A Shifting Course: Environmental and Social Governance During and After the “China Boom” in the Amazon Basin

In the first decade of the 21^st century, China’s rapid urbanization and investment-led growth model brought skyrocketing demand for raw commodities and an ensuing investment wave in Amazon basin countries. In the wake of this “China boom,” national governments in Amazon basin countries enacted a series of social and environmental protections, many of which were later relaxed as commodity prices eventually cooled. 

In a new working paper, researchers from ​​Boston University Global Development Policy Center and Pontifical Catholic University BRICS Policy Center present the first systematic exploration of  changes in environmental and social protection across the Amazon basin during and after the “China boom,” and ensuing changes in Chinese investment in the region. The research team built on the work of the “Observatório Dos Sistemas Nacionais De Proteção Socioambiental Da Região Amazônica,” a library of social and environmental protection policies maintained by the BRICS Policy Center to track regulatory changes in Bolivia, Brazil, Ecuador and Peru. 

Main findings:

• The social and environmental regulations for inbound investments in the four countries followed their export price index, meaning the levels of protections rose and fell in direct relation to commodity export prices, as predicted by the “resource nationalism” literature. 
  • Thus, social and environmental protections strengthened to take advantage of a boom and then relaxed to expedite new investment as prices fell.
• However, Chinese investments did not regain their prior strength after socio-ecological protections were relaxed, by lowering the costs of regulatory compliance.
  • Chinese projects did not proceed more quickly from announcement to final purchase or groundbreaking date after 2012 than before. 
  • Instead, the average time between project announcement and commencement grew after 2011, even as the average size of investment shrank. 
• Median project environmental and social risk profiles did not rise significantly as environmental and social protections relaxed.
  • International investments, Chinese or otherwise, with higher environmental and social risk levels are more prone to delays and cancellations due to controversies that were not adequately prevented or resolved early in the project cycle. 
• China’s resource-seeking and market-seeking investment is not likely to be incentivized or disincentivized through the short-term business costs related to regulatory frameworks. 
  • Countries with high environmental and social protections need not worry that these regulations are disincentivizing Chinese investment in resource-seeking or market-seeking sectors. 

The research team’s findings suggest that host countries to Chinese investment have policy space to set and enforce protections to meet their national needs, rather than the anticipated preferences of Chinese investors. They advise countries to base their regulations on their own sustainable development goals, in order to ensure that Chinese investment benefits, if not at least avoids harming, local ecosystems and the communities that rely on them, while protecting investors from the risk of conflict for investors that may arise from unmitigated environmental and social risks.