality and protection should be implemented at the early stage of attracting foreign investment. In addition, supervision of multinationals' operations on environmental protection should be strengthened to avoid turning China into a junk yard.

The Chinese Government does not need to panic over disputes that may be aroused by tightening supervision. China's economic development has won it stronger bargaining power to make parent countries urge multinationals to shoulder more social responsibility.

For multinationals, striking a balance between making profits and fulfilling social responsibility is much more significant than corporate strategy. It is a serious issue relating to corporate business ethics.

Multinationals should understand and accept the supervision of the host countries. In the short term, shouldering more social responsibilities may incur higher costs, but it could increase international competitiveness and enhance the image of multinationals. If the host countries lose their favorable impression on multinationals, the multinationals will ultimately lose their place in the market.

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