China Committed to Phase Out Overseas Coal Investment. New Database Tracks Progress.
Chinese President Xi Jinping made a major announcement in front of the United Nations General Assembly in September 2021: China would stop building new coal-fired power plants abroad, and would instead support low- and middle-income countries in developing green and low-carbon energy.
This marked a major reversal. For a decade China was one of the world’s largest supporters of overseas coal power. With global climate action picking up and coal power facing major headwinds, President Xi’s announcement reflected and reinforced changing priorities in Beijing and worldwide. Although the scope of the commitment is still up for interpretation, experts believe it would include not just public but also private sector finance. That would make the commitment more ambitious than pledges from Japan and Korea, which only cover public finance. Following through would bolster China’s claims to be pursuing green development through their Belt and Road Initiative (BRI).
How can we track this commitment and its execution?
Previously, there was no comprehensive database tracking China’s overseas power generation portfolio at a project level. Now, consolidating nine different public information sources, the new China Overseas Finance Inventory (COFI) database is an open-source database providing comprehensive coverage of Chinese overseas power sector financing in BRI countries where China concentrates its foreign investment. The consolidation offers project-level detail on where power plants are, what kind of power they use, who invests in them and how these investments are structured.
This is exactly the kind of information needed to track how Chinese financial activities stack up against President Xi’s announcement. Regulators and other stakeholders can also use it to keep track of their overseas assets, identify stranded assets risks and improve their investment portfolio.
Looking at the database, several trends stand out — and each will be useful not only to investors but also to regulators, Chinese authorities and civil society trying to understand how to finance the energy transition in developing countries.
1. If all Chinese banks commit to no new coal after 2021, only five banks will hold coal assets abroad by 2030.
If you’re tracking China’s progress towards quitting overseas coal, two banks are most important: Over the last 20 years, China Export Import Bank and China Development Bank were responsible for 87% of the total amount loaned for overseas coal-fired generation. Bank of China and Industrial and Commercial Bank of China are the next two largest commercial banks with coal investments.
Note: BOC: Bank of China; CDB: China Development Bank; China Exim: Export-Import Bank of China; ICBC: Industrial and Commercial Bank of China; CCB: China Construction Bank; ABC: Agricultural Bank of China.
If after 2021 the banks stop financing new coal plants, by 2030 only five banks will still have a balance remaining on coal loans (calculated using assumptions on time to maturity and loan payment schedules). At that point, China Export Import Bank and China Development Bank would still hold the largest amount of outstanding loans. That means they would be most at risk of ending up with “stranded assets” — if their coal plants become uneconomic or are forced to close because of policies transitioning to cleaner energy, banks may be unable to recoup their investment in the project.
2. State-owned enterprises are essential to quitting coal.
In China, state-owned enterprises (SOEs) are commercial entities where the Chinese government has a majority share. Just five SOEs — China Huaneng, Shenhua Group, China Huadian, Shanghai Electric and Harbin Electric — made up 64% of the total coal capacity invested by Chinese companies abroad in the past 20 years. Only two projects in the last 20 years were from privately-owned enterprises (owned by private individuals or stakeholders).
A big question to watch is how these investors will relate to President Xi’s September commitment. These equity investors hold coal assets for a longer time, i.e., the lifetime of a coal plant, usually at 30 years, compared with banks where the loan repayment period is 10-15 years on average, and are therefore even more exposed to stranded assets.
3. Coal stranded risks may be heavily concentrated in Southeast Asia, but there are also ample opportunities for renewables in the region.
The energy transition poses both opportunities and risks for investors and BRI countries. Coal investments are heavily concentrated in Southeast Asian countries, while hydropower investments are the majority in African countries. Both continents still lack solar and wind investment from Chinese investors and there is significant potential for further investment.
Coal power generation in Southeast Asian countries is most likely to be impacted by the new commitment — with ramifications for Chinese investors but also for decarbonization in countries like Sri Lanka, Pakistan, Vietnam and Indonesia. In Southeast Asia, the coal pipeline comprises 49 gigawatts of unconstructed projects in seven countries.
Moreover, existing coal plants owned by Chinese investors are very likely to become stranded assets as countries take climate action and begin their energy transition. The transition presents investors with an opportunity to shift to more renewable investments, especially when we have already seen a general uptick in renewable investments from China in BRI countries since around 2010.
Notes: This includes both equity and debt investment. Renewable includes hydro, solar pv, solar csp (concentrated solar power), onshore wind, offshore wind, biomass, and geothermal.
What it all Means: Challenges and Opportunities for the Future
A few Chinese banks and SOEs still dominate the coal power plant investments, mostly concentrated in Southeast Asian countries. These investors would be faced with increasing stranded assets risks as countries start to decarbonize. However, the new commitment presents opportunities to move toward a more sustainable future in Belt and Road Initiative countries by increasing investment in renewable projects, and to mitigate loss in coal assets.
Explore the COFI Database Yourself
In this short analysis, we glimpse the types of insights and analysis that the COFI database can provide for investors and policy makers. The database can be a support hub for decision-making: Policymakers will look to the data to support their decision on how to carry out the quitting coal commitments; investors will use the data to inform them of investment risks and opportunities in the BRI countries; and the public can use the database to ensure transparency and accountability of investments and commitments made by investors. We invite you to explore the database yourself, the technical note that explains how we built the database in detail, and some common FAQs users may have.
The China Overseas Finance Inventory (COFI) database is a collaboration between the Global Development Policy Center at the Boston University, the Inter-American Dialogue, the China-Africa Research Initiative at the Johns Hopkins University, and WRI.
EDITOR'S NOTE, 3/8/22: This article was updated to reflect hydropower investment across Africa and the potential for further wind and solar investment.