March 29, 2023

[...] Chinese finance to Latin America and the Caribbean is re-emerging and possibly pivoting into new sectors. Whereas early Chinese lending was heavily concentrated in large loans and credit lines for oil companies, recent and ongoing finance is shifting towards a “small is beautiful” approach of narrower and more focused project-based lending.

It is undoubtedly an encouraging sign that Chinese lending to Latin America and the Caribbean is shifting away from fossil fuels and toward more climate-savvy areas. Gone are the days of ten-digit credit lines for oil companies. Rising in their place are climate change mitigation and adaptation projects. In fact, two of the three new finance commitments announced in 2022 are in climate adaptation, with Chinese-backed projects to reinforce coastal roads in Barbados and Guyana. Loans that are likely to be negotiated this year include expansions of two major renewable energy projects: the Cauchari solar plant in northern Argentina and the Patuca hydropower complex in Honduras.

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However, if “small” really is to be “beautiful”, Chinese-financed projects will also need to consider local environmental and social risks, as well as global ones. In other words, how the projects are planned and managed is as important for sustainability as what type of project is planned.

Three factors are critical to environmental and social risk management in infrastructure projects: comprehensive environmental impact assessments (EIAs), meaningful stakeholder engagement and a commitment to transparency throughout the project lifecycle. If just these two Chinese projects are financed this year, it will be crucial for Chinese banks and contractors to ensure that EIAs are thorough, that Indigenous consultations include downstream as well as local communities, and that the entire process is transparent.

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