China’s Belt and Road Initiative (BRI) is investing in projects developing infrastructure worth $6 trillion across many of the world’s fastest-growing economies. The Chinese government has taken initial steps to incorporate environmentally sustainable, or green, strategies and objectives into the BRI. However, our review finds that most bank loans and cross-border investments in energy and transportation over 2014-2017 were tied to fossil fuel projects.
Aligning these investments with Nationally Determined Contribution plans expressed by BRI countries provides a massive opportunity for financing low-carbon development. We provide guidance on how this might be done, as well as suggestions for countries that could make it easier to facilitate low-carbon investments in their economies.
The analysis found a clear trend of increasing Chinese investments in BRI countries over time. From 2015 to 2017, the volume of energy and transportation syndicated loans in which major Chinese banks participated was three times as large as in the period from 2012 to 2014. Although Chinese global OFDI dropped by nearly 20 percent in 2017, the OFDI to BRI countries continued growing by 31.5 percent (MOFCOM 2018).
According to the data reviewed, most Chinese deals in energy and transportation are still tied to traditional sectors and do not show a strong alignment with the low-carbon priorities included in BRI governments’ NDCs. From 2014 to 2017, 91 percent of the energy-sector syndicated loans in which the six major Chinese banks included in this study participated, and 61 percent of the energy-sector loans financed entirely by China Development Bank and/or China Eximbank were in fossil fuels (see Figure ES-1). Over the same period, 93 percent of energy-sector investments by the SRF were also in fossil fuels, and 95 percent of cross-border energy investments by Chinese state-owned enterprises (SOEs) were in fossil fuels as well. In contrast, nearly two-thirds (64 percent) of cross-border energy-sector investment by Chinese privately owned enterprises (POEs) were in renewable energy. In the transportation sector, a majority of Chinese deals were in traditional transportation, such as aircraft financing, airports, road construction, and automotive manufacturing, rather than sectors more frequently promoted as lower-carbon options, such as urban public transit and railways.
If Chinese government special funds are deployed to give greater priority to green opportunities, especially in the near term, these funds could have an outsized positive impact on green growth in the BRI countries. By targeting green objectives in the coming years, China could use BRI special funds to quickly become a major catalyst for lowcarbon development in the region. A substantial flow of pre-2020 green or climate-friendly investments would build a solid foundation for climate ambition as countries prepare to submit revised NDCs and implement them after 2020. Multilateral Development Banks (MDBs) have adopted targets for climate finance as a percentage of their overall portfolio; the targets exceed 25 percent (AfDB et al. 2015). If the special funds allocated for BRI were similarly deployed against a target of just 25 percent, this would channel more than $28 billion additional dollars in support of climate finance and NDC priorities at a critical time for BRI countries. To put this figure in perspective, the $28 billion compares favorably to the $35 billion in climate finance that the MDBs lent out globally in 2017 (AfDB et al. 2018).
NDCs demonstrate clear needs and are a natural reference point for a green BRI, but currently they are not specific enough to send sufficiently clear signals to market actors. To identify trends and investment opportunities, investors need a minimum of quantitative information about the technology and other pathways that a government envisions for achieving NDC goals. However, even for the energy sector, only a little more than half (55 percent) of the BRI countries provide quantifiable contributions in their NDCs, and even this information is not fully consistent in detail or structure. While the authors did not interview Chinese institutions to assess their level of internal understanding of NDCs, our research demonstrated the difficulties involved in estimating investments based on the NDCs alone.
Since the Chinese government proposed the Belt and Road Initiative (BRI) in 2013, Chinese investments have been increasing rapidly in the BRI countries. The trend will likely continue, supported by the Chinese government’s 2017 pledge of US$113 billion in special funds for investments in BRI.
The Chinese government has taken initial steps to incorporate environmentally sustainable, or green, strategies and objectives into BRI, but in very highlevel and conceptual terms.
This report provides an initial overview of the degree to which Chinese energy and transportation investments in the BRI countries from 2014 to 2017 align with the green priorities communicated in BRI countries’ Nationally Determined Contributions (NDCs). Our analysis is based on a comprehensive review of data on bank loans and cross-border investments by the Silk Road Fund and Chinese enterprises.
The data show that most Chinese deals in energy and transportation over the period reviewed were tied to carbon-intensive sectors and did not show a strong alignment with the low-carbon priorities included in the BRI countries’ NDCs.
Under the Paris Agreement, countries will be submitting revised NDCs in 2020, with a view to introducing greater ambition. BRI countries would benefit from updating their NDCs with sufficient granularity to provide clear signals to investors to enable a comprehensive assessment of investment needs.