China steps up climate fight with belt and road green finance partnership

Climate experts estimate that developing countries outside China need to mobilise US$2.4 trillion annually by 2030 to meet our shared climate and development goals. Although the costs of inaction dwarf these investments, the global community has not been able to move forward. This is despite the climate shocks that have wreaked havoc on countries, ecosystems and livelihoods over the past year.

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China’s Belt and Road, 10 years on

China’s belt and road is leading by example. During the initiative’s first decade, the Boston University’s Global Development Policy Centre estimates that China Development Bank and Exim Bank provided roughly US$500 billion in financing to developing countries, filling infrastructure gaps, expanding energy access and fuelling economic growth. This was almost as much financing as the World Bank gave out over the same period.

Also, while China’s portfolio was relatively carbon-intensive in the first years of the belt and road, Beijing has begun to shift towards cleaner power.

At the Belt and Road summit in Beijing this week, the message from the more than 100 world leaders who attended was clear: please continue this productive finance in energy and infrastructure – but do more due diligence to prevent and mitigate risk.

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Chinese President Xi Jinping unveils 8-point vision for nation’s Belt and Road Initiative at forum

This concern is likely to be addressed by the new Green Investment and Finance Partnership – which is analogous to the West’s Just Energy Transition Partnership (JETP), but with key and complementary differences.

Whereas the JETP provides financing to developing countries mainly to shut down fossil fuel plants, the Green Investment and Finance Partnership will focus on enabling developing countries to foster investment and build new clean power for sustainable growth. One prioritises decarbonisation while the other focuses on green growth pathways.

China’s new partnership offer represents its unique financing model and can be a premier vehicle for blended finance with Chinese characteristics. In addition to the backing of China Development Bank and Exim Bank, the partnership has secured prominent belt-and-road-related financial and engineering powerhouses, such as the Bank of China, China Investment Corporation Company and China Power International.

The addition of the Hong Kong Monetary Authority and Hong Kong Exchanges and Clearing into the partnership brings a new source of inspiration – Hong Kong is eager to play a more substantial role in the next phase of the Belt and Road Initiative’s development.

Hong Kong Chief Executive John Lee Ka-chiu led a 70-strong delegation of political and business heavyweights to Beijing to attend the third Belt and Road Forum. Photo: John Lee/Facebook

With the infusion of capital into the flagship debt and equity institutions of the Belt and Road Initiative, as well as carbon finance supported by Core Climate, a carbon trading arm under HKEX, the Green Investment and Finance Partnership aims to expand the capital available to finance green projects in the developing world.

To achieve these goals, the partnership will create a green project preparation pipeline facility to help dig out bankable projects from the Global South.

The platform has the potential to provide financing, technical support and more, for feasibility studies, project design, technical capacity and risk management in partnerships between China and developing countries in the belt and road.

Sustainability drive will colour the belt and road green in next decade

This partnership will help Chinese actors find the right blend of debt, equity, investment and grants, tailoring it to the circumstances of each project or country so both sides benefit. Chinese institutions and their financial partners get to invest in strong projects that have undergone stringent due diligence, advancing both their bottom line and the goals of the Belt and Road Initiative.

Blessed by the infusion of funds into the initiative’s frontline financial institutions and energised by the innovative financing models that the Hong Kong partners offer, the Green Investment and Finance Partnership will help to deliver Xi’s 2021 pledge: that “China will step up support for other developing countries in developing green and low-carbon energy”.

This initiative has the potential to be a strong complement to the JETP – or an alternative if the JETP system becomes prohibitively cumbersome.

If China and its international partners in the West are not working together, it is important that they work at least in parallel towards the same climate goals the world has subscribed to.

Jianyu Zhang is executive director of the BRI International Green Development Institute at the BRI International Green Development Coalition (BRIGC)

Kevin Gallagher is a professor of global development and director of the Global Development Policy Center at Boston University

South China Morning Post