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The New Frontier in Environmental Finance

China’s overseas presence has brought a new way of doing business to the world.

By 2030, China may become the largest economy in the world. Less than one decade from now, emerging markets including Brazil, China, India, Mexico and Russia, will comprise half of world’s top 10 GDP list.

The global remapping of economic power presents significant opportunities and challenges to U.S. and European policymakers and companies operating in emerging markets, especially as businesses strive to operate amidst growing populations, resource scarcity and environmental degradation.

As the founder and Chief Investment Officer at Caravel Management, an emerging and frontier markets investment fund, former chair of the U.S. Export Import Bank, and current chair of the board of the World Resources Institute (WRI), I have watched the emergence of new financial actors from several perspectives. China’s overseas investments have been of particular interest, especially given the marked success of the country’s “go global” strategy and the strengthening of U.S.-China trade relations.

New Opportunities

U.S. investors in emerging markets have seen opportunities in Chinese companies' growing presence overseas. For instance, China has made significant advances in clean energy technologies in areas such as solar, wind energy and electric cars. These investments and achievements are helping to shape markets and set the direction for future industry standards. As Chinese companies bring these technologies and standards overseas, there are increasing opportunities for partnerships and cooperative ventures between U.S. and Chinese enterprises with similar interests.

New Challenges

At the same time, Western governments’ export credit agencies have begun to see China as a formidable competitor. For several years, developed countries’ export credit agencies have come together at the Organisation for Economic Co-operation and Development (OECD) to ensure that cooperation and competition take place on a level playing field, and to develop mutually acceptable standards that promote environmental protection. As China’s presence grows, these same institutions are reaching out to China’s agencies as well as those of other non-OECD member states. Greater participation of China in the OECD—even if not as a member obligated to OECD standards—would generate positive economic and environmental benefits.

New Risks

Similarly, U.S. environmental groups that have monitored the environmental and social impacts of Western overseas investors have begun to turn their attention to Chinese investors, in an effort to ensure that local communities have a voice in projects that affect them. China is now among the world’s top five largest investors. Naturally, with $50bn per year in overseas investment and a particular appetite for natural resources and infrastructure, China draws inevitable scrutiny of its operational standards in emerging and frontier countries.

New Partnerships

From all of these perspectives, China’s overseas presence has brought a new way of doing business to the world. China’s investments have brought much-needed capital and infrastructure to sub-Saharan Africa and other regions. Yet in many cases, a lack of information and understanding of the culture of China’s investors and financial institutions can lead to fear in the United States and other Western countries.

This is now changing. The Global Environmental Institute (GEI), a Chinese nongovernmental organization, produced a book entitled Environmental Policies on China’s Investment Overseas which examines the political and economic contexts in which China’s overseas investments operate. GEI’s book provides greater clarity on how the Chinese government is seeking to promote and regulate overseas investments.

WRI supported the English translation of the book and is hosting GEI and a delegation of Chinese government officials in Washington, DC on June 8th and New York City on June 10th. The purpose of the launch is to encourage a dialogue among Chinese, U.S. and international policymakers and stakeholders on emerging environmental and social standards for China’s overseas investments.

This publication will help to build awareness among U.S. and other English-speaking audiences. GEI’s book speaks frankly about the progress and challenges that the Chinese government, companies, and financial institutions have faced in going global. Most importantly, it signals the possibility for engagement and partnership between U.S. and Chinese companies under terms that reduce risk and enhance the returns for both investors and the countries and communities in which they invest.

Mr. Harmon is the Chairman of WRI's Board of Directors.

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