Belt and Road projects see shift to green infrastructure investments

As the world prepares to enter the post-pandemic era, we are increasingly facing economic headwinds with slower growth, higher inflation, decreased productivity with geopolitical tension, and a growing debt burden. As a result, we are seeing a more-cautious approach to all kinds of investments, especially toward infrastructure investment.

Infrastructure developments are usually of longer duration, and therefore more prone to higher interest rates. Similarly, we are seeing a general decline in investment value and numbers of projects in the Belt and Road Initiative in recent years.
However, the extent of decrease in the number of projects is much less compared to the investment value. For example, from 2013 to 2021, the investment values dropped from an all-time high of around $340 billion to an all-time low of around $14 billion, while 2020 saw the announcement of 399 projects, the second-highest after 2019’s all-time high of 433 projects.
This implies that the number of deals is not necessarily decreasing. Which brings us to our next question: What kinds of deals are we seeing instead?
In recent years, China has paid attention to calls for a more-sustainable BRI. This has resulted in a shift in projects toward a new — and perhaps better — direction. Some people call this recalibration “the Big Reset” in outbound infrastructure investments, which may bring about fresh opportunities for higher-quality infrastructure assets, not just in credit, but also in sustainability.

Even as we take a closer look at China’s engagements, both in terms of investments and construction, the solar- and wind-related projects increased substantially when compared with 2013, from nearly 6 percent to 31 percent in 2021, while coal-related engagements dropped to nearly zero by 2021. There is a clear shift toward smaller, less-costly, faster-to-implement and green projects, and a scale-back from large and often money-losing projects.Therefore, it is not difficult to deduce that project trends in the BRI are of higher quality, in terms of both economic and environmental value.

Opportunities for infrastructure investments, such as scalable solar and wind power, should be on the rise, with declining energy costs for renewable energy, so long as local conditions can provide relevant grids to handle the renewable energy supply.
Southeast Asian nations, including the Philippines, Indonesia and Vietnam, have become hot spots for the highest number of BRI projects. Encouragingly, the three countries are leading in installed renewable energy capacity and climbing global ranks in terms of attractiveness of their renewable-energy investment and opportunities.

At the same time, there have been notable green BRI projects in the pipeline and some already in operation. For example, in 2020, China Energy Engineering Corp signed seven wind energy contracts in Vietnam, one of which includes the Hanbanram Wind Project, the nation’s largest onshore wind farm. And, in 2021, Power Construction Corp of China Ltd was contracted to build the largest solar farm in the Philippines.
Even as we take a closer look at China’s engagements, both in terms of investments and construction, the solar- and wind-related projects increased substantially when compared with 2013, from nearly 6 percent to 31 percent in 2021, while coal-related engagements dropped to nearly zero by 2021. There is a clear shift toward smaller, less-costly, faster-to-implement and green projects, and a scale-back from large and often money-losing projects.

Therefore, it is not difficult to deduce that project trends in the BRI are of higher quality, in terms of both economic and environmental value. This shift can be attributed to government-led efforts in China in issuing guidelines such as the “Green Development Guidelines for Foreign Investment and Cooperation” in 2021, calling on enterprises to review every project with the lens of sustainability and adopt international environmental rules and standards where local laws are insufficient.
Only six months later, the Chinese authorities built on top of these guidelines and presented the most comprehensive guideline to date, “Guidelines for Ecological Environmental Protection of Foreign Investment Cooperation and Construction Projects”, pressing on enterprises to carry out comprehensive environmental assessments and sharing of relevant information with local stakeholders.
This surge in guidelines to build a more sustainable BRI comes as no surprise as China realizes its own agenda toward a greener economy and presses full steam ahead toward its climate neutrality pledge before 2060. Among the major players for Chinese investments include a mixture of State-owned enterprises and private companies. The hope is that all project stakeholders adhere to stricter standards, whether Chinese or international.
Moving forward, one of the major obstacles in “going green” in the BRI is the harmonization of the global and Chinese taxonomies. Mobilizing international finance for projects may need to comply with different taxonomies and rules-based finance to secure global and Chinese green capital. This will be a challenging and resource-consuming endeavor.
This is where Hong Kong comes in. Well-known for its familiarity with international standards and rules-based financing, it can offer guidance in leveling up the BRI projects to become of even higher caliber that are more sustainable and standards-driven.
In the last few years, Hong Kong’s Cross-Agency Steering Group has made significant efforts to accelerate the growth of green and sustainable finance. This includes plans to develop a Common Ground Taxonomy-based green classification framework for the local market. Although the progress is at its early stages, we can still benefit from the steering group’s experience and knowledge so far to facilitate the development of a BRI green taxonomy, which can fit both global and Chinese standards.
The lack of clear taxonomy on what a green project is has made it difficult for green-project identification, and a BRI green taxonomy can substantially enhance foreign investors’ confidence on the greenness of BRI projects, and ultimately reduce the resources that relevant stakeholders place on adhering to the two different sets of taxonomies.
The other area we can draw from is the steering group’s progress toward mandating climate-related disclosures under the Task Force on Climate Related Financial Disclosures. As a key action item under the Green Investment Principles’ “Vision 2023”, GIP signatories, representing both Chinese and international entities, can work with their Hong Kong counterparts for best practices in this area.
While the next chapter of the BRI will see an increase in smaller-scale but better-quality sustainable infrastructure projects, it is crucial that we build capacity and seize every opportunity to lock in the emission trajectories of countries along the Belt and Road for decades to come.

The author is a member of the Legislative Council.

The views do not necessarily reflect those of China Daily.