{"id":77955,"date":"2022-04-27T09:09:14","date_gmt":"2022-04-27T09:09:14","guid":{"rendered":"https:\/\/chinadialogue.net\/?p=77955"},"modified":"2022-04-29T16:19:47","modified_gmt":"2022-04-29T16:19:47","slug":"going-green-chinese-policy-banks-changing-role-global-energy-development","status":"publish","type":"post","link":"https:\/\/dialogue.earth\/en\/energy\/going-green-chinese-policy-banks-changing-role-global-energy-development\/","title":{"rendered":"Going green? Chinese policy banks\u2019 changing role in global energy development"},"content":{"rendered":"\n

China\u2019s policy banks have been some of the largest energy sector financiers in the world. But in 2021 they provided no new development finance<\/a> for energy projects overseas \u2013 the first year this century without any such finance.<\/p>\n\n\n\n

This striking finding, from our recent update to China\u2019s Global Energy Finance Database<\/a> (CGEF), managed by the Boston University Global Development Policy Center, could represent a turning point in China\u2019s involvement in overseas energy development.<\/p>\n\n\n\n

The world faces a gaping investment gap in energy infrastructure, so questions on the future nature of China\u2019s support in this area are of global importance. <\/p>\n\n\n\n

President Xi Jinping pledged, in September last year, that China will increase support<\/a> for low-carbon energy development overseas. Does the slump in lending from policy banks belie a shift towards support for greener energy technologies around the world?<\/p>\n\n\n\n

From domestic to global<\/h2>\n\n\n\n

China has two main policy banks: the China Development Bank (CDB) and the Export-Import Bank of China (CHEXIM). They played a critical role in China\u2019s domestic development before their expansion into overseas markets in the 2000s.<\/p>\n\n\n\n

As the engine of China\u2019s domestic growth over the past few decades, the CDB was initially capitalised in 1994 under the State Council to primarily assist with domestic infrastructure priorities. Since the 2008 global financial crisis, the CDB has transformed into one of the world\u2019s largest overseas lenders as part of a strategy<\/a> to diversify China\u2019s foreign exchange reserves and strengthen its energy security.<\/p>\n\n\n\n

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Also capitalised in 1994, CHEXIM was tasked primarily with facilitating China\u2019s foreign trade and foreign economic cooperation. To implement China\u2019s Going Out strategy<\/a>, and now its Belt and Road Initiative<\/a> (BRI), the CDB and CHEXIM have coordinated with Chinese commercial banks and state insurance provider China Export and Credit Insurance Corporation (Sinosure). It has also worked with government ministries and companies to enable overseas projects in strategic areas and sectors. This model, dubbed the \u201ccoordinated credit space model<\/a>\u201d, has enabled the rapid take-off of China\u2019s overseas development finance since 2008, particularly in the energy sector.<\/p>\n\n\n\n

In fact, public lending from the CDB and CHEXIM has facilitated more power capacity additions<\/a> than the public lending by 10 major multilateral development banks (MDBs) combined, including the World Bank and the International Finance Corporation.<\/p>\n\n\n\n

Ingrained preferences<\/h2>\n\n\n\n

China\u2019s policy banks have devoted most of their overseas lending in the electric power sector to coal-fired power generation and hydropower projects, reflecting domestic drivers from China\u2019s own energy sector. Around the time of the global financial crisis, Chinese coal companies<\/a> faced a slowdown in domestic electricity demand, leading to excess manufacturing capacity. Responding to demand from host countries with significant coal deposits, the growing need for electricity, and historical dependence on coal-fired power, China\u2019s policy banks have lent US$31 billion for overseas coal power generation since 2000, CGEF data shows. This represents roughly 46 gigawatts<\/a> (GW) of generating capacity, which has created significant opportunities for Chinese coal companies\u2019 expansion overseas.<\/p>\n\n\n\n

For hydropower, China\u2019s policy banks also filled a large gap<\/a> left by traditional donors and MDBs, which moved away from large dam projects at a time when developing countries were seeking to expand their own hydropower resources. China\u2019s domestic hydropower industry also has decades of experience, lending a competitive advantage abroad. Our data shows that China\u2019s policy banks have lent a total of $30 billion for hydropower projects overseas and an additional $2.5 billion for associated transmission infrastructure, altogether representing nearly 32 GW of generating capacity.<\/p>\n\n\n\n

China\u2019s overseas energy development finance has also flowed significantly to oil and gas exploration and extraction. Support for coal and hydropower make up the next largest destinations by energy type and have been relatively more stable than lending to oil and gas, which drove major peaks in lending in 2009 and 2016, of $45 billion and $38 billion, respectively.<\/p>\n\n\n\n