Chinese “policy” banks have supplied almost as much financing for global energy projects as the four major western multilateral lenders combined but a concentration on coal-fired power plants is raising concerns about the environmental impact of Beijing’s support.
A new academic study found that two Chinese policy banks — the China Development Bank (CDB) and the Export-Import Bank of China — provided $118bn in overseas energy finance between 2007 and 2014, compared with $119bn by the World Bank, the Asian Development Bank, the Inter-American Development Bank and the African Development Bank combined (see the first table).
But China’s lending is “heavily exposed to country, macroeconomic, climate and social risks” according to the study authored jointly by Kevin Gallagher, professor at Boston University and co-director at the Global Economic Governance Initiative (GEGI), Rohini Kamal of GEGI and Wang Yongzhong at the Chinese Academy of Social Sciences.
This is particularly so in the case of Chinese financing for polluting coal-fired power plants, which took 66 per cent of total energy-related lending by the two policy banks between 2007 and 2014.
By comparison, two cleaner forms of energy – hydropower and other renewables – accounted for 27 per cent and 1 per cent of funding respectively (see the second table).
| Bank | $m | Annual average |
|---|---|---|
| World Bank | 72,219 | 10,317 |
| AsDB | 25,410 | 3,630 |
| IADB | 9,631 | 1,376 |
| AfDB | 11,676 | 1,668 |
| China Banks | 117,590 | 16,799 |
| China Banks | 117,590 | 16,799 |
| MDBs | 118,936 | 16,991 |
| Total | 236,526 | |
| Source: CEGI estimates and bank annual reports | ||
The four multilateral lenders have a much more environmentally-conscious lending profile, with an average of 88 per cent of their energy portfolio going to hydropower and other renewable energy between 2007 and 2014, the study found.
Currently, the two Chinese policy banks are financing more than 45 power plants outside China, accounting for $28bn in loan support, the study says. In addition, according to researchers at the Climate Policy Initiative (CPI), another $35bn to $72bn in new China-financed coal plants are planned in Pakistan, India, Bangladesh, Russia, Vietnam and elsewhere.
The motivation for such lending by the Chinese policy banks derives in part from Beijing’s desire to resolve domestic overcapacity issues in the power equipment industry, according to Morgan Hervé-Mignucci and Xueying Wang of the CPI. Chinese lending to overseas power plants is often tied to exports from Chinese equipment providers.
| China | WB | IADB | AfD | AsDB | |
|---|---|---|---|---|---|
| Coal | 66% | 0% | 0% | 3% | 7% |
| Gas | 2% | 25% | 1% | 0% | 0% |
| Oil | 5% | 2% | 6% | 3% | 0% |
| Hydro | 27% | 50% | 79% | 53% | 62% |
| Wind | 1% | 5% | 0% | 0% | 15% |
| Solar | 0% | 16% | 12% | 41% | 6% |
| Bioenergy | 0% | 2% | 1% | 0% | 10% |
| Renewable | 28% | 73% | 93% | 94% | 93% |
| Renewable Non-hydro | 1% | 23% | 14% | 41% | 31% |
| Sources: CEGI calculations based on own estimates and bank reports | |||||
However, in September last year Beijing made a surprise commitment to “strictly limit” public financing for coal and other high carbon projects. It remains to be seen how strictly this policy is implemented, but the CPI researchers say that Beijing may resile from some current plans.
“We estimate that the Chinese government could potentially discontinue plans to invest up to $18bn in overseas coal power,” Mr Hervé-Mignucci and Mr Wang wrote.
Such is the dominance of China’s policy banks in overseas development finance that the two policy banks provided more energy finance to Asia than did the Asian Development Bank ($33.5bn versus $25.4bn), more to Latin America and the Caribbean than did the Inter-American Development Bank ($33.2bn versus $9.6bn) and more to Africa than did the African Development Bank ($17.8bn versus $11.6bn) over the 2007-2014 period.
This dominance springs in part from the fact that China’s policy banks operate in several countries where the multilateral lenders fear to tread.
In the 2007-2014 period, the Chinese policy banks lent a total of $76bn to 13 countries that did not recieve any significant financing from the World Bank between 2007-2014 (denoted by asterisks in the third table, below).
“Chinese banks are expanding the amount of energy finance available to foreign governments in part because the Chinese appear to be willing to take on more risk,” wrote Mr Gallagher, Ms Kamal and Mr Wang.
According to a rating of country risk by the OECD, the average for the top 20 recipients of World Bank financing for energy finance is 5.25 (where 1 is low risk and 10 is high), significantly lower than the average 6.4 rating for the 13 countries that China lends to but which do not receive World Bank funding.
| Country | Amount ($m) | No WB | OECD risk rating |
|---|---|---|---|
| Russia | 31,000 | * | 4 |
| Brazil | 12,576 | 4 | |
| India | 8,944 | 3 | |
| Ecuador | 8,374 | * | 6 |
| Turkmenistan | 8,100 | * | 6 |
| Pakistan | 6,948 | * | 7 |
| Indonesia | 6,935 | 3 | |
| Venezuela | 6,020 | * | 7 |
| Vietnam | 5,171 | 5 | |
| Argentina | 4,914 | * | 7 |
| Ethiopia | 2,277 | * | 7 |
| Niger | 2,215 | * | 7 |
| Sudan | 2,084 | * | 7 |
| Cambodia | 1,776 | * | 6 |
| Ghana | 1,713 | 6 | |
| Kazakhstan | 1,647 | * | 6 |
| Sri Lanka | 1,341 | * | 6 |
| Bosnia & Herzegovina | 1,326 | * | 7 |
| Zambia | 1,187 | 5 | |
| Tanzania | 1,164 | 6 | |
| Sources: CEGI database; OECD (2016) | |||
One reason why the Chinese policy banks are more willing to take on extra risk may be that they are less beholden to western credit ratings because they are able to tap deep domestic debt markets. In addition, some Chinese loans are secured by government-level agreements to repay the loans with commodities.
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