In just over a decade, Chinese development banks have emerged as world leaders in financing energy projects for developing countries. They have doubled the amount of money available to finance new dams, power plants, and other facilities, and now provide as much energy-related financing as all of the Western-backed development banks combined. The huge influx of Chinese money has allowed more developing countries to finance multi-billion dollar dams and coal-fired power plants. Charles Stewart Mott Foundation grantees have played a major role in mapping the lending of Chinese development banks, and engaging bank officials in discussions about social and environmental impacts. Kevin Gallagher, a professor of global development policy and co-director of the Global Economic Governance Initiative at Boston University, recently published a groundbreaking study documenting China’s global energy footprint. His study garnered international media attention and sparked interest among bankers, government officials and advocacy groups in the international development finance community. In this Q&A, Sandra Smithey, an Environment program officer at Mott, discusses the significance of Gallagher’s study and reactions to it.
Mott: In your view, what were the most noteworthy findings in the Boston University study?
Sandra Smithey: In many ways, the study reaffirmed what we thought was happening, but made it more starkly clear. We at Mott had hoped that investments in renewables and alternative energy in developing countries were larger, and that we would see an upward trend for such investments. The reality was that renewables and alternative energy (beyond large hydropower) were a very small part of the energy investment mix. That trend may be shifting, but it is difficult to tell at this time. We hope this changes over the next few years.
Mott: How has the study been received by government officials, your colleagues at nongovernmental organizations, and officials at the large international financial institutions?
Smithey: It’s been very well received, and used by the international financial press to assess China’s economic influence in developing countries. This kind of press coverage is useful to establishing dialogue with other international financial institutions, such as the World Bank Group, which have consistently pointed to China as not taking into consideration the financial, economic, environmental or social risks related to its lending.
Such a report’s usefulness must also be measured by how it creates opportunities for dialogue in China — it shouldn’t just be seen as international criticism. Since the release of the report, there have been important discussions involving Chinese civil society organizations, international nongovernmental organizations (NGOs), and think tanks related to China’s “green credit policies.” Chinese President Xi Jinping recently announced his country’s adoption of the world’s most comprehensive package of policies to support domestic and international investments in green infrastructure and energy. The Boston University report has allowed for conversations about how to implement those policies and help China lead the way on environmentally friendly development finance.
Mott: Chinese officials have indicated a willingness to finance more renewable energy in developing nations if host countries request it. What can the NGO community or others do to increase demand for renewable energy and sustainable infrastructure in developing nations?
Smithey: NGO engagement is essential in developing countries that partner with China on energy investments. NGOs must influence their own governments on future energy policies and investments, and they must be allowed to participate in crucial decision-making processes. Fundamentally, developing countries must lead the way and request development finance that supports more renewable energy and sustainable infrastructure. It will be incumbent on foundations and other funders to assist developing countries in making the positive decisions needed to support increased deployment of clean energy and sustainable infrastructure. Key to this will be engaging civil society organizations in developing countries to inform those energy strategies.
Mott: How could this study shape Mott’s future grantmaking in the area of international development finance and advancing climate change solutions? Where are the gaps and opportunities?
Smithey: The most important part of this project is that the database is not static — it will be updated and accessible. The data will help Mott and others understand how China is shifting its development finance. This will enable Mott grantees to engage in serious conversations with Chinese ministries and development finance institutions (DFIs) about how to change their development finance lending and investment risk models. This work will benefit the broader community of DFIs and allow us to acknowledge China’s leadership on these issues.
The updated database also will allow Mott and other funders to better understand policy gaps and identify possible opportunities for future work in this area. It will help us develop grantmaking strategies that address where additional research, standard setting, or advocacy can be useful in China, as well as developing countries receiving Chinese energy investments.