"Going green? Chinese policy banks’ changing role in global energy development" 27 April 2022

China’s policy banks have been some of the largest energy sector financiers in the world. But in 2021 they provided no new development finance for energy projects overseas – the first year this century without any such finance.

This striking finding, from our recent update to China’s Global Energy Finance Database (CGEF), managed by the Boston University Global Development Policy Center, could represent a turning point in China’s involvement in overseas energy development.

The world faces a gaping investment gap in energy infrastructure, so questions on the future nature of China’s support in this area are of global importance.

President Xi Jinping pledged, in September last year, that China will increase support for low-carbon energy development overseas. Does the slump in lending from policy banks belie a shift towards support for greener energy technologies around the world? [...]

China has two main policy banks: the China Development Bank (CDB) and the Export-Import Bank of China (CHEXIM). They played a critical role in China’s domestic development before their expansion into overseas markets in the 2000s. [...]

China’s policy banks have devoted most of their overseas lending in the electric power sector to coal-fired power generation and hydropower projects, reflecting domestic drivers from China’s own energy sector. Around the time of the global financial crisis, Chinese coal companies faced a slowdown in domestic electricity demand, leading to excess manufacturing capacity. Responding to demand from host countries with significant coal deposits, the growing need for electricity, and historical dependence on coal-fired power, China’s policy banks have lent US$31 billion for overseas coal power generation since 2000, CGEF data shows. This represents roughly 46 gigawatts (GW) of generating capacity, which has created significant opportunities for Chinese coal companies’ expansion overseas.

For hydropower, China’s policy banks also filled a large gap left by traditional donors and MDBs, which moved away from large dam projects at a time when developing countries were seeking to expand their own hydropower resources. China’s domestic hydropower industry also has decades of experience, lending a competitive advantage abroad. Our data shows that China’s policy banks have lent a total of $30 billion for hydropower projects overseas and an additional $2.5 billion for associated transmission infrastructure, altogether representing nearly 32 GW of generating capacity.

China’s overseas energy development finance has also flowed significantly to oil and gas exploration and extraction. Support for coal and hydropower make up the next largest destinations by energy type and have been relatively more stable than lending to oil and gas, which drove major peaks in lending in 2009 and 2016, of $45 billion and $38 billion, respectively. [...]

Shifting channels of engagement could mean the types of energy China is enabling overseas are about to change – for the greener. China’s policy banks, have paused their lending, which had been so heavily oriented towards oil and gas extraction, and coal and hydropower generation. Pandemic-related borrowing constraints in host countries and restrictions on travel from China have made global deal-making challenging during the past two years.

Renewable energy is a key example of China’s overseas engagement that hasn’t historically involved much policy bank support. Already, China’s financing for overseas renewable energy development via FDI from individual Chinese companies has far exceeded policy bank lending. [...]