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The Belt and Road Initiative: A true win-win situation or a double win for China?
BRI has so far only contributed to the rise of GHGs and not to the GDP of the host countries. Is China accruing economic benefits while exporting carbon emissions to BRI nations?
As the second largest global economy, the most populous nation with a population exceeding 1.4 billion, the largest carbon emitter, and one of the fastest growing global economies, China’s climate action will have a decisive influence on bending the temperature curve to 1.5°C as required by the Paris Agreement. China emitted more than a quarter of the global greenhouse gas (GHG) emissions in 2019. The nation’s CO2 emissions hit a new record high of around 12 GtCO2 in the 12 months to March 2021.
Nevertheless, the updated Nationally Determined Contributions (NDCs) lack the ambition required to be demonstrated by China in the global fight against climate change. It appears that China has failed to put its best foot forward in marching against the biggest ever challenge facing the global collective. Amongst the highlights, China has committed to peaking its carbon emissions before 2030 and to attaining carbon neutrality by 2060. the effectiveness of these commitments in achieving compatibility with the goal of 1.5°C is not clear. The carbon-centric nature of these commitments while remaining silent on non-carbon GHG emissions is concerning.
"Construction of highways, rail lines, power plants, ports, amongst others is essentially a resource and energy intensive exercise resulting in GHG emissions."
But the primary objective here is to draw attention to the possibility that China is probably exporting its carbon emissions to the Belt and Road (BRI) nations. While BRI projects emit significant GHG emissions in the host nations for which these nations are held accountable, a sizeable portion of the economic gains entailing these projects are accrued by Chinese constituencies.
BRI, as an international infrastructure development initiative, is inherently carbon-intensive given that its primary focus has been on building conventional infrastructure vis-à-vis green infrastructure. Construction of highways, rail lines, power plants, ports, amongst others is essentially a resource and energy intensive exercise resulting in GHG emissions.
Despite championing renewables at home, the energy infrastructure dominating BRI projects is fossil-fuel based with more than 60 percent of the BRI-related energy financing from China Development Bank (CDB) and the Export-Import Bank of China (China EXIM) were channelled into non-renewable energy. In fact, between 2014 and 2017, fossil fuels accounted for 91 percent of energy-sector syndicated loans from six major Chinese banks to BRI countries. Instead of liquidating its coal sector assets as part of its green transition, China has instead transferred its old, dirty, least efficient coal technologies to the BRI nations.
China’s sunset industries such as copper and aluminium smelting, cement, papermaking, iron and steel, etc. which are being compelled to move out of the domestic geography due to excess industrial capacity and a violation of environmental norms, find a place in the BRI nations for their productive utilisation. China’s high-speed rail lines which reached saturation is yet another example as these industries are highly carbon-intensive.
"Instead of liquidating its coal sector assets as part of its green transition, China has instead transferred its old, dirty, least efficient coal technologies to the BRI nations."
The BRI is principally a debt financed venture with its primary lenders being the CDB and the China EXIM, and some state-owned commercial banks. While such loans do not have any conditionality of political or economic reform tied to them, they are not essentially development-oriented and are expected to yield a commercial return. This is evident in China’s reluctance to cancel debt even in the face of the worst humanitarian crisis unleashed by the COVID-19 pandemic and its relative affinity towards providing grace period for and rescheduling repayments, extending the maturity of debt and lines of credit.
BRI projects are largely awarded to Chinese firms proving hollow Beijing’s claim that such projects are open to universal bidding, and foreign partnerships. In fact, a survey of the contractors participating in the BRI initiatives revealed that 89 percent are of Chinese origin, 7.6 percent are local companies headquartered in the host nation where the project is undertaken and 3.4 percent are foreign companies, essentially non-Chinese, hailing from countries other than the one where the project is ongoing.
BRI ventures have been reported to hire Chinese workforce as opposed to local labour. China’s significant presence in the African continent is well-documented. About 182,000 Chinese were working in Africa by the end of 2019. About a million of the Chinese labour were officially hired in overseas employment as of 2019, with many others working unofficially. However, the composition, in terms of nationality, of the workforce on BRI projects is expected to vary by geography. A larger proportion of the Chinese workforce are likely to be employed by large-scale infrastructure projects executed by Chinese state-owned firms to cater to the domestic oversupply. Wherever local labour is hired, their working conditions have been reported to be pitiable. This is true of Chinese labour as well. In fact, preferring Chinese labour over local labour in certain regions may be due to their relative vulnerability.
"A larger proportion of the Chinese workforce are likely to be employed by large-scale infrastructure projects executed by Chinese state-owned firms to cater to the domestic oversupply."
The promise of BRI was to boost global GDP, reduce global trade costs, and transform the host nations into globally competitive economies by tackling their infrastructure and transformational bottlenecks. The promise was to accelerate economic growth in the BRI nations. Rather, BRI has triggered a debt crisis in the host nations by compounding their debt problems and making them untenable in nature. This situation has been further aggravated by the crisis unleashed by the pandemic. Where is the economic growth promised by the BRI? Such growth would have helped ease the debt problems confronting the nations participating in the BRI.
It appears that while the carbon-intensive BRI has spent the limited carbon budgets of the host nations, it has managed to seize the economic gains that have entailed these carbon emissions for which the host countries are held responsible. These carbon emissions are accounted as being an outcome of the host countries’ economic activities rather than that of China. The interest payments accruing to the BRI debt, profits made by executing BRI projects, the employment opportunities created by these projects and the incomes that follow from such employment are being appropriated by banks, firms, and workforce of Chinese origin. The quality of employment created by BRI projects is far from being decent, having missed a valuable opportunity to put carbon emissions to good use.
"China must be compelled to make BRI yield genuine development gains for the host nations while using their carbon budgets."
The host nations could have well very utilised their carbon budgets spent on BRI for creating economic growth, profits and decent work for their nationals, of course, with the right kind of assistance. The global community is to be partly blamed for not coming forward with the economic assistance required by the less developed BRI nations as a credible alternative to the Chinese model of assistance in the form of the BRI.
The global community must exert constructive pressure on China to reveal its carbon footprint in the BRI ventures. Since climate change is upon all, these less developed BRI nations will find themselves severely constrained to manage the trade-off between global warming and economic growth. China must be compelled to make BRI yield genuine development gains for the host nations while using their carbon budgets. China must also deliver on its promise on making BRI a ‘green’ initiative, which until now it has more or less evaded.
The author would like to acknowledge the research assistance provided by Aakriti Pandey, Research Intern at ORF Mumbai.
Renita D'souza (ORF)
26 November 2021