China’s Green Planning For The World Starts With Infrastructure

By Kris Hartley, Asit Biswas 16 January, 2018

Biswas & Hartley explore China's development leadership

This article was first published on The Conversation and the authors have kindly given us permission to re-publish it. The original publication can be found here. 

The United States is retreating from the global community under a president who rejected the Paris Climate Accords and denigrates NAFTA and NATO. This provides an opportunity for China to play a greater role in global affairs.
This provides the backdrop for the 19^th Party Congress, as China seeks to balance external influence with domestic economic stability. One area in which China can exert greater influence is infrastructure, an urgent issue for development. According to the OECD, supporting development worldwide requires yearly infrastructure investment of USD6.3 trillion until 2030. With knowledge of development honed through decades of rapid domestic economic growth, China is well placed to shape global development in ways that may define the rest of the 21^st century.

“One area in which China can exert greater influence is infrastructure…

…supporting development worldwide requires yearly infrastructure investment of USD6.3tn until 2030”

China has invested in infrastructure projects around the world since the 1970s but a coherent policy for infrastructure investment first appeared in 2013. During a speech in Kazakhstan, Xi unveiled the Silk Road Economic Belt concept.

China’s Belt & Road Initiative, is expected to attract USD1tn for trade, transport, & energy initiatives around the world

Shortly thereafter he proposed the Asian Infrastructure Investment Bank. Other institutions supporting China’s global infrastructure initiatives include the USD40 billion Silk Road Fund and the New Development Bank led by China, Brazil, Russia, India, and South Africa. The crown jewel, China’s Belt and Road Initiative, is expected to attract USD1 trillion for trade, transport, and energy initiatives around the world.

Build at your own risk

Infrastructure is a development necessity, but its expense is a barrier and assistance from China is attractive. More than 60 countries have signed agreements for China to fund infrastructure projects.

Loan recipients should not assume that infrastructure will automatically transform their economy

However, loan recipients should not assume that infrastructure will automatically transform their economy. Projects can drain resources and often provide little benefit to greater society. Attracting a Belt and Road Initiative project may grab headlines but it is no panacea.
The economic benefits of infrastructure are often vastly overstated. Currently Sri Lanka is unable to service debts to Chinese lenders for expensive but largely unused ports, airports, and highways. Designed for one million passengers per year, Mattala Rajapaksa International Airport in Southeast Sri Lanka now handles roughly 12 passengers per day. This is less than 1% of original projections, but the airport cost the country USD209 million.
As infrastructure benefits failed to materialise, Sri Lanka’s external debt ballooned from USD10 billion in 2006 to USD25 billion in 2016, much of it owed to China. Fiscal pressure prompted Sri Lanka’s government to sell 70% of Hambantota Port, located on the country’s southern coast, to a Chinese state-owned port operator in July 2017.

The economic benefits of infrastructure are often vastly overstated…

…Mattala Rajapaksa Intl Airport, on which Sri Lanka spent USD209mn, only receives about 12 passengers a day

In 2015, Ghana refused a second tranche of loans from the Chinese government for another energy project because of lack of absorptive capacity of the country to manage such high capital inflows.
Recipient countries must weigh economic benefits with fiscal sustainability in deciding whether to collaborate with foreign partners on infrastructure.

Unsustainable projects

Environmental pitfalls are also a concern. President Xi declared in 2017 that the Belt and Road Initiative development would be “green, low-carbon, circular and sustainable”.
Yet, a torrent of Chinese investment is flowing towards environmentally unsustainable projects. A significant amount of China-Pakistan Economic Corridor investment will support an energy portfolio that includes coal-fired power plants. In Bangladesh, concerns about pollution have led to violent protests against a coal-fired power plant being constructed by Chinese firms.

A torrent of Chinese investment is flowing towards environmentally unsustainable projects…
…e.g the China-Pakistan Economic Corridor investment will support coal-fired power plants

Chinese cement companies reliant on coal have moved to Tajikistan. China-funded projects for roads, oil and gas pipelines, and hydroelectric dams could threaten ecologically sensitive areas in aid-dependent countries like Myanmar and Mongolia. This trend is likely to accelerate in the absence of local pushback or concern for broader impacts.
In a 2011 example, Myanmar’s government suspended the Myitsone Dam project. Protests had raised concerns about potential environmental and social impacts on the Irrawaddy, the country’s largest and commercially most important river.

Green implications

China has achieved historic progress in domestic growth, and is now turning to environmental sustainability. By 2020, China plans to spend more than USD360 billion developing renewable energy while de-commissioning coal-fired power plants. China’s commitment to clean domestic energy is also demonstrated by its issuance of 40% of the world’s green bonds in 2016.
At the outset of the Belt and Road Initiative, China can use its growing experience transitioning from unsustainable to green energy sources. This could shape a new generation of environmentally sensitive infrastructure developments around the world.

China & collaborating countries must consider all risks associated with infrastructure projects…

…not only financial but also environmental & social

China and collaborating countries must consider all risks associated with infrastructure projects, not only financial but also environmental and social. Belt and Road Initiative participants should thoroughly evaluate infrastructure in reference to national development goals, rather than using projects solely for political theatre.
In 2016, the China-led Asian Infrastructure Investment Bank, whose loan portfolio may rival that of the World Bank within the next two decades, released a framework that includes environmental, social, and governance standards. These guidelines provide a ready-made template for Chinese institutions involved in global infrastructure lending. They can also be implemented for individual projects in Belt and Road Initiative countries. Ensuring these guidelines are faithfully observed requires a level of transparency that is arguably unprecedented in China.
The Belt and Road Initiative represents an opportunity to internationalise the Chinese model of state-led economic growth supported by massive infrastructure rollouts. With prudent strategy and thorough monitoring, the initiative could herald a departure from decades of unsustainable and failed global infrastructure development.
If the emerging geopolitical power vacuum leads to China’s preeminence, the country’s government must heed the immense responsibility of development leadership. Aid-dependent countries are ready for sustainable infrastructure, and they deserve better help than what they have received.

Further Reading

• Droughts: Misery In Slow Motion – Floods and storm surges are sensational disasters but the World Bank’s new report shows droughts can actually be more impactful. We sat down with their Richard Damania to find out more
• 5 Facts On Crop Failures Due To Water Risks – In 2016 China suffered 44 million tonnes of crop failure due to droughts and floods. Check out China Water Risk’s Max Leung’s five facts to get the latest info and see which regions are most at risk
• Companies Are Taking Water Security Seriously – Here’s How – CDP’s Cate Lamb shares key findings from their 2017 Global Water Report, which includes a 41% increase in companies disclosing and a record number of corporates achieving an ‘A’ score. Is putting an internal price on water the next step?
• Hotels & SDGs: Moving Together On Water Risk – Forward thinking companies are re-aligning their strategies with the SDGs and so is the hotel sector. International Tourism Partnership’s Fran Hughes on their recently announced 2030 vision and goals
• Key Takeaways From The 5th China SIF Conference – The 5th China Social Investment Forum Annual Conference was just held in Beijing. See Dr Guo Peiyuan of SynTao Green Finance, a co-host of the event, three key takeaways, including the first ESG Chinese equity index

• A Chinese Model For Foreign Aid – As the US & the EU retreat from their foreign-aid commitments, Professor Asit K Biswas and Kris Hartley from the Lee Kuan Yew School for Public Policy see this as an opportunity for a new and willing aid champion, China. See why
• Can China Clean Up Its Act? – China faces unprecedented air, water & soil pollution after decades of growth. With its contaminated land area bigger than the United Kingdom, Asit K Biswas & Cecilia Tortajada look at what China’s policymakers are doing to change this
• What ‘Xi’s Thought’ Means For Water – One key message from Xi Jinping at the 19th National Congress was harmony between environment & economic growth, surely this bodes well for water? China Water Risk’s Feng Hu reviews
• Green Development For A Beautiful China – The Minister of Environmental Protection Ganjie Li outlined the MEP’s achievements and future plans at the 19th People’s Congress. What are the key takeaways? China Water Risk’s Yuanchao Xu reviews
• Hopes & Fears While Remaining Irrationally Exuberant – Spurred by recent news, China Water Risk’s Tan shares her musings from not kidding ourselves, including that tech will solve-all, to adjusting our goals and piercing our irrational bubbles to bring down waste