Can China Develop a Green Belt and Road Initiative?

Chinese President Xi Jinping announced at the recent Belt and Road Forum in Beijing that the continent spanning initiative must be “open, green and clean”. This can be read as a riposte to recent criticism that the initiative has been leading participating countries like Sri Lanka into debt traps and that China is heavily investing in coal plants and other unsustainable infrastructure contributing to climate change rather than sustainable alternatives.

Xi’s speech echoed the theme of the Belt and Road Forum which was to “Promote Belt and Road cooperation for high-quality development”, but are all these words just empty slogans?

At first glance China’s notoriously poor recent history of environmental governance does appear to be improving.

The Chinese Ministry of Ecology and Environment and the powerful National Development and Reform Commission (NDRC) are investigating aligning the Belt and Road with the UN Sustainable Development Goals (SDGs) which would be a huge leap forward bringing it in line with sustainable investing best practice.

Government Guidance

The current Chinese government guidance on a green Belt and Road remains sketchy but it encourages Chinese firms to follow local environmental laws and for the powerful China Development Bank (CDB) to back green projects. But the guidelines are not binding and there is no penalty for not following the rules.

The real proof is in countries such as Pakistan, Bangladesh, Vietnam and Indonesia where China is still heavily involved in the financing of coal fired plants. Around US$21.3 billion has been committed to coal projects overseas by Chinese banks representing a hefty 30GW of capacity, plus another US$ 14 billion has been proposed for 71 GW of capacity – altogether representing around a quarter of coal fired capacity under development outside of China.

This financing clearly undermines Beijing’s Green Belt and Road claims at a time when others like South Korea and Japan are moving away from financing coal.

The Belt and Road initiative is directed by the Chinese government and is a key global development finance driver. Beijing has the power to push financing to sustainable sources.

Investing in coal is also making much less sense in financial terms. Previously coal was cheap, dirty and effective at providing electricity for industrialising nations but renewables are rapidly becoming a viable alternative and for sustainable and financial reasons the sense to invest in coal.

King Coal

For China to continue building coal fired plants would be massively damaging for the country’s reputation leaving partner countries with a toxic legacy – coal not only releasing greenhouse gases, but also creating polluted cities and will soon be financial unviable – leaving countries with expensive dirty white elephants (already much of the world’s coal industry is heading for financial trouble increasingly relying in government funding).

Is Renewable Energy a Realistic Alternative?

Instead Chinese Banks should focus on backing the China’s competitive wind turbine, solar panel and environmental technology sector promoting their global export and mass installation. These successful industries and China’s own success in rolling out renewables domestically (it has already exceeded its 2020 target), gives it a unique ability to promote environmental technology to the rest of the world.

Recipient countries are increasingly wary of taking new coal plants as they realise they are increasingly unsustainable despite fast growing energy needs. Pakistan recently cancelled the Rahim Yar Khan coal plant (partly because of debt and foreign exchange concerns) but other countries need to reject Chinese coal financing in favour of renewables.

The alternative is a legacy of dependency on fossil fuels in climate vulnerable states and a toxic reputation for the Belt and Road initiative.

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