By Charlotte Middlehurst, China-Britain Business Council
Swapping souks for solar plants and camel caravans for wind farms, the Silk Road is undergoing a makeover. President Xi Jinping’s plan to revive the old Silk Road through a US$4 trillion programme of trade deals and infrastructure investment has attracted the eye of green enterprises that see a golden opportunity to win contracts and gain valuable experience in overseas markets.
First unveiled in 2013, the Belt and Road Initiative (BRI) is China’s most ambitious overseas investment project yet. Stretching over 60 countries across Asia, Africa, Latin America and Europe, it aims to develop industrial agriculture and core infrastructure such as ports, container terminals, railways, roads, power plants, and factories.
It is key both to China’s “going out” strategy and to “globalization 2.0”, President Xi’s vision to reboot and rebalance international trade relationships with Asia at the helm.
Over 900 BRI deals have been slated so far with projects ranging from lithium mines to hydroelectric dams. But beyond the “win-win” rhetoric there is international concern about a lack of transparency around certain projects and the access granted to foreign companies.
Additionally, there is concern that China will offload its excess industrial assets, as domestic demand slackens and overcapacity in the coal, cement, and steel sectors grows.
However, there is an alternate path available that speaks to a broader global movement towards sustainability – one that is paved with green investment.
China’s push for global leadership of the green tech and energy markets has been aided by US President Trump, whose personal disinterest in renewables and fondness for coal has left the vacancy open. In the current Five-Year Plan, China has made sustainable development and environmental restoration pillar industries and set aggressive targets to reduce pollution and increase the share of electricity derived from renewables (15 percent by 2020).
Focus on efficiency, domestic consumption and green technology has led to big investment in solar and wind power, “smart” grids, electric vehicles and battery storage. Leading companies, with the encouragement of central government, are therefore eager to enter the newly available foreign markets under the umbrella of BRI.
So how can China “green” the new Silk Road?
In three ways. First, by encouraging companies to introduce sustainable design into their projects and adopting sustainability criteria in their decision-making. Second, by focusing on investment in solar, wind and hydropower at a time when most countries are shifting away from coal and oil in accordance with the Paris Climate Agreement. Third, by galvanising the financial sector, upon which it is incumbent to steer investors away from environmentally harmful projects.
Green enterprise on the rise
China invested a record US$32 billion in overseas renewable energy and related technologies last year, marking a 60 percent year-on-year increase in spending, according to the research group Institute for Energy Economics and Financial Analysis (IEEFA).
For China’s environmental tech companies, the BRI is a chance to secure lucrative contracts and broaden their experience and expertise of working in internationally regulated foreign markets.
“If environmental enterprises don’t venture into the wider international market and work hard to gain experience there, their capabilities will not improve, and they will find it difficult to meet global market requirements,” says Luo Jianhua, secretary general of the China Environment Chamber of Commerce.
With this in mind, Premier Li Keqiang, speaking at last year’s National People’s Congress, reasserted that Chinese environmental enterprises will benefit from new investment contracts made through the BRI.
This was followed up by a comment from Luo Jianhua that Chinese enterprises, in particular mineral and chemical companies, should seek to emulate international best practice, pointing as an example to German chemical giant BASF SE which co-opts water treatment and sustainable design into its projects.
While energy is a key focus, China is pushing into related markets, such as green data monitoring. The country has seen a six-fold increase of sales in monitoring equipment between 2006 and 2015, paving the way for new alliances with Europe.
China is expected to install around a third of the world’s total wind energy, solar and hydroelectric generation capacity by 2021. A proportion of this will go into decentralised wind, solar and micro grid solutions along the BRI route. In some cases, this will be in countries that are being sidelined by national governments and traditional donors such as the World Bank.
In Myanmar, where only 34 percent of people have access to electricity through the grid, falling to 16 percent in rural areas, China is working on local initiatives to provide solar energy to households. In Thank Bayar Khond, a few kilometres outside of Yangon, the Chinese NGO Global Environment Institute has teamed up with Myanmar NGOs and the Blue Moon Foundation to provide small household solar panels and clean cook stoves to families in the village.
In Mongolia, China's efforts to fight desertification, or soil loss, has been touted by United Nations deputy secretary-general Erik Solheim as a model for other regions ravaged by sand and dust in Africa, the Middle East and Latin America.
In Pakistan, China has been pursuing green investments opportunities from solar and hydropower projects to vast rail networks.
However, China must go further to repair the reputational damage caused by environmentally and politically harmful projects such as Myanmar’s Myitsone dam, which has since been halted, and its controversial road building in Pakistan’s disputed border region.
To improve this, a group of Chinese and foreign non-governmental organisations have committed to helping China develop guidelines under the umbrella of the China Green Leadership: Belt and Road Green Development project.
Finance gets on board
The BRI is an opportunity to scale-up green finance and coordinate international lending institutions to hasten the uptake of environmental risk into loan decisions.
During the Hangzhou G20 summit in August 2016, China championed green finance and has since demonstrated its commitment as the largest issuer of green bonds in 2016. Meanwhile, the China-led Asia Infrastructure Investment Bank, a key supplier of BRI investment, has stated a commitment to ensuring its projects are “lean, clean and green".
In the past, China’s overseas investments have courted controversy for their environmental impacts, particularly in the resources sector, such as mining or hydropower. Through the New Silk Road, China has the opportunity, brought about by globalisation, to improve the capabilities of its environmental enterprises. Companies who do this efficiently stand to be big winners.
This article was first published in China-Britain Business FOCUS. Please click to read the full report.
By Charlotte Middlehurst, China-Britain Business Council