At the end of January, my team and I at the Green Finance & Development Center at FISF in Fudan University released our semi-annual BRI investment report, covering end of year data for 2021. 

We found that the overall volume of China’s BRI engagement (investment and construction) was similar to 2020, at about US$ 60 billion. 2021 also showed some key differences from previous years, however, particularly regarding regional focus. We also saw the continuation of certain trends, such as the decrease in the volume of investments per project. 

Our 2021 investment report was picked up by outlets such as Financial Times and the South China Morning Post – particularly regarding a geographical shift of the BRI towards the Middle East in 2021, driven by some major fossil-fuel related construction projects, particularly in Iraq. Here I would like to add some nuance to the headlines by highlighting some findings which received less attention.

Our analysis utilizes investment and construction data released by China’s Ministry of Commerce, the American Enterprise Institute’s (AEI) China Global Investment Tracker and our own database of BRI projects at the Green Finance & Development Center at FISF Fudan University. Throughout the analyses, we distinguish between Chinese engagement through investments and construction. Investments involve equity investment and therefore ownership in the project. Construction projects, meanwhile, are infrastructure projects built and sometimes debt financed through Chinese entities, for example via EPC and EPC+Finance contracts.

A greener BRI?

2021 marked an important year for the “greening” of China’s Belt and Road Initiative (BRI). In September President Xi announced that China will not build new coal fired power plants abroad. Accordingly, contrary to previous years, where constructing and financing of coal-fired power plants was an important cornerstone of China’s BRI engagement, 2021 was the first year when no new coal-related projects were financed. Some Chinese financial institutions even backed away from previously announced coal-fired power plants, such as ICBC’s backing away from a US$ 3 billion 2.8GW coal plant in Zimbabwe in June 2021 and similarly, in January 2022, when a Chinese bank loan to the planned 700 MW Ugljevik III coal power plant in Bosnia was made unavailable.

In our analyses, we discovered that total engagement in solar and wind energy projects increased slightly to a new high of US$6.3 billion in 2021, US$5.3 billion of which was via construction deals.

While 2021 saw zero investments in fossil fuel related projects (another first since the start of the BRI in 2013), construction contracts for fossil-fuel related projects in oil and gas expanded even more than green energy construction projects – from US$3.6 billion in 2020 to US$9.9 billion in 2021. The development of Iraq’s Al Khairat heavy oil power plant valued at US$ 5 billion and the development of Mansuriya gas field (which saw Sinopec take a 49% share in January 2022) made up a significant proportion of this expansion. This involvement in fossil energy construction projects comes alongside several agreements to extend the import of oil and gas to China from various countries over the past 15 months, including: 

• Five agreements with Saudi Arabia to increase oil sales by 151,000 barrels per day compared to 2019 supply contracts in November 2020,
• a 15-year contract to supply 3.5 million metric tons of LNG annually from Qatar signed in October 2021, or
• a 30-year contract for additional 10 million metric tons of gas from Russia (up from 16.5 billion cubic meters in 2021), signed in February 2022.

Investments declined further

2021 saw by far the lowest investment volume in the BRI since its inception – with only about US$14 billion in investments, accounting for 23.3% of China’s BRI engagement. This also represents the lowest share of investments out of total engagement in the BRI since the inception of the BRI in 2013. For comparison, the average share of investment projects in China’s BRI engagement since 2013 is close to 40%. This downward trend was true for almost all sectors and across the different regions. 

The COVID-19 economic crisis is the most obvious reason for the stark decline, with economic uncertainty paired with severe travel restrictions making sourcing and evaluation of deals harder. But other factors might have also played a role as well, such as good investment opportunities in non-BRI countries, where investment volume picked up by 68% from 2020 to 2021.

Along with the declining trend of investments in the BRI, the average size of BRI investment projects has also decreased to a new minimum of US$355 million. This compares to US$821 million in 2013 and US$585 in 2020. 

With less BRI investment, the number of countries that received BRI investment also decreased from 43 in 2018 to 26 in 2020 and 2021. Similarly, the number of countries with BRI construction projects decreased from 60 countries in 2018 to 46 in 2020, and 37 countries in 2021. In other words, of the 142 countries that had signed an MoU to cooperate with China under the BRI umbrella at the end of 2021, 63 received BRI engagement through construction and investment in 2021 and 79 did not.

The major corporate players

Lastly, we found that most BRI contracts in 2021 involved major state owned enterprises (SOEs), led by PowerChina and China Communication Construction that together scooped up about 40% of the total construction volume. At the same time, numerous private investors engaged in the BRI in investment projects, such as Tsingshan Holding and Boyu Capital/Hillhouse Capital, as well as private companies, such as Jinko Solar and Alibaba. Private players tended to participate in deals in logistics (e.g., Boyu capital’s investment in J&T Express in Indonesia), retail (e.g., Alibaba’s first investment in Vietnam in the retailer Masan), or high-tech manufacturing (such as Jinko Solar’s US$500 million investment in a solar wafer factory in Vietnam), rather than infrastructure construction.

Where next?

When looking at the future of China’s BRI engagement, we see signals for further focus and consolidation of BRI projects: political, economic, environmental and social risk reduction play an increasingly prominent role in decision making for BRI projects – both from regulators and from financial actors. The major BRI project insurer and export credit agency Sinosure announced a strengthened E&S framework in the second half of 2021, for example, which is expected to influence BRI projects going forward. This development can also be framed as part of the trend toward “high-quality BRI development” being encouraged by Beijing. In many ways this should be in the interest of both local and Chinese partners in that it will help reduce project-related risks and avoid white elephant projects. 

To address some of the risks in overseas infrastructure projects, a push is also being made to accelerate international co-financing of projects in BRI countries that would allow the integration of more international project partners and their experiences. This trend is evident, for example, last year’s White Paper on China’s International Development Cooperation in the New Era and the publication of handbooks on tripartite project finance supported by the China International Contractors’ Association (CHINCA). On  Feb 28, the 50th anniversary of the Shanghai Communique, Foreign Minister Wang Yi also indicated that China would be “willing to coordinate” with the US on the Build Back Better World Initiative. China and France, meanwhile, continue their cooperation on “demonstration projects” in third country markets, with investments for seven infrastructure projects totalling up to US$ 1.7 billion agreed on mid last month. 

The potential scope of such cooperation is highly uncertain, however. Increased competition in development finance through new initiatives like the EU’s Global Gateway or the US-led Build Back Better World (B3W) that focus on cooperation with “like-minded democratic” partners, exacerbated by hot global power competition, makes strategic project selection more likely than a focus on international cooperation for sustainable development – at least for the year 2022. 

In the course of writing this review of BRI investments in 2021, the global political and economic context in which Belt and Road operates has changed in dramatic and violent ways. In a matter of days, the war in Ukraine (one of 142 BRI MOU signatory countries) has changed the global landscape of geopolitics, finance, energy and key commodities, with repercussions that will last for years to come. Such shocks to the global system will almost certainly reflect in the unfolding of the BRI, which, alongside its deep engagement with global commodity extraction, processing and trade, has a stated position of coordinating with Russia’s Eurasia Economic Union Initiative and clear ambitions in Central and Eastern Europe. All of that is now subject to an intense and complicated re-configuration, which will see winners and losers along the way. Belt and Road investment data in the coming year will reveal to us how the initiative continues to adapt and evolve as the global situation becomes ever more complex.

Dr. Christoph NEDOPIL WANG is the Founding Director of the Green Finance & Development Center and an Associate Professor at the Fanhai International School of Finance (FISF) at Fudan University in Shanghai, China. Christoph is a member of the Belt and Road Initiative Green Coalition (BRIGC) of the Chinese Ministry of Ecology and Environment. He has contributed to policies and provided research/consulting amongst others for the China Council for International Cooperation on Environment and Development (CCICED), the Ministry of Commerce, various private and multilateral finance institutions (e.g. ADB, IFC, as well as multilateral institutions (e.g. UNDP, UNESCAP) and international governments.