The Importance of Sustainability in China’s Belt and Road Initiative

Written by: Moises Escobar, Berkeley College ’20

The Belt and Road Initiative (BRI)—a massive infrastructure integration project undertaken by the Chinese government in 2013 to improve the connectivity between Asia, Europe, and parts of Africa—covers more than half of the world’s population and a third of the world’s GDP. With price tags ranging in the trillions of dollars set to fund railways, roads, seaports, and airports among other investments in energy and telecommunications, the initiative has been hailed by Chinese president Xi Jinping as the “project of the century.” Despite a tremendous opportunity to untap the economic potential of the region and shape the future of global trade, the environmental impact of the initiative could be severe—and permanent. It is crucial that China’s government and business leaders strive for a “green” Belt and Road, developing renewable energy infrastructure and adhering to responsible environmental standards.

China’s Environmental Track Record

No country offers such bittersweet superlatives when it comes to energy and sustainability as China. Although no nation has emerged as a major industrial and economic power without inflicting substantial environmental damage, China’s unprecedented growth has led to the severe degradation of the environment well before the economy’s maturation. China, with a “pollute first, control later” model of development, has experienced tremendous growth since Deng Xiaoping initiated market reforms four decades ago. Despite recent slowdowns, China has posted growth rates upwards of 9 percent per annum since 1978 and managed to lift 800 million people out of poverty as the nation became the “world’s factory.”^[1]As a result of this explosive manufacturing growth, the world’s second-largest economy now tops the World Health Organization’s list for deadly outdoor pollution and is home to five of the most polluted cities in G20 countries.^[2]China, the world’s largest emitter of greenhouse gases, has failed to crack down on factories that flout emissions standards. Last year, environmental inspectors in northern China found that 14,000 companies, or 70 percent of the businesses they examined, failed to meet standards for controlling air pollution.^[3]Earlier this year, China’s environmental ministry said that the number of sources of pollution in the country increased by more than 50 percent in less than a decade.^[4]These transgressions, which lead to increased rates of lung cancer and other respiratory ailments, contribute to the premature deaths of an estimated 1.6 million people in China every year.^[5]

On the other hand, it must be recognized that China is in many ways an environmental leader. China is the world’s leading country in electricity production from renewable energy sources, with over double the generation of the second-ranking country, the United States. Driven by technological change and the falling cost of renewables, China invests more than $100 billion in domestic renewables every year (more than the combined annual investment of the US and the EU) and by 2017, had invested $32 billion–more than any other country–in renewables overseas.^[6]According to the International Energy Agency, China has one-third of the world’s wind power, a quarter of its solar capacity, six of the top ten solar-panel manufacturers, four of the top ten wind-turbine makers, and sells more electric vehicles than the rest of the world combined.^[7]In addition, the northern city of Xiongxian has derived all of its heating from geothermal energy since 2010 and Shenzhen, China’s tech capital, announced last year that all of its 16,359 buses had gone electric, marking the world’s first 100 percent electrified bus fleet. These impressive achievements, coupled with the nation’s environmental degradation, paint a unique picture for China’s climate and energy landscape.

Sustainability in the Belt and Road Initiative

As China attempts to broaden its political and economic influence through the Belt and Road Initiative (also known as the 21^st-century Silk Road), many BRI target countries—desperate for financing and with historically weak environmental governance—are vulnerable to exploitation by Chinese firms. Beijing’s attitude towards environmental governance will be key in helping the world meet its climate goals.

China has pursued an infrastructure-based development strategy within its borders and has become a global leader in infrastructure investment. Taking this economic model abroad has the potential to improve connectivity and to substantially reduce trade costs, leading to higher cross-border trade and investment regions along the BRI. Regional cooperation on new and improved transport infrastructure, along with accompanying policy reforms, can lead to significant growth in BRI member nations. However, as development within China proves, this economic growth will not come without a price. Building the new Silk Road requires an extensive series of construction sites,which can lead to high levels of water pollution and soil erosion. Furthermore, the initiative will inevitably boost the extraction and use of raw materials, e.g. sand and limestone for the production of concrete and cement, and fossil fuels—which will take a heavy toll on global carbon emissions. Additionally, the BRI’s corridors will cross the habitats of 265 threatened species, according to the World Wildlife Fund.^[8]The expansion of transportation networks through the new Silk Road is likely to increase pollution levels, the overexploitation of resources, and habitat loss.

A number of institutions around the world have taken note of the potentially catastrophic consequences of the Belt and Road Initiative. The United Nations, World Economic Forum, and World Wildlife Fund are just some of the organizations that have already released reports on “greening” the Belt and Road. Columbia University and China’s Renmin University co-sponsored an event titled, “Belt and Road Initiative Green Development Conference,” in November 2017 to discuss plans and policies for BRI energy infrastructure, highlighting the importance of sustainability in the new Silk Road. 

Facing international pressure, the Chinese government is fully aware of the importance of enhancing sustainability in their hallmark initiative. In May last year, the government released two directives: The Belt and Road Ecological and Environmental Cooperation Plan (BREECP), which entails 25 green BRI projects, and Guidance on Promoting Green Belt and Road to encourage a philosophy of environmentalism throughout the Belt and Road projects. The Guidance, issued jointly by the National Development and Reform Commission (NDRC), Ministry of Foreign Affairs, Ministry of Commerce, and Ministry of Environmental Protection,  describes the prioritization of “infrastructure and capability building projects for energy conservation, emission reduction, and eco-environment protection;green guidance for corporate behavior” and the use of “policy-based financial institutions in guiding and channeling the funds of various parties to jointly support the development of green Belt and Road Initiative.”^[9]

Though these directives show promise for a sustainable Belt and Road, they lack specifics with respect to implementation or accountability mechanisms. Without adequate regulations on Chinese firms operating abroad, the BRI—given its nature and scale—is likely to have significant negative impacts on air and water quality in recipient countries, as well as on global carbon emissions.

Dr. Abdul Rauf, former graduate student at China’s Southeast University, shared his uncertainty regarding the BRI’s environmental standards. Dr. Rauf said, “China is only promoting one side of the coin of economic cooperation and trade, but they are not talking about the specific industries that will harm the environment.” Dr. Rauf, whose research focuses on the environmental impacts of the Belt and Road, went on to say that “China has not yet introduced many of the renewable energy projects they have marketed” and insisted that “China should be more focused on the environment. Right now, they only care about the economics [and] industry.”This is a criticism that has often been levied of the Chinese government, but as evidenced by the impressive renewable energy deployment and investment as described above, it is possible that they will instead view the Belt and Road Initiative as an opportunity to become a global leader in clean energyand assume the responsibility of “greening” the Belt and Road.

Despite the risks, there are plenty of opportunities for environmental cooperation projects and renewable energy development through the Belt and Road. From the construction of eco-friendly cities and responsible waste management to the potential for clean energy projects in Belt and Road countries, the Initiative could set an important precedent for growing economies early in their development. Malaysia, for example, has significant solar energy potential: large-scale solar plants could be developed to satisfy up to 20 percent of the country’s current electricity needs.^[10]While Malaysia is the third-largest producer of solar photovoltaic cells worldwide, solar plants remain mostly small-scale with less than 100MW of installed capacity to date.^[11]This contributes less than one percent of Malaysia’s total electricity supply.^[12]Similarly, Vietnam is considered to have the largest wind resources in Southeast Asia with an estimated economically viable wind potential of at least 24GW.^[13]However, Vietnam’s current share of wind power in total energy consumption is negligible.^[14]Furthermore, a number of countries across the African continent, with abundant endowments of solar, wind, and hydro-power, also have the potential to use Chinese-funded and developed renewable energy projects to meet their growing energy demands. The Institute for Energy Economics and Financial Analysis cite proposed clean energy projects to be developed by Chinese companies (e.g.200 MW solar farm to be built by PowerChina in Ghana, 244.5 MW De Aar wind farm being built by China’s Longyuan Power Group Corporation inSouth Africa) in a 2018 report to show the steps that have already been taken.^[15]Given the falling costs of renewable energy technologies, now is the time for policymakers and investors to push projects in these regions forward.

Opportunities for Green Finance

Projects in the BRI rely primarilyon three types of organizations: Chinese state-owned banks, special investment funds, and multilateral financial institutions. These institutions, together with private investors, will account for nearly $100 billion of investment annually.^[16]For example, China Development Bank (CDB) is expected to loan $40-45 billion annually to BRI projects.^[17]This is a significant commitment compared to multilateral development banks: the annual CDB budget for the BRI is at least $10 billion greater than the combined budget for BRI countries of the World Bank, Asian Development Bank (ADB), and Asian Infrastructure Investment Bank (AIIB).^[18]The Silk Road Fund, a state-owned investment fund created in 2014by the Chinese government,has a total size of $55 billion and will focus entirely on funding BRI projects.^[19]Furthermore,  China’s National Development Bank (NDB) had signed more than 140 agreements since 2013 with countries covered by the initiative, which combined involve more than $130 billion worth of investments.Finally, some experts estimate that multilateral development banks and private investors such as pension funds, insurance companies, and foreign governments may provide up to half of BRI funding by 2030.

The entities and funds described above arehow the Belt and Road Initiative is being financed right now. However, as HSBC’s Chief Executive for Greater China, Helen Wong describes,China’s position as an infrastructure powerhouse presents the nation with a unique opportunity to play a leading role in green finance development. “China wants environmental protection to become one of its pillar industries. The sector was worth 4.5 trillion yuan by the end of 2015. By 2020, it is expected to be worth 17 trillion yuan. We therefore expect to see more initiatives to support the growth of the green technology sector – with the possibility of new green investment funds and green investment banks being launched to fill any gaps in the availability of funding,” Wong said.

BRI projectsin particularprovide an opportunity to continue to scale China’s green finance market as many of China’s domestic and foreign infrastructureand energyprojects can be financed with green bonds that address a wide variety of environmental issues. Green bonds, also known as climate bonds, are typically asset-linked bonds (just like the infrastructure and energy assets being built through the BRI) that are specifically designated for climate-relatedand environmentalprojects. Since 2015, China has become one of the world’s largest issuers of green bonds. According to Moody’s, China led issuance last year with $17.2 billion, closely followed by France with $17.1 billion and the United States at $11.7 billion.^[20]At the government level, financial institutions that specifically address environmental issues include the Green Silk Road Fund (GSRF)  with a volumeof $4.5 billionand the planned China Ecological Development Bank (CEDB)  at $16 billion. Though these are sizable funds, they are just a fraction of the annual investment promised by the CDB ($40-45 billionper year) and a negligible amount of the trillions estimated to be needed for the Initiative. Moreover, it is difficult to assess the role they will play in thecoming years, asGSRF has only invested in Chinasince its launch in March 2015, while CEDB has not yet been established.^[21]         

Conclusion

 The Belt and Road Initiative is the largest infrastructure program the world has ever seen. It has the potential to increase trade and accelerate development throughout Asia, Europe, and parts of Africa. However, the environmental impacts of the initiative may be severe. It is crucial that the Chinese government holds firms to high environmental standardsbeyond its borders. It can do so by pushing companies to integrate sustainable practices into the early stages of the construction process, demonstrating and supporting sustainable business opportunitiesthrough green finance development, and helping scale sustainable infrastructure projects. Promises of these objectives have been made by the Chinese government, but the country should consider making environmental standards mandatory to enhance social responsibility in Chinese corporations. A comprehensive, coordinated plan will be necessary to ensure that the Belt and Road Initiative is a success for both development and sustainability.

Bibliography

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“Going Green Is Just Good Business for China’s Belt and Road Initiative.” HSBC Business. March 29, 2018. Accessed February 2, 2019. https://www.business.hsbc.com/belt-and-road/going-green-is-good-business-for-chinas-bri.

“GDP Growth (Annual %).” World Bank Data. Accessed February 24, 2019. https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG?end=2017&locations=CN&start=1961&view=chart.

“Guidance on Promoting Green Belt and Road.” Belt and Road Portal. May 18, 2018. Accessed April 29, 2019. https://eng.yidaiyilu.gov.cn/zchj/qwfb/12479.htm.

McCarthy, Niall. “Air Pollution Contributed To More Than 6 Million Deaths In 2016 [Infographic].” Forbes. April 18, 2018. Accessed April 29, 2019. https://www.forbes.com/sites/niallmccarthy/2018/04/18/air-pollution-contributed-to-more-than-6-million-deaths-in-2016-infographic/#12300edd13b4.

Pike, Lili. “Are China’s Energy Investments in Africa Green Enough?” 中外对话China Dialogue. March 9, 2018. Accessed April 1, 2019. https://www.chinadialogue.net/article/show/single/en/10799-Are-China-s-energy-investments-in-Africa-green-enough-.

Woetzel, Jonathan, and Jiang Kejun. “China’s Renewable Energy Revolution.” McKinsey & Company. August 2017. Accessed April 29, 2019. https://www.mckinsey.com/mgi/overview/in-the-news/china-renewable-energy-revolution.

Wong, Edward. “Nearly 14,000 Companies in China Violate Pollution Rules.” The New York Times. June 14, 2017. Accessed April 2, 2019. https://www.nytimes.com/2017/06/13/world/asia/china-companies-air-pollution-paris-agreement.html.

“WWF and Greening the Belt and Road Initiative.” WWF Hong Kong. November 2, 2017. Accessed April 29, 2019. https://www.wwf.org.hk/en/?19680/Feature-Story-WWF-and-Greening-the-Belt-and-Road-Initiative.

Xiang, Bo. “Inspections Find 70 Percent of Firms Violated Environmental Rules.” Xinhua Net. June 11, 2017. Accessed January 29, 2019. http://www.xinhuanet.com//english/2017-06/11/c_136356860.htm

Endnotes

^[1]“GDP Growth (Annual %).” World Bank Data. Accessed February 24, 2019. https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG?end=2017&locations=CN&start=1961&view=chart.

^[2]“Going Green Is Just Good Business for China’s Belt and Road Initiative.” HSBC Business. March 29, 2018. Accessed February 2, 2019. https://www.business.hsbc.com/belt-and-road/going-green-is-good-business-for-chinas-bri.

^[3]Xiang, Bo. “Inspections Find 70 Percent of Firms Violated Environmental Rules.” Xinhua Net. June 11, 2017. Accessed January 29, 2019. http://www.xinhuanet.com//english/2017-06/11/c_136356860.htm.

^[4]Wong, Edward. “Nearly 14,000 Companies in China Violate Pollution Rules.” The New York Times. June 14, 2017. Accessed April 2, 2019. https://www.nytimes.com/2017/06/13/world/asia/china-companies-air-pollution-paris-agreement.html.Kuo, Lily. “China ‘Environment Census’ Reveals 50% Rise in Pollution Sources.” The Guardian. March 31, 2018. Accessed February 14, 2019. https://www.theguardian.com/world/2018/mar/31/china-environment-census-reveals-50-rise-in-pollution-sources.

^[5]McCarthy, Niall. “Air Pollution Contributed To More Than 6 Million Deaths In 2016 [Infographic].” Forbes. April 18, 2018. Accessed April 29, 2019. https://www.forbes.com/sites/niallmccarthy/2018/04/18/air-pollution-contributed-to-more-than-6-million-deaths-in-2016-infographic/#12300edd13b4.

^[6]Woetzel, Jonathan, and Jiang Kejun. “China’s Renewable Energy Revolution.” McKinsey & Company. August 2017. Accessed April 29, 2019. https://www.mckinsey.com/mgi/overview/in-the-news/china-renewable-energy-revolution.

^[7]“China Is Rapidly Developing Its Clean-Energy Technology.” The Economist. March 15, 2018. Accessed April 29, 2019. https://www.economist.com/special-report/2018/03/15/china-is-rapidly-developing-its-clean-energy-technology.

^[8]“WWF and Greening the Belt and Road Initiative.” WWF Hong Kong. November 2, 2017. Accessed April 29, 2019. https://www.wwf.org.hk/en/?19680/Feature-Story-WWF-and-Greening-the-Belt-and-Road-Initiative.

^[9]“Guidance on Promoting Green Belt and Road.” Belt and Road Portal. May 18, 2018. Accessed April 29, 2019. https://eng.yidaiyilu.gov.cn/zchj/qwfb/12479.htm.

^[10]“WWF and Greening the Belt and Road Initiative.” WWF Hong Kong. November 2, 2017. Accessed April 29, 2019. https://www.wwf.org.hk/en/?19680/Feature-Story-WWF-and-Greening-the-Belt-and-Road-Initiative

^[11]Ibid.

^[12]Ibid.

^[13]Ibid.

^[14]Ibid.

^[15]Pike, Lili. “Are China’s Energy Investments in Africa Green Enough?” 中外对话China Dialogue. March 9, 2018. Accessed April 1, 2019. https://www.chinadialogue.net/article/show/single/en/10799-Are-China-s-energy-investments-in-Africa-green-enough-.

^[16]Assume $4 trillion total cost, 40 year lifetime of BRI.

^[17]“WWF and Greening the Belt and Road Initiative.” WWF Hong Kong. November 2, 2017. Accessed April 29, 2019. https://www.wwf.org.hk/en/?19680/Feature-Story-WWF-and-Greening-the-Belt-and-Road-Initiative

^[18]Ibid.

^[19]Ibid.

^[20]“Going Green Is Just Good Business for China’s Belt and Road Initiative.” HSBC Business. March 29, 2018. Accessed February 2, 2019. https://www.business.hsbc.com/belt-and-road/going-green-is-good-business-for-chinas-bri.

^[21]“WWF and Greening the Belt and Road Initiative.” WWF Hong Kong. November 2, 2017. Accessed April 29, 2019. https://www.wwf.org.hk/en/?19680/Feature-Story-WWF-and-Greening-the-Belt-and-Road-Initiative