Raising the Standard: Environment and Social Regulations and Courting Chinese Investment in the Amazon Basin

By Yudong (Nathan) Liu

Through the first two decades of this century, countries in the Amazon basin have developed strategies and institutions for sustainable development, in certain instances extending rights to ‘nature’ itself through legislation and changes to national constitutions. Whether countries have followed through on their commitments is less clear, as countries have also been under pressure to develop their natural resources. The 2000’s have been recognized as a resource export golden age for these countries, driven primarily by booming Chinese demand for raw goods and resulting high export prices. The investment ‘boom’ has since fallen off as China has cooled its demand for commodities and adjusted its growth strategies.

A new working paper from researchers at the BRICS Policy Center of the Pontifícia Universidade Católica do Rio de Janeiro and the Boston University Global Development Policy Center offers a comparative analysis of the changes in environmental and social protections of Bolivia, Brazil, Ecuador and Peru during the aforementioned commodity cycle in juxtaposition to trends in Chinese investment in Amazon basin-based resource projects.

The authors found that the host countries passed regulations strengthening protections during the commodity export boom until around 2011. However, from that point forward, reforms to  existing protections became far more common and substantially outweighed reforms to strengthen protections. This change tracked closely with the trend of the commodity boom-export prices, rising steadily to a peak in 2011 and declining thereafter. The authors concluded that this shift aligned with the conclusions of “resource nationalism” literature, which showed that these countries attempted to prolong the commodity export boom by deliberately relaxing their environmental and social protections.

If this was a conscious strategy of the host countries, it did not work as intended: the authors found that Chinese investment did not rebound, and the size of individual investments generally shrank. Indeed, even with a more investor-friendly regulatory landscape, the time delays between project announcement and implementation rose after 2011. The authors concluded that the countries’ intention to lower short-term project costs through a wave of protection-relaxing regulations did not substantially increase investment, as Chinese investors were driven to reduce investment by factors outside the control of host countries such as falling domestic demand and rising awareness of certain project delays and cancellations that have dampened investor enthusiasm. Also associated with Chinese investment was the wide involvement of state-owned enterprises, which tend to focus on long-term prospects rather than short-term costs. Essentially, the slowing of Chinese investment was motivated by factors unrelated to host countries’ environmental and social regulations (or lack thereof).

A second aspect of the paper looked at the impacts of Chinese investment by studying 42 projects worth $30 billion in Chinese investment from 2006-2019 that had physical footprints within the Amazon basin areas of the target countries. First, these projects were geolocated and assessed for their physical impacts on three categories:

1. Indigenous land: Distance to nearby land occupied by Indigenous peoples.
2. Biodiversity: The presence and density of nearby threatened and endangered species.
3. Deforestation: Changes in deforestation rates in the years after the implementation of a project compared to the years before.

The findings showed that the median impact level declined throughout the study across the years for all three categories, but with significant outliers in each case as well, especially in later years. Recent ‘outlier’ projects that notably accelerated deforestation were also outliers in terms of impact on Indigenous lands. In particular, the Coca-Codo Sinclair power transmission lines project in Ecuador had markedly high levels of impact across all three categories. However, local conditions can impact project outcomes, for example, the São Manoel dam in Brazil was noted for the dramatic rise in deforestation rate after implementation, but the area had also been subject to heavy agricultural land clearance at the same time.

Despite these high-profile cases, the evidence suggests the loosening of regulations across the four countries was not accompanied by a rise in these environmental and social impacts and did not impact the behaviors of Chinese investors in Amazon basin projects. Rather, Chinese investors may be more wary of the long-term risks of investment and choose projects to invest in accordingly.

In sum, the authors posit that Peru, Bolivia, Brazil and Ecuador may be better served by basing environmental and social regulations on their own sustainable development goals. This policy orientation will attract less environmentally harmful and delay-prone projects. Given the long-term outlook of Chinese investors, this strategy may well be more effective in rekindling investment than the short-term and short-sighted weakening of regulations.

Yudong (Nathan) Liu is a Research Assistant with the Global China Initiative and a Juris Doctor Candidate i at Boston University School of Law.

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