Interview: Working with Chinese companies on land acquisition and involuntary resettlement for project development

In international development projects, the displacement of local communities and their resettlement are frequently a source of complaints and conflicts. In many cases, project affected people not only face physical displacement, but also loss of livelihoods and opportunities for future development.

Panda Paw Dragon Claw recently had the chance for a one-on-one interview with Dr. Luke Long, China country manager of Stantec, a top global consultancy that advises international financial institutions, governments and NGOs on developmental projects across the world, covering industries ranging from energy and mining to infrastructure. Dr. Long has a background in resettlement policy and practice and extensive on-the-ground experience in managing the social impacts of major overseas development projects, particularly in Asia and Africa.

Dr. Luke Long with colleagues in Nepal. Image: Dr. Luke Long

In Dr. Long’s opinion, applying high standards on land acquisition and involuntary resettlement is an essential step for project developers to obtain the necessary social license to operate. And Chinese companies need to realize why committing more resources to better community engagement will ultimately pay off.

Panda Paw Dragon Claw (PPDC): What objectives should a proper land acquisition and resettlement process achieve in international development projects?

Luke Long (LL): No matter where you operate, land acquisition and resettlement is never an easy task. Since 2003 I have been involved in resettlement projects and have acquainted myself with standards created by international bodies such as the IFC, World Bank and ADB. After years of practice, my observation is that no stakeholder will be fully satisfied in the resettlement process. But if we are talking about general objectives and best practices, I tend to agree with what the IFC has laid down in its environmental and social performance standards. 

The first is to minimize or avoid involuntary resettlement. In project development, resettlement is framed as the impact and risk of the project. Therefore, the general principle is to manage and minimize it. In Chinese, we understand “resettlement” simply as moving people to another place. But in fact, land acquisition may cause both physical displacement and economic displacement. Even if the project does not involve physically moving people away, if land acquisition affects the local people’s livelihood or restricts how they access resources, it is still considered “displacement” and should be minimized.  

The second is to avoid forced eviction. A properly executed project should not involve forced eviction at all. If it does it will face serious grievances and complaints.

The third is to improve or at least restore the standard of living for the affected people. The IFC’s rule is that you should at least offer compensation at replacement cost, that is compensation sufficient to replace assets such as housing, plus necessary transaction costs associated with asset replacement. Community engagement and participation by stakeholders, particularly those vulnerable and disadvantaged, are emphasized throughout.

In land acquisition and resettlement, what we often overlook is the true value of land to people. A Chinese farmer with a small patch of land may choose to raise a few chickens or a pig on the margin by using by-products from growing crops or vegetables. If you take that land, they will have to purchase such products from the market using cash. And how much does it cost for a kilo of pork now? And how much cash does this farmer earn? That’s why IFC and others try to avoid such displacement and when it does happen, try to offer compensation at replacement cost. Particularly for land, they recommend compensation in kind rather than in cash. The purpose is to ensure the standard of living is improved or at least maintained.

Photograph from Dimen Village, Guizhou Province, of paddy fields at the edge of the village. They are separated by wooden fences. Red algae covering the water surface is used to feed pigs. Image source: Uskov, Anastasya, “Rice fields” (2010). All Photographs. 2152.

PPDC: How do you evaluate whether the standard of living is improved or lowered?

LL: A baseline survey is usually conducted before the project to set up a database for every affected household. It covers information on income and expenditure, and takes into account economic trends over time, such as inflation. For housing in particular, the requirement from IFC is for improvement in conditions. If the affected people used to live in poor conditions, what’s the point of restoring them into the exact same conditions after going through the resettlement?  Fundamental to the resettlement process is ensuring “secure tenure” for the affected people. In China, we don’t have so many issues with this anymore. Even in rural areas, you have clear documentation of ownership. But in many developing countries, customary rights are still very common. A resident’s right to live on a piece of land or in a house may be customarily granted and can be disputed at the time of resettlement. In such cases, IFC emphasizes the provision of strengthened secure tenure for the displaced persons.

PPDC: In practice, how do lenders push project developers to minimize the impact of resettlement and translate the standards into reality?

LL: If the lender is a signatory to the Equator Principles (an “Equator bank”), it will be required in the project’s feasibility study or Environmental and Social Impact Assessment (ESIA) to include three project options for comparison and selection. The options should include displacement impacts in its analysis, covering indicators such as land use areas, affected households and persons, etc. Such alternative analysis forces the borrower to minimize displacement impacts in their project considerations.

In practice, the reduction of impact often happens at the technical level. For example, if you are building a factory, regulators would usually require a safety perimeter (e.g. a 200 meters radius circle from the center of the facility). People living within that perimeter will have to be moved out. In that case, one way of reducing displacement risks is to adjust the location of the center so that the circle covers fewer households. If it’s a linear project such as a pipeline or a road, then its route can be adjusted based on on-the-ground surveys along the route to find out potentially affected residents.

In some cases, the impact is not that straightforward. A reservoir or a railway may split a local village into two, one with 40 households and the other with only 10. The 10 households may face a situation where their part of the village becomes increasingly desolate for lack of residents and visitors. Their development prospects become dim. Many projects leave such indirect impacts – the directly affected people are compensated and resettled to somewhere else, but how about the few villagers that remain? They fall outside that safety perimeter, yet their livelihood is indeed affected.

That’s why in many cases, international financial institutions do not condone a resettlement approach that rigidly follows a technical standard. If your safety perimeter leaves only 3 to 5 households behind, they usually encourage an option that moves those people too.

Chinese companies often find this approach hard to accept. They cannot understand why they need to shoulder extra resettlement costs when they have strictly followed the rule. But a financier like IFC does not see it this way. It does not want a situation where its financed project leaves behind people with deteriorated livelihood, leading to complaints and reputational damages.

PPDC: Usually such a process of alternative analysis would generate an option with smaller impact but higher costs. What kind of mechanisms exist to compel project developers to adopt such an option?

LL: This is actually a challenge for international financial institutions to spread their practices, as the approach certainly pushes up the cost of their financing. Minimizing impacts demands more compact use of land and better design of facilities, both with cost implications. That’s why many Chinese companies choose not to use financing from those institutions. They have plenty of Chinese financing sources to lean on. In my experience, projects will involve Equator banks or other international financial institutions (and adopt their standards) when the non-Chinese partner or shareholder needs their financing. 

These international financial institutions do come with higher financing costs and standards. But if better fulfilling social responsibility is the objective, a project developer should be willing to commit more resources. Drawing a circle on the map is easy. And you can justify your rigid resettlement plan by quoting relevant laws and regulations. But it won’t stop those left behind to air their grievance to NGOs or others. This is where many Chinese companies are stuck. They cannot come to terms with the fact that everything is about risk management: a little saving at the early stage of project execution may become big problems later on. Compliance with the law is just a bottom line. It’s like passing an exam with a score of 60. For Chinese companies operating overseas, scoring 60 is not going to win you applause. The bar set by IFC and Equator banks is definitely higher than the 60 pass line. And they have plenty of high-score clients to work with.

PPDC: In the above objectives that you’ve listed, livelihood restoration is probably the most challenging. How is it done in real projects?

LL: Livelihood restoration is indeed the most difficult part of resettlement, especially considering that many of the projects we talk about are in under-developed parts of the Global South, where people’s level of education is relatively low, their skill sets basic and their livelihoods simple.

Livelihood restoration usually takes the form of turning a resource-based livelihood into a labor-based livelihood or a business-based livelihood. Both require a certain level of education and skills. A major part of livelihood restoration is job training, which is challenging for people with limited prior skills. In practice, a project developer would adopt a locals-first policy: prioritizing the employment of project staff from local communities. There is also an unwritten rule, in some cases, of at least ensuring the employment of at least one member of a household, so that there is a bread earner for each. To do this you will need to set up a detailed database of households and family members beforehand.

For some local people, especially women, the preferred new livelihood may be doing small business, as for many reasons – cultural and practical – females do not wish to work on the project site. In such cases the project developer will conduct market research and identify business opportunities for them. If some of them already have a running business, then the project may even offer some micro-financing for them to better develop that business. 

While livelihood restoration is specifically for affected persons, sometimes project developers will go one step further in doing community development initiatives that target the broader community. Such initiatives, such as building schools or basic village infrastructure, benefit the wider population, especially for members of the community that are not directly displaced but face developmental challenges.

Women fish for riverweed in the Ou river in Northern Laos. The Nam Ou dam cascade upstream has affected the harvest of this local source of food. Image: Saimok/China Dialogue

PPDC: Community engagement is often considered a “weak spot” of Chinese companies operating overseas, what are your observations on this issue?

LL: Every year I do multiple trainings for Chinese companies, and I realize they not only do not take public participation seriously, but also try their best to avoid reaching out to local people, thinking of it as troublesome. Language barrier is an issue too. They tend to rely on host country governments to handle community engagement and expect that they can just wait to be handed over a piece of land ready for development, free of any disputes.

Some international firms handle this better, as they treat public participation as part of risk management and approach it professionally. Their first step is to map out stakeholders of the project and identify their interests, then design public engagement accordingly to try to balance what the project can give and local stakeholders’ expectations. Chinese developers, on the other hand, are overly worried about getting entangled into a web of local interests that they don’t fully grasp.

PPDC: How can they improve in this aspect?

LL: The first is to set up a management system for social impact. Chinese companies are now very conscious of technical and quality standards and strive to excel in those aspects. But social and environmental responsibility is not so much an issue of certification but management. In order to do management well you first need an overarching commitment of taking responsibility for displaced people and for the environment. This commitment should then translate into top level policy in corporate management. Many Chinese companies are headquartered in Beijing and operate across the Global South. How are they supposed to manage all those project companies’ social impacts on the ground when they don’t have good policy at the top level?

And then comes the personnel. You should have dedicated personnel to handle social impact management. Chinese companies are not good at this aspect. Many of them simply assign the task to executives in the company as a side job. Social impact management is a specialized field. It needs dedicated, professional teams to oversee and manage.

No matter what the host country laws may say about who should drive the resettlement process (whether it’s the local government or the company), the project developer has the responsibility to ensure the meeting of objectives we mentioned. A company should take the initiative because its investment or contract is the reason why local communities are facing project impacts in the first place.

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