China’s BRI investments: Shifting gears to green

A decade on, China’s BRI plan tilts focus towards cleaner energy, critical minerals   

China’s 3rd Belt and Road Forum for International Cooperation or the BRI is taking place in Beijing today and tomorrow, marking the tenth anniversary of the initiative. 

Over the past 10 years, China’s BRI has invested more than $1 trillion in various global infrastructure projects. Yet in the years since its launch, China’s overseas BRI investments have shifted dramatically. Affected largely by growing uncertainty in global financial markets, its investments have dropped and deal sizes have reduced. The drop coincides with rising geopolitical tensions with the US, soaring protectionism and the rise of global interest rates combined with debt difficulties faced by many BRI partner nations. Meanwhile, China’s Global Development Initiative launched in 2021 by President Xi Jinping, which focuses on development issues including poverty reduction, agriculture, education and climate action has been joined by over 60 nations, according to China. Cumulative BRI engagement in the 10 years since its announcement in 2013 includes about US$ 596 billion investments in construction contracts, and US$ 418 billion in non-financial investments.

At this year’s BRI forum, while the list of the projects and loan agreements is expected to be short, it may reflect the new global reality of supply chain offshoring and ongoing emphasis on resource security.

Moving towards green investments

According to data from WRI’s China Overseas Finance Inventory Database, in the decade since the BRI launched, Chinese enterprises and financial institutions have invested a total $83 billion on building 268 energy projects across 67 countries, resulting in a total installed capacity of 111 GW. About 178 of these projects, worth 34 GW capacity, are non-fossil fuel projects.

In September 2021, Chinese President Xi Ping told the UN General Assembly that the worldʼs largest builder of coal plants would stop financing or building new coal-fired power plants overseas while increasing its support towards renewable sources of energy. According to data from Center for Research on Energy and Clean Air, at the time, 103 coal plants in 28 countries with a combined capacity of 104 gigawatts (GW) were planned, considered or in construction under either Chinese financing or engineering procurement and construction agreements. Two years on, 36 plants amounting to 36.3 GW supported by Chinese companies and banks have been cancelled, although the country continues to pursue coal-fired capacity domestically.

The first half of 2023 was the greenest in any six-month period since the BRI’s inception in 2013, data from the Green Finance & Development Center shows. In the first six months of this year, about 41% of China’s energy engagement was in solar and wind and about 14% in hydropower.

The build-out of China’s RE manufacturing capacities overseas have been rising and the trend might continue in the coming years. In the first half of 2023, BRI investments in the energy sector reached US$ 12.3 billion, on par with the first half year of 2022. However, compared to 2019, when it reached about US$ 20 billion in the first six months, engagement in energy is down by 40%. China’s total engagement in green energy including solar, wind and even hydropower rose to  about US$ 4.8 billion in the first half of 2023 compared to US$ 3.8 billion in the same period last year.

Renewables in focus

Over two decades, Chinese private companies have increased their investments in renewable energy projects overseas. Although smaller in overall size than state-owned enterprises (SOEs), about 60% of their equity investments were in green projects, including solar PV & CSP, onshore and offshore wind and hydropower, data showed.

Chinese private companies along with SOEs have been seeking more overseas market opportunities and have been working with local and international investors to set up renewable energy projects. Leading solar module manufacturers Longi and Jingko have already set up overseas factories in Southeast Asian countries such as Malaysia and Vietnam where they are hiring and training local workers. 

According to a study by the People of Asia for Climate Solutions released on October 14, since 2019, China’s largest electricity investments have been moving to smaller solar energy projects. The total solar capacity installed since 2019 now equals the capacity of newly added hydro power generation of about 7 GW.

Deal sizes fall, environmental conditions rise

The BRI is no longer about big-ticket infrastructure backed by loans. In the first half of 2023, the size of deals was downsized to $392 million, that’s 48% lower than its 2018 peak when the average deal size was $753 million.

China’s Green Finance Guidelines spearheaded by what was formerly the China Banking and Insurance Regulatory Commission (now incorporated to the newly established National Financial Regulatory Administration) built upon China’s green loans experience. It now requires ESG integration for Chinese banks and insurers to support low-carbon overseas investment.

“We see the green concept being institutionalised into overseas financing mechanisms. They are building up sustainable investment practices. For example many of China’s overseas investment funds (COIFs)  have environmental management system (EMS) prototypes in place. Still, the level of ESG integration, or the integrity of EMS varies among banks or COIFs. Improvements are still needed by benchmarking against international best practices and standards in each stage of project life cycles, as the policy recommendation from the BRI International Green Development Coalition suggested,” said Shuang LIU, WRI China Finance Director.

The policy recommendation suggests a step-by-step framework for companies, lenders and investors to enhance environmental impact management for the entire life cycle for projects.

Strategic resource-backed deals

Meanwhile, China is engaging with resource-rich countries for more deals in metals, mining, oil and gas, a growth area of strategic importance. Engagement in the sector has grown by 131% this year, compared to the first half of 2022.

Engagement in African and Latin American countries rich in minerals and metals that are particularly relevant to its green transition e.g. lithium and electric vehicle batteries, has been especially strong. In contrast, in the first half of 2023, China’s engagement in Pakistan for the China-Pakistan Economic Corridor dropped about 74% amid a lingering impact of its debt burden. The largest growth of BRI engagement was in Bolivia (+820 %), Namibia (+457%), Eritrea (+359%), Tanzania (+347%), and Cambodia (+230%) during the same period. 

China already holds significant shares of global mining sources. For instance, over 80% of global graphite resources are in China. It owns more than 50% of global capacity of crucial materials such as lithium, nickel, cobalt and graphite and has been expanding its lithium and copper mining and processing. In the past six months, Chinese companies have acquired part of a lithium mine in Mali, a copper processing plant agreement in Saudi Arabia, and commissioned a lithium processing plant in Zimbabwe.

Financing mechanisms

According to the newly released BRI white paper, the next phase of BRI will stick to green and sustainability concepts. Countries that are expected to perform well and attract FDI under the BRI include those with relevant natural resources (e.g. lithium) to finance the green transition, as well as those with markets or technical capacity to warrant a supply chain localisation (e.g. for semiconductor manufacturing).

Aside from public lending, China has listed multiple financing mechanisms with specialised sector or region focus, such as equity investment from China’s overseas investment funds (COIFs), trilateral collaboration and blended financing with other international investors, including those from Europe and multilateral development banks.

“The first six months of 2023 saw the highest number of green energy investment in countries of the Belt and Road Initiative. Similarly, in the broader green industrial space, Chinese companies have invested heavily in the countries that are part of BRI. That includes battery manufacturing, electric car parts, mining for transition metals, as well as public transport. At the same time, more investments are needed across the world for the green economic transition. China can play a determining role in supporting this transition through technology and investment. Ideally, this transition can be accelerated through international collaboration and application of stronger environmental standards, for example in mining and processing,” said Christoph NEDOPIL WANG, Director and Professor, Griffith University Asia Institute & founding director of the Green Finance & Development Center at Fudan University.

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