Meeting China’s Global Resource Needs and Managing Sustainability Impacts to Ensure Security of Supply: Synthesis Report

China’s growing inward supply chains provide commodities, goods, technologies and services critical to domestic consumption and to export industries.

They are increasingly shaping global markets and local economies for trading partners. This trade brings benefits for exporting countries, but can exacerbate a range of social and environmental and governance problems (collectively labelled “sustainability” issues) such as pollution and climate change, biodiversity loss, and conflict over access to water, land and other natural resources in supplier countries. Key concerns over issues such as “land grabbing,” “conflict minerals” and “the natural resource curse” highlight the complex nature of issues that involve governments, communities and investors across national boundaries, and in areas of poor governance.

It is increasingly recognized that there is a nexus of interactions between such sustainability issues, and exposure to hazards of supply disruption for importers. The relationship is not direct but is mediated through public institutions and regulations, markets, societies and ecosystems. The nexus varies between companies, sectors and over time and can affect the “accessibility” of resources (for example, through natural disasters, social protests or export bans in exporting countries), “affordability” (through price rises) or the “acceptability” of resources (in relation to consumer and public expectations).

Supply chain sustainability issues are strategic risks for China. China’s rising imports make it both vulnerable to supply chain risks, and also potentially a key player in developing more resilient and sustainable production practices and effective institutions in the markets where it trades.

A key response to these risks internationally has been the development of supply chain sustainability standards addressing complex issues, such as conflict minerals, security, land grabbing and natural resource revenue governance.

Such private, voluntary and collectively developed standards are an increasingly important part of the international market, enabling companies to secure their reputation, professionalize sustainability-related supply chain risk management and collaborate with others to solve common problems.

There is a gap in the strategic management of these risks. While Chinese companies and government ministries are engaging with these issues and standards, it is in a limited, cautious and tactical way without an overall national strategy. This leaves Chinese enterprises and the Chinese economy exposed to poorly understood systemic risks due to natural hazards, local conflict and resource nationalism, with individual public agencies and enterprises often acting without adequate coordination or broader guidance.

This paper outlines and tests a commodity-by-commodity framework for assessing sustainability risks and vulnerability for importers. The framework is designed to be applied both at the enterprise (micro) level and at the national (macro) level. The assessment methodology was tested through a desk study looking at two commodities: copper and palm oil, at both an enterprise and a national (China) level.

It is clear from international and Chinese experience that there are policy measures that can be taken to support better management of supply chain risks. This paper outlines five policy steps, which could be targeted to key product and country risks, and also makes an overarching recommendation to pursue these as part of a strategic approach.

An overarching approach is needed for China’s international supply footprint to become part of its vision for resilient and sustainable development. One of the most notable findings from the discussions and consultations in developing this project is that there is no ministry or department with an overall vision and mandate for understanding China’s import footprint and how it can be managed more effectively. Taking strong action depends on there being an overall vision articulated as part of the broader view of development. The National Development and Reform Commission could consider developing a broader goal and metric of performance on supply chain sustainability, as part of the national planning process in the lead up to the 13th five-year plan, and as part of China’s development as an “ecological civilization.”

The International Institute for Sustainable Development is committed to working in and with China to advance sustainable development, and views the area of inbound supply chains as a key strategic opportunity to achieve this mutual goal.