Panda Paw Dragon Claw

Rising China in the eyes of its closest neighbors

What a collection of ethnographic studies about “neighboring China” can tell us about the Belt and Road

by Tom Baxter

At over 22,000 km, China has the world’s longest land border. Lined up along that border are a total of 14 countries, countless local communities and long histories of interaction and isolation, trade and suspicion. The Art of Neighbouring: Making Relations Across China’s Borders (pdf available for download here) is a selection of essays that look at the diverse experiences of living on China’s border from the perspectives of the communities who live with its presence on a daily basis.

From Laos to Nepal, to Mongolia and Vietnam, the regions along China’s long border are too often seen as peripheral, on both sides — the northern highlands of Laos and Vietnam border China’s mountainous Yunnan province, Nepal neighbors the Tibetan plateau. But as China’s economic, political and social presence and engagement across the Asian continent expands, not least via the official encouragement of China’s “going out” policy and the more recent Belt and Road Initiative (BRI), the experiences of these border regions are becoming increasingly important in understanding China’s role across the continent. At the same time, it is the communities on both sides of the border who often feel the most direct impacts of the increased interaction being encouraged by Beijing.

In attempting to understand and assess the impact and the on-the-ground reality of the BRI, this year celebrating its sixth birthday, it is important that we acknowledge those communities’ experiences and look at, in the words of the collection’s editors, Martin Saxer and Juan Zhang, the “smaller scale processes of exchange”, which are undergoing rapid change. Through a series of in depth, mostly ethnographic case studies, The Art of Neighbouring is a step in that direction.

The case studies in the book all date from before 2012. That is, from before the Belt and Road Initiative was announced in October 2013. Nonetheless, they reflect the impacts of a trend of China’s increasing presence outside its own borders which holds true both before and after Xi Jinping’s BRI speech in October 2013. Each chapter of the book focuses on a case study from a total of eight of China’s neighboring countries. Running through those geographically disparate case studies are couple of major themes which deserve highlighting.

art of neighboring

Reimagining histories

In a number of the book’s case studies the rapidly increasing interconnectivity with China is not a new phenomenon, but rather a revival of a historical norm. This is particularly evident in the case of Martin Saxer’s ethnographic study in northern Nepal where the trading relationships across a previously porous border was the basis of existence for borderland communities. It was only in the 1950s and 1960s that the border between China and Nepal became strictly demarcated and regulated. Where trade had once occurred wherever there was a passable valley, it now became limited to just six official border crossings. Before that, highland communities sought their existence as intermediary traders between the arid and harsh Tibetan plateau and the fertile lowlands of Nepal and India. Since the 1970s China’s increasing wealth and the renewed connectivity brought by new roads which link the borderlands to China much more directly and tightly than to Kathmandu revitalized this centuries old norm.

Along with these physically changing realities, local communities have also reimagined their place in the history of China-Nepal relations and understand their current occupations as following in the footsteps of their ancestors as borderland trading communities. “The new roads are primarily conceived of as ways back to what is remembered as prosperous trans-Himalayan exchange,” Saxer writes. In other words, in the eyes of local communities, a rising and more internationally present China is not so much a disruption of the world order, but is facilitating a return to normality after a comparatively brief interlude.

A case study of traders in Kyrgyzstan and Kazakhstan demonstrates a similar historical processes of a border region “under fuzzy sovereign rule” becoming closed borders during the Cold War to re-opening in the last thirty to forty years. Henryk Alff’s study of the traders reveals that they often attempted to rekindle (perceived) historical ethnic allegiances across borders with, for example, Hui Muslims in China. One Dungan trader from Kyrgyzstan states, “some of us had remote kinship ties with places in China where our ancestors originally came from.” In the post-Soviet and rising China period, traders have been able to take advantage of these perceived cross-border common identities to ease deals and partnership. It is another example of regional history re-imagined, which in turn informs how local people comprehend China’s growing presence and interconnectivity on the continent.

Nepal2 — A truck preparing to enter into China at Nepal’s border to Tibet in Rasuwagadhi, image by: Nabin Baral

China as threat / China as opportunity

Which leads on to the second major theme in the book’s case studies. Informed by local history and present day circumstances, communities all along China’s border are divided in their perceptions of China as a threat or an opportunity.

In Saxer’s Nepal case study he provides an example of an embracing attitude towards China’s presence. Moreover, it is a welcoming coming from local communities and a bottom-up approach, rather than via the top-down government initiatives involving state owned companies, banks and political MOUs through which we normally make sense of China’s presence abroad.

In 2010 a former member of Parliament and local to the northern border region of Humla pulled together local business people to form a Road Construction Committee which lobbied Kathmandu to provide funding to build a road through the lesser used Limi valley to China. They were successful and, after securing funding from Kathmandu, also managed to reach agreement with China to temporarily open the border through the valley for sales of diesel for the construction equipment. By the end of the year the first section of the road was complete, and a Chinese delegation even came to attend the inauguration ceremony.

In another example, a study conducted between 2009 and 2012 of Myanmar Muslim communities residing in Ruili in China’s Yunnan province by Renaud Egreteau reveals that to these communities China is seen as a refuge and a sanctuary compared to the situation they face at home. One of his Ruili-dwelling Myanmar interviewees even says “it’s paradise here!”

In contrast, the histories of Cold War suspicion, tension and conflict along China’s Russian and Vietnamese borders do not wash away overnight. Two case studies of these borderlands show that a perception of China as a threat persists through to this day. A Vietnamese border trader interviewed by Juan Zhang in her study of the Lao Cai – Hekou border crossing says, “even now the Chinese are not much better than before…One can never be too careful.”

Within countries there are of course also divided perspectives on China as threat or opportunity. These as yet unsettled perspectives played out in a number of high profile elections in 2018 in Malaysia, Sri Lanka and the Maldives. 2019 is likely to see more of this tension as more politicians, banks, constituents and other interest groups push back on some of the excesses of Chinese projects and work towards establishing national level strategies on how to interact (or how not to interact) with China and the Belt and Road. Elections in India and, in particular, Indonesia this year could display snapshots of this trend.

What can we learn?

The voices and the world views of communities experiencing and engaging in China’s increasing global presence are an important part of the Belt and Road “story” and the rapidly changing on-the-ground reality across Asia. For one, they represent world views that are often overlooked in mainstream coverage of China’s influence abroad and the Belt and Road. While media often seek comment from local communities on their attitudes toward a specific project, it is rare to hear their take on the larger scale shifting reality or on such big questions as whether China is primarily conceived of as a threat or as an opportunity. As narratives on BRI become more and more polarized between the Beijing story and the Washington story or the Brussels story, it is important not to forget the voices of those who are far more directly impacted by the, in some places, transformational, change BRI is bringing.

But these local community voices are not just “color” for media stories. They are also agents in and of themselves. Saxer’s fascinating case study of a local community proactively campaigning for infrastructure connectivity with China is a case in point. The agency of these local communities is also being played out at very local levels, in national elections and in the establishing of recipient country policies and strategies toward the Belt and Road. In a recent article on Euromoney, Djiboutian minister of finance, Ilyas Moussa Dawaleh, stated “we have problems with the current Belt and Road narrative”. His voice may represent that of a recipient country political elite, rather than the grassroots voices explored in The Art of Neighbouring, but it points to the same problem — the current narrative of the Belt and Road too often overlooks the diversity of agency playing out in its growth and development.

The Art of Neighbouring points a way towards a deeper and more complex understanding of China’s growing presence and engagement on the Asian continent and of the dynamics playing out along the Belt and Road. For these reasons it is useful for all of us in the emerging “Belt and Road watcher” community. Even better will be more recent ethnographic studies of local communities’ perspectives on China since the announcement of the Belt and Road in 2013. This watcher, for one, is waiting keenly for that.

December round-up: Reform, Opening, Belt and Road

As China celebrates 40 years of reform and opening up, the BRI needs to find its own place in and beyond Deng Xiaoping’s legacy

On December 18, 1978, the 3rd Plenary Session of the 11th Central Committee of the Communist Party began its four-day deliberation at the Jingxi Hotel in Beijing. These were the coldest days of a year. But Chinese history books often associate the meeting with the image of thawing ice. It marked the official launch of a grand transformation of China that has since been known as “Reform and Opening Up.”

The 40th anniversary of the historic event dominated the political and media agenda of last month. And it is worth noting how the Belt and Road Initiative (BRI) was presented against the backdrop of Deng Xiaoping’s legacy.

.jpg — The 3rd Plenary Session of the 11th Central Committee of the Communist Party marked the official launch of a grand transformation of China that has since been known as “Reform and Opening Up.”

At a high-profile gathering commemorating the anniversary on December 18, President Xi Jinping referred to the 1978 moment as a “great awakening of the Chinese Communist Party”. Whether or not the Party was asleep before that is debatable, but the significance of the historic watershed is unquestionable. In 1978, China waved goodbye to three decades of Maoist fanaticism and embraced a more pragmatic, common-sensical path toward development. The ideological restrictions on individuals, businesses and society were gradually loosened. The countryside quickly recovered from the shackles of collectivization. The private sector emerged and prospered. Foreign capital flowed in. And the result was a booming economy that lifted hundreds of millions out of poverty and enabled the Party to declare that a “national rejuvenation” was right around the corner.

The BRI naturally found its place in Xi Jinping’s speech that walked the audience through that journey again. It was presented as a logical extension to the decision to open up the country to the outside world, first through a few coastal special economic zones, then along the rivers that radiate inland. As China integrates into the global market, it’s time to go beyond its own borders and begin doing business around the globe. “We moved from letting in to going out,” as President Xi put it.

The idea of the Belt and Road as “Reform and Opening Up phase II” is not entirely new. Chinese experts had been making the argument ahead of the anniversary that BRI inherited and expanded the essence of Opening Up. In a narrow sense, one of the stated strategic objectives of BRI is to link China’s landlocked provinces to west-bound trade routes all the way to Europe through Central Asia. In a broader sense, BRI is seen as staying true to the reform’s key message of “integration”, fitting China into existing global institutions and frameworks such as the WTO.

At this point in history, emphasizing the continuity between BRI and the Opening Up would probably help remove some sharp edges of President Xi’s signature initiative in the eyes of external observers. But despite the insistence that BRI is the child of reform, it is undeniable that the initiative is not without tensions with Deng Xiaoping’s legacy. Its (perceived) geopolitical ambitions and challenge to existing international institutions and norms can be at odds with Deng’s teaching of “hide your capabilities and bide your time”. The dominating role played by state-owned enterprises (SOEs) in the initiative can also be read as a reversal of policies encouraging and nurturing the private sector.

Those tensions were tacitly touched upon in an earlier analysis by Chinese Academy of Social Science scholar Xue Li titled “BRI and the New Reform and Opening”. Xue argues that the BRI’s global impact is probably going to be larger than that of Reform and Opening Up. It continues on the path of opening the Chinese market (largely facing developed economies) but moves on to “unlocking others” (mostly developing economies). According to Xue, this is a departure from China’s traditional philosophy of “winning over others by perfecting one’s own virtues”(远人不服则修文德以来之). Instead, the new administration decides to go all the way to the distant “others” and help them with social and economic development.

He notes that China does not have the power/right to set development strategies for other countries and cannot force them into the BRI. The initiative is a “development strategy” for China, but can only be a “cooperation proposal” for the outside world. This leads to the elevation of “neighborhood diplomacy” in terms of strategic importance, another departure from reform-era diplomatic priorities that “put major power diplomacy, especially with the United States, at the absolute center.” The pivot towards neighboring developing countries, Xue contends, is a clear trend since 2016 and a response to the perceived shrinking/stagnating space for furthering diplomatic relations with more developed countries. His article also implies that China is no longer content with simply accepting the global frameworks and is making efforts to fix some of their flaws through negotiations rather than confrontations.

The analysis underscores the extent to which BRI needs to maintain a linkage to the 1978 legacy while distinguishing itself as an update and reinvention. And that need is not all externally focused (i.e. to placate Western critics). Internally, the public may also need some convincing that with a full-throttled push for the BRI, they are still on the Reform and Opening Up bus that they bought tickets for. One Weibo post captures the difficulty for the Chinese public to appreciate why they should be concerned with the development of, say, Africa or India. “40 years ago, our own opening up helped developed economies find an outlet for their capital and enterprises that their internal markets and free trade agreements within the OECD bloc could not provide.” Now, the Weibo commentator argued, it’s China’s turn to wanting that solution for its internal difficulties: employment, environment, etc, and the public should come on board with that logic in mind.

With all the talks of fixing the global order and “neighborhood diplomacy”, the celebration of the 40th anniversary was still largely a tribute to the past. One item of the program was the awarding of Reform Friendship Medals to 10 foreigners who had made distinguished contributions to Reform and Opening Up. They were American, Japanese, German, British, Swiss, Spanish, French and Singaporean. No one from the developing world received that recognition. It would be interesting to see if in 2028, when Reform and Opening Up policy turns 50, Pakistanis, Sri Lankans or Kenyans would be honored in the same manner for assisting China in its renewed quest for national glory.

Belt and Road insiders: What we think about “greening” the initiative

Interviews with banks and SOE executives shed light on what motivates Chinese players to (not) go green in BRI projects.

By Huang Wei and Tom Baxter

When it comes to issues arising from the Belt and Road Initiative (BRI), be they debt burdens, local community engagement or environmental sustainability, external stakeholders are often more confident with prescribing what China “should” do than offering convincing arguments about “how” Chinese actors can be made doing the right thing. One of the key barriers of translating visions into actions is the lack of access to the actual thinking of Chinese actors involved in the BRI, thanks to the opaqueness of the Chinese political, business and financial institutions.

With the aim of overcoming that very barrier, my team and I recently conducted a round of intensive interviews with practitioners who are at the forefront of China’s overseas endeavors, with a focus mainly on energy investment. The interviewees include large state-owned construction firms; financiers and insurers; and third party consultancy firms that provide accounting and legal services to the Chinese companies. We would like to use this rare window to understand more about the driving forces and roadblocks for greener investment along the Belt and Road.

The Chinese government appears to be increasingly willing to engage in discussion on the environmental sustainability of BRI, with numerous high level officials, including President Xi himself, calling for the Belt and Road to be a “green” initiative. In May last year a government document containing “green belt and road” guidelines was issued to promote such a vision. The document, however, consists of non-binding “guidance”, rather than legally enforceable regulations. In addition, being issued by multiple government departments, it left confusion more than guidance in its wake.

In the twenty months since that document was issued, advocacy groups, think tanks and even industrial associations have worked to flesh out and clarify the government’s intention, producing a proliferation of “voluntary compliance standards” and initiatives targeting everything from banking practices to corporate social responsibility.

But to what extent are such policies actually “greening” the BRI? Are “voluntary standards” and “initiatives” shaping the behavior of Chinese actors participating in the initiative? What is the real impetus for green investment along BRI? These are crucial questions that need to be addressed.

The interviewees were asked a set of questions that focus on their decision making process with regard to environmental standards, the motivations behind those decisions and their perceptions of “Green BRI” in general.

This article will not list out their answers in full. Rather, it attempts to pull out some of the main insights and common themes in order to shine a light on the thinking of key Chinese players when it comes to introducing higher standards for sustainability in BRI projects.

GreenBRI — The Chinese government appears to be increasingly willing to engage in discussion on the environmental sustainability of BRI, Image: cbcgdf.org

The Profit Equation

The most evident conclusion from the interviews was that banks and companies generally don’t have motivation to go beyond recipient countries’ local standards and regulations as they still operate within the simplest market logic of profit maximization.

When we posed the question: How do you decide on your choice of environmental standards for a project? The majority of interviewees would understand the question as, what do higher environmental standards mean for profit.

During the initial process of bidding and negotiation for an overseas power plant, for example, companies need to come up with a project design plan that is both most economically desirable and that ticks the boxes of local environmental requirements and electricity demand. It is an extremely practical process, similar to solving a maximization problem under constraint that economics students are often faced with at school — choices are computed based on input of numbers into a standard formula. Inputting a higher standard will automatically shrink the profit margin and absorb capital that would have been earning money elsewhere. This serves to weaken a company’s competitiveness in a highly competitive field.

It is often argued that environmental risk need to be factored into this calculation for its potential negative impact on profit. But, as was evident from our interviews, when companies and banks talk about “environmental risks”, they are in fact referring to costs and penalties arising from non-compliance, which are real monetized indicators. “Risk” would only influence choice if it is considerable and tangible enough to be input into the profit formula, such as the risks of fines and penalties many heavy industries in northern China face since the introduction of strict emissions standards.

Shielding against market risks

A commonly used argument by critics of fossil fuel-based BRI energy projects is the potential risk of “stranded assets.” Expensive projects may end up as facilities inutilizable as environmental standards and climate change mitigation measures become more restrictive over time. Companies and banks are therefore urged to look beyond short term profit calculus. To many of our interviewees, however, this argument did not ring any alarm bells.

Companies tend to already see themselves as shielded from such long-term risks through the means of contracts at the project planning stage. One example of such a contract is the Power Purchase Agreement (PPA) signed during the initial stages of investment in power plant projects. The PPA provides certainty in future price, volume and time period for electricity sold, meaning that any further cost of retrofitting would be borne by the recipient country government, not by companies. Whether or not local governments are aware of the risks that are left on their shoulders in signing such agreements is another question, and one that certainly deserves digging into.

In addition, the most common form of Chinese investors’ participation in overseas project is a short term, “turn-key” EPC (Engineering, Procurement and Construction) contract, which ends immediately upon construction completion. Under an EPC arrangement, long term risks are not a consideration. Longer term contracts, such as Built, Operate, Transfer (BOT), do exist and entail a different set of considerations where longer term risk is a more important factor. The BOT model tends to be more common in investments in overseas hydropower projects.

As for the banks, lending is prioritized in capital structure and potential risks are usually covered by insurance companies such as Sinosure, meaning that banks are sheltered from revenue shock, significantly eroding the effect of the stranded assets argument.

Reputational risks

Advocates for a greener Belt and Road have also argued that companies’ potential reputational gains or losses, and political recognition that could confer, are a key factor in project decision making. Given the state-owned nature of the vast majority of Chinese companies and banks involved in Belt and Road projects, China’s domestic politics, including image and reputation, no doubt do play a role. Our interviews showed, however, that such factors have yet to be seen as tangible indicators for companies to enter into their profit formulas. In fact, contrary to conventional belief, going beyond market norms would put a company under greater scrutiny, which may or may not lead to greater recognition, but certainly adds extra risk to company operations.

Who holds the keys to change?

What and who can motivate for greener investment then? Well, it’s a billion-dollar, and potentially billion tons of carbon, question. But the interviews did uncover some of the key players and factors that are most influential over Chinese companies’ behavior. In my experience, the below “keys to change” are generally not well understood in the communities working to green the BRI.

SASAC:

The State-owned Assets Supervision and Administration Commission (SASAC) is an institution under direct management of China’s State Council. It is authorized to act as a shareholder of SOEs with responsibility over their performance evaluation. The SASAC performance evaluation is, then, the closest thing to a tangible measure of SOE reputation. It also gives SASAC distinct power over the career progression of heads of SOEs.

According to interviewees, the performance evaluation (which is not publicly available) still relies heavily, if not entirely, on profit indicators, leaving SOEs with zero incentive to jump out of the profit maximization mindset. Indicating SASAC’s influence over SOE investment behaviour, one interviewee said: “If SASAC could incorporate ‘green’ as quantitatively assessable criteria into the performance evaluation, it would be implemented in no time among SOEs.”

Sinosure:

Sinosure is the single Chinese state-owned insurance corporation that provides export credit insurance. The fact that many advocacy groups categorize Sinosure insurance as financing is somewhat misleading, as insurance is actually more like the pre-requisite of financing during real investment cycle.

More often than not, Sinosure’s involvement in a project is what gives it the green light. Banks would rarely say yes to an overseas project without the nod from Sinosure to assure that political and market risks associated with projects far away from home are covered. With few alternatives on the market, Sinosure holds a near monopoly over “life or death” insurance for Chinese companies’ overseas investments and, by end of 2017, had enabled over 2.9 trillion RMB of overseas financing.

Given their vital role as risk-covering agent, there is huge potential to lobby Sinosure to be more attentive to environmental risks.

MSCI:

Morgan Stanley Capital International Index (MSCI) is the most commonly used equity market index for investment portfolio managers around the world. Since 2017, MSCI has been going through a long process of integrating China A-shares (Shanghai and Shenzhen stock exchange traded RMB shares) into its Index. It is a milestone for China as the integration would enable publicly listed Chinese companies to gain access to international capital.

Significantly for our purposes, after being included in MSCI a company would be required to undergo Environment, Social and Governance (ESG) assessment and classification. Good performance would allow that company to be included in an ESG index called “the Green Leaders Index”. Any underperforming companies would be removed from that index. This would help portfolio managers who are wary of the risks behind bad ESG performance in emerging market to come to informed decisions. Given MSCI’s large client base, the impact of this indicator on a company could be significant.

Currently, many listed companies that underperform on ESG are seeking solutions from consultancy firms who provide advice on how to improve. This dynamic is not only an engagement chance for those who work on greening BRI, it also has broad implications for environmental advocacy within China.

Signs of Change

Despite the seemingly unbreakable profit calculus of Chinese SOEs, there have been some cases of projects adopting standards higher than the bare minimum required. Three special circumstances stand out:

When there is willingness of a recipient country to go beyond average standards, such as for a flagship project. An example would be the ultra-supercritical Hamrawein coal power plant soon to enter construction in Egypt. For this mega-scale project, the Egyptian government has required higher standards and promised to pay for a higher electricity price. In return, the Chinese financier will give a discount on loan terms.
When a project is backed by a syndicate loan that involves international banks, the project will have to reach the highest standard within the syndicate group (normally that of multilateral development banks such as the World Bank or European Bank for Reconstruction and Development). This effectively forces Chinese financiers to adopt higher standards than they would normally be required to.
Some projects with extremely handsome rates of return will consider raising standards for a win-win outcome on both profit and reputation, according to one interviewee.

Where next for Green BRI?

No systematic change will come from special circumstances, however. To effectively leverage for a genuinely green BRI, stakeholders will have to consider closely how they engage with the dynamics of Belt and Road investments as well as carefully consider what exactly they are advocating for. As one interviewee bluntly put it, his company would only act differently if green requirements are translated into “departmental rules from the government, SASAC performance evaluation criteria, and clear reward-penalty mechanisms.”

The takeaways from the interviews are clear:

Firstly, stakeholders must always be mindful of the communication gap. In order to influence investors, advocates for a greener BRI must be able to speak to them in their language. This requires us to question our assumptions and make sure to study the nitty-gritty of the investment process.

Secondly, “profit” is clearly front and center in investors’ decision-making process. We should not put “green” on balance, hoping that it would outweigh “profit”. Instead, we need to put “profit” on balance, and think about how “profit” can be outweighed by environmental and other factors.

Lastly, outside of profit calculus, there are two strangleholds for investors: one is an assessable “green” benchmark and a clear reward-penalty mechanism from supervisory bodies; the other is a requirement for higher standards from capital providers. This has put the keys to unlocking “green Belt and Road” in a selected few players’ hands. Advocates would do well to focus their efforts on those who hold the keys.

This blog is co-authored by Huang Wei and Tom Baxter. Huang Wei was a Climate & Energy campaigner with Greenpeace East Asia. Her expertise is in China’s overseas energy investment, coal and air pollution in China.

** This article was updated on 27 December to clarify that ESG assessment for a company would occur after inclusion in MSCI, rather than as a prerequisite for inclusion. **

What China’s new foreign aid rules can and cannot do

CIDCA’s proposed Measures open a new window into Chinese foreign aid, but stakeholders should manage their expectations

by Ma Tianjie and Zhang Jingjing

China’s newly established foreign aid agency (China International Development Cooperation Agency, CIDCA) recently released draft Measures for the Administration of Foreign Aid to solicit public comments. This move understandably attracts international attention as observers are eager to learn how the new agency would operate, and, more importantly, how any external stakeholders (recipient countries, contractors, civil society, etc.) may participate in and influence the aid process.

Expectations are high. Chinese foreign aid has long been known for its opaqueness. For years, external researchers and observers had to rely on infrequent white papers to get a glimpse of the scope of the country’s aid program. Piecing together fragmented information on Chinese aid to render a more complete picture has become an effort that entire research programs undertake. With the release of the new draft rules, hopes are that Chinese foreign aid may become more transparent and accessible.

But before people get too excited about the opportunity to reshape Chinese foreign aid, it is important to clearly understand what the draft measures can achieve and their limitations.


External researchers and observers had to rely on infrequent white papers to get a glimpse of the scope of the country’s aid program. Source: china.com.cn

What the draft Measures do

As a new agency born out of the ministerial reshuffle earlier this year, the new Measures define CIDCA’s core business: the process of designing, implementing and reviewing foreign aid projects.

It is worth noting that even though CIDCA is new, the draft Measures are not. Before CIDCA became China’s coordinating government body for foreign aid, the Ministry of Commerce (MOFCOM) was the main aid distributor, while multiple other agencies shared bits and pieces of foreign aid responsibilities. The draft Measures are built on an earlier MOFCOM version, which was announced and went into effect in 2014, with new elements reflecting the agency’s expanded mandate.

Beyond taking over the supervision of four types of foreign aid projects previously overseen by MOFCOM (complete projects, material donation projects, technical assistance projects and capacity building projects), CIDCA also assumes an important strategic planning role, drawing up foreign aid strategies and plans at the national level. Plus, the multiple streams of aid-related finance, including grants, interest-free loans and concessional loans, will all be subject to CIDCA’s overall budgetary oversight. In the case of South-South cooperation funds jointly set up by CIDCA and other governmental departments, the agency will directly run and distribute those funds.

The draft Measures distills CIDCA’s mandate into a set of concrete policy items that will be created along the process of the agency’s fulfillment of its responsibilities. These include:

A top-level foreign aid strategy (unclear frequency, possibly approved by State Council)
A long-term to mid-term policy plan (unclear frequency, possibly approved by State Council)
Country-by-country aid policies
An annual foreign aid plan (possibly approved by State Council)
A foreign aid management system
Foreign aid international cooperation system
An annual foreign aid budget
Measures to manage the initiation and approval of aid projects
A project evaluation system
A credit rating system for project implementers
Foreign aid statistics collection

Many details are missing from the draft Measures, and some items, such as the process of initiating and approving actual foreign aid projects, require their own stand-alone measures to be fully hashed out. But still, a skeleton of the policy framework that will govern Chinese foreign aid in the future is visible from the draft.

Understanding the constraints of the draft Measures

Promising as they are, the draft Measures have a few built-in limitations that would put clear boundaries around ways external stakeholders may interact with Chinese foreign aid.

The first and foremost limitation lies in its relatively low legal force according to the Legislation Law. The draft Measures rank as a “departmental rule” issued by a ministry/agency under the State Council. Within the hierarchy of the Chinese legal system, laws passed by the National People’s Congress are bestowed with the highest legal authority. Beneath them are regulations created by the State Council (the Cabinet). While rules promulgated by government departments and local provincial people’s councils are lower on the legal ladder.

In principle, lower-level regulations and rules cannot go beyond what higher-level laws authorize them to do. In the case of CIDCA’s draft Measures, as a departmental rule, their legal force is circumscribed by a few higher-level laws and regulations, including, but not limited to, China’s Law of Administrative Permission, Law of Administrative Penalty, State Council Open Governmental Information Regulation, and Law of Administrative Reconsideration. The draft Measures are also bound by the agency’s approved mandate and duties set by the State Council.

Those higher-level legal instruments erect a wall around the Measures. For instance, many would like to see more accountability built into the Measures by creating stronger penalties for violating rules set by the Measures. Yet, the Law of Administrative Penalty and related State Council rules set a RMB 30,000 ceiling for fines that government agencies can legally impose, which is adopted by CIDCA in the draft. The cap on fines is supposed to serve as a check against the abuse of administrative power. Nevertheless, RMB 30,000, a limit set by the State Council in 1996, is of questionable deterrent power today. In the same vein, CIDCA can only impose two types of administrative penalties: disciplinary warnings and fines. The agency is also not allowed to use the Measures as a vehicle to create new roles for itself. For example, even though stronger Environmental and Social Impact Assessments of Chinese aid projects could be a desirable development, without a State Council authorization for CIDCA to involve the Ministry of Ecology and Environment in the management of foreign aid projects, the agency won’t be able to take on the role on its own. To overcome some of the intrinsic weaknesses of the draft rule, CIDCA would need to muster enough political support to elevate the draft Measures to a higher level (such as a State Council regulation).

What can be improved

As a draft for comment, the draft Measures, in their current form, definitely have much space for improvement. One area that can be improved is information disclosure. And this is not an unreasonable ask. The State Council’s 2008 Open Governmental Information Regulation (China’s freedom of information act) constitutes the legal basis for demanding greater transparency from government agencies. Article 9 of the Regulation requires government agencies to proactively disclose information that “needs to be widely known and participated by the public.” Arguably, dispensing public resources to assist foreign countries deserves public knowledge and participation. In theory, many policy items listed above should be released publicly to keep the society informed of where foreign aid is going. Yet no disclosure related clause currently exists in the draft Measures.

The draft Measures by itself can’t impose criminal liabilities, but it indicates that anyone who violates Chinese Criminal Law and other laws during the licensing and implementation of foreign aid projects may be subject to criminal liabilities. Unfortunately the draft Measures doesn’t echo the second paragraph in article 164 of the Criminal Law, which states, “Whoever gives any property or benefit to a functionary of a foreign country or an official of an international public organization for any improper commercial benefit shall be punished according to the provision of the preceding paragraph.” This provision was added to China’s Criminal Law after China signed and ratified the UN Convention Against Corruption in 2005, but it has never been used to prosecute Chinese persons and legal persons for their foreign briberies. Some Chinese companies, including those who implemented or are implementing foreign aid projects, have been criticized for briberies in Africa and Latin America.

The draft Measures also lack an explicit grievance mechanism for external stakeholders, particularly those affected by Chinese foreign aid projects, to report wrongdoings and submit complaints. This appears to be a backtrack from its predecessor. MOFCOM’s 2014 measures at least included one clause that allows “any individual or entity” to report to the ministry when they find Chinese implementers in non-compliance. Besides pressing CIDCA to reintroduce such a mechanism into the rule, one may also find openings in Chinese administrative laws to challenge certain agency decisions. In theory, “administrative licensing” can be questioned on the basis of the Administrative Reconsideration Law, which grants citizens and organizations the right to plea for reconsideration of permissions that violate their interest. The draft Measures contain a few approval/licensing components. For example, approval of foreign aid projects in the draft Measures is an “administrative licensing” by nature. Whether third parties can trigger a reconsideration petition for such approvals on grounds of affected interest is subject to legal interpretation. But in the past, Chinese civil society groups have successfully used the legal tool to overturn government decisions, such as the greenlighting of problematic Environmental Impact Assessments. It will be interesting to see if such clauses can be activated to bring some accountabilities to Chinese foreign aid in the future.

(Write to Panda Paw Dragon Claw by clicking the “Contact” link at the top of our site if you have any question about the draft Measures.)

Zhang Jingjing is a Chinese lawyer and Lecturer in Law at the Transnational Environmental Accountability Project, University of Maryland School of Law

November monthly round-up: caught in the crossfire

As US-China tension increases over the BRI, third-party actors find themselves caught in the crossfire.

If a butterfly in Nairobi flaps its wings, would it set off a tornado in Beijing?

Last month, what happened in the United Nations Environment Program (UNEP), headquartered in Nairobi, Kenya, certainly would alarm some policy makers in Beijing. On November 20, news broke that UNEP’s Director Erik Solheim resigned after a major scandal that threatened to undermine the agency’s legitimacy as the world’s leading multilateral environmental body. Most of the allegations against Solheim were not China related. An internal UN audit revealed his abnormally high air travel expenses (half a million US dollars in less than two years) and breaching of UN rules (allowing some staff members to work from Europe when they need to be based in Kenya). But the Guardian report also highlighted a side complaint. The United States, and some UNEP employees, had raised questions about his perceived coziness with the Belt and Road Initiative (BRI).

As recently as Nov 5, Solheim was in Beijing celebrating achievements of the International Coalition for Green Development on the Belt and Road. “China could share its green development experience with other countries through dialogue,” he said, and envisioned three roles for the Coalition: promoting green finance, setting up basic principles and rules for BRI, and serving as third party facilitators for green development in host countries. Ironically, it turned out that the Coalition was at the center of American misgiving. According to the disclosed list of questions posed by the Permanent Mission of the US to the UN in April this year, the US questioned the relationship between the agency and the Coalition, especially the justification for “an organization under a universal governance model devoting its resources to promote a plan exclusive to an individual (country).”

The episode underscores the increasingly divisive international space wherein third-party actors need to navigate to position themselves properly vis-à-vis the BRI. The heightened tension between the US and China over the infrastructure program makes the balancing act especially challenging. During Solheim’s brief tenure at the agency, UNEP entered a partnership with China’s environment ministry to promote “Green BRI” and has helped soften the initiative’s international image. That’s probably why upon his disgraced departure, the ministry’s spokesperson had only nice words to say about him: “Mr. Solheim has paid much attention to and worked hard on south-south environmental collaboration and environmental protection in developing countries.”

MEE on Solheim — China’s Ministry of Ecology and Environment praised Solheim upon his resignation from UNEP.

If the exchange around UNEP was just a skirmish (Solheim’s oust was largely self-inflicted), what happened at the Papua New Guinea APEC summit was almost an open confrontation. Immediately after Chinese President Xi Jinping’s address to the APEC CEO Summit promoting the BRI as “an open platform for cooperation”, US Vice President Mike Pence told the same audience that countries “should not accept foreign debt that could compromise their sovereignty.” He even went on and dubbed the BRI a “constricting belt and one-way road.”

For decades, the West has offered financing to developing countries on conditions of trade liberalization and market reform. For Pence to remind countries of the need to preserve their sovereignty, therefore, is a bit disingenuous. Nonetheless, the “debt trap” narrative sticks. Almost at the same time as Pence was warning against the BRI, the newly elected President of the Maldives, in his inaugural speech, blamed Chinese loans for his country’s “precarious” financial situation and signaled distancing from a relationship that his predecessor had cultivated.

APEC quickly became another victim of the US-China animosity. The annual Summit on Nov 18 failed to produce a joint communiqué, a disappointing departure from its 20-year tradition, due to US-China disagreement over languages about global trade reforms. A narrative quickly developed around how China sabotaged the whole thing, not just with its insistence on policy arguments, but also with its “aggressive, bullying, paranoid and weird” behavior at the event. In contrast, the Trump administration’s own position of dismantling existing global economic mechanisms such as the WTO and its possible contribution to the deadlock did not receive as much scrutiny.

Chinese response to the criticism was to reiterate its position that Asia-Pacific development is not to be a zero-sum game and a binary “win/lose” choice, and that disputes should be resolved under “mutually agreed rules”. Researchers and think tank specialists wrote articles on Chinese platforms trying to refute the “debt trap” accusation, using data from the IMF and CIA to argue that Chinese loans constitute minor portions of the debt burden of countries such as the Maldives and should not be scapegoated for their economic difficulties.

As third-parties struggle to (re)align themselves with the BRI, the landscape of international development finance is quietly being redrawn. Ahead of the APEC summit, the US, Japan and Australia announced a Trilateral Partners infrastructure fund that would support infrastructure development in the Indo-Pacific region that “adhere to international standards and principles for development, including openness, transparency and fiscal sustainability.” The fund is widely read as a counter-offer to the BRI. As a first step, a financing package for Papua New Guinea to expand electricity and Internet coverage, worth USD 1.7 billion, was unveiled on the day of the summit. If the BRI has redirected global attention to the developing world’s massive infrastructure gap, it could be one of its more positive effects. The question is if, as a price of accessing much needed funds, developing countries would have to pick sides in a fight they don’t want.

Unpacking Chinese financing of Pakistan’s “dream” power plant

Chinese companies are not just pouring concrete along the Belt and Road. Financing is a big part of China’s overseas involvement.

By Liu Shuang

There has been much discussion about China’s involvement in coal projects overseas. Critics point to the tremendous carbon footprint it may create, and call for a change in the practice. Analyses have highlighted the complicated dynamics that enable the continued build-up of coal fired power capacities around the developing world, against the stern warning of climate scientists.

Within that complex dynamics, financing is one central piece of the puzzle that is often poorly understood. Due to intrinsic difficulties in gaining access to information about how financial actors (especially Chinese ones) operate, presenting an accurate picture of key financial components at project level proves to be challenging.

This blog tries to shed some light on Chinese financed coal-fired power plant, by using a “strawman case” built out of publicly available information.

The case in point is the Engro Thar Block II (ETBII) project in Pakistan’s Sindh province, one of the key coal power projects listed under the China Pakistan Economic Corridor (CPEC). As a major destination of Chinese coal investments globally, Pakistan provides a good observatory point to understand why coal projects along the Belt and Road continue to get funded by Chinese lenders.

engrothatblockII — Engro Thar Block II 2×330MW Coal fired Power Plant TEL 1×330MW Mine Mouth Lignite Fired Power Project at Thar Block-II, Sindh, Pakistan. Source: CPEC Website

“The Thar dream”

Ever since the discovery of the massive coal reserve in Thar in 1991, a desert area 500 kilometers to the east of Karachi, the anticipation of developing Pakistan’s indigenous source of energy has captured the imagination of the nation. The reserve is estimated to comprise 175 billion tons of lignite coal. Unlocking a fraction of it would be sufficient to power the entire country, which, to this date, still heavily relies on imported fuel oil for its electricity demand. But technological barriers had thwarted attempts to tap the resource in the past. And due to concern with climate change impacts, the World Bank withdrew its support for the endeavor in 2009, leaving the project in financial uncertainties for a few years.

The entry of Engro, one of Pakistan’s largest private energy conglomerates, breathed life into the project. But the prospect of developing the Thar minefield really improved after China got on board. In 2014, Engro Thar Coal-fired Power Plant (660 MW) was listed under the China Pakistan Economic Corridor (CPEC). And the year after, a consortium of Chinese finance institutions committed to fund the project, enabling the project to achieve financial closure in April, 2016. According to CPEC’s official project registry, the Engro Thar Block II project is a combination of coal mining and mine-mouth power generation, with the first phase of the coal-fired power plant consisting of two 330MW units.

Engro’s official website celebrated the project as a “significant feat”, marking “a new era for energy security in Pakistan and brings with it the realization of the Thar dream.”

Chinese actors

The project illustrates a typical financing structure that is increasingly common along the Belt and Road.

ETBII Finance

At least four categories of Chinese actors are involved in this case:

Lender : China Development Bank (CDB), Industrial and Commercial Bank of China (ICBC), Construction Bank of China (CBC)

Credit insurance: Sinosure

Construction company (EPC contractor): China Machinery Engineering (CMEC)

Project developer: Sindh Engro Coal Mining Company (SECMC, with China Power International Holding and CMEC as shareholders)

As in many other similar China-financed projects, the structure features one Chinese policy bank (either CDB or the Export-Import Bank of China), two Chinese commercial banks and Sinosure. The arrangement helps spread financial risks across multiple Chinese players. While players such as CDB has attracted wide attention as one of China’s financial engines powering the Belt and Road Initiative, other key players have managed to stay out of the spotlight. One of them is China Export & Credit Insurance Corporation (Sinosure), whose involvement in such deals can often tip the balance between go and no-go.

Sinosure engages in a business known as “policy insurance”, non-profit oriented insurance bankrolled by China’s treasury, with the aim of promoting the country’s export and overseas investments. In a project like ETBII, Sinosure provides an Export Buyer’s Credit Insurance to the Chinese financial consortium against the risk of repayment delay or failure due to political or commercial reasons. For a range of risks from war to contract breach, the company offers a maximal 95% insured percentage. The safety net is critical in markets with high uncertainty and gives Chinese companies a considerable edge. Despite the seemingly bottomless “pockets” of Chinese policy banks and state-owned commercial banks, whether Sinosure is on board usually accounts for “50-60% of the weight” in their decision making, according to those familiar with the matter. And Chinese actors don’t even have much choice. Alternatives to Sinosure, commercial insurance companies or foreign insurers, are much less desirable for their high charges. Sinosure’s influence in deciding China’s overseas energy footprint cannot be underappreciated.

Even though on paper Sinosure may maintain an “agnostic” approach to the types of energy projects it insures, be they coal-fired or renewable, other project features can tilt it more toward coal. Guarantee from a project’s host country government matters to an insurer. Large fossil fuel projects, in this regard, usually have better access to state support than renewable energy projects much smaller in scale. Smaller project size also means a lower “financial threshold” of entry, attracting developers that, to insurers, are intrinsically riskier. Large fossil fuel projects may also leave behind more valuable fixed assets than renewable projects in occasion of a default, an important consideration for insurers. All those non-climate related factors may make Sinosure more inclined toward projects like ETBII.

A bankable PPA

In any major power project that involves financing from international lenders, the Power Purchase Agreement (PPA) often ranks as the most important contractual component of the deal. On the surface, a PPA is merely an instrument that facilitates the sale and purchase of electricity. But more importantly, for most power projects, payment from the buyer under the PPA constitutes the only revenue stream for the project company to repay its loans. The negotiation and set-up of a PPA would often decide if a project is considered “bankable” to potential lenders.

The Pakistani authority has more or less standardized the PPAs of coal power projects, making them acceptable for international financiers. In a 2016 presentation by Pakistan’s Private Power and Infrastructure Board (PPIB), a government body that facilitates investments into the country’s power sector, it boasts government guarantee of power purchaser obligations, attractive Return on Equity (ROE), tariff indexation against inflation and government assurance of foreign currency conversion as terms that would sweeten a power deal for foreign investors. Most, if not all, of those elements will end up in a project PPA.

Based on the information published by Pakistan’s National Electric Power Regulatory Authority (NEPRA), we could get a glimpse of the key components of the PPA for ETBII. The following chart lists those components and juxtaposes them with equivalent PPAs of wind power projects in Pakistan for reference.

* A selection of multiple wind energy PPAs from the NEPRA website is used here for reference purpose

Beyond the fact that a coal power PPA usually features a relatively low electricity tariff, which is highly valued by Pakistan’s policy makers and regulators that put “affordability” of electricity at the center, the PPA also caters to the needs of other key stakeholders in the deal. From a lender’s point of view, the PPA’s tariff formula incorporates debt service considerations of the project, based on a standard interest rate (London Inter Bank Offer Rate plus 450 basis points) for foreign currency loans. In addition, it also promises an over 30% Return on Equity for the project’s sponsors (i.e. shareholders), which is higher than what’s typically factored in in PPAs of other similar projects (15%-20%).

The PPA represents a different kind of product that is being promoted along the Belt and Road: the knowhow of setting up financial frameworks of projects fundable by Chinese financial institutions. As Chinese banks and companies take leading roles in overseas power projects, they share their expertise with host countries, showing them how to make projects work. This is something much less tangible than the infrastructure projects ended up being built, but no less important.

The enabling environment

Chinese financing can only be materialized into projects with the help of enabling investment and regulatory frameworks in Pakistan, co-created by a host of government agencies. The bonding of the two elements releases “energy” that propels Belt and Road power projects forward.

In the ETBII case, beyond PPIB support of the project, endorsement statements were provided by the Ministry of Petroleum and Natural Resources and the Government of Sindh in support of the project, quoting energy security and the use of “indigenous resources” as main reasons; the province’s Environmental Protection Agency issued a No Objection Certificate, with no climate considerations included.

For those with a view to contain and even reverse the “chemical reaction”, understanding both the financing element and the enabling element will better prepare them for engagement and intervention. The strawman case is not meant to depict a complete picture. Yet the snapshot it creates should contribute to the mapping of key players and their interactions that illuminate the way ahead.

Liu Shuang is the Director of Energy Foundation China’s Low-Carbon Economic Growth Program. At Energy Foundation China, she develops and implements program strategies, manages grants on carbon emission scenarios, market-based instruments, economic analysis of environmental and climate policies, and mainstreaming climate research into economic growth. She holds an MSc in Environmental Economics from University College London and a BA in Economics from Peking University.

October monthly round-up: teacher/student complex

Shinzo Abe’s visit to Beijing sets the two countries on a path to collaborate along the Belt and Road

The key word of the past month was Japan.

On Oct 25, Beijing residents witnessed the rare scene of Chinese and Japanese national flags waving side by side near Tiananmen Square. And the public reaction was mixed. The two countries had been on pretty bad terms since the beginning of the 21st century, with sovereignty disputes over islands in the East China Sea and Japanese politicians’ visits to the controversial Yasukuni Shrine, which enshrines WWII war criminals, continuously overshadowing bilateral relations.

2018 saw the rapid thawing of a once icy relationship thanks to President Trump’s increasingly belligerent trade position against both China and Japan. The US has threated auto tariffs against Japan and has slapped punitive tariffs on Chinese goods worth hundreds of billions of dollars. In the face of a United States no longer committed to a global economic agenda that has largely benefitted manufacturing powerhouses like China and Japan, the two East Asia neighbors find it desirable to put their differences aside, at least for now.

The visit turned out to be quite consequential from a Belt and Road perspective. During his visit, Abe would put an end to four decades of Japanese foreign aid to China and start a new phase of China-Japan partnership along the Belt and Road.

To declare an end to Japanese Official Development Aid (ODA) during a friendly visit is a somewhat awkward task.

Japan ODA — Chinese online commentators reacted to the end of Japanese ODA with mixed feeling.

Since 1979, after relationship normalized between the two countries, Japan has been a major donor and financier of China’s industrialization and modernization, in the forms of grants, concessional loans and technical assistance. According to a WeChat post detailing the history of Japanese ODA to China, the projects benefited from Japanese assistance include infrastructure projects such as the Beijing-Qinghuangdao railway, telephone networks in Shanghai and Guangzhou, and manufacturing projects such as fertilizer factories in six provinces. Total Japanese ODA to China amounts to 20 billion USD by the end of 2007, which wound down significantly after that point, when China surpassed Japan as world’s second largest economy.

Chinese reaction to Japanese ODA is not entirely of gratitude. Debates are still ongoing as to whether the assistance should be seen as a form of reparation for Japan’s WWII atrocities. China officially waived Japan’s WWII reparations (calculated at 120 billion USD) in 1972 as a generous gesture, when the two countries were negotiating reestablishing diplomatic relations. Some Japanese scholars and officials privately called its ODA a “semi-reparation” even though the Japanese government never acknowledges it.

Motivation aside, Japan’s ODA to China did play a unique role in China’s modernization beyond building up railroads and factories. It showed China how development assistance could be done to advance a country’s own economic agenda. Prof Debra Brautigam’s book about Chinese involvement in Africa documents how Japan introduced Chinese policy makers to the idea of “resource-backed concessional loans”, a formula that China would deploy competently later on in Africa and Latin America. Throughout the 1980s, Japan built infrastructure in China to unlock its coveted coal and oil resources, the sales of which would service the loans. The model opened China to the possibilities of “win-win” partnerships that would become a backbone of its own overseas development model in other countries.

In many ways Japan has been a modern-day teacher to China, a reversal of roles from pre-industrial eras when the Japanese culture absorbed and borrowed insatiably from its neighbor to the West. And now the teacher/student relationship is about to change again. In a press conference in Beijing, Abe declared that Japanese ODA has “fulfilled its historical mission,” and that from now on the two countries would become partners in driving global economic growth.

That partnership may take a very specific form. Before Abe’s visit, there were already expectations in the Chinese media that project-level collaborations in the Mekong region countries, including joint participation in Thailand’s Eastern Economic Corridor (EEC) program, would be on the table during the Prime Minister’s visit. The official term for that cooperation is “Third Party Market Cooperation,” a slightly more neutral name for what Chinese media often bluntly call “participation in the Belt and Road Initiative”. The idea is promoted partly to demonstrate that BRI is open for all countries and deflect the criticism that it is to exclusively benefit Chinese business interests. In state media coverage of the China-Japan Forum on Third Party Market Cooperation, a few cases of Chinese and Japanese business cooperation in a third country were listed, including a petrochemical project in Kazakhstan involving Sinopec and Marubeni and an offshore wind energy project in Germany jointly developed by CITIC and Itochu.

As expected, Thailand “emerged as a major beneficiary” of the Forum, according to South China Morning Post, with multiple Thai-focused deals (smart city development, highspeed rail, etc.) included in the China-Japan agreement. The Forum also produced an agreement between the Japan Bank for International Cooperation (JBIC) and China Development Bank (CDB) to provide joint loans to infrastructure projects overseas.

Japan has been cultivating the Southeast Asia market for years, with its foreign aid, investments and business interests deeply engrained in many ASEAN countries. This blog has just highlighted, for instance, its deep involvement in Indonesia’s energy planning. As a relatively new comer, China is also eyeing the region as a key part of the Maritime Silk Road. Weeks before Abe’s visit to Beijing, the Chinese media watched with suspicion his summit with five Mekong region leaders, viewing Tokyo’s move to establish an “open and free Indo-Pacific region” a defensive posture against China’s presence. Quoting Thai Prime Minister Prayuth Chan-ocha, Guancha.cn, a Chinese nationalist news site, reminded Japan that Mekong region countries “would rather see Sino-Japan collaboration” that gives profits to each country.

With Abe’s successful China trip, it appears that collaboration will be the theme in the next chapter of the two sides’ complicated relationship.

Supply and demand: understanding Chinese involvement in coal projects overseas

China is shifting away from coal domestically but building many coal power plants overseas, why?

China’s involvement in building coal power projects in other countries has been the subject of much criticism. The increasing urgency to address climate change, as highlighted by the recent special report published by the Inter-governmental Panel on Climate Change (IPCC), casts such involvement under serious scrutiny. The IPCC report bluntly states that in order to keep global temperature rises close to the 1.5 degree threshold that scientists deem relatively safe, countries should basically cease using coal as energy for electricity by 2040. Global temperatures are already 1 degree higher than pre-industrialization levels, leaving humanity with very little remaining “carbon budget” to spend if it is serious about keeping climate change under control. As one of the most carbon intensive way to generate electricity, coal-fired power plants (CFPP) understandably rank high in the phase-out list.

To a large extent, Chinese actions in this area would determine the fate of the “black gold” and the global fight against climate change, due to the size of its economy which still relies primarily on coal for electricity. In comparison, coal only accounts for 17.8% of the US’s primary energy source. Alarmingly, as China shifts away from coal domestically, for air quality and economic structure considerations, it appears to be building coal power projects elsewhere in the world that will likely negate part of the decarbonization happening inside China while exporting pollution.

Elizabeth Economy, a China expert at the Council for Foreign Relations, encapsulates the criticism in her 2017 article on Politico, calling out China’s overseas CFPP involvement as “ugly” and “not in keeping with the spirit of (the Paris Climate) Agreement.”

At a recent workshop that I attended in Jakarta, co-organized by the Beijing-based Global Environmental Institute and Indonesian think thank IESR, a local CNN correspondent asked the panelists the same question: Does China’s building of CFPPs in Indonesia constitute a “double standard”?

This is a question that is likely going to be asked more in the future, as the urgency of climate change becomes ever more salient and China’s overseas involvement continues to deepen. The Jakarta workshop, which convened stakeholders from both Indonesia and China, provided an opportunity to do just that, taking a closer look at an issue ripe with contradictions. Discussions at the workshop suggest that there are at least three lenses through which the issue can be viewed: recipient country agency, multi-stakeholder playing field, and Chinese industrial policy.

244165110 — An IESR researcher presenting research findings at the workshop

The role (& responsibility) of recipient countries

Responding to the question from the CNN journalist, Professor Yuan Jiahai from the North China University of Electric Power, who was present at the event, argued that it was largely an outcome of recipient country demand and market competition: Indonesia’s power sector is in need of CFPPs and Chinese companies are coming in to capture the market.

According to the Indonesian officials, electrification remains a priority of Indonesia, the 4th most populous country in the world, of over 18,000 islands, where access to safe and affordable electricity in many areas is still all but unavailable. At the same time, on the supply side, the government is at pains to diversify its energy sources, ever since Indonesia became a net oil importer for the first time in 2004. Within a short span of 8 years (from 2009 to 2016), electricity generation from oil fell from 25% in the general mix to below 7%. while coal rose from 39% to 55%. These changes have been led by twosuccesstive administrations (President Susilo Bambang Yudhoyono and President Joko Widodo) who spearheaded the so called “Crash Programs” to accelerate installation of power capacities to ease the country’s chronic electricity crunch.

However, it has not been all smooth sailing. President Yudhoyono’s first Crash Program was known for its poor execution. Announced in 2004, it aimed to add 10,000MW of new capacity by 2009. Instead completion was severely delayed until 2014, and the resulting power plants that were built were of such low quality that they could not perform at their stated capacity.

President Joko Widodo’s new program, created in 2014, aims to add another 35,000MW to the grid by 2019, a goal that many consider unrealistic.

And it is here that China’s involvement dovetails, as Chinese companies pocketed the majority of projects under President Yudhoyono’s initial program. As opposed to outright ownership of the projects, the Chinese companies were mainly involved in design and construction through EPC contracts (Engineering, Procurement and Construct), which meant that they did not operate, maintain, nor own the power plants that they built. Apart from their engineering and construction prowess, favourable financing support for Chinese company involvement may have also played a key role for their winning of this job.

As a result of these developments in Indonesia’s Crash Program, Chinese companies, and by extension, China, came to occupy a primary role in Indonesia’s energy system. Indonesian media was rife with open speculation that favoritism toward China was part of why so many projects were granted to Chinese companies, pointing to the fact that project tender process had deadline submission requirements only China’s companies could meet. The speculations weren’t entirely groundless. Recently, Indonesia’s national power company (PLN) is embroiled in corruption scandals related to its coal power project.

More guests at the dinner party

It is worth noting, however, that China has not been the only outside player eyeing the Indonesian coal power cake. Japan is a key player and has been exerting its influence.

At the workshop that I attended, the below chart kept appearing in presentations from Indonesia officials. It illustrated Japan’s roadmap to assist Indonesia in building its “clean coal” power fleet through to 2025. Created by the Japan International Development Agency (JICA) as part of its development assistance to Indonesia, JICA stated that “the introduction of Japan’s CCT（Clean Coal Technology), which represents the highly efficient technology for coal-fired power plants, will help curb demand for coal and greenhouse gas emissions by making it possible to increase the output of power generation without increasing the use of the resource.” In the planning for the study, JICA also built in a step where the roadmap could be “incorporated into Indonesia’s national power source plan”.

CCT Roadmap — Roadmap of clean coal fired power plant deployment in Indonesia, created by JICA

Beyond the controversy of an external country’s involvement in domestic energy developments, Japan’s pushing of “clean coal” has raised the ire of many who believe it be a false solution to climate change. Ironically, JICA created the roadmap in close coordination with Japan’s Climate Change Program Loan to Indonesia, announced in 2008 as Japan’s first climate change-related Official Development Aid (ODA) loan to assist Indonesia in its effort to reduce emissions, strengthen adaptation to climate change and respond to cross-sectoral issues. This practice of marrying the promotion of Japanese coal technology and its climate finance has been controversial and subject to much criticism internationally.

But Japanese officials are unabashed when confronted with the question. As Japanese media reported, promoting Japan’s high efficiency coal power technology as a climate change solution is part of Japanese government’s efforts to “assist Japanese businesses against Chinese rivals for coveted overseas power plant contracts.”

To some extent, Japan’s efforts in Indonesia have paid off nicely. Of the 8 high-efficiency coal power plants that are under construction,at least 3 projects, including the 2 largest (Jawa Tengah- Central Jawa and Jawa-4 – Central Jawa), are being financed by Japanese Bank for International Cooperation (JBIC) or built by Japanese companies such as J-Power and Itochu. And despite the controversy over the Jawa Tengah project for its land acquisition issues and environmental problems, Japan’s support for it continues, with one Japanese official telling the Nikkei Asian Review, that they wanted to make the Central Java project a showcase that will open the door to more projects.” Recent signs seem to suggest that there might be a rethinking of overseas coal financing from Japanese financial institutions.

Chinese industrial policy

Japan’s rather high-profile and coordinated activities in Indonesia to promote its coal interest provides a point of reference for Chinese efforts in the same arena.

If there is one component of the nebulous Belt and Road Initiative (BRI) that is relatively well defined, it is its function as an extension of Chinese industrial policy. The need for many Chinese industrial sectors to find new markets outside their home country is a powerful driver for China’s “Going Out” strategy which predates the BRI for more than a decade.

In the specific area of coal power, China, as its neighbor Japan, is keen to see its companies winning lucrative contracts overseas, a need accentuated by a slowing domestic market. According to Prof. Yuan Jiahai, China’s coal power sector is facing a severe overcapacity problem: “failure in power planning” (i.e. not foreseeing slowing electricity demand growth) makes many existing Chinese coal power plants badly under-utilized, spending a good part of the year idling. The situation prompted the Chinese government to apply the brake on new coal power plants, suspending new builds in 15 provinces.

Yuan-overcapacity — Prof. Yuan Jiahai’s presentation highlights the problem of overcapacity with China’s coal power sector by showing decreasing annual utilization hours of existing power plants

But the Chinese companies that over the years have excelled in building CFPPs need jobs. And the unique bond between Chinese state-owned enterprises (SOEs) and the state machinery (diplomatic, finance and industrial) makes China particularly well disposed to make concerted efforts to advance the interest of its industries. A 2015 State Council directive on “international industrial capacity sharing” lays out a blueprint for how the government would assist competitive Chinese industries to expand globally. Within its toolbox are instruments such as Chinese policy banks (China Development Bank and the China EXIM Bank) that tie their concessional loans with business deals for Chinese companies; and high-level bilateral government-to-government dialogues that secure “full package” deals for Chinese corporations. Premium Li Keqiang’s “industrial diplomacy” with Kazakhstan is celebrated as the origin of this model.

Power plant construction and operation is listed in the directive as one of the priorities for such state support, as it is a sector through which not just Chinese equipment, but also Chinese services and standards, can be exported. And the model plays out in Indonesia’s power market. Shenhua, one of China’s largest coal industry conglomerates, won the contract to build and run the Java-7 coal-fired power plant in Banten, another high efficiency CFPP listed in the CCT roadmap. The Shenhua-led Chinese consortium managed to beat 36 other competitors in the bid, and attributed the success to its premium clean coal technology and “low-cost, tailor-made financing” based on its strategic partner relation with China Development Bank.

This may give the impression of a formidable, highly efficient industry-policy complex geared up to take over any country’s power market. But in reality, Chinese efforts in promoting the export of its industrial capacities are far from seamlessly coordinated. Government red tapes and lack of service/support are among the many complaints Chinese entrepreneurs make. And in many emerging markets Chinese companies are still required to follow standards set by “Europeans, Japanese or South Koreans.” Chinese actors are barely catching up with experienced players in the arena (such as Japan) that have mastered the art of merging foreign aid, industrial policy and overseas investment into a strategically aligned whole. By and large, Chinese companies still predominantly compete for EPC deals, which is considered low-end and low-value in the global value chain.

GEI-China coal type — Majority of Chinese involvement in overseas coal power projects is through EPC contracts. Source: GEI

Shifting China’s overseas coal involvement

For anyone with an eye to engage and influence China’s overseas energy projects along the Belt and Road, the above should serve as a reminder of the intertwined forces that are collectively shaping the energy landscapes in those developing countries.

To shift the direction of such projects would require pulling multiple strings at the same time: without empowered and enabled host countries that are capable of envisioning their own energy future differently, investing countries alone would find it hard pressed to resist lucrative power deals that are being actively marketed; without a globally coordinated and aligned approach to public financing of fossil fuel projects, one country’s high-minded rejection of a project might simply become another country’s business opportunity; and without a conversation that could engage China’s industrial policy makers, the domestic economic agenda would continue producing strong momentums for Chinese companies to seek CFPP projects overseas, despite warnings from climate scientists.

September monthly round-up: great power mentality

FOCAC exposed tension between Chinese overseas involvement and domestic public opinion

The Forum on China-Africa Cooperation (FOCAC) was a highlight of the past month and once again put China’s overseas involvement under domestic spotlight. Held in Beijing from Sep 3-5, the extravagant event brought high-level representatives from 53 African countries to two days of dialogue, deal making and celebration of China-Africa friendship. In his opening speech, President Xi Jinping announced a $60 billion package to finance development in Africa and spelled out the “5 NOs” and “4 CANNOTs” principles (五不四不能) that would lay the foundation for China-Africa relationship in the coming years. The principles mainly served as a re-affirmation of China’s long-standing non-interference, “no-strings attached” aid policy and a warning to third-party forces trying to undermine the relationship.

In many senses the forum delivered what was intended of it. Politically, it confirmed China’s commitment to the continent as a benevolent partner. Economically, it produced a long list of major infrastructure and investment deals between African stakeholders and their Chinese counterparts. And it even paid environmental dividends for the host city by bringing a week of sapphire blue sky (dubbed “FOCAC blue” by the city’s residents) which ended as soon as the forum was over.

But the high-profile forum also exposed a chronic tension between China’s overseas engagements and its domestic public opinion, a pitfall that policy makers usually strive to circumvent. As soon as China’s $60 billion pledge to Africa was made public, the Chinese Internet was buzzing with murmurs and whispers of disbelief and sarcasm. Under Weibo posts that featured President Xi Jinping’s speech announcing the renewed pledge, where comments were often censored or outright blocked, netizens reacted with emojis of dismay and disapproval.

FOCAC Weibo — Under Weibo posts that featured President Xi Jinping’s speech announcing the renewed pledge, netizens reacted with emojis of dismay and disapproval.

“The controversy around aid to Africa is not so much about whether such investments deliver good returns. It’s a way to express domestic frustrations. The Chinese public can be generous if their own lives are comfortable,” said one commentator on Weibo.

FOCAC happened at a tricky time when the Chinese public was anxious over a series of domestic measures on taxation and social insurance that would affect the pockets of millions of Chinese enterprises and individuals. Among those policies rolled out briefly before FOCAC, shifting the collection of pension fund deposits to the tax authority, widely perceived as more stringent in its efforts, was interpreted by the media as the government’s attempt to fill an enlarging national pension hole which would result in a net reduction of many people’s monthly take-home salary. China’s high social benefit charges have been a burden on enterprises hiring large number of employees. For years, corporates try to dodge their share of pension payments by lowering the reported salaries of their employees, while worker are more than happy to pocket more take-home salary that they can dispense on their own terms.

The government’s revenue-grabbing move touched off widespread complaints from the society, and the high-profile $60 billion pledge to Africa (equivalent to almost 400 billion in RMB) understandably received a fair amount of trolling. To some extent this represents the worst nightmare of Chinese policy makers: Chinese financing overseas is pitched directly vis a vis its domestic fiscal policies. For a long time, the Chinese government has been low-key (to the extent of being secretive) when it comes to releasing its foreign aid figures, largely because of concern over domestic criticism. Senior aid workers have openly complained about the public’s hostility towards Chinese aid overseas. The Chinese Political Compass, an online survey that maps Chinese ideological spectrum online, lists the foreign aid question in its questionnaire as one of the 50 issues dividing and polarizing the Chinese Internet.

Experts believe that the Chinese public is misguided. Wang Yiwei, a scholar at Remin University in Beijing and an expert on the BRI, claimed in a Weibo post that majority of China’s pledged financing would require return on investment. It’s not free lunch. And based on China’s track record, returns on Chinese investments in Africa are “unparalleled” by its investments elsewhere. “Chinese are not stupid. They won’t rush to a place if it doesn’t mean economic opportunities for themselves,” Wang proclaimed, “those who spread rumors about Chinese involvement in Africa are trying to create tension between the public and the leadership.”

Wang was mainly referring to the previous round of Chinese pledge made at the 2015 Johannesburg FOCAC, which also amounted to $60 billion. Within that package, only $5 billion was grant money that did not require repayment. The rest was either concessional loans (loans with below-market interest rates), or injection into equity funds that are largely market-based and generally seek (modest) profits. The new $60 billion package announced on Sep 3 is made of $15 billion of grants and no-interest/concessional loans, $20 billion regular loans, $10 billion private investments and another $15 billion dollar injection into special funds.

Information from Africa seems to bear out the claim that China talks more serious business in Africa than people generally perceive. Bright Simons, president of the Ghana-based MPedigree Network, wrote that while China appeared generous with pledges, it was strict with actually unlocking them into real financing. Of the 2015 pledge, only 2/3 (45 billion) had actually come through, most of which “in the form of sovereign-backed, natural resource securitized loans.” Zimbabwe was particularly bad at translating Chinese pledges into actual financing, redeeming just 2.5 billion of Chinese funds from over 33 billion promised over the past two decades. Angola did much better in this regard largely due to its oil reserves that allowed a reliable means to service its loan payments to China.

Weibo commentators who consider themselves endowed with a long term view urge policy makers to disregard public sentiments and stay on course of its African strategy: “You should stick with things that are fundamentally right.”

On the other hand, the Global Times‘s editor in chief Hu Xijin reminds readers that they should equip themselves with a “great power mentality:” “China will not be able to maintain its global stature today if it does not fulfill its obligations as a great power,” he wrote, “the idea that foreign assistance is immoral as long as you still have poverty inside the country represents agrarian era thinking and cannot guide our grand practices today.”

Like it or not, the architects of China’s grand schemes along the Belt and Road would probably have to tango with domestic public opinion for a while.

Letter from the Desert: A Glimpse of China’s “People to People” cooperation along the Belt and Road

A Russian environmentalist’s account of the Chinese effort to engage BRI country NGOs for environmental restoration

Among the five pillars of China’s Belt and Road Initiative (BRI), “promoting people to people connection” is probably the least well understood, not just because of the intangible nature of such cooperation in general (compared with huge “connectivity” projects such as railroads and ports that are concrete in its literal sense), but also because traditionally China is often seen as lacking the kind of soft power needed to genuinely engage with the “hearts and minds” of the public in other countries.

Recently, Eugene Simonov, a Russian environmentalist and a friend of this blog, had the rare opportunity to participate in the “Belt and Road International Forum on Public Cooperation for Ecological Remediation” held from September 11-14 in Wuwei, Gansu, a drought-stricken province of Western China bordering the Gobi Desert.

CGFForum1 — Founding of the “BRI NGO Partnership for Ecological Management” (actual objectives and program are yet to be defined), Photo supplied by Eugene Simonov

The event was jointly organized by the China Green Foundation (CGF), China NGO Network for International Exchanges, and the International Forestry Cooperation Center of the National Forestry and Grassland Administration (FGA), a mixture of governmental and semi-governmental bodies charged with the task to advance “people to people connection” through environmental collaboration.

Compared with more traditional forms of accepting international students and training developing country bureaucrats, the “Green BRI” initiative, if played well, could kill two birds at once: finding an area of “people to people” cooperation that can tap into a rich pool of existing exchanges between Chinese environmental NGOs and their foreign counterparts, while reinforcing China’s “green leadership” image internationally.

As Eugene’s account shows, however, the reality is far from ideal. In many aspects the event appeared well-intentioned, but too orchestrated and somewhat awkward. Genuine engagement with BRI region civil society on environmental sustainability apparently requires Chinese actors to change their modus operanti. And the rare occasion also gives BRI country NGOs a chance to learn how to approach the Green BRI initiative.

“So I had to represent Putin.”

Panda Paw Dragon Claw(PPDC): So how did you end up at this extravagant Green BRI event in Gansu?

Eugene Simonov (ES): Foreign participants like me were invited for various reasons not necessarily related to the key theme of the event or our NGOs’ experience with the BRI. It is worth noting that two thirds of the Forum participants were Chinese FGA officials and experts, as well as functionaries of local party committees. About 15 foreign NGOs from various countries were invited, mostly with the help of the United Nations Convention for Combating Desertification (UNCCD) secretariat, as well as up to a dozen representatives from Chinese branches of international environmental groups (WWF, IFAW, NRDC, etc). Local grassroots NGOs from China’s desertification-stricken areas were neither seen or heard at the Forum.

CGFForum2 — The largest NGO delegation was the Saudi Desert Plant Cooperation Society headed by His Highness Prince Muteb. Photo supplied by Eugene Simonov

In my case, I was recommended to CGF by an Indian colleague, to whom I was accidentally recommended by Rivers without Boundaries (RwB) Mongolia when asked to find a “representative of Russia”. So I had to represent Putin, sitting at table no.1 with key cadres at banquets, rub shoulders with His Highness Prince Muteb from Saudi Desert Plant Society, and to the extent possible, behave myself.

PPDC: The Chinese government isn’t really known for its engagement with civil society groups. What’s your impression of attending a government organized NGO gathering in China?

ES: Having uneven support from governments and local communities in BRI regions and being criticized by foreign press for lack of consultation in project planning, China is eager to demonstrate its willingness to build cooperation with NGOs in BRI countries.

In particular case of this Forum, the Chinese authorities did not seek recommendation or approval from the respective governments of BRI countries to interact with foreign NGOs, which goes beyond the “government-centric mentality” expected from them. So I see it as a progressive approach and a sign of openness.

On the other hand, little effort is made so far to engage NGOs in joint planning and/or at least to get feedback from them on proposed cooperation plans. They were largely there to “demonstrate support for Green BRI” and at best seen as implementers of already proposed projects. When NGOs expressed doubts they were reminded that it’s their own decision whether to continue such cooperation. This is very similar to mode of official bilateral negotiations with China on many “joint projects”.

“Exporting green solutions like exporting industrial capacity”

PPDC: The “Green BRI” initiative, first announced in May 2017, always feels a bit vague and empty. Does the event give you any concrete idea as to what China is trying to achieve?

ES: The event shows how China’s newly established Forestry and Grassland Administration (FGA) would likely advance the initiative.

The Forum was a follow-up to the UNCCD conference held in China last year. At that conference, China made a pledge to combat desertification and “to carry out cooperation on ecological restoration” along the Belt and Road.

On the first day of the event the organizers arranged a day-long field trip to desertification control project sites of Gansu Province. We toured experimental bases of various companies designing desert-combatting technology, state-owned orchards and vineyards in oases, and poplar plantations. From the bus we only glimpsed the edge of the beautifully natural Tengger Desert, the advance of which all these fortifications are being designed to slow down.

At the Forum, Secretary General of CGF, Mr. Chen Peng, made a detailed introduction to the project “Restoration of Populus Euphratica Forest Eco-system along the Belt and Road”, which was offered as the key practical contribution to “greening BRI” by the CGF and FGA.

This poplar is one of the keystone species of riparian forests at vast floodplains of Central Asian and Middle-Eastern rivers from Tarim and Indus to Amu-Darya and Euphrates. FGA believes the poplars provide important economic value to people (erosion control, fodder, tourism, wood, firewood, medicine, etc). Under the plan, a cooperative partnership will be established with local NGOs to encourage more exchanges of experience in different countries with Euphrates Poplar as a symbolic keystone species. Most activities so far are planned, however, in Xinjiang and across Northwestern China.

CGFForum4 — Slide quotes: “Populus euphratica (Hu Yang) is a symbol of the tenacity of the Chinese nation…” Premier Wen Jiabao, 2009, Photo supplied by Eugene Simonov

PPDC: So it sounds like a massive tree-planting effort along the Belt and Road?

ES: It’s slightly more than that. During the forum, the GCF also announced the launch of an international ecological restoration fund, drawn from donations from companies worldwide to promote a green economy in countries involved in the BRI. First pilot project for poplar planting abroad is planned in mountains of Pakistan along the China Pakistan Economic Corridor (CPEC), but I found no Pakistani representative at the Forum or among the listed editors of the very detailed bilingual report “Restoration of Populus Euphratica” handed out to participants.

Dozens of Chinese companies, including the very famous ELION Group which has been celebrated for its anti-desertification efforts in Kubuqi Desert, were featured heavily at the event. The whole thing makes me feel that the logic for doing such “Green BRI” projects is quite similar to the logic behind “industrial capacity sharing” along the Belt and Road, i.e. exporting Chinese industrial capacities such as power plants and steel mills to other countries. China has some mature desertification-control technology, buttressed by domestic success stories and may be shared and exported with some involvement of China companies. Whether or not the marketed approach fits local needs, ecological conditions and social demands is to be studied AFTER overall project direction has been identified.

Like high-speed railways and other “exported capacity”, success of such projects directly depends on how they match local conditions. Strategic planning and public consultations are straightforward means to increase likelihood of success. So far those tools are rarely used in early planning of BRI projects and “capacity sharing” programs.

PPDC: Were there reservations expressed at the event about this approach?

ES: First of all, I must clarify that I do not disagree with necessity to plant trees. And I see great necessity to restore natural multi-species riparian forests in Central Asia. But similar to many other scientists, I tend to view with great suspicion tree-planting projects in deserts and steppes which naturally do not support woody vegetation, unless it is done due to extreme economic need and in environmentally sustainable manner. Water availability and equitable access to its use is the key factor on which adaptation strategy in a given place depends on. For example, the key to restoration of riparian forests is in preserving adequate flooding by respective rivers and controlling grazing and other activities that suppress tree growth. Artificial planting is only a supplementary measure, especially in places where seeds from trees are not available naturally.

From all foreigners who came to the forum, only Meskele Lera Lencha, the officer of the Hailemariam and Roman Foundation from Ethiopia called China to support large-scale tree-planting endeavors overseas. Other foreign participants had stressed different priorities such as local community empowerment and diversification of local economies.

Even tree-planting champions like the very articulate John H. Kwon from Korean Future Forest, which plants forests in China’s easternmost deserts, explained that planting efforts alone cannot catch up with the speed of land degradation, and preventative policies and measures are essential to win the battle.

PPDC: Did you weigh in on the debate?

ES: At the event I attempted to describe long-term cooperation in China-Mongolia-Russia Dauria International Protected Area, where government agencies, scientists and NGOs complement each other. I emphasized priority of protection measures and strategic science-based environmental assessment of any development and climate adaptation project. Interesting enough, my pitch was immediately echoed by the Head of the FGA Grassland Management, who stated that the main task of desertification control is to prevent conversion of the desert margins into arable land during wetter phases of climate cycle.

Other than delivering our speeches and remarks from the podium (by the way, completely uncensored, which is another good sign of the Forum’s openness) we had not any other slot where we could actually discuss issues and plans.

“Very straightforward recommendations should be repeated again and again.”

PPDC: As an NGO participant, how do you envision this project to unfold hereafter?

ES: Except for the “Euphrates Poplar Project” there is no publicly available overall plan for advancing the cooperation outlined at the event, at least in the realm of FGA activities. Likely what will happen is “development aid” type of cooperation where partners are sought to implement predetermined projects and resources are distributed to consortiums of Chinese actors and foreign NGOs.

Developing countries have large number of NGOs for which distributing foreign aid for predetermined projects is the main mode of operation. So the approach is theoretically doable, but hardly the most effective or innovative. And most NGOs invited to this Forum are not likely partners for such an endeavor, as they are generally mature enough to formulate and execute their own programs best fit for specific local conditions. We are yet to see whether partners from China are willing to engage in a dialogue with local stakeholders and redesign predetermined projects. If you want another forest plantation, it is logical to go to local Forestry Departments in BRI countries instead of NGOs.

CGFForum3 — At the end of the Forum, International NGOs were given bottles with shiny green liquid to poor it over a large poster revealing the name of the new-born “Belt and Road Euphrates Poplar Forest Ecological Restoration Plan and International Cooperation Fund on Ecological Management”. Photo supplied by Eugene Simonov

PPDC: What would be the more effective ways then?

ES: Hopefully FGA, which has key responsibilities in nature conservation and ecosystem management, will be able to start other lines of cooperation with foreign NGOs, for example to prevent destruction and degradation of valuable and vulnerable wildlife habitats, which happens because of many reasons, but increasingly due to poor planning and management of BRI projects. However, no sign of that was seen at the Forum. It was dedicated fully to “remediation” after damage is done.

It is especially urgent along the Silk Road Economic Belt (SREB) where arid conditions make huge portions of natural and semi-natural landscapes very vulnerable that need preventative measures. In early Green BRI policy documents and associated research project outcomes, it is openly said that identification of valuable and vulnerable areas and preventing their degradation is an urgent task.

Strategic environmental assessments (SEA) are among most needed and accessible tools, since they are written into in legislation of China and most BRI countries.

PPDC: Do you find this experience overall worthwhile?

ES: Sure, meeting so many natural resource management actors from national to very local level was very useful experience. It is necessary to participate in such official fora to keep channels of communication open. Although not very effective, such channels are much better than absence thereof. And at those occasions, very straightforward recommendations should be repeated again and again publicly on strategic planning, good governance, meaningful performance indicators and open information, even though you may not get meaningful response immediately.

When it comes to specific pilot projects in their countries foreign NGOs may link Chinese actors with interested and knowledgeable local stakeholders, or at least help local communities to prepare for projects coming their way. This Forum could have achieved more if it was multi-stakeholder. A mix of academians, NGOs, indigenous leaders and forestry officials from various BRI regions would provide better matching opportunities and ensure greater acceptance for future joint projects.

Eugene Simonov is a Russian environmentalist who co-founded the Rivers without Boundaries International Coalition(RwB-www.transrivers.org). He has cooperated with a network of stakeholders interested in river conservation along the Russia-China-Mongolia borders, where dam building and water transfers on a monumental scale threatens the fragile wetland ecosystems in the birthplace of Genghis Khan.

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