Will China lead on global climate finance within a shifting world order?

In November 2024, China made a landmark move at the UN climate talks in Baku, Azerbaijan when vice premier Ding Xuexiang portrayed China’s international finance as a form of climate finance. His statement, and China’s subsequent actions, represented an evolution of China’s long-held stance in UN climate negotiations.

Six months on, with Donald Trump again pulling the US from the Paris Agreement and taking a hatchet to various climate-related funding mechanisms – as well as launching an all-out trade war – China’s positioning of itself as a non-traditional climate finance contributor is even more significant for the future of global climate action.

The country’s incentives for shifting its stance, and the potential implications of this for other Global South emitters, are central to the future of climate politics. And beyond traditional modes of finance, China’s cleantech leaders – most of which are private companies – are investing abroad at an even greater scale, including in new production capacity. Understanding these dynamics may present opportunities to trigger greater ambition in the face of ongoing threats to global climate action and the clean-energy transition.

China engaged constructively to secure a new UN goal

Going into COP29 in Baku, Chinese officials were well aware of international expectations for China to contribute to climate finance as part of a new UN target, known as the New Collective Quantified Goal (NCQG), which was to be negotiated at the conference.

This pressure did little to shift China’s official position, which Ministry of Ecology and Environment (MEE) director-general Xia Yingxian outlined at a press conference the week before the conference.

Xia explained three core elements to China’s stance: first, developed countries need to take the lead in mobilising funds, in line with the Paris Agreement; second, the scale of funding should be expanded on the basis of developed countries first meeting their existing commitments, including contributing USD 100 billion annually to developing countries before 2025; and third, developed countries’ public funds should be positioned as the core source, with additional layers complementing this, including from multilateral development banks (MDBs) and the private sector.

Nonetheless, at the World Leaders Climate Action Summit as COP29 opened, Ding made a pivotal statement: “Since 2016, China has provided and mobilised more than CNY 177 billion [USD 24.5 billion] of project funds in support of other developing countries’ climate response.”

This declaration was the first time a Chinese official referred to climate finance for developing countries in the context of provision and mobilisation – the language applied to developed countries – rather than as “South-South cooperation”. While it is still unclear exactly how the figure was calculated, it presumably includes a wide range of investments by China’s development banks and other actors, rather than just those earmarked for South-South climate aid, which had previously been benchmarked by officials at CNY 1.2 billion (USD 170 million).

Ding’s remarks placed China’s contributions to global climate finance on the same order – if not higher than – many developed countries’ efforts. They also demonstrated that China may have the capacity and political will to be more transparent about the scale and scope of its own efforts, and to build on what it is already doing. While pressure from developed countries may have played a role in this shift, China’s overwhelming dominance in key clean technology sectors likely buttressed the case for it.

These public messages foreshadowed the compromises embedded in the final NCQG text, indicating that China was actively negotiating behind closed doors.

Threading the needle between China’s red lines

The structure of the NCQG agreement essentially contains two layers: an outer USD 1.3 trillion goal reflecting the projected needs of developing countries, and an inner “core” of USD 300 billion that will function in a similar way to the previous USD 100 billion goal agreed at Copenhagen in 2009, by tracking finance provided and mobilised for developing countries. This inner core updates the conditions that applied to the previous goal, with three specific aspects reflecting how it balances requirements from developed countries with China’s priorities.

First, the text grounded the goal in the entirety of Article 9 of the Paris Agreement. This includes binding language recognising the responsibility of developed countries to provide climate finance to developing nations, rather than just the individual, non-binding clause referenced in the NCQG’s mandate (Article 9.3). This accommodates the divergent positions regarding legally binding parameters – in general, developing countries wanted them, and developed countries didn’t.

Second, the goal will track all climate finance from MDBs. Previously, only MDB contributions attributed to developed countries were typically counted. China channels significant funding throughs MDBs, and the agreement means these contributions will now be recognised and tracked, without imposing a binding commitment. This approach drew some criticism from developing countries, especially India, but was ultimately advanced with China’s support. And third, the text encouraged developing countries to make bilateral contributions on a voluntary basis, enabling China to enhance its climate finance while framing its role on its own terms.

The Quaid-e-Azam Solar Park in Bahawalpur, central-eastern Pakistan, was built by Chinese company Zonergy. In 2024, Chinese companies committed approximately USD 58 billion to building overseas manufacturing facilities for new energy products (Image: Zofeen T Ebrahim / Dialogue Earth)

China had helped prevent a torpedoing of the fragile deal, which had been stitched together despite vulnerable nations walking out of the talks just hours earlier. With word that India may block the deal in the final plenary, Chinese negotiators bounced between huddles to avoid a complete meltdown. When the gavel came down – without room for so much as a breath to raise objections – the Chinese delegation enthusiastically welcomed the outcome with applause, just before India’s lead negotiator delivered a scathing tirade. A few years earlier, in 2021, China and India had sided together in Glasgow to water down COP26’s final outcome on coal – but in Baku, they played divergent roles in the end game of the NCQG.

Still, a compromise between developed countries and China on who contributes to the goal was never going to answer another critical question: how the goal could provide enough finance to meet the needs of developing countries.

Such countries had claimed that expanding the contributor base to include China and other countries was necessary to hit the increased target. But the paltry USD 300 billion figure in the final goal did little to reflect an expansion in sources beyond business-as-usual by developed countries beholden to the original USD 100 billion goal.

Incentivising China’s climate finance leadership

While the NCQG was agreed under the spectre of a second Trump administration, the extent of the backtracking to come was not yet clear. In addition to the expected US withdrawal from the Paris Agreement, Trump has revoked all US climate finance, gutted USAID, and pushed back against climate lending by multilateral institutions, while prompting other countries to shift funds away from aid and toward defence. With countries tasked with implementing the NCQG against this broader retraction in climate governance, what factors will shape China’s role in bridging the global climate finance gap?

At the core of this question is how the shifting politics around multilateralism and global climate governance will evolve. With the suspension of US support and multilateral climate finance under attack, other countries are under even greater pressure to shoulder the developing world’s climate finance needs. It remains to be seen whether climate-vulnerable nations will double down on getting developed countries to cover the difference, or push non-traditional contributors, such as China and the Gulf States, to take greater responsibility.

Early signals indicate that China may be cautious to build on its actions in Baku. Beyond Ding’s announcement, the country has yet to enshrine its climate finance contributions in official documents, such as its first Biennial Transparency Report submitted at the end of 2024. However, President Xi did reaffirm in late April that “China will vigorously deepen South-South cooperation and continue to provide help for fellow developing countries to the best of its capability”. It has also been slow to ramp up existing high-profile vehicles, with its USD 207 million Kunming Biodiversity Fund only supporting USD 1.2 million of projects so far. And while some argue that China will leverage the gap left by USAID, it is more likely that the country’s actions will be limited to situations that strategically align with what it is already prioritising.

There are two areas where China’s ongoing actions may enhance its impact, even without overt political signalling. First is that China’s MDB contributions have already grown from around USD 1.2 billion in 2017 to nearly USD 4 billion in 2022, after averaging around USD 500 million per year from 2013-2016. With the NCQG now tracking these funds, China could boost its reputation by further enhancing its MDB commitments, especially in the face of uncertain US support for climate lending by MDBs.

Second – and much more significantly – is that China’s cleantech sector has been investing in a slew of overseas factories and projects that could expand clean energy while creating local jobs and enhancing development. In 2024, Chinese companies committed approximately USD 58 billion to building overseas manufacturing facilities for new energy products. This pivot reflects a deeper structural transformation within China’s economy: new energy industries – most of which are private enterprises – have become growth engines, comprising over 10% of China’s GDP in 2024, and driving more than a quarter of its economic growth.

These investments are already making real-world impact on a massive scale, but the new goal is not necessarily set up to track their climate and economic benefits. Paying attention to the shifting power dynamics of clean energy could help to capture China’s broader contributions.

Apart from its own actions, China also has an opportunity to incentivise other non-traditional donors. One way to do this could be to spearhead a “high ambition coalition”-style group of new contributors to work together on implementing the NCQG. Doing so would grow the overall pot of finance while providing cover for those hesitant to step forward solo. Brazil could be a logical partner for such an effort, given its hosting of both the BRICS summit and COP30 later this year.

The USD-100-billion goal from Copenhagen was an innovative idea at the time, but its implementation was bogged down by the entrenched developed-developing country divide within global climate governance. Ultimately, however, climate change impacts are ambivalent to the politics of who pays for progress. Amidst challenging politics, China has the opportunity to play a role in facilitating a more successful NCQG and helping to preserve the Paris regime. Whether it decides to do so will be one factor shaping whether the world can find a way to pay for the action needed to prevent the worst impacts of climate change.