Financial Institutions

Funding for the Belt and Road Initiative comes through many channels. Those include Chinese policy banks, such as the China Development Bank and Chinese Export-Import Bank; multilateral development banks in which China plays a leading role, including the Asian Infrastructure Investment Bank and New Development Bank; and Chinese state-owned enterprises.

China Development Bank

China Development Bank (CDB) is the world’s largest development finance institution. At the end of 2018, its assets were RMB 16.18 trillion ($2.35 trillion) and loan balance was RMB 11.68 trillion ($1.7 trillion). This is more than the assets and loan balances of the World Bank and Asian Development Bank combined.[65]

China Development Bank was established in 1994. According to its website, CDB is “a policy financial institution under the direct leadership of the State Council.”[66] Its largest shareholder is the Chinese Ministry of Finance, which owns roughly 36.5% of outstanding shares, and its debt is backed by China’s sovereign credit. China Development Bank invests in infrastructure, basic industries, energy and transport around the world. It provides loans, loan guarantees and a range of other financial tools. Its objectives include promoting economic growth within China and promoting the competitiveness of Chinese entities abroad.

China Development Bank was an early advocate of green finance practices. In 2008, CDB began implementing the Equator Principles, a tool to help financial institutions assess the environmental and social risks of projects. CDB has developed an environmental and social risk assessment system for its international projects in accordance with the UN Global Compact principles. China Development Bank does not have a separate, stand-alone climate change or low-carbon policy.[67]

According to its 2018 Annual Report, China Development Bank made RMB 342.8 billion (about $50 billion) in green loans in 2018, bringing its total green loans outstanding to around RMB 1.984 trillion (about $288 billion). This is a 16% increase from 2017. “Green loans” include those for energy-saving projects, clean energy, industrial pollution control, circular economy and urban environmental improvement. CDB calculates that its green loan portfolio helps reduce carbon dioxide emission by 140.55 million tons each year.[68]

In April 2019, CDB signed the Green Investment Principles for the Belt and Road.[69]

China Development Bank is one of the largest financiers of coal-fired power plants in the world. In the past decade it has provided more than $23 billion for at least 30 coal power plants abroad.[70]

China ExIm

The Export-Import Bank of China (China ExIm) was also established in 1994. It operates under the direct leadership of China’s State Council and is solely owned by the Chinese government. Its mission is to support China’s foreign trade, investment and international economic cooperation. China ExIm provides loans, loan guarantees and a range of other financial tools.[71]

According to its 2017 annual report (the most recent available), China ExIm had RMB 3.64 trillion (roughly US $541 billion) in total assets and RMB 2.88 trillion (roughly $417 billion) in outstanding on-balance-sheet loans as of December 31, 2017.[72]

China ExIm highlights its record in promoting clean energy. Its website reports that China Exim

has actively supported the strategic emerging industries and the sector of green and clean energy. It has worked to facilitate the green transformation of traditional manufacturing and establish an industry system for green and low-carbon cyclic development…It has also assisted highly energy-consuming and high-emission enterprises with technological transformation.[73]

China ExIm is one of the largest financiers of coal-fired power plants in the world. In the past decade, it has provided at least $18 billion for at least 30 coal power plants abroad.[74]

Asian Infrastructure Investment Bank

According to its website, the Asian Infrastructure Investment Bank (AIIB) is “a multilateral development bank with a mission to improve social and economic outcomes in Asia and beyond.” China proposed establishment of AIIB in 2013 and waged a successful diplomatic campaign over several years to bring countries on board as members. AIIB started operations in 2016, with a Beijing headquarters. As of December 31, 2018, AIIB had assets of $19.56 billion, $7.5 billion in outstanding loans (for 35 projects) and 93 member countries.[75]

The AIIB describes its core values as “Lean, Clean, and Green.” Its Environment Framework calls for environmental and social due diligence on all projects, as well as public disclosure of social and environmental risks. AIIB specifically addresses climate change in its Environment Framework, stating that

The Bank recognizes the challenges presented by climate change and the need to support both mitigation and adaptation measures in a Project facing such challenges. The Bank supports its Clients in their evaluation of both the potential impacts of the Project on climate change and the implications of climate change on the Project. To this end, the Bank plans to prioritize investments promoting greenhouse gas emission neutral and climate resilient infrastructure, including actions for reducing emissions, climate-proofing and promotion of renewable energy.[76]

AIIB released its Energy Sector Strategy in June 2017. The strategy’s “Principle 3” is “Reduce the carbon intensity of energy supply.” The text states:

  • “The Bank will support clients to reduce the carbon intensity of energy to help them achieve their long-term climate goals provided in the Paris Agreement…”
  • “The Bank will support and accelerate its members’ respective transitions toward a low-carbon energy mix through investments in RE and reduction of carbon emissions from fossil fuels…”
  • “The Bank will support clients to develop intermittent RE—hydropower, wind, solar, and other sources—to reduce fossil fuel consumption and increase access to modern energy through decentralized generation, and mini- and micro-grids…”
  • “The Bank will focus on supporting and accelerating its members’ respective transitions toward a low-carbon energy mix, including lower carbon emissions from fossil fuels…Supported fossil fuel-based generation facilities would be expected to use commercially available least-carbon technology.”
  • “Carbon efficient oil- and coal-fired power plants would be considered if they replace existing less efficient capacity or are essential to the reliability and integrity of the system, or if no viable or affordable alternative exists in specific cases.”[77]

As of July 2019, AIIB has approved 15 projects in the energy sector, including a geothermal power plant in Turkey, a natural gas infrastructure project to replace coal in Beijing, a power system upgrade in Bangladesh, a solar PV feed-in tariff program in Egypt and hydropower projects in Nepal, Tajikistan, Myanmar and Pakistan.[78]

New Development Bank (or BRICS Bank)

The New Development Bank (NDB) was established in 2014 by the five BRICS countries—Brazil, Russian, India, China and South Africa. Its headquarters are in Shanghai. Each member country pledged a capital contribution of $10 billion.[79]

The purpose of the New Development Bank is “to support infrastructure and sustainable development efforts in BRICS and other underserved, emerging economies for faster development through innovation and cutting-edge technology.” New Development Bank materials say the following:

The 21st century has brought with it tremendous development. However, this progress has been skewed, insufficient and often harmful to our environment. We will collaborate with Initiatives that drive growth and employment while ensuring environmental protection.[80]

The New Development Bank gives priority to clean energy in its lending. As of July 2019, NDB has approved 38 loans, nine of which were for clean energy, energy conservation or environmental protection projects. These nine projects had a cumulative loan amount of $2.6 billion.[81]

New Development Bank’s Environmental and Social Framework directly addresses climate change, stating the following in the section on “Core Principles”:

NDB seeks to promote mitigation and adaptation measures to address climate change. Recognizing the sustainable nature of green economic growth and the associated benefits, NDB aims to build upon existing green economic growth initiatives and provide support for the new ones at regional, national, sub-national and private sector level. NDB also encourages climate proofing of its infrastructure financing and investments to build resilience to climate change.[82]

In evaluating potential projects, NDB staff are directed to:

[a]ssess both the potential impacts of the project on climate change as well as the implications of climate change on the project and develop both mitigation or adaptation measures as appropriate. Identify opportunities for no- or low-carbon use, where applicable, and for reducing emissions from the project.[83]

Silk Road Fund

The Silk Road Fund (SRF) was established in 2014 with investments by the State Administration of Foreign Exchange, China Investment Corporation, China Development Bank and Export-Import Bank of China. Its total paid-in capital is now $54.5 billion. The Silk Road Fund provides financing for trade and economic cooperation under the BRI. It is primarily an equity investment fund.[84]

From 2014 to 2017, 93% of the Silk Road Fund’s energy sector investments were in fossil fuel projects, including a coal-fired power plant in the UAE and natural gas power plant in Egypt. The Silk Road Fund has also invested in a hydropower project in Pakistan. In June 2019 the Silk Road Fund purchased a 49% stake in the renewable energy subsidiary of a Saudi power company.[85]

The Silk Road Fund’s website says it “pays close attention to environmental issues and sustainable development.”[86]

References

[65] China Development Bank Annual Report 2018 at p.6; World Bank Group Annual Report 2018 at pp. 80–88; Asian Development Bank Annual Report 2018—Financial Highlights (accessed July 29, 2019).

[66] China Development Bank website (accessed July 29, 2019).

[67] See Zhao Shijun, “Power plant just part of bank’s ‘green credit’ plan,” CDB News (July 26, 2016).

[68] China Development Bank Annual Report 2018 at pp.6, 14, 43.

[69] See note 14 below.

[70] Global Development Policy Center, Boston University, China’s Global Energy Finance (accessed July 29, 2019).

[71] Export-Import Bank of China Annual Report 2017 at p.29.

[72] The Export-Import Bank of China Annual Report 2017 at pp.3, 16.

[73] “Green Finance,” The Export-Import Bank of China website (accessed August 25, 2019).

[74] Global Development Policy Center, Boston University, China’s Global Energy Finance (accessed July 29, 2019).

[75] “Who We Are,” AIIB website (accessed August 25, 2019); PricewaterhouseCoopers, Asian Infrastructure Investment Bank Auditor’s Report and Financial Statements for the Year Ended Dec. 31, 2018 (April 3, 2019) at pp.2 and 5; 2018 AIIB Annual Report and Financials (accessed July 29, 2019). See Daniel Poon, “AIIB: Experiments in scaling-up development finance,” United Nations Conference on Trade and Development (March 2018).

[76] AIIB, Environmental and Social Framework (February 2016) at p.8, para.16.

[77] AIIB, Energy Sector Strategy: Sustainable Energy for Asia (June 15, 2017) at pp.12, 15, 17.

[78] AIIB, “Approved Projects” (accessed July 23, 2019).

[79] "About Us,” New Development Bank website (accessed August 25, 2019); Stephany Griffiths-Jones, “Financing Global Development: The BRICS New Development Bank,” German Development Institute (November 2015) at pp.1–3.

[80] "About Us,” New Development Bank website (accessed August 25, 2019).

[81] “Projects,” New Development Bank website (accessed August 25, 2019).

[82] New Development Bank, New Development Bank Environment and Social Framework (March 11, 2016) at pp.4–5.

[83] New Development Bank, New Development Bank Environment and Social Framework (March 11, 2016) at p.17.

[84] Silk Road Fund website (accessed July 27, 2019).

[85] Lihuan Zhou et al., Moving The Green Belt And Road Initiative: From Words To Actions, World Resources Institute/Boston University Working Paper (2018) at pp.3, 16–17; Max Hall, “Saudi’s ACWA Renewables sells 49% stake to China’s Silk Road Fund,” PV Magazine (June 24, 2019).

[86] Silk Road Fund website (accessed July 27, 2019).

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