While China is embarking on a bold decarbonisation journey, its foreign investment portfolio remains carbon heavy and raises sustainability concerns.
China’s recent pledge to become carbon neutral by 2060 has ushered in a new wave of optimism within the global climate community, as well as created the momentum for Japan and South Korea to come forward with their own net zero emissions targets for 2050.
In what has been hailed as the most significant single action since the Paris Agreement, China, which is currently responsible for 28% of the world’s CO2 emissions, is set to reduce these emissions to net-zero. This step alone is expected to knock 0.3°C off the projected global temperature increase, according to the research team behind the Climate Action Tracker. China’s declaration has cast the country as a global leader that other nations will want to follow - and potentially do business with as it expands its portfolio of cheap clean technologies that could serve the entire planet.
But when it comes to international deals, environmental sustainability is not the only, or even the main concern. Over the past decade, China has struck business partnerships with many developing economies, providing finance and workforce to set up essential infrastructure, including transport and energy.
South Asia and South East Asia are among the regions where these partnerships are most one-sided. Pakistan, where China has funded extensive fossil fuel infrastructure, is now saddled with debt, and Myanmar’s solar industry is under a near Chinese monopoly. China also exerts a subtler but still meaningful form of control on seven of the region’s main rivers, including the Ganges, Brahmaputra and Mekong, and its relations and partnerships with downstream countries have been traditionally strained. From the Tibetan plateau, China regulates water flow into India through hydroelectric dams, which affects the local biodiversity, thwarting conservation efforts.
In China “there has never been any domestic regulation of the environmental impacts of overseas investments,” says Cecilia Han Springer, a senior researcher at the Global China Initiative within the Global Development Policy Centre at Boston University. “And I think that the new climate neutrality target just widens the gap between what they're doing at home and what they're doing overseas.” It is a very different set of objectives, which leads some Chinese businesses to look for partnerships abroad, she explains.
Through its flagship Belt and Road Initiative, China has supported massive coal development in countries such as Pakistan, where it has financed 9.6 GW of new capacity. At the same time, it has also boosted renewables, hydropower in particular, helping add 13.4 GW of capacity across the South East Asia region. “The interesting thing about the Belt and Road Initiative, especially with regards to the energy sector, is that there doesn't seem to be any sort of coherent strategy from the top,” Han Springer says, “other than having overarching objectives such as helping domestic companies go overseas.”
Sustainability concerns are also present when it comes to water resources. Last month, China offered nearly one billion US dollars in a loan to Bangladesh, India’s closest trading partner, for the restoration and management of the Teesta river, a main source of water whose levels are starting to dangerously dwindle due to climate change and dams installed upstream by India.
“The Teesta has been a bone of contention between Bangladesh and India for quite some time,” says Shahab Enam Khan, a security analyst and a professor with the Department of International Relations at Jahangirnagar University in Dhaka. “The water is controlled by India, the upper riparian,” he explains. “And upstream there are dams and flood control channels which can divert the water trajectory.” This flood control mechanism means that when India has excess water, they open the gates and Bangladesh gets flooded, and when they reinstate the water control system in summer, the downstream area suffers from drought. “This has been the practice for the last 60 years,” Khan says, “but it can’t go on like this forever.”
Bangladesh floated the idea of building a reservoir that would shield the region from sudden water fluctuations, and China offered the money and expertise to make it happen. “It’s not just a matter of money,” Khan explains. “They had the technology and know-how because they had already experimented with similar solutions in Tibet and other regions.”
Bangladesh is benefiting from Chinese help to restore its environment, but such ties may leave it caught in the middle of a trade war between China and the U.S., Khan says. The country’s main trading partners are China, when it comes to import, and the U.S., when it comes to export.
With its vast industrial portfolio and lending power, China is helping lift countries across South Asia out of poverty, and in some cases doing so sustainably. But while its presence is an economic advantage for the host countries, it may carry some long-term risks.
“There are many considerations when a country accepts foreign investments or loans,” says Ashley Johnson, assistant director for Energy and Environmental Affairs at The National Bureau of Asian Research in the U.S., “such as who will own and operate the project, does this create local jobs or give them away, what will be the size of the debt and how can it be repaid?” Ideally, she says, when planning an investment you would want these factors to align with long term goals for economic growth, energy access, and social welfare.
Catering to a country’s short-term needs without losing sight of long-term goals is “an increasingly hard challenge to overcome,” Johnson says. As an example, she mentions the need for electrification: while energy access is obviously a priority, “if the terms [of the deal] result in minor economic harm, like job loss, or major consequences, such as sovereign defaults, these are all factors that must be considered.”
Since the early days of the Belt and Road Initiative, however, poorer countries have become better equipped to balance their relationship with a powerful ally, making sure that China’s help does not come with long-term economic instability or environmental damages.
There are two main policy levers that host countries can pursue to ensure the environmental soundness of their infrastructure projects with China, Han Springer says. “One is increasing the ambition and the enforcement of their own environmental regulations. China tends to hide behind the guiding principle that it defers to host country environmental laws,” so the host countries can require Chinese companies to abide by strict environmental parameters. Countries can also insist on a project-to-project basis that Chinese businesses provide some kind of local benefits, whether that is employing local workers, or providing training and technology transfer.
The rise of the Belt and Road Initiative has also been accompanied by new regional initiatives put forth by other Indo-Pacific countries. “For example, both Japan and the United States have released strategies for a ‘Free and Open Indo-Pacific’ and part of these efforts are options for investment in clean energy development and transitions,” Johnson says. By putting more options on the table, such initiatives might increase smaller nations’ negotiating power, when they are concerned about the terms of a Chinese loan or investment plan.
Developing countries in South Asia and around the world are waking up to the caveats of China’s eagerness to do business. As setting social and environmental standards for some of the longer-standing investment partnerships with China might prove challenging, more informed plans for new investments are of key importance. And as China decarbonises its economy at home, being held accountable abroad may help shift the Belt and Road Initiative towards a greener path as well.
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