China’s Belt and Road Initiative in Indonesia: Mapping and Mitigating Environmental and Social Risks

Economic cooperation between Indonesia and China has intensified over the last decade through the emergence of a shared vision for economic prosperity. Inbound investment from China (including Hong Kong) to Indonesia has grown dramatically in recent years, particularly after the Belt and Road Initiative (BRI) was launched. Chinese investment in Indonesia is unique from other inbound foreign direct investment (FDI), as it’s concentrated in the environmentally sensitive sectors of the metals industry and infrastructure and project environmental and social oversight is left in the hands of the Indonesian government, due to China’s “country systems” approach.  

In a new working paper, researchers at the Boston University Global Development Policy Center, University of Indonesia Geography Department and Research Center for Climate Change, Colorado State University Department of Human Dimensions of Natural Resources and the Indonesian Institute of Sciences assess the environmental risks of Chinese FDI projects across Indonesia associated with the BRI, by examining on-ground changes in vegetation cover. Projects were grouped into 14 clusters based on locations, representing four major infrastructure types: roads and railways, coal-fired power plants, dams for hydro power plants and irrigation and industrial complexes. Additionally, the research team compares the environmental risks between FDI projects and identifies Indigenous communities that may be impacted by multiple risks. 

Main findings: 

• Of the 14 project clusters, three industrial complexes funded by Chinese FDI as part of the BRI present the greatest risks to multiple environmental attributes: the Obi Industrial Area, SDIC Papua CementIndonesia and Morowali Industrial Park. 
  • These projects are adjacent to primary forests, in areas with high carbon density and exhibit some of the highest rates of vegetation loss since 2010. 
  • In each case, nearby Indigenous communities face health risks due to air and water contamination, as well as the loss of vital ecological services through deforestation and the loss of key species. 
• Renewable energy can have significant environmental and social impacts. 
  • Hydropower plants are generally placed adjacent to primary forests and in areas with high carbon density, dampening their value for climate change mitigation.
  • Local Indigenous communities risk displacement due to flooding of ancestral lands as a result of three nearby renewable energy projects. 
• Indigenous peoples were affected in 11 out of 14 project sites.
  • The most affected groups are those whose territories overlap with mining concessions, like in Ketapang district (West Kalimantan), Morowali district (Central Sulawesi) and Obi Island (South Halmahera district, North Maluku).

These results open new potential approaches for environmental and social management of sensitive investments. The researchers suggest effective oversight should entail sector-specific regulations, as well as approval processes, centering the wishes of affected communities, particularly Indigenous communities whose ancestral lands are often not formally delineated or protected. As a hotspot for both biological and cultural diversity, the Indonesian government should take special care to manage environmental and social risks from investment projects. Inadequate management of the risks, leading to the loss of traditional livelihoods and ecological services and the costs of remediation, could dampen the economic benefits brought by these investments. The research team further argues investors themselves can help fill the information gap with nature-related financial disclosures, in order to provide good measures for a company’s Environmental and Social Governance ratings and evaluate and price nature-related risks and opportunities.