Belt and Road Insight: Chinese businesses embarks to the South as green investment sails forward
Belt and Road Insight: Chinese businesses embarks to the South as green investment sails forward
Can Tho, a city located at the south coast of Vietnam, may be known for its busy floating market with frequent boats sailing, but people may not notice that another busy network woven in the city is silently guarding the environment of local community.
Around 400 tons of domestic garbage is transported from Can Tho City to the power plant in Changchun Township, Tailai County every day. After being weighed and unloaded, it is stacked and fermented in a closed garbage bin for a week, and then sent to an incinerator with temperature above 950 ˚C. Through the process of drying, heating, decomposition, and combustion, etc., 60 million kWh of clean electric energy is generated each year, which can satisfy the electricity consumption of 8,000 residents.
This is the first modern and high-standard waste incineration power generation project in Vietnam. It was invested, constructed and operated by China Everbright International Co., Ltd. and was completed and put into production in November 2018. As proudly noted by Wang Tianyi, CEO of China Everbright International Co., Ltd, "The overall investment scale of the project was less than US$50 million, but it can handle 75% of Can Tho's domestic waste".
The unfamiliar buildings that appeared three years ago, have been known to the local community through regular public open days and waste-to-energy seminars. Not only does it convert waste into electric energy for the use of thousands of homes, but it also eliminates the problems that could have been caused by traditional incineration and burial treatment. As a model, the Can Tho project received more than 100 batches of inspections and nearly 2,000 people from the government, the public, students and the industry in less than two years.
The natural environment and community features are close to that of Southwest China, and the composition of domestic waste is similar to that of China. This is a scene that Everbright International is relatively familiar with. In the course of more than ten years of development, Everbright International has accumulated nearly 400 environmental protection and public service projects developed and completed through the PPP model in China, where the independently developed incineration equipment is targeted and suitable for the Vietnamese market.
In 2009, the Vietnamese government launched a national strategy on integrated management of urban waste. One of the goals is to achieve recycling and converting more than 85% of domestic waste into renewable energy or organic fertiliser by 2020. As Can Tho City is located in the Mekong Delta, its environment and ecology are among the most sensitive areas in Vietnam to climate change.
Looking back on the challenges and difficulties of the Can Tho project, Wang Tianyi said that similar to most Belt and Road projects, there was a lack of mutual trust between the two parties at the beginning. For example, the local government and people in Vietnam does not have relevant knowledge or experience on China’s technology, equipment and management in the past, whilst Vietnam’s matching of local resources, such as manpower, building materials, and industrial processing capabilities had a certain gap when compared to China. Being the first waste-to-energy project in Vietnam, there were also some lags in related industry laws and systems.
However, "there are always more solutions than problems.", as noted by Tianyi Wang. Wang believed that the key to the success of the project was the smart choice of green investment cities and projects. "In the early stage of the project selection, we saw potential in the urgent need and determination of the local government to solve the problem. The Vietnam government formulated a preferential feed-in tariff policy for waste-to-energy grid and acquired all state-owned power grid companies, which showed how the macro policy supported and ensured the sustainability of this project.
“The epidemic may reconstruct the way people live and how the society operates, but most of them will return to how things worked previously. Companies need to find a balance between the changed and the unchanged.”
—— Wang Tianyi, CEO of China Everbright International Co., Ltd
Chinese companies need to utilize their strength in this huge market
More and more governments along the Belt and Road Initiative have proposed large-scale green investment blueprints. Taking ASEAN as an example, Thailand aims to become the power centre of Southeast Asia within the next 10 years, in which renewable energy will play an important role. Whereas in Vietnam, the Direct Power Purchase Agreement for Renewable Energy (DPPA), which has just been passed, is considered by the market to further stimulate the photovoltaic and wind power markets in the country.
In the opinion of Jun Ma, director of the Green Finance Professional Committee of the Chinese Society of Finance and director of the Green Finance Development Research Center of the National Institute of Finance of Tsinghua University, green investment in Belt and Road Initiative is promising, because there is a huge investment gap in Belt and Road developing countries in environmental governance and response to climate change.
“Green investment in Belt and Road Initiative is promising, because there is a huge investment gap in Belt and Road developing countries in environmental governance and response to climate change.”——Jun Ma, director of the Green Finance Professional Committee of the Chinese Society of Finance and director of the Green Finance Development Research Center of the National Institute of Finance of Tsinghua University
“According to World Health Organisation, an estimated 12 million people die prematurely from pollution each year, causes include air pollution, water pollution, soil pollution, etc., 90% of which occur in developing countries. Our preliminary estimate is that the demand for low-carbon investment in Belt and Road countries outside of China has surpassed the scale of US$1 trillion per year."
How should Chinese companies choose appropriate projects based on their own conditions while avoiding risks? Wang Tianyi believes that with regard to the strategic layout of overseas green investment, Everbright International chooses areas that have both huge market demand and good investment capabilities.
"With the world’s most patents in garbage incineration power generation, we focus on this field as many developing countries are facing the challenge of garbage siege and lack of garbage incineration facilities. In terms of regions, we are targeting Southeast Asia and Central and Eastern Europe, not only because they are typical Belt and Road regions, they are also areas where waste incineration power generation has just started and the demand is huge."
Projects close to the needs of the people’s livelihood have lower political sensitivity related to national security, and investment is easier to be accepted by the government and people of the host country. Thus the Everbright International Can Tho project successfully passed the review by relevant domestic institutions in Vietnam at the beginning of its development. In addition, as one of the world's largest waste incineration power generation investment operators, Everbright International’s own project experience and technical capability are also important considerations for the other party.
Jean Lu, Managing Director, Co-Head of Client Coverage Corporate, Commercial & Institutional Banking, Standard Chartered Bank (China) Limited, observed that China’s vast domestic market has nurtured many leaders in the green field. They have world leading technology reserves as well as rich project management experience. With the rapid development of wind power, photovoltaic and other renewable energy power generation technologies, and the continuous decline in costs, the development potential of Chinese companies in related fields is promising.
“We look forward to taking advantage of Standard Chartered's global network and resources to provide more financial support for Chinese businesses to create a green Belt and Road.”
—— Jean Lu, Managing Director, Co-Head of Client Coverage Corporate, Commercial & Institutional Banking, Standard Chartered Bank (China) Limited
“According to our estimation, there are around 90 green projects within ASEAN that comes from Chinese companies, two thirds of which are green energy projects, including wind power, photovoltaic, hydropower, and waste-to-energy, etc.”
In fact, green projects are increasingly becoming one of the focuses of the Belt and Road Initiative, and not just within ASEAN. "In 2019, we supported more than 160 Belt and Road projects, of which nearly half met the United Nations' strict definition of sustainable project development, covering sustainable urban construction, affordable clean energy, clean water, sanitation, medical health, industry innovation and infrastructure, high-quality education and other fields. Standard Chartered's goal is to assist more than US$40 billion in clean and renewable energy projects by 2024." Jean Lu said.
Green projects remain green even under the epidemic
Relevant Belt and Road countries’ relative lack of investment and financing capabilities of some local shareholders and the relative lack of contract performance of counterparties have become one of the main constraints for the development of greenfield projects.
Wang Tianyi pointed out that a good PPP project requires the cooperation of the government, businesses, and financial institutions. At the government level, it must have a strong concept of green development and sustainable payment capabilities. The proportion of local investment in its overall fiscal expenditure must be limited to a certain range; businesses must have good investment, operation and construction capabilities, and financial institutions must provide low-cost, high-efficiency, large-scale and long-term green financial support.
Wang noted that green investment in Belt and Road Initiative is promising, because there is a huge investment gap in Belt and Road developing countries in environmental governance and response to climate change.
"In any case, waste is still generated every day. In the post-epidemic era, the government and people will pay more attention to public health and environmental protection. Incineration power generation as a clean and environmentally friendly treatment method will provide huge investment potential.” Under the influence of the epidemic, PPP projects, which were mainly maintained by government fiscal expenditures in the past face huge challenges, and it is necessary to form a multi-party risk-resistance advantage to overcome the difficulties together.
Jean Lu shared a case that happened during the epidemic, “we have a client that has businesses related to the environment. Back then China’s epidemic situation was still serious and normally workers were not able to go to the construction site, yet the local government actively invited workers to resume work. This showed the high societal value and local appreciation level within green Belt and Road projects.”
Jun Ma noted that the Belt and Road Green Investment Principles Steering Committee under his co-chairmanship has just adopted the "Vision 2030" to further increase the proportion of green investment in the Belt and Road region.
"Under the green investment principle of the Belt and Road Initiative, we have formed three working groups. The first working group strengthens the environmental impact assessment of the Belt and Road investment, including the quantitative assessment of projects’ carbon emissions, etc.; the second working group focuses on the capacity construction of environmental information disclosure, while the third working group focuses on the innovation of green financial products, introducing some low-cost funds through hybrid financing tools, so that green projects, including green energy projects, can obtain advantage in reducing financing costs.”
As the co-chair of the third working group, Standard Chartered established a dedicated "Sustainable Finance Department" in October 2018 to provide customers comprehensive and innovative sustainable financial services and products. It includes the issuance of overseas green bonds for Chinese companies, supporting blue bonds for the transformation of offshore projects, sustainable development bonds for infrastructure projects, and interest rate-linked sustainable development loans based on environmental and social governance standards.
"Green investment requires more companies and financial institutions to match with international standards, and to utilise multiple channels to increase the importance of the Renminbi in international settlement," Jean Lu also advocated, "We look forward to taking advantage of Standard Chartered's global network and resources to provide more financial support for Chinese businesses to create a green Belt and Road".
This material has been prepared by one or more members of SC Group, where “SC Group” refers to Standard Chartered Bank and each of its holding companies, subsidiaries, related corporations, affiliates, representative and branch offices in any jurisdiction, and their respective directors, officers, employees and/or any persons connected with them. Standard Chartered Bank is authorised by the United Kingdom’s Prudential Regulation Authority and regulated by the United Kingdom’s Financial Conduct Authority and Prudential Regulation Authority.
This material has been produced for reference and information purposes only, is not independent research or a research recommendation and should therefore not be relied upon as such, and does not constitute an invitation, recommendation or offer to subscribe for or purchase any of the products or services mentioned or to enter into any transaction.
Some of the information herein may have been obtained from public sources and while SC Group believes such information to be reliable, SC Group has not independently verified the information. Information contained herein is subject to change at any time without notice. Any opinions or views of third parties expressed in this material are those of the third parties identified, and not of SC Group. While all reasonable care has been taken in preparing this material, SC Group makes no representation or warranty as to its accuracy or completeness, and no responsibility or liability is accepted for any errors of fact, omission or for any opinion expressed herein. The members of SC Group may not have the necessary licences to provide services or offer products in all countries, and/or such provision of services or offer of products may be subject to the regulatory requirements of each jurisdiction. Any comments on investment, accounting, legal, regulatory or tax matters contained in this material should not be relied on or used as a basis to ascertain the various results or implications arising from the matters contained herein, and you are advised to exercise your own independent judgement (with the advice of your investment, accounting, legal, regulatory, tax and other professional advisers as necessary) with respect to the risks and consequences of any matter contained herein. SC Group expressly disclaims any liability and responsibility whether arising in tort or contract or otherwise for any damage or losses you may suffer from your use or reliance of the information contained herein.
You may wish to refer to the incorporation details of Standard Chartered PLC, Standard Chartered Bank and its subsidiaries at http://www.sc.com/en/incorporation-details.html.
© Copyright 2021 Standard Chartered Bank. All rights reserved. Copyright in third party materials is acknowledged and is used under licence. You may not reproduce or adapt any part of these materials for any purposes unless with express written approval from a member of SC Group.
