Chart of the Week: Drop in Fossil Fuel Investments Drives Decline of China’s Overseas Energy Sector Development Finance

By Xinyue Ma

While the early growth of China’s overseas development finance in the energy sector had been bolster by fossil fuel investments, the Global Development Policy Center’s China’s Global Energy Finance Database shows that its recent decline is likewise driven by a stepwise decrease of fossil fuel investment, especially in oil and gas. This dramatic change marks a significant shift in the composition of China’s overseas development finance in the energy sector.

Trends of Overseas Energy Sector Finance by China Development Bank and the China Export-Import Bank

Source: China’s Global Energy Finance Database, 2021. Boston University Global Development Policy Center.

The past 20 years of energy sector lending by China’s two development banks with overseas operations – China Development Bank (CDB) and the Export-Import Bank of China (CHEXIM) – largely went through four periods:

• The beginning years (before 2009),
• The rapid scale up in the wake of the financial crisis (2009 – 2012),
• The push from the Belt and Road Initiative (2013 – 2016), and
• The recent slowdown (2017 – 2020).

Observing China’s overseas development finance in the energy sector in these four-year periods leads to the following findings:

1. Oil, gas, coal, hydropower, and nuclear power were the main pillars of China’s rise in overseas development finance in the energy sector from 2009-2016. In particular, the oil sector attracted the most development finance from China during these years. A few big nuclear deals also played a pivotal role propping up the total loan amount between 2013-2016.
2. The decrease in the total loan amount since 2017 has mainly been driven by the sharp decline of investment in oil and gas.
3. While the total energy loan amount decreased between 2017-2020, the absolute amount of lending for power transmission and distribution (which is mostly shown as “unspecified” in the chart, but also includes projects with specific energy sources) significantly increased in the past four years, a sector crucial for energy access and renewable energy expansion.
4. Total financing for coal and hydropower has remained at almost the same level over the three periods since 2009, with a slight decrease in coal power projects, and a slight increase in hydropower. Zooming in on the most recent four years, loans to these two energy sources in fact peaked in 2017, a year later than the lending peak of the energy sector as a whole. Since then, financing for coal and hydropower have been on a downward trend.
5. Financing for non-hydro renewable energy only took up 1.75 percent of China’s overseas energy sector development finance and has slightly decreased since the 2009-2012 period. Although China’s total overseas investment in renewable energy significantly scaled up over these periods of time, and CDB and CHEXIM have been key supporters of these investing and exporting companies at home, they have not been major players in China’s renewable energy exports and overseas investment.

While CDB and CHEXIM still lack bank-level commitments to decarbonize their financing operations, these findings reflect a positive trend of in China’s overseas development finance in the energy sector. Most predominantly through retreating from the oil and gas sector, as well as some momentum moving away from coal.

Chinese policy banks have a key role to play in the global energy transition efforts. As climate actions rise on the policy agenda both in China and across the world, CDB and CHEXIM have the opportunity to solidify this trend with consistent climate policies that could benefit the climate transition both in China and abroad.