Overview

In the past decade, China has emerged as a leader in the global effort to establish environmentally-conscious practices to combat climate change: carbon intensity has been reduced, environmental regulations have been instituted, and enforcement strengthened. In addition to the national prioritization of a green transition, China formalized and accelerated its deployment of special economic zones overseas in 2006 when Chinese corporate law was expanded to include social responsibility standards for overseas investment, including those in special economic zones. Building upon this, in 2007 China's Ministry of Commerce also issued a commercial information circular on enhancing environmental surveillance on exporting enterprises with the aim of restricting companies that do not adhere to corporate social responsibility standards from conducting foreign trade.¹

Nevertheless, China's investments in the ZCCZ have been plagued by environmental violations, accidents, and criticism by NGOs. This SEZ underscores the challenges that China still faces, even after 15 years after its commitment, in aligning its environmental footprint overseas to the sustainability priority within its own borders.

Background

The Zambia-China Economic and Trade Cooperation Zone (ZCCZ) was established in 2007 under the Forum on China-Africa Cooperation (FOCAC) framework that was created to promote Sino-African relations and economic development.² Zambia had just introduced Multi-Facility Economic Zones (MFEZs) a year prior in 2006, under the Zambia Development Agency (ZDA) Act No. 11 which laid out the legal framework for free trade zones, export processing zones and industrial parks.

As Africa's first special economic zone and China's first major commitment in its pledge to establish special economic zones in Africa by former Chinese president Hu Jintao, the ZCCZ is significant in the history of China's diplomacy, overseas direct investment and foreign economic development. Though formally recognized by China's Ministry of Commerce in 2006, China's state-owned mining enterprise, China Non-Ferrous Metal Mining Company (CNMC) approached Zambia's government earlier in 2004 with a proposal for an industrial park.

The ZCCZ is comprised of two sub-zones, the Chambishi MFEZ and the Lusaka East MFEZ. The zone was initially established as the Chambishi MFEZ in 2007 and was extended in 2010 to include the Lusaka East MFEZ. The Chambishi MFEZ is located in Chambishi Township in Zambia's Copperbelt and covers an area of 1,158 hectares. The Chambishi MFEZ primarily supports copper and non-ferrous metal processing industries.³

The Lusaka East MFEZ is situated 2km adjacent to the Lusaka International Airport and covers an area of 570 hectares. The zone aims to attract investment in processing, manufacturing, light industries, logistics, and real estate. Lusaka's development was established to diversify its resource-intensive investment as well as to accommodate the Zambian government's desire for urban employment opportunities.

The ZCCZ is developed and managed by the Chinese state-owned China Nonferrous Metal Mining Group (CNMC) through its Zambian subsidiary, ZCCZ Development Limited. The ZCCZ is responsible for developing the zone, which includes general planning, coordinating on-site construction, as well as liaising with and providing quarterly reports to the Zambia Development Agency, the government body responsible for oversight of all MFEZs.

Incentive policies to be implemented inside the ZCCZ were negotiated by CNMC and the Zambia Development Agency (ZDA), the Zambian Ministry of Commerce, Trade and Industry and the Ministry of Finance using the 2006 MFEZ Act as the guiding framework and include:

• Exemption from tax on dividends for five years from the year of first declaration of dividends;
• 0% corporate tax for five years from the first year profits are made, with 50% of profit to be taxed in years six to eight, increasing to 75% in years nine to ten;
• 0% import duty rate on raw materials, capital goods, and machinery for five years; and deferment of VAT on machinery and equipment imports.⁴

Per Zambian SEZ law, the developer is responsible for providing the on-site infrastructure including roads, telecommunications, electricity, water supply, and facilities for administration, training, and commerce.

Environmental Analysis

Despite being in operation for over a decade, the Chambishi MFEZ does not operate at the same standard for environmental sustainability as domestic Chinese mining zones and has made little progress in implementing comparable practices. While China does not legally require SEZs to meet domestic quality standards, it requires that at a minimum, SEZs follow the environmental laws of the host country. In addition, the Ministry of Commerce issued guidance in 2014 encouraging enterprises to research environmental strategies to strive "to meet international standards."

The Chambishi zone, which houses the Chambishi Copper Mine, the Chambishi Smelter, South-East Body, and Main-West Body ores, exhibited poor performance across all our land, water, air, and waste indicators. According to a World Bank-commissioned report as part of the Mining and Environment Remediation and Improvement Project (MERIP), major sources of air pollution on the Copperbelt are smelters, acid plants, and refineries, mining and quarrying, and construction. More specifically, smelters at Chambishi, along with and neighboring facilities were responsible for emitting sulfur dioxide (SO2) emissions, oxides of nitrogen (NOx), particulate matter, carbon monoxide (CO), dust, carbon dioxide, offensive odors, and black smoke.⁵

In mining, waste disposal is a major challenge as it entails building a soil-filled embankment, or a tailings dam, that contains harmful substances that pose health risks to nearby settlements and the environment. The Musakashi reservoir dam is one of the designated waste sites for the Chambishi mines. Despite being aware of the Musakashi Tailings Dam being at maximum capacity for waste disposal in 2011, Nonferrous China Africa Mining (NFCA), a subsidiary of CNMC, continued expanding mining operations within the Chambishi MFEZ.

Rather than building a new tailings dam, NFCA heightened the Musakashi Tailings Dam by four meters, increasing the reservoir volume by 5.7 million cubic meters. Stated explicitly in its annual report, NFCA noted this development did not fully meet the safety and environmental protection requirements for tailings discharge, but still offered a safer living environment for downstream residents and guaranteed sustainable development and improvement of the ecological environment.⁶

Unlike the tailings dam adjacent to the Chambishi-West mine that houses its own water treatment plant, the Musakashi tailings dam feeds directly into the Musakashi Stream and into the Kafue River.

It was not until a lawsuit was waged by local farmers against NFCA that the company took meaningful change to improve its waste management practices. A Zambian court concluded NFCA's Musakashi Tailings Dam was responsible for polluting the Musakashi stream, damaging crops and neighboring settlements due to NFCA's failure to contain waste.⁷

After NFCA was found liable, NFCA proposed constructing a new embankment as an addition to the Musakashi Tailings Dam located 5 kilometers downstream of the present wall to dispose of spillover tailings.⁸ The extension was intended to increase the dam storage capacity to 42 million tons of tailings. In a sign of progress, the new waste storage facility was completed in 2018, as planned.⁹

Though the expansion was an improvement, the tailings dam does not adhere to the proximity regulations set by ZEMA which state residential areas must not be within 500 meters of tailings facilities.¹⁰ As mining operations continue to ramp within the Chambishi MFEZ, tailings storage dam construction has also increased to accommodate the additional waste. While this shows proactive steps to adapt to growing waste management needs, there has not been equal progress to upgrade or expand current water treatment facilities to the same degree. As stated in Zambia's 2006 ZDA law, CNMC is responsible for this infrastructure as the developer of the site.

The Chambishi MFEZ also comprises an area of the Copperbelt that has been affected by air and water pollution, soil erosion, acid rain, and crop degradation. In its 2013 report, Citizens for Better Environment, a local NGO, admonished NFCA and Chambishi Copper Smelter (CCS), for failing to comply with local environmental laws, including the submission of emissions certifications and environmental impact reports. Soon after, the Zambia Environmental Management Agency (ZEMA) ordered the Chambishi Copper Smelter (CCS) to shut down its plant.¹¹

Similarly, in 2014, ZEMA ordered a unit of CNMC to halt development on the Chambishi South East Ore project, claiming the company disregarded environmental laws.¹² ZEMAs audit report revealed that Chambishi Copper Smelter did not assess the dust parameters, report arsenic, SO2, or other gaseous pollutants, contrary to the air pollution regulations and licensing conditions set by the regulator. The Auditor General in 2014 also revealed that most of the effluents discharged from the mines were above the acceptable limit of the Zambia Environmental Agency for heavy metals.¹³

While ZEMAs suspensions were temporary, they did result in changes at both mining facilities within the MFEZ. CCS hired Citizens for Better Environment to monitor its emission levels and report them to ZEMA while NFCA developed a government-approved program to compensate communities whose lands were affected by mining activities.

Though these remediation efforts are a step forward, it appears that CNMC has yet to execute proactive policies to establish environmental practices. Although advocates continue to call for better environmental compliance, as recently as 2016, Zambia's environmental watchdog launched investigations on seven major mining firms, for discharging effluents into the Mwambashi Stream. The stream is critical as a tributary of the Kafue, the longest river in Zambia and the source of drinking water for Kitwe, the country's second-largest city. Four of the companies' mining operations cited in the investigation were located within the Chambishi MFEZ.¹⁴ As a result, the Nkana Water and Sewerage Company was forced to shut down its plant that supplies water to Copperbelt communities.¹⁵

In addition, a 2017 study conducted by Copperbelt University found that a borehole adjacent to the Sino-Metals tailings facilities within the Chambishi MFEZ tested positive for groundwater contamination.

China's Domestic Mining Standards

The Chinese government has accelerated the number and scope of environmental regulations, incentives, and guidelines to enhance sustainability in the mining sector over the past decade. In 2010, the Ministry of Land and Resources launched the green mines standard that outlined the best-in-class environmental and social criteria. The standard addresses the implementation of management systems related to health, safety, and environment, energy efficiency, waste reduction, investment for environmental production, mine site rehabilitation, and engagement in community development.¹⁶

In 2014, 661 domestic pilot mines were certified. The project was part of a rigorous restructuring in environmental standards and implementation that ultimately led to the closure of multiple mine sites across China. Additionally, China introduced an environmental tax replacing the pollutant discharge fee and now taxes companies for solid waste, noise, air, and water pollutants. The tax revenue is exclusively used for environmental protection. More recently, the government took steps to close down inefficient, polluting iron ore mines. Iron ore extraction employs similar operations as copper mining. The increased regulation led to 1,000 mining licenses being canceled in 2017.¹⁷

In line with its domestic policy, China began making strides in improving governance in projects abroad. The Guidelines for Social Responsibility in Outbound Mining Investments were launched in October 2014 by the China Chamber of Commerce for Minerals, Metals and Chemicals Importers and Exporters (CCCMC), an industry group under the authority of the Chinese Ministry of Commerce and are China's first industry codes for mining companies operating abroad.^18,19 In an effort to align Chinese companies with other internationally recognized industry standards, the guidelines state Chinese companies:

should proactively consider legal, ethical, social, and environmental factors in their decision-making processes and operations. They must thoroughly respect the rights and interests of stakeholders by practicing ethical and transparent behavior and effectively managing the social and environmental impact from mineral exploration, extraction, processing, investment, and related activities and to strive for harmonious mineral development operations.

Despite the progress on paper, compliance is voluntary, and the guidelines lack any implementation, enforcement, or accountability mechanisms.

While China has instituted frameworks for environmental practices at home, there is insufficient evidence in either satellite imagery analysis or environmental reports by ZEMA or NGOs, to indicate mining operations within the Chambishi MFEZ adhere to the same standards China believes to be appropriate for domestic mining projects.

Conclusion

China now has decades of experience developing its domestic mineral resource sector, and therefore has a possible basis for holding Chinese mining operations overseas to account. Although the implementation of environmental regulation in China has only become a national priority in recent years, the developed nature of domestic regulations could be used as a minimum standard for companies operating overseas.

As China continues to export its development model abroad through the Belt and Road Initiative, taking a proactive role in also exporting its environmental standards is critical. Though host countries may lack a robust regulatory and legal environment to enforce best-practices, Chinese SEZs may have political and economic influence to promote sustainable investment.

References

1. https://www.tid.gov.hk/english/aboutus/tradecircular/cic/asia/2007/ci3922007.html
2. https://www.focac.org/eng/ltjj_3/ltjz/
3. https://www.mndp.gov.zm/?wpfb_dl=60
4. http://www.zda.org.zm/?q=download/file/fid/218
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6. http://www.cnmc.com.cn/upload/attachment/Zambia2011SocialResponsibilityReport.pdf
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9. http://www.cnmcl.net/Managed/Resources/docs/prospectuseng.pdf
10. https://www.ago.gov.zm/?wpfb_dl=104
11. https://www.lusakatimes.com/2013/02/14/zema-orders-chambishi-copper-smelter-plant-shut-down-for-polluting-the-environment/
12. https://www.wsj.com/articles/no-headline-available-1390469125
13. https://open.uct.ac.za/bitstream/handle/11427/27984/thesis_ebe_2018_mudenda_lee.pdf?sequence=1&isAllowed=y
14. http://paulshalala.blogspot.com/2016/12/zambia-investigates-seven-major-mining_10.html
15. https://www.aa.com.tr/en/africa/zambia-mining-runoff-sparks-water-safety-fears/711772
16. SHEN Lei, KONG Hanxiao, WANG Jian, HUANG Xu, HU Ke. The Status and Achievements of Green Mines and Mining Ethics in China. Journal of Resources and Ecology, 2016, 7(5): 317-322.
17. http://www.stradeproject.eu/fileadmin/user_upload/pdf/STRADE_PB_03_2018_China_responsible_sourcing.pdf
18. http://csr2.mofcom.gov.cn/article/policies/ind/201812/20181202819524.shtml
19. https://www.emm-network.org/wp-content/uploads/2015/03/Guidelines_for_Social_Responsibility_in_Outbound_Mining_Investments.pdf