GreeningBeltandRoad:EmergingRegulatoryFrameworkforChina'sSustainableOverseasInvestments

OyunaBaldakovaGraduateSchoolofEastAsianStudies,FreeUniversityofBerlin

UNCTADSummerSchool,5September2018

Outlinev ResearchQuestionandMethodologyv BeltandRoadInitiative(BRI)v GreeningofFinancialInstitutionsinChinav EcologicalCivilizationandGreenBRIv Top-down&Bottom-upInitiativesv Conclusion

ResearchQuestionandMethodologyv Doctoralresearchproject:“Win-winontheLocalLevel:StudyoftheBeltandRoadInitiative’sLinkageEffectsinCentralAsia”(workingtitle)vWhataretheapproachesundertakeninChinatogreentheBRIinvestmentsandwhatchangescanweexpect?v Primarydocuments(officialspeeches,resolutions,BRIwhitepapers)andsecondaryliteraturev FieldworkatPKUfromJanuary26toApril19,2018:semi-structuredinterviewswithmorethan25expertsandpractitioners(qualitative)

BeltandRoadInitiativev TheSilkRoadEconomicBeltandthe21st-centuryMaritimeSilkRoad(2013)v一带一路 (yi dai yi lu): OneBeltOneRoad(until2016)=>BRIvModern-daySilkRoad/Marschall Planv BRI– grandeconomic/foreignpolicyinitiativev “AstrategicframeworkallowingtheChineseGovernmenttomanageitsinfrastructureprojectsscatteredacrossAsia,AfricaandEuropeinamorecoherentmanner”.Itcombinesdifferentforeignanddomesticpolicieswithexisting,andnewpoliticalandfinancialcooperationmechanismsinanewgeographicalformat(EPRS,2016)v Chinesestyle/Xistylepolicymaking(noKPIs,nodefinedscopeandtimeperiod)v BRI’santicipatedcumulativeinvestmentoveranindefinitetimescaleisevaluatedfromtheofficialChineseUS$600-800billion(Reuters,2017)tocombinedinternationalUS$4trillion(TheEconomist,2016)

FundingforBRIbysource

FiveKeyAreasofBRI

Source:HKTDCResearch

Source:BeltandRoadAdvisory

BRITimeline

XiJinping2012– GeneralSecretaryofCCP2013– PresidentofthePRC2017– BRIintheCCPconstitution2018– Removaloftermlimits

Resultsafter5Yearsv AsofAug.26,2018,thenumberofChina-Europefreighttrainshasreached10,000.

v Inthepastfiveyears,China'stradeingoods withcountriesalongtheBeltandRoadexceeded5.5trillionU.S.dollars.Chinesedirectinvestmentinthenon-financialsectorsofthesecountriesreached80billionU.S.dollars.

v Inthepastfiveyears,Chinasetup82overseaseconomicandtradecooperationzonesincountriesalongtheBeltandRoad,investing28.9billionU.S.dollarsandcreatingabout244,000localjobs.AsofMay2018,Chinahadsigned16freetradeagreementswith24countriesandregions,nearlyhalfofwhicharecountriesalongtheBeltandRoad.

Resultsafter5YearsvInthefirstsevenmonthsof2018,Chinesecompaniesraisedinvestmentin54countriesalongtheBeltandRoad.The8.55-billion-U.S.dollarnewlyaddedinvestmentrepresentedan11.8percentincreaseyearonyear.NewconstructioncontractsalongtheBeltandRoadworth57.11billionU.S.dollars.

v Undertheinitiative,Chinahassetup81educationinstitutionsandprojectsaswellas35culturalcenters incountriesalongtheBeltandRoad.Inthefirsthalfof2018,Chinaspentover270millionyuan(around39.3millionU.S.dollars)ontheSilkRoadscholarships.

v AsofJuly2018,morethan100countriesandinternationalorganizationshadsignedBeltandRoadcooperationdocumentswithChina,extendingtheinitiative'sscopefromtheEurasiancontinenttoAfrica,LatinAmericaandtheCaribbean,andtheSouthPacificregion(Xinhua).

BRIDefinitionv Itsscope,timeperiod,conditionsofparticipation,responsiblegovernmentalagencies,etc.areill-defined,adhocv Unfoldingphenomenon,a(learning)processthatwilltakedecades=>CenturyProjectv AsWadeShepardputsit,theBRIis“flexibleenoughtoevolvewiththetimes,blowinthedirectionofcontrastingpoliticalwinds,andrideouttheinevitablecyclesoftheglobaleconomy”(2017)v Policiesoftoday– futureoftheBRI

Spheres Issuestobesolved->Goalstobeachieved

Economic • Industrialovercapacity->useofaccesscapacity(tiedloans)whenbuildinginfrastructureoverseas(bullettrains),internationalindustrialtransfer/capacitycooperationpolicies;

• Industrialupgradingtodealwiththemiddle-incometrap;• Liquidityoversupply(reservesaccumulation)–>newinvestment

opportunities;• RMBinternationalization;• MalaccaDilemma->developmentofnewtraderoutes;• Securingaccesstoresources(oil-backedloans);• AccesstonewmarketsforChina’sSOEsandprivatecompanies;• Newroundofglobalization;• etc.

Socialand(Geo)Political • DevelopmentofChina’sWesternandNorthernprovinces(map);• SecurityissuesinCentralAsiaandMiddleEast;• BRIasanewideology->nationbuilding;• Xiquestforpower(CCPConstitution);• TacklingtheNewNormal,China’srisingontheworldstage->

improvedCCPlegitimacyinChina;• Creationofnewinternationalinstitutions+standards’

monopolization(quote);• Controlofcriticalinfrastructureofpartnercountries(SriLanka)and

strongernegotiatingposition(GreeceblocksEUstatementonChina’shumanrights);

• Softpower:Chineselanguagepopularization,studentexchange;• etc.

BRIDrivers

Source:basedonpreliminaryanalysisofinterviewsandliteraturereview

BulletTrains

GeopoliticalExplanation‘Thereappearstobeacorrelationbetweeneffortsbyrisingpowerstocreateambitiousnewglobalorregionaleconomicandpoliticalinstitutionalarrangementsasawayof‘lockingintheirpowerandinfluence’andtheroughpeakingofthosepowers’economicstrengthinrelationtotherestoftheworld.TheUnitedStatesledinthecreationoftheWorldBankin1944,forexample,whenitsshareofglobalGDPpeakedat36percent.JapancreatedtheAsianDevelopmentBankin1966andGermanycreatedtheEuropeanBankforReconstructionandDevelopmentin1991,followingunification,eachcountryclosetooratitsrelativepeak.InscaleofambitionXi’stwobiggestforeignpolicyinitiatives,OneBelt,OneRoadandtheassociatedAsianInfrastructureInvestmentBank,certainlywarrantcomparisonwiththesepredecessors.Nocausationisbeingsuggestedhere,butifthispatternholds,evenloosely,China,whichaccountsfornearly17percentoftheglobaleconomy,mayalsobeapproachingaplateauintermsofrelativesizeatbest.’

HowardW.French,“EverythingUndertheHeavens:HowthePastHelpsShapeChina'sPushforGlobalPower”(2017)

v AlexanderCooley(2016):“gamers”(globalgovernance)and“traders”(infrastructuregap=>bankableinfrastructureprojects)

v Bothhavelimitedconsiderationoflocalcontexts,potentialdistributionalconsequences,sustainability,andlong-termimpactv “Changers”- sustainabilityoftheinfrastructureprojects,theiroverallpotentialforthesocio-economicdevelopmentofBRIcountriesvWidelypromotedbytheChinesegovernment(win-win),welcomedbyinternationaldevelopmentorganizations(UNendorsement),andtoadegreeoverlookedbyWesternresearchersandanalysts

GlobalReactions

GreeningofFinancialInstitutionsv GreeningthefinancialsystemsinOECDcountriesisdrivenbymarket,shareholderandstakeholderpressures=>voluntarymeasures,privatestandards,internationalprinciplesforresponsibleinvestmentandratingsystemsv Governmentsplayatbestanindirectroleingoverningthegreeningoffinances(transparencyandreportingrequirementsofbankingactivities)v InChina,greeningoffinanceisacreationofthegovernment,itsimplementation- command-and-controlregulations

LiandHu(2014)distinguishfourphasesintheinclusionofenvironmentalobjectivesandconditionalityinChina’smainfinancialinstitutions:1. Early1980s:EIA(environmentalimpactassessment)approvalasa

preconditionforloansbystate-ownedbanksformajorconstructionworks

2. From1995:greeningofcreditprovisioning

3. 2001:greeningtheemergingstockmarkets4. 2007:pilotphaseoftheenvironmentalpollutionliabilityinsurance

system

GreeningofFinancialInstitutions

v 2007:GreenCreditPolicy– Chinesebankstowithholdcredittoheavilypollutingorenergy/recourseinefficiententerprisesandtoextendcredittoenvironmentalprojectsonpreferentialterms(solarpanels)v 2012:GreenCreditGuidelines- improvedrulesandindicatorssystemforgreencredit,investigationoftheloanstatusofenterprisesviolatingtheregulations,obligatingbankstocomplywithhostcountrylawandinternationalnormsintheiroverseaslending (unprecedented)v Guidelinesarenotlegallybinding.Weakimplementation- lackofcapacitywithinbanksonenvironmentalassessment,poorrewardandpunishment,strongpressurefromlocalgovernmentstoprovideloans

GreeningofFinancialInstitutions

v Annualmanufacturingofsolarpanels

GreeningofFinancialInstitutions

EcologicalCivilizationandGreenBRIv EcologicalCivilization(生态文明,shengtai wenming)– appearedin2007,incorporatedintotheCCPConstitutionin2012v Creationofalarge-scalecirculareconomy,aconsiderableincreaseoftheproportionofrenewableenergysourcesintotalenergyconsumption,aswellasbringingundereffectivecontrolthedischargeofmajorpollutantsv After2013environmentaldegradationhighonpublicopinionpollsinChina(airpocalypse);thegovernmentintroducedmorecomprehensivechangesintheChineseenvironmentallaw

vAtthe19thCCPNationalCongressin2017,PresidentXiunderlinedthatChinawasinthe“drivingseat”whenitcomestointernationalcooperationonclimatechange,becoming“animportantparticipant,contributor,andtorchbearerintheglobalendeavorforecologicalcivilization”(ParisAgreement)v AttheBeltandRoadForumforInternationalCooperationin2017,Xispokeaboutthepursuitofaninnovation-drivenBRIguidedby“anewvisionofgreendevelopmentandawayoflifeandworkthatisgreen,low-carbon,circular,andsustainable”

EcologicalCivilizationandGreenBRI

v In2017,fourministries- MinistryofEnvironmentalProtection(MEP),MinistryofForeignAffairs,NationalDevelopmentandReformCommission,andMinistryofCommerce- jointlyissuedtheGuidanceonPromotingGreenBeltandRoad:

- in3-5years,establishapragmaticandefficientsystemofenvironmentalcooperationandexchange,supportandserviceplatformsandindustrialandtechnologicalcooperationbases,andformulateandimplementaseriesofenvironmentalriskpreventionpoliciesandmeasures;

- in5-10years,setupafull-fledgedenvironmental service,supportandguaranteesystem,andcarryoutanumberofimportant ecologicalprojectsthatproducedesiredresults(BeltandRoadPortal,2017)

Top-down &Bottom-upInitiatives

vMEPin2017:TheBeltandRoadEcologicalandEnvironmentalCooperationPlan tostrengthencooperationoneco-environmental protectioninordertoserve,support,andguaranteetheBRIconstructiontowardsenvironment-friendlyroutesv People’sBankofChina(PBOC)alongwithsixothergovernmentagenciesjointlyissuedin2016GuidelinesforEstablishingtheGreenFinancialSystem,settingouttheofficialdefinitionofgreenfinance,incentives,disclosurerequirements,developmentplanforgreenfinancialproducts,aswellasriskmitigationv EnvironmentalRiskManagementInitiativeforChina’sOverseasInvestmentwasissuedbytheGreenFinanceCommitteein2017,anorganisation affiliatedwiththePBOCandwhosemembersaccountfor70%ofChina’sfinancialassets

Top-down &Bottom-upInitiatives

v Attheinternationallevel,asG20president,ChinaincludedgreenfinanceintotheG20agendain2016,whichwaslaterretainedandfurtherexploredbyGermanyin2017,graduallyformingtheglobalconsensusondevelopinggreenfinancev China’sMEPandtheUNEnvironmentisajointlyestablishedCoalitionforGreenDevelopmentontheBeltandRoadto buildaninternationalplatformtosharetheenvironment policiesandexperiencesamongthecountriesinvolvedintheBRI,andpromotewidercooperationv “GreeningtheBeltandRoadInitiative”ReportbytheWorldWildlifeFund:theseinitiativesarestillintheirinfancyandalltheadoptedguidelinesarenotbinding,buttheypresentanopportunitytopromotethegreeningoftheBRIandsupportitscontributiontosustainabledevelopment(WWF,2017,p.11)

Top-down &Bottom-upInitiatives

v SustainableInfrastructureGuidelinesforOverseasChineseEnterprisesdevelopedbyChinaInternationalContractorsAssociationin2016inresponsetohighermarketcompetitionandreputationalconcernsbothathomeandabroad

v Privatefinancesector,stockexchange:tighterESGregulations

v NGOs:RiverswithoutBoundariesadoptedaGreenSilkRoadInitiativeDeclarationin2016

v Heightenedinternationalmediaattention(Myanmar:Myitsone dam)

Top-down&Bottom-up Initiatives

Conclusionv FirstsignsofBRI’sinstitutionalization:newaidagencyinChinav Policiesoftoday– futureoftheBRIv DiffusedeffortshavebeenundertakentogreenChina’sinvestmentsoverseas:top-downandbottom-upv TheBRIisunderinternationalspotlightandtheChinesegovernmentiswell-awareofthatfact:tippingpointv FurtherinvestigationofthecurrentpoliciesandtheiractualimplementationareessentialtounderstandingthefuturetrajectoryofChina’sinvestmentspolicyreformv TheinterpretationofsustainabledevelopmentconceptitselfinChineseacademiaandpolicy-makingneedsfurtherexamination;focusonenvironmentlesssocialandgovernanceaspects

Thankyou!

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