Financing overseas greening

Contrary to belief, China's ODI is helping host countries better realize emissions reduction through the use of cleaner technology

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Some people claim that China's outbound direct investment, particularly for energy and infrastructure construction projects, have increased the host countries' carbon dioxide emissions. Such arguments neglect the fact that every country has the right to develop its economy, and are thus ill-founded and out of line with reality. As a matter of fact, China's ODI has helped reduce host countries' carbon emissions, making a big contribution to global emissions reduction.

This is because Chinese companies have more advanced technologies and provide cleaner technologies to the host countries than the latter would otherwise apply. Take coal-fired power plants, which used to be a major area of investment for Chinese companies under the Belt and Road Initiative, as an example. Given the constraint that the host nation's demand for power generation and consumption is fixed, Chinese-invested coal-fired power projects will have an emissions reduction effect because they have a notably higher efficiency of coal utilization than that in the vast majority of developing nations and therefore, burn less coal and emit less carbon dioxide for the same amount of electricity generated.

The Shenhua Guohua Java 7 Coal-Fired Power Plant in Indonesia, which is a thermal power project with the largest single unit installed capacity invested and built abroad by a Chinese enterprise, is a perfect example of this. A simple comparison between the project's installed capacity and emissions load and that of other local thermal power projects show that the Chinese-invested project has a much lower carbon emissions intensity. It is estimated that Indonesia reduced carbon emissions by 9 million metric tons in 2018 alone because it applied China's coal-fired power generation technologies for this project.

Similarly, Chinese-invested coal-fired power projects in other countries involved in the Belt and Road Initiative have helped the host countries reduce emissions to varying degrees.

The host nations need to develop their economy and have to meet the growing demands for electricity generation and consumption. Against such a backdrop, Chinese-invested coal-fired power plants, which comply with medium- and high-end environmental standards and are cost-effective at the same time, are a good choice for developing countries. Those who compare the conditions in the host countries after Chinese investment with the original state ignore the fact that the host countries need to develop their economy in the first place.

Similarly, those who believe that the host nations should adopt the strictest standards for environmental protection, should not forget that doing so could be extremely expensive, far exceeding what developing countries can afford.

Furthermore, some Chinese-invested coal-fired power plants are approaching the highest environmental standards for discharge of pollutants other than carbon dioxide. For instance, the intensity of emissions of dust, sulfur dioxide and nitrogen oxides from the Shenhua Guohua Indonesia Java 7 Coal-Fired Power Plant is much lower than Indonesia's national emissions standards and close to the most stringent global standards.

In the meantime, China's ODI in new energy projects in countries participating in the Belt and Road Initiative has been growing rapidly, directly helping the host nations cut emissions as well. From 2005 to March 2021, China's ODI in hydropower projects in countries involved in the Belt and Road Initiative totaled approximately $12 billion.

Chinese energy conservation and environmental protection technology companies account for a notable share of Chinese enterprises' ODI in developed countries, which has also helped the host countries reduce emissions. Take the new energy vehicle industry as an example. The carbon-intensive transportation industry is carbon-intensive and the auto industry matters a lot to the transportation industry. With a technological edge in the NEV sector, China has the potential for further expanding overseas investment in developed countries.

Under current conditions, driving an electric car contributes more to emissions reduction than conventional petrol cars. For the same distance, driving a car that's powered by electricity from a thermal power plant emits around 55 percent to 70 percent of carbon dioxide compared with driving a petrol car.

Currently, some developed countries' national security review of overseas investments by Chinese manufacturing companies, which mainly aims at restricting Chinese companies from getting access to local advanced technologies, has a significant adverse impact on such investments. However, the progress in Chinese energy conservation and environmental protection technologies will enhance Chinese companies' competitiveness and bargaining power.

The logic is the ODI from China's energy conservation and environmental protection industry could be an area of common interest for China and developed countries.

In the meantime, China should set up a carbon emissions statistical system for its overseas investment projects as soon as possible, and help the host countries better understand the emissions reduction effect of Chinese ODI by elaborating such effect through case studies of selected projects.

The author is an associate researcher at the Institute of World Economics and Politics at the Chinese Academy of Social Sciences. The author contributed this article to China Watch, a think tank powered by China Daily. The views do not necessarily reflect those of China Daily.

Contact the editor at editor@chinawatch.cn.