{"id":33947,"date":"2016-05-25T09:33:00","date_gmt":"2016-05-25T09:33:00","guid":{"rendered":""},"modified":"2020-10-19T19:00:20","modified_gmt":"2020-10-19T19:00:20","slug":"8947-china-becomes-world-s-biggest-development-lender","status":"publish","type":"post","link":"https:\/\/dialogue.earth\/en\/business\/8947-china-becomes-world-s-biggest-development-lender\/","title":{"rendered":"China becomes world\u2019s biggest development lender"},"content":{"rendered":"

Two Chinese banks now provide as much international development finance as the next six biggest multilateral lenders combined <\/span>\u2013\u00a0but are greatly exposed to political, social and environmental risks, new research says.<\/p>\n

In almost doubling the global capital base available for development projects, China has enabled developing countries with less to access international finance to bridge gaping infrastructure and energy shortfalls, according to a study<\/a> by Boston University\u2019s Global Economic Governance Initiative<\/a> and the Chinese Academy of Social Sciences<\/a>.<\/p>\n

\u201cSuch a stepwise increase arrives just in time,\u201d the paper says, pointing out that Western multilateral Development Banks (MDBs) appear to be stagnating in expanding their portfolios. <\/span><\/p>\n

China Development Bank<\/a><\/span> and the Export-Import Bank of China<\/a> (CHEXIM) together lent some US$684 billion between 2007 and the end of 2014. The next six biggest lenders, which include the World Bank<\/a>, the Japan-led Asian Development Bank<\/a> and the Inter-American Development Bank<\/a>, have provided finance worth\u00a0US$700 billion. During the same period, China\u2019s policy banks increased energy-related finance to national governments by US$117 billion, representing a two-fold increase in the total amount.<\/p>\n

Yet despite the impressive figures, China\u2019s loan portfolio is subject to considerable risks. With 66% of energy-related finance concentrated in coal-fired power, the associated costs of these loans, known as externalities<\/a> or social costs, are a real concern.<\/span><\/p>\n

\u201cUsing conservative estimates of the climate and local health costs of coal plant emissions, we calculate that the yearly social costs [the health costs of increased pollution plus the costs associated with social conflicts] of Chinese overseas coal-fired power plants amounts to US$29.7 billion,\u201d the report\u2019s authors say.<\/p>\n

Furthermore, the ability of countries to service their debt to China \u2013 which is often repaid with commodities<\/a> such as coal and oil \u2013 is threatened by fluctuating market prices<\/a>.<\/p>\n

In order to curb emissions and reduce risk, China should diversify its investment portfolio towards cleaner energy projects, the report says. Doing so would also help bring China\u2019s overseas investments in line with international <\/span>sustainable development goals<\/a>.<\/p>\n

Also see: Chinese banks: time to go green<\/a><\/strong><\/p>\n

Risks<\/strong><\/span><\/p>\n

While China has lent to borrowers who face difficulty accessing finance from elsewhere, this has drastically increased its exposure to economic downturns in recipient countries, which impacts their ability to repay loans.<\/p>\n

Venezuela, whose troubled president Nicol\u00e1s Maduro recently announced a 60-day state of emergency<\/a>, is currently in debt to China to the tune of US$65 billion<\/a>. The Venezuelan government recently announced it had negotiated better repayment terms with China, saying the move \u201cgave oxygen<\/a>\u201d to an oil-dependent economy asphyxiated by the crash in global prices.<\/p>\n

A number of other countries to which China has lent significantly for energy projects are considered high risk by the <\/span>Organization of Economic Co-operation and Development<\/a> (OECD). Ethiopia, Niger, Sudan, Pakistan and Bosnia & Herzegovina all rank alongside Venezuela as the most risky destinations for China\u2019s energy investments.<\/p>\n

Argentina also features in this group but the <\/span>election<\/a> of pro-market president Mauricio Macri has led to a downgrading<\/a> of the country\u2019s risk rating by other agencies.<\/p>\n

Only marginally less risky is Ecuador, which defaulted on its sovereign debt in 2008 and has since borrowed upwards of US$8 billion from Chinese banks for energy projects. \u00a0<\/span><\/p>\n

In addition to the risk of non-repayment, the consequences of exacerbating climate change by increasing carbon emissions are almost inestimable. The study estimates that the coal-fired power plants included in China\u2019s overseas investment portfolio emit 594 million metric tonnes of CO2 annually, equivalent to 11% of US total annual emissions and 6% of China\u2019s.<\/p>\n

Furthermore, China\u2019s financing of coal overseas is increasingly out of step with its domestic policies as domestic consumption has fallen for two consecutive years<\/a>, according to China\u2019s National Bureau of Statistics.<\/p>\n

Experts predict China will reduce its current over-supply of coal by around one billion tonnes this year as it attempts to bring CO2 emissions in line with commitments made under the <\/span>Paris Agreement<\/a>.<\/p>\n

Environmental campaigners recently told <\/span>chinadialogue<\/a><\/em> that curbing coal at home whilst promoting it abroad was \u201chypocritical\u201d.<\/p>\n

Renewables<\/strong><\/span><\/p>\n

China devotes 28% of its total energy finance to renewable energy, whereas the MDB’s allocate an average 88%. However, these figures include hydropower projects, which have major environmental consequences.<\/p>\n

Scarcely 1% of China\u2019s development finance goes to non-hydro renewables. The MDBs invest 27%.<\/p>\n

Given the high proportion of investments in coal and hydropower, shifting investments to cleaner technologies represents a big challenge for China\u2019s big policy banks and 13 new regional development funds.<\/p>\n

Nonetheless, China\u2019s emergence as major player in international development finance and within new multilateral development banks means it is \u201cuniquely placed\u201d to steer the transition to a low-carbon economy.<\/p>\n

\u201cThis finance is very welcome and could not come at a better time,\u201d the report says.<\/p>\n","protected":false},"excerpt":{"rendered":"

China\u2019s increasing weight as a multilateral lender carries major risks, says new report<\/p>\n","protected":false},"author":50000004,"featured_media":58731,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[758],"tags":[520,544,554,585],"hashtags":[],"country":[],"class_list":["post-33947","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-business","tag-coal","tag-finance","tag-hydropower","tag-renewables"],"acf":[],"yoast_head":"\nChina becomes world\u2019s biggest development lender | Dialogue Earth<\/title>\n<meta name=\"description\" content=\"China\u2019s increasing weight as a multilateral lender carries major risks, says new report\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" 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