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THE GLOBALIZATION OF CHINA'S COAL INDUSTRY: THE ROLE OF DEVELOPMENT BANKS
Abstract
This article examines the political economy of Chinese overseas development finance for coal fired power plants. In just over a decade China's two major policy banks provide more financing for overseas coal-fired power plant expansion than any other public financier in the world economy. We show how China's overseas surge in public financing for coal fired power plants is a function of a number of domestic push and foreign pull factors. Excess capacity, environmental regulation, and structural change are push factors that converge with rising demand for energy, pockets of coal abundance, and the lack of financing in Western capital markets for coal fired power plants. Fragmentation across the Chinese system and the demand for coal outside China's borders allow for a decline sector on the mainland to become a global Chinese powerhouse.
... One dispute against China's ambition for leadership in global climate governance is the extensive roles of Chinese banks and SOEs in implementing fossil energy-heavy projects overseas, especially in coal investments, notwithstanding the latest efforts of the Xi leadership to reverse this tendency. In their study on the globalization of China's coal industry, Kong and Gallagher (2021) find that China has an unprecedented role in international coal finance through the China Development Bank and the China Export and Import Bank. Looking at China's green and fossil energy investments in the Belt and Road Initiative (BRI) from 2013 to 2020, Nedopil (2021) shows that the sum and the share of green investments in the BRI increased until 2018. ...
... Along with the goals of reducing greenhouse gas emissions and increasing energy efficiency, expanding the renewables sector is fundamental for both China's and the EU's environmental policy mix (Chen et al. 2019). The establishment in 2007 of the National Leading Small Group for Work on Climate Change, Energy Conservation and Emissions Reduction by the State Council was essential for the integration of China's climate and energy policies, which was followed by the introduction of the Renewable Energy Law to actively promote clean energy (Kong and Gallagher 2021). Not coincidentally, China has been one of the leading actors in the global renewable energy sector since the second half of the 2000s. ...
As two major powers that are willing to lead the design and evolution of the global climate regime, the EU and China have maintained a dialogue on climate change and biodiversity while clashing over other economic and political issues. This paper investigates EU-China relations in the global climate regime by briefly analysing three main areas that are key for the global green transition: standardization, green taxonomy, and the renewables sector. The paper claims that EU-China relations in the global climate regime develop within the dialectical collaboration-competition nexus, showing moments of consensus as well as contention between the two major powers in the three selected cases.
... This part builds on the literature on the political economy behind coal power in recipient countries to cover the demand side (e.g., Steckel and Jakob, 2021;Ordonez et al., 2021;Dorband et al., 2020), as well as literature on the Chinese political economy behind foreign energy related state-finance flows (e.g., Kong and Gallagher, 2017;Kong, 2019) to cover the supply side. Furthermore, it builds on a recently published work from Kong and Gallagher (2021a), Kong and Gallagher (2021b) who established the link between supply and demand in the electricity sector for China's two major policy banks as well as on a study from Gallagher et al. (2021) that conducted expert interviews in four recipient countries of Chinese coal finance to investigate the drivers on the demand side. This study expands on these works by creating an integrative perspective of both demand and supply side factors along with influencing factors from an international level including traditional MDBs (see Table A.3 for a more detailed delineation of the current study and existing literature). ...
Public developmental institutions are pivotal in shaping the contours of the electricity sector of the developing world and its associated greenhouse gas emissions pathways. However, we have a fragmented and incomplete picture of the evolution of their investments over time and space. This is particularly the case for the recent rise of various Chinese Developmental Institutions (CDIs) for which infrastructure investment estimates range in the trillions under China’s Belt and Road Initiative (BRI) and for which data is mostly not publicly disclosed. We address this gap in two ways: first, we compile and analyze a novel dataset that draws on commercial data tracking, publicly available datasets, and more than 1,000 supporting documents to match financial transactions by the main CDIs and traditional Multilateral Development Banks (MDBs) to power plant projects worldwide. This allows us to conduct a quantitative, comparative analysis of the role of CDIs and MDBs to understand the relative size, technology, and country focus of such investments in the period 1999–2020. Second, we complement the quantitative dataset with 39 expert interviews to shed light on the drivers behind the Chinese investments, with a particular focus on coal projects. The analysis shows that CDIs have rapidly emerged as the largest public finance provider for the electricity sector in the developing world. We also find that, in contrast with the increasingly green BRI rhetoric, the technology portfolio of CDI investments in power plants is still heavily dominated by coal plants. Over time, however, CDIs have increasingly supported more efficient coal plants and increased the share of their portfolio supporting non-hydro renewables and supported a growing number of projects jointly with MDBs. Steering China’s bilateral coal finance flows through international efforts into a more sustainable direction to meet climate goals will require careful consideration of a set of drivers and enablers of the involvement of CDIs and recipient countries in coal projects, which we discuss, as well as of the role of other finance providers, including traditional MDBs.
This article examines the puzzle of why China's two policy banks, China Development Bank (CDB) and the Export‐Import Bank of China (Eximbank), have lending portfolios for power‐generation projects in Africa that have drastically different levels of carbon dioxide emissions. From the supplier side, Eximbank balances two imperatives: Beijing's ideational ambition as a new development provider to African recipients with sustainability commitments, and China's industrial goal to offshore non‐renewable capacity. In contrast, the CDB prioritizes its commercial interests, which results in the bank lending solely for coal projects. On the demand side, Eximbank's concessional capital has emerged as a second‐best option among international financial sources for renewable and hydropower generation projects. Conversely, CDB's market‐rate lending makes it the fiscal last resort for host countries seeking financial support for thermal‐power projects which are shunned by other financiers. This divergence can be understood through the polycentric development finance model, which captures the parallel decision‐making institutions governing Chinese energy financing in Africa. Specifically, the lending decisions of Eximbank are linked with institutionalized policy processes, translating priorities of Chinese and African state actors. Meanwhile, the loan origination processes of CDB are more independent of state actors, allowing greater autonomy for the financier to pursue commercial interests.
This paper investigates why new coal-fired power plants are being financed and built in South and Southeast Asia given that new coal plants without carbon capture and storage are incompatible with a 1.5 °C temperature goal. The paper particularly focuses on developing countries where these coal-fired power plants are being built that are recipients of Chinese government-backed finance. The central research question of this paper is: Which factors drive the demand for financing for coal-fired power plants from China’s policy banks? Field research was conducted in four recipient countries: India, Indonesia, Vietnam, and Bangladesh. We find that the demand for Chinese-backed coal plants in the four recipient countries is mainly driven by domestic policy that embraces a growth of coal-fired power in their economies. Recipient country demand is well matched by China’s willingness to finance and export equipment and services to build new coal-fired power plants overseas. In every case, there are explicit, preferential domestic policies for coal, and in at least one case renewables are disallowed by regulation from competing with coal on a level-playing field. None have environmental policies that would require cleaner or more efficient plants to be constructed and operated. The main policy implication of the findings is that it is crucial for recipient countries to put in place the enabling policy conditions for an energy transition to a low-carbon future.
Multilateral development banks (MDBs) play a pivotal role in the financing of electricity-generation projects in developing countries, thus having a major impact on the emission pathways of these countries. While information about the MDBs’ investments is publicly available, it is dispersed and hard to compare. A comprehensive compilation of all MDBs’ power-generation investments over the years has been missing. To address this gap, here we assess power-generation financing by all ten relevant MDBs during 2006–2015, in different regions, and through different branches of the banks. The study assesses technology choices by compiling a bottom-up dataset drawing information from 841 projects and programmes. We find that MDBs financed a major portion of all power-generation growth in the developing world, with an increasing share of renewables. However, MDBs have ‘greened’ their portfolios to different extents, and the activities of their public- and private-sector branches differ substantially. © 2018, The Author(s), under exclusive licence to Springer Nature Limited.
Unprecedented and highly visible degraded air quality in China's urban centres has prompted a step change in central government control efforts in recent years. This “War on Air Pollution” has included a mixture of administrative controls, regulatory clampdowns, economic incentives and public education campaigns. A critical constraint on how policies are designed and implemented is the central government's capacity to access accurate cost information, and monitor, evaluate and enforce the policies at subordinate levels of government. We examine in detail the directives and arrangements that underpin China's “War on Air Pollution” at the provincial level, taking Hebei province as a case study. Located upwind of Beijing, Hebei's heavy industries have been a particular focus of the environmental policies. The current approach, which requires highly specific and costly local actions, yet allocates funds centrally, suffers from misaligned incentives and does not address longstanding weaknesses in local policy monitoring, evaluation and enforcement.
Chinaâs energy insecurity largely originates from its constrained availability, questionable reliability, and uncertain affordability of its oil supplies. The countryâs fast industrialization and urbanization, together with demand for infrastructure and increasing popularity of automobiles, requires a lot of energy, but it consumes energy both intensively and inefficiently, threatening the environmental well-being of China and its neighbors. Chinaâs risk aversion and poor energy policy making system further magnifies its perceptions of the low availability, reliability and affordability of oil imports, which further compounds its sense of energy insecurity. Distrustful of the market, and suspicious of other major energy players in the international market, the Chinese leadership relies on the state-centered approach, or economic nationalism, rather than a market approach to enhance its energy security. However, the country lacks not only an energy policy making system that can make and implement sound energy policies but also an energy market that relies on market prices to allocate energy resources efficiently. As a result of this domestic failure, China has pushed its national flagship companies to undertake a global scavenger hunt for energy while muddling along a messy road of energy reform at home. Setbacks in acquiring new sources of oil have validated the Chinese leadershipâs belief that the international oil market is not free and Chinaâs access to international oil is not guaranteed through the market. Chinaâs problems in the international energy market are also perceived as evidence of attempts to prevent China from exerting international influence. Chinaâs leadership is convinced that China should focus on areas where western capital is not heavily concentrated or where western influences are weak. With the recent revaluation of Chinese currency and growing economy, China has both the wherewithal and appetite to acquire more oil assets abroad. Both China and the United States stand at a critical juncture of history where Chinaâs rise depends on reliable energy supplies which it increasingly imports from abroad and where the growing wealth of the United States is increasingly dependent upon Chinaâs success. If China does not have energy security itâs 1.3 billion fuel-starved people will prevent the rest of the world from achieving energy security.
This book introduces an innovative theory that pinpoints how states employ economic tools of national power to pursue their strategic objectives. The book shows what Chinese economic statecraft is, how it works, and why it is more or less effective. It provides an accessible tool kit to help us better understand important economic developments in the People's Republic of China. The book links domestic Chinese political economy with the international ramifications of China's economic power as a tool for realizing China's strategic foreign policy interests. It presents a novel approach to studying economic statecraft that calls attention to the central challenge of how the state is (or is not) able to control and direct the behavior of economic actors. The book identifies key causes of Chinese state control through tightly structured, substate and crossnational comparisons of business–government relations. These cases range across three important arenas of China's grand strategy that prominently feature a strategic role for economics: China's efforts to secure access to vital raw materials located abroad, Mainland relations toward Taiwan, and China's sovereign wealth funds. The ideas in this book are applicable beyond China and help us to understand how states exercise international economic power in the twenty-first century.
Process-tracing in social science is a method for studying causal mechanisms linking causes with outcomes. This enables the researcher to make strong inferences about how a cause (or set of causes) contributes to producing an outcome. Derek Beach and Rasmus Brun Pedersen introduce a refined definition of process-tracing, differentiating it into three distinct variants and explaining the applications and limitations of each. The authors develop the underlying logic of process-tracing, including how one should understand causal mechanisms and how Bayesian logic enables strong within-case inferences. They provide instructions for identifying the variant of process-tracing most appropriate for the research question at hand and a set of guidelines for each stage of the research process. © 2019 by Derek Beach and Rasmus Brun Pedersen. All rights reserved.
This article examines the emergence of Chinese development finance on the global stage and evaluates the extent to which it differs from, complements and/or competes with the Western‐backed development finance institutions. Whereas the new, China‐backed multilaterals are closer to the Western model, especially the Asian Infrastructure Investment Bank, this analysis finds that China's national development finance is significantly distinct along three parameters — the scale and business model of Chinese finance relative to its Western counterparts, the composition and approach of China's lending portfolio, and the governance of China's development finance institutions. These differences can be seen as complements to the Western‐backed system, given that much of Chinese development finance has flowed into countries and sectors in which Western development finance institutions have ventured to a lesser extent. However, the globalization of Chinese development finance, patterned on the international diffusion of what is coined in this article as the ‘coordinated credit space model’, contrasts with Western development finance, governance and business models, and has triggered a competitive stance from Western actors. Either contestation or convergence are possible trajectories for the future, and the outcome will be determined by whichever can produce conditions akin to the ‘politics of productivity’.
This paper provides the first estimates of China's global developmental finance institutions in general and China's policy bank lending to foreign governments for energy in particular. According to the China Global Energy Finance database, between 2000 and 2017, China Development Bank (CDB) and China Export-Import Bank (CHEXIM) provided $225.75 billion in overseas energy development finance. We find that: China's ‘policy banks’ and funds have doubled the availability of global development finance –and hold more assets than the major Western-backed MDBs operating in developing countries. With the onset of a new family of funds and multilateral development banks co-financed by China, China is poised to be the largest development lender in the world as Western-backed MDBs appear stagnated in their ability to increase their capital bases. China's global energy portfolio is heavily exposed to country, macroeconomic, climate, and social risks, however. To mitigate such risks and meet the broader sustainable development challenge for the 21st Century, China's development finance will need to shift the composition of its global energy lending in a significant manner.
Since the project approval right was decentralized from the central government to the local governments in 2014 in China, a large quantity of coal power projects has been approved and built, resulting in low operation efficiency and calling for strict de-capacity policy. In this paper, we estimate coal power overcapacity with a cross-province power and energy balance model. We estimate the overcapacity situation in 2015 at 140–160 GW with a comprehensive dataset. The 2020 overcapacity scenario is estimated with detailed representation of official planning and new projects under construction. The results show that there is a general trend of growing overcapacity in most provinces by 2020 and the national excess scale will be around 210 GW under the basic scenario and may even reach 240–260 GW under a High scenario. Relevant policy suggestions are put forward to address the overcapacity issue.
Overcapacity is a persistent problem in China's economy. Previous de-capacity measures based on the quantity of the total excess capacity have failed to prevent the recurrence of increasingly worse overcapacity. To solve this problem we attempt to quantitatively analyze China's excess coal capacity by dividing it into the long-term natural excess capacity and short-term cyclical excess capacity using the state-space model and Kalman filter algorithm. The results show that China's excess coal capacity can indeed be divided into natural excess capacity and cyclical excess capacity, and they have different causes, fluctuations, roles, and effects on the price. In 1995–2001, cyclical excess capacity was the main factor of overcapacity, but in 2002–2015 natural excess capacity played a key role. Cyclical excess capacity has a negative effect on the price, whereas natural excess capacity has little effect on it. Therefore, policy makers should focus on the causes, the fluctuations, and the roles of natural excess and cyclical excess in addition to those of the total excess capacity. They should also consider the relationship between the capacity and price based on the different effects of the natural excess capacity and cyclical excess capacity on the price.
In Chinese Economic Statecraft, William J. Norris introduces an innovative theory that pinpoints how states employ economic tools of national power to pursue their strategic objectives. Norris shows what Chinese economic statecraft is, how it works, and why it is more or less effective. Norris provides an accessible tool kit to help us better understand important economic developments in the People’s Republic of China. He links domestic Chinese political economy with the international ramifications of China’s economic power as a tool for realizing China’s strategic foreign policy interests. He presents a novel approach to studying economic statecraft that calls attention to the central challenge of how the state is (or is not) able to control and direct the behavior of economic actors. Norris identifies key causes of Chinese state control through tightly structured, substate and crossnational comparisons of business-government relations. These cases range across three important arenas of China’s grand strategy that prominently feature a strategic role for economics: China’s efforts to secure access to vital raw materials located abroad, Mainland relations toward Taiwan, and China’s sovereign wealth funds. Norris spent more than two years conducting field research in China and Taiwan during which he interviewed current and former government officials, academics, bankers, journalists, advisors, lawyers, and businesspeople. The ideas in this book are applicable beyond China and help us to understand how states exercise international economic power in the twenty-first century.
This article analyses centralizing trends that may be able to reduce the negative influence of local protectionism on environmental law enforcement in China. The article finds that as centralizing trends unfolded, enforcement over time has become stricter and more frequent, however with only minor effects in reducing pollution. Moreover it finds a situation of uneven enforcement with richer and more urbanized areas having much stronger and more frequent enforcement than inland areas. Centralizing trends may thus have spurred stronger enforcement, but concurrently allowed for an uneven enforcement. At the same time, the article finds a continued local influence, keeping enforcement too weak to have much effect in reducing pollution and allowing for local interests to shape enforcement into unequal outcomes.
The scholarly work on China's environmental regulations in the context of “central–local” relations is dominated by the preference for a centralized approach. This article examines a centrally imposed and executed verification programme of locally reported pollution data, a rare and sustained central effort to enforce an environmental policy, namely the national pollution reduction target system. The programme was established in 2007 to curtail perceived widespread data falsification and to enhance the quality of emission data, the basis for assessing local compliance with targets. Based on an analysis of official documents and interviews with environmental officials and industry representatives, this article found that the verification programme appears to have reduced the overreporting problem with emission data, enhanced local monitoring and enforcement capacity, and to a certain degree deterred violations due to the increased frequency of national and local inspections. Nevertheless, significant challenges remain. Verification is highly resource intensive, it has involved little external oversight and public participation, the central authority has exerted significant yet unchecked discretionary powers, and poor data quality has remained an issue. Over time, the verification programme appears to have turned into essentially a “numbers game.” All those challenges indicate that a centralized enforcement approach is arguably ineffective in addressing China's long-standing problem of weak environmental policy implementation. This study also sheds lights on the classical “principal-agent” theory in the study of public bureaucracy. Not only does the principal distrust the agent, which is the main concern of the theory, but the agent also distrusts the principal.
Long-term management of China's coal overcapacity depends on the targeted policy guidance on industry production capacity expansion in the overcapacity formation process. In this study, coal enterprise and local government are treated as game participants, and a three-stage dynamic game model has been developed to depict the boosting effect of the game behavior of coal enterprise's and local government's capacity investments in different markets of supply and demand. The results are shown in the following: (1) local government has been the "behind-the-scenes" operator of over-investment and redundant construction, and its excessive interventions in coal industry investment have been the primary cause of overcapacity formation; (2) when the market is in short supply, coal enterprise's optimal behavior is to continuously increase the rate of investment growth until it reaches the threshold to obtain the maximum excess profits, ultimately leading to overinvestment in the industry; and (3) the key factors affecting the game abilities of coal enterprise and local government are the market's self-regulation and the central government's supervision intensity. Although the Chinese government, a highly vertically oriented bureaucratic structure, is implementing a mandatory de-capacity policy to alleviate the intensity of excessive coal capacity, it is not a long-term regularization on the supply-side reform.
We are women, poor, indigenous; we are … triply discriminated against. ‘Onelia’ The [Civil Patrols] always threaten the women. [They ask,] “Why don't you have husbands, where do you get these bad ideas?” [Once] the chief of the patrols said: “Now we are going to put all the patrollers together and all the widows together … These women need husbands, because now they are not doing anything, that is why they are organizing … take two or three for each of you”… Several days ago [someone told me] that they raped four women. ‘Carmen’ My consciousness was born [after fleeing from the army and hiding in the jungle]. It is not correct when they tell us today that we are not worth anything, that we don't have any participation in the society, in the development of Guatemala … The same situation that I have experienced since I was a child up until today has made me have this consciousness to rise up as women to guard our heritage, to guard our sacrifices … Always the female elders said that … when the Spanish came here to Guatemala, when they came to invade, our grandparents … were tortured, burned alive. All the books where they had their scriptures were burned … In this sense I understood … the situation that they talked about when I had to live it. So, I came to appreciate the elders because it is they who know more of the culture, how we have been for 500 years … For me it is painful that we have not [only] been suffering for ten, fifteen years, but we have resisted for 500 years. ‘Andrea’
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