Greening BRI Growth

China has unveiled guidelines on a joint push for conspicuous gains in BRI green development in spheres of green infrastructure, energy, transportation, and finance, among others

By Xiao Xin

Nearly a decade after China proposed the Belt and Road Initiative (BRI) in late 2013, the steadily-expanding connectivity push was retooled earlier this year to dovetail with a global campaign for greener growth.

The BRI’s evolution into a launchpad for sustainable development mirrors China’s economic rebalancing that has primed the world’s second-largest economy for a trendsetting role in global infrastructure investment.

Certainly, turning an initiative as huge and diversified as BRI completely green will not be an easy task by any measure. 

Sharpening the Green Edge

While the color green seems somewhat embedded in the BRI’s DNA, multiple iterations of green pushes over the years ultimately materialized goals that would make BRI comparable to the greenest global deals.

Such efforts are finally culminating in a grand infrastructure strategy for an era in which many nations around the world are aspiring for more sustainable growth with carbon peaking and neutrality goal setting. With clearer green promises, the BRI will remain ahead of the curve despite any hype from latecomers such as the U.S.-led infrastructure initiative Build Back Better World (B3W).

At the 21 UN climate change conference in Glasgow, a pact was adopted aiming to fill the current decade with climate action and support. By the end of the Glasgow conference, more than 100 countries had filed nationally determined contributions to emission cuts by 2030.

In notable progress at the Glasgow conference, China and the US announced a surprise climate action agreement. The two countries agreed to establish a working group on enhancing climate action in the 2020s.

The imperative climate action push will only intensify green BRI construction.

In the latest wave in late March, four government bodies including the National Development and Reform Commission (NDRC), the Ministry of Foreign Affairs, the Ministry of Ecology and Environment (MEE), and the Ministry of Commerce (MOFCOM) unveiled guidelines on a joint push for BRI green development.

With a new strategy that envisions an upgraded push for partnerships in green infrastructure, energy, transportation, and finance, among other spheres heading toward eco-friendly growth, the BRI is proceeding with long-term endeavors to recalibrate with higher green standards.

The green upgrade dates back to at least early 2013 when the infrastructure plan was still in incubation.

In February 2013, the MOFCOM and the predecessor of the MEE released guidance on environmental protection for overseas investment and cooperation. Under the guidance, Chinese firms were required to align their overseas investment with environmental policies and regulations governing the destination markets.

In the initial years since the BRI came into being, the green push was seen as becoming an essential part of the infrastructure development strategy.

Efforts are needed to push for green and low-carbon infrastructure construction and operation management, according to the Vision and Actions on Jointly Building the Silk Road Economic Belt and the 21st-Century Maritime Silk Road.

“We should promote ecological progress in investment and trade, increase cooperation in conserving eco-environment, protecting biodiversity, and tackling climate change, and join hands to make the Silk Road an environment-friendly one,” read the March 2015 document.

Later, the NDRC and other three government bodies unveiled new guidelines on green BRI construction in 2017. The 2017 guidelines went one step further to integrate ecological protection into all aspects and the whole process of BRI construction.

In so doing, the infrastructure plan would help countries and regions along the BRI route jointly achieve the UN’s 2030 Agenda for Sustainable Development. The agenda eyes sustainable development in economic, social, and environmental dimensions by 2030 in a balanced and integrated manner.

A major breakthrough arrived in July 2021 when the MEE and the MOFCOM unveiled work instructions for green development of overseas investment and cooperation. The pioneering instructions featured a proposition encouraging domestic firms to abide by international green rules and align with globally accepted practices.

The proposition represented an upgrade from the standard principles China had long maintained. The principle meant Chinese businesses were encouraged to comply with the host country’s laws and regulations to qualify for permits and licenses for local operations. 

The regulatory environment and governance structure of course vary across different host countries, with some countries having lax environmental rules and lacking safeguard mechanisms for oversight or requiring only minimal eco-friendly efforts from large infrastructure project developers and investors.

Therefore, compliance with only the standards of the host country risked failing to minimize environmental fallout from new infrastructure projects. Chinese businesses investing in such projects could find more restrictions to global fundraising due to failures to meet higher environmental and social standards.

For perspective, the B3W was launched at the UK-hosted Group of Seven Summit in mid-June 2021, just a few weeks before the July breakthrough.

High standards and eco-friendliness are among B3W’s guiding principles. “Investments will be made in a manner consistent with achieving the goals of the Paris Climate Agreement,” the infrastructure plan pledged.

Shortly after the B3W announcement, 29 BRI economies including China launched the Initiative for Belt and Road Partnership on Green Development in June, which endorsed “green and low-carbon development, including through the implementation of the Paris Agreement and sharing of best practices.”

On December 1, 2021, the EU unveiled the Global Gateway, the continent’s global connectivity strategy reportedly based on its high social and environmental standards.

Both the B3W and the Global Gateway are touted by some as responses to the BRI.  

Then the January guidelines on ecological and environmental protection for overseas investment and protection brought another overhaul to China’s green push.

The January ordinance, the last major improvement of the green push prior to the March upgrade, was based on the aforementioned 2013 guidance and the July 2021 work instructions on improving recognition of internationally accepted standards and formulating new requirements for tackling climate change and biodiversity.

New Instruction Manual

The March guidelines feature huge upgrades on the 2017 version in areas including policy communication, green industrial partnerships and green finance market deregulation, aiming for a sophisticated green policy framework.

The newest guidelines set specific targets for BRI green development by 2025. They suggest the green Silk Road mentality will gain widespread recognition with material progress on green infrastructure, energy, transportation, and finance. Overseas projects will also see a pronounced rise in risk prevention capabilities.

Furthermore, the guidelines envisaged the idea of BRI green development resonating deeply and widely by 2030.

The upgraded policy insists on strict compliance with the host countries’ environmental laws and rules while considering local appeal for green development and ecological and environmental protection.

It encourages operations in accordance with internationally accepted standards or higher Chinese standards on environmental protection. Corporate environmental reports are also supposed to be published on a regular basis.

The guidelines explicitly call off new overseas coal-fired power projects and require coal power projects now underway to proceed in a prudent manner. Finished overseas coal power projects would aim for green and low-carbon development according to an April 1 article on People’s Daily, citing Zhang Yujun, head of the MEE’s foreign cooperation and exchange center.

Relevant businesses are encouraged to increase clean and efficient usage of coal and leverage advanced technologies such as desulfurization, denitrification, dust removal, and carbon dioxide capture and storage, which clearly demonstrates China’s resolution to address climate change, according to Zhang.

Under the new guidelines, businesses are to be guided to reasonably map routes in project design phases, thereby reducing the environmental impact on various protection zones and ecologically fragile regions.

Specifically, businesses are advised to deepen cooperation in energy technologies and equipment and prioritize energy-efficient vehicles including new-energy and clean energy-powered cars and ships in a push for the prevalence of the Chinese solution to smart transportation.

Participation in overseas railway electrification projects is also on the priority to-do list.

Additionally, the upgraded ordinance champions the creation of green-themed equity investment funds in overseas markets and the push for trade in green products that are of high quality, known for high-tech and high added value.

Solar energy and wind power firms are among the businesses to be encouraged into an expansion into BRI markets for there to be projects best practicing green energy initiatives.

The guidelines seek to make industrial partnerships greener and motivate BRI economies to go green, according to Zhang Jidong, a research fellow with the NDRC’s international cooperation center, in the People’s Daily article.

Likewise, the ordinance seeks to strengthen international cooperation in green supply chains and substantially increase greenness throughout production, procurement, and consumption, Zhang said.

In a notable sign of sophistication, the new guidelines propose a more feasible approach to green project financing that features opening of the green financial market in multiple ways.

The upgraded policy features plans to appeal to private green investment as well as to gain greater access to loans from international financial institutions.

International funders include large institutional investors, multilateral financial institutions, and global banks, notably those supporting Equator Principles, a set of environmental and social risks management guidelines normally requiring more stringent standards for assessing and managing the environmental and social risks associated with lending.

Consequently, the March upgrade enables Chinese firms investing in BRI projects to mitigate their operational risks and ease their funding woes.

Deregulation will effectively kindle green finance. The size of overseas issues of green bonds has been on an uptrend.

Last year, Chinese firms issued 66 green bonds in overseas markets, a surge of 247 percent from the previous year. The green bond issuance amounted to roughly US$22.99 billion, up 170 percent year on year, per statistics from the International Institute of Green Finance (IIGF) of the Central University of Finance and Economics in Beijing.

By the end of 2021, domestic firms cumulatively issued 144 overseas green bonds totaling US$61.32 billion.

Panda bonds, yuan-denominated bonds issued by overseas issuers on Chinese market, have thrived as well.

A fresh instance was the Asian Infrastructure Investment Bank’s issuance of 1.5 billion yuan (US$224.45 million) of sustainable development Panda bonds in China’s interbank bond market in early June.

Challenges Ahead

While the policy framework upgrade is well set to prepare the BRI for wider green compliance, the infrastructure initiative’s broad-ranging membership that is marked diverse in resources, economic growth, and environmental governance inherently makes green goals harder to reach. 

By the end of March, China had signed more than 200 cooperation documents with 149 countries and 32 international organizations to jointly push for the BRI, official data showed.

BRI countries from Northeast Asia, Central Asia, West Asia, and North Africa are abundant in oil and gas resources. Most of these countries are energy producers and exporters such as Russia, Kazakhstan, and Saudi Arabia, whose economic growth, fiscal revenue, and foreign exchange income are largely reliant on energy production and exports.

Accordingly, the stability of their growth is susceptible to global energy price fluctuations and therefore the key to their green development lies in energy restructuring, wrote Feng Zuhan with Fareast Credit in a research report late last year.

Southeast Asian economies participating in the BRI including Indonesia, Vietnam, and Thailand where local demographic dividends prevail are more adept at capitalizing sufficient labor forces to develop processing trades. As these countries climb the manufacturing ladder, they are facing rising environmental pressure alongside a rapid increase in energy consumption and carbon emissions.

And some BRI countries are famed for their agricultural sectors, especially animal husbandry, which accounts for a big part of their economies—in countries like Pakistan and Nigeria, local methane emissions are among the world’s highest, according to Feng.

For Central Asian and Middle Eastern countries along the BRI route, ecological fragility, desertification, water shortages, and other environmental issues have been widely proclaimed as the biggest headaches weighing down local development.

Such discrepancies point to different roadmaps toward and priorities for green development among BRI membership, thus posing challenges for BRI projects to be implemented and delivered truly in a green fashion.

For instance, the policy support for green energy remains insufficient in some BRI countries. The mechanism for on-grid power tariffs on green energy doesn’t yet function well enough, and the market environment for green energy is not adequately open and stable, reported Chinese news site 21jingji.com in April, citing Wang Yao, director of the IIGF of the Central University of Finance and Economics.

As a result, Chinese solar and wind power industry heavyweights tend to be frustrated by destination markets lacking a policy environment favoring implementation of green energy projects, Wang added.

It should also be noted that the availability of the B3W and the Global Gateway, albeit yet as broad-based and impactful as the BRI, might result in a race toward even higher standards which would make green implementation even more strenuous.