How one think tank represents evolving thinking on BRI infrastructure investments

Rolling out a geopolitical and developmental program as ambitious as the Belt and Road Initiative (BRI) consumes not just cash. It also burns brainpower. China’s unprecedented international undertaking requires understanding of host country conditions, careful planning of execution and anticipation of pitfalls. The amount of deliberation needed to propel the initiative forward produces a proliferation of one kind of institution especially endowed with brainpower: think tanks.

The BRI coalition of think tanks now boasts over 60 Chinese think tanks ranging from regional studies institutes under the Chinese Academy of Social Sciences to consulting firms such as Horizon Research Consultancy Group. International think tanks were also brought into the Belt and Road Studies Network to offer their expertise. Among the Chinese think tanks, some, due to their affinity to centers of power, are considered naturally influential in BRI policy making. The State Council-affiliated Development Research Center is one such institution. Others are explicitly built to serve the BRI. According to one account, more than 300 Chinese research institutes now have Belt and Road as their research focus. There are yet another type of think tanks that are neither particularly close to power centers nor specifically built for BRI. But their ability to define the substance of the initiative should not be underestimated. In the energy field, one such think tank is the China Renewable Energy Engineering Institute (CREEI). Known as Shuiguiyuan (hydro planning institute) in Chinese, the think tank has a deceptively narrow focus area by name. However, its impressive ability and aspiration to influence BRI’s energy footprint illustrates how Chinese think tanks can be a force to drive the constant evolution of Belt and Road thinking within the complex policy making apparatus.

Watch an introductory video of the CREEI on its English website:

A “Do Tank”

For those who are familiar with CREEI’s role in the domestic energy scene, the institute is more of a “Do Tank” than a pure think tank that only produces ideas.

It can trace its origin to the Ministry of Fuel Industries back in the 1950s, when it was first set up to coordinate national hydropower planning (hence its hydro-focused Chinese name). Over the following decades, the institute’s affiliation shifted multiple times along with the reshuffling of ministries and waves of power sector reform. Its core responsibilities gradually expanded. In 1995, the then Ministry of Electric Industries put wind energy planning under CREEI. Since then, it has been in charge of feasibility studies of major wind energy projects in China. After the 2002 power market reform, the institute acquired new roles in sector wide planning, project completion acceptance inspection, quality supervision and standard setting for China’s hydro, wind and solar energy sectors, making it a full-life cycle hub of renewable technical and policy knowhow. Its project-level involvement differentiates CREEI from more research based institutes, giving it an edge in understanding on-the-ground situations.

At a recent webinar, CREEI’s Director for International Cooperation Yan Bingzhong told participants that the institute is heavily involved in the creation of the 14th Five Year Plan (2021-2025) for renewable energy, probably the most important policy document guiding the development of the renewables sector in the coming five years. Back in 2016, the institute was also assigned by the National Energy Administration (NEA) to lead the drafting of sector specific 13th Five Year Plans for renewables.

Serving the BRI

Besides the important task of coordinating domestic renewable energy policy making, the NEA is increasingly leaning on CREEI to lead the way for energy sector cooperation along the Belt and Road. The unique role makes the institute one of the few internationally facing Chinese energy think tanks with a bird’s eye view on China’s overseas energy footprint, an issue of increasing global interest and concern.

As scholar Thomas Hale made clear in his earlier interview with Panda Paw Dragon Claw, the BRI is far from a centrally coordinated masterplan. Numerous players, especially the state-owned enterprises (SOE), initiate and involve in a large number of “BRI projects” with mostly their self interest in mind. Except for projects of top political priority or those that require diplomatic damage control from the center, leaders have no incentive to spend political capital on keeping projects aligned with a grand strategy. This essentially means that companies get a fair amount of say in deciding which projects get picked, financed and built, not the designers of BRI.

In the energy infrastructure field, the “bottom up” approach works in a haphazard way that was summarized by one Chinese diplomat as “the contractors get the profits, banks shoulder the risks and host countries get left with debt”, especially in regions like Africa with weaker governance structures. Leads for new BRI projects (项目源) typically come either from well-connected local middlepersons (e.g. a politician’s cousin) or the Chinese contractor company itself. The former situation is understandably ripe with problems and corruption, while the latter heavily depends on the company’s experience in the host country. Experienced EPC contractors would usually follow hundreds of project leads. But according to industry insiders, among 100 leads only about 3-4 actually end up in the actual project development pipeline. Less informed Chinese companies lean heavily on the first channel for leads. The consequence is that BRI becomes at risk of being hijacked by the self-interest of corporate players and local elites.

CREEI’s involvement in Chinese overseas energy investment represents aspirations for a different approach. In the past few years it was charged with creating three host country energy plans: a national sustainable hydropower development plan for Myanmar, the China-Nepal Power Cooperation Plan, and a joint power sector assessment with Pakistan. The institute was also instrumental in drafting the first China Pakistan Economic Corridor (CPEC) energy plan back in 2015 and is still actively involved in China-Pakistan energy collaborations. All such involvements are intended to go beyond the ad-hoc project-by-project approach and take back strategic control over energy investments along the Belt and Road.

They specifically try to address the above issue of new project leads. Rather than depending on unreliable middlemen and self-interested SOEs for what projects to be approved and financed, thank tanks like CREEI may potentially give more strategic guidance based on informed analyses of host country situations. This new direction can be seen in the creation of a so-called Catalogue of Prioritized Projects (积极推动项目清单) under CPEC. Since as early as 2015 China has been publishing such a catalogue for internal stakeholders that gives certain CPEC projects more favorable treatment than others. CREEI was instrumental in creating and updating the Catalogue in conjunction with other Chinese institutes. According to people familiar with the catalogue, it does have a certain extent of binding force. Banks and credit insurance agencies are not supposed to finance or underwrite projects outside the list, and it is made clear to SOEs that unless their projects get selected into the Catalogue, they are not to be materialized no matter how developed the project leads are. In a way, the creation of the catalogue also removes a certain amount of liability off Chinese developers, as the coordinated and selective process serves as a kind of vetting by expert entities like CREEI. So if projects mess up in the future, companies may be shielded from more severe consequences.

Playing the long game

In overseas development, Chinese policy makers and researchers often find an admirable example in Japan. Its international development apparatus, including JICA, JBIC and the think tank ERIA, are held in high regard in the overseas energy circle as examples of long game players.

Yan Bingzhong, CREEI’s international cooperation director, conceded at the above-mentioned webinar that Chinese think tanks are still light years behind Japan in its patient cultivation of overseas markets. Unlike Chinese companies undercutting each other in bids for short term gains, Japanese institutions lay the ground for project gains by quiet and effective early engagement in strategic planning and technical assistance.

CREEI’s recent initiatives in Pakistan, Nepal and Myanmar are attempts at emulating the long game approach practices by Japanese institutions. It has also engaged on the ASEAN level by collaborating with ASEAN Center for Energy on a report analyzing feed-in tariff mechanisms in 5 ASEAN countries and offering lessons from China.

But in a paper detailing Japan’s energy sector influence in ASEAN countries, CREEI researchers outline two areas where Japan still has a distinct advantage. First is its dedicated institutional set-up on energy collaboration embedded in a Japan-led multilateral forum. In 2007, Japan proposed the establishment of ERIA at the 2nd East Asia Summit, an ASEAN+8 mechanism that Japan initiated 3 years earlier. To accompany the proposal, two ERIA pilot reports, one on East Asia economic integration and one on energy security, were introduced at the Summit, both found their way into the ASEAN Energy Ministerial Meeting later on. Since then ERIA has been serving as an embedded entity inside the EAS framework that connects actively with power sector departments within ASEAN countries. “ASEAN countries are very receptive of ERIA advices,” notes the paper. ASEAN policy makers and researchers are regularly involved in Japan-initiated policy studies and research projects which increases institutional trust and buy-in. The paper also highlights the fact that since its incubation in 2007, ERIA has produced a steady stream of 113 energy sector research papers, dwarfing any Chinese counterpart (which does not exactly exist).

Japanese institutions are also more effective in translating strategic level collaborations into project gains for Japanese businesses, the paper notes. They have been doing customized, country-specific studies for Cambodia, Vietnam, Laos and Indonesia for many years, creating entry ways for Japanese conglomerates.

“Chinese institutions, including government bodies and corporates, are hardly willing to spend money on long term planning cooperation with no clear short-term benefits,” commented Yan at the webinar. He noted that Japanese businesses are generous with their financial support of the “long game”, but Chinese policymakers and developers want to see immediate results (i.e. project contracts).

This might be changing. Two recent developments initiated by CREEI is one step forward from standalone bilateral energy planning collaborations. The first is the China-Arab League Clean Energy Center, initiated by the NEA in 2018 and hosted by CREEI. The Center, with a mission to train Arab League country policymakers, technical experts and corporate managers, is built as a platform for dedicated China-Arab League renewable energy cooperation, with ambition to set up on-the-ground branches in Arab League countries and conduct joint renewable energy planning that translates into project opportunities. It is currently focusing its efforts on solar but is eyeing an expanded mandate on wind, hydro and other sectors. The other initiative worth watching is the China-Africa Energy Cooperation Center that is being planned and will likely also be led by CREEI. It will be one of the few China-funded in situ energy think tanks based in host countries. As China’s energy investment overseas are under more intensified international scrutiny, there might be a window for the “new thinking” advocated by the likes of CREEI (more coordinated, strategically aligned overseas energy planning) to get some fresh oxygen. Keeping an eye on those early initiatives might give us an indication of the future path of bilateral cooperation under the BRI and the initiative’s energy (and carbon) footprint.

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