This article was published by the International Energy Agency on Dec. 18, 2024.
By Haneul Kim, Energy Investment Analyst
Mapping the landscape of China’s global energy investments
China is a major force in global energy investment and finance, both domestically – where more than USD 800 billion is set to be invested in 2024 – and as a source of energy finance globally, particularly in developing countries. This commentary focuses on China’s external finance for energy projects through its Development Finance Institutions (DFIs), China Development Bank (CDB) and the Export – Import Bank of China (CHEXIM), which have made China the single largest official source of development finance.1
Historically, much of this external financing has been directed toward fossil fuel projects. However, recent trends point to a shift towards clean energy initiatives, reflecting broader changes in China’s energy and industrial strategies. At the 2024 G20 Leaders’ Summit, the address by President XI Jinping highlighted the importance of cooperation on clean energy as part of a broader agenda for development in the Global South, mentioning in this context the Roadmap to Increase Investment in Clean Energy in Developing Countries that was prepared under the Brazilian G20 presidency by the International Energy Agency. This roadmap highlights the need for a sixfold increase in clean energy investments in developing economies other than China by 2035, calling for tripling concessional finance and deploying innovative de-risking mechanisms to mobilize private capital.
This commentary explores these three areas in depth: the size of China’s DFI finance flows for energy projects and the balance between clean energy and fossil fuel investments in, the nature and concessionality of China’s support, and China’s shifting role in the global energy investment landscape. This data and analysis provide important context for any discussion of China’s role in global energy financing.2
Balancing investments in clean energy and fossil fuels
China’s financing of clean energy infrastructure and technology from 2013 to 2021 exceeds the total amount of support provided to fossil fuels. Nonetheless, among DFIs, China is the largest financier of fossil fuel projects, offering nearly four times as much financing as institutions outside of China. This means that any changes to its strategy stand to have a large impact on overall trends.
Notably, among clean energy investments in the 2013-to-2021 period, a sizeable portion went to the transport sector, mainly for building rail transportation, a crucial avenue to avoid transport emissions and improve energy efficiency (Rail is the most efficient form of transportation). CDB and CHEXIM alone disbursed nearly USD 60 billion to this sector, greater than the USD 55 billion offered by all other DFIs combined. However, if the end-use sectors like transport are excluded, then China’s financing for fossil fuels in the fuel supply and generation sectors has consistently exceeded clean energy financing by at least a factor of two. This stands out in contrast to other DFIs globally, which have directed over 80 per cent of their total energy financing toward clean energy over the same period.
However, another important element of context is the regional differences in clean energy and fossil fuel investment. In Africa and developing economies in Asia, regions that are impacted the most by a lack of energy access, China’s investments in clean energy far exceed fossil fuel investments, even excluding investments into transportation, with the highest amounts going to renewables and other clean power, as well as grids. However, in the case of Latin America, the Middle East and Eurasia, China’s investments in oil production and refining make up the overwhelming majority. These three regions are China’s largest suppliers of imported crude oil, an important component of China’s energy security.
An important milestone in China’s policy was reached in 2021, when President Xi Jinping announced that China would “increase support for other developing countries in developing green and low-carbon energy” and pledged not to build new coal-fired power projects abroad. This marked a significant shift in China’s overseas energy financing, although some coal plants already approved and in development have continued to progress in various countries.
Understanding the concessionality of Chinese financing
Almost 95 per cent of financing from CDB and CHEXIM for energy-related projects is non-concessional, according to the standards of Official Development Assistance (ODA) established by the OECD Development Assistance Committee (DAC). This means that certain loan arrangements from Chinese DFIs may be less attractive to borrowers than development assistance from DFIs outside of China based on their interest rates or the duration of the loans, among other factors.
However, while Chinese financing may be less or non-concessional under the metric of grant equivalence established under the ODA framework,3 there are several features that make CDB and CHEXIM an attractive source of finance for foreign borrowers. While Chinese loans might be classified as non-concessional by ODA standards, they provide substantial advantages to middle- and low-income countries, such as extended repayment terms. Approximately 96 per cent of the total debt owed to China is long-term, at an average interest rate of 3 per cent. 4
On top of the quantitative metrics, Chinese financing can be attractive for many recipient nations due to the relative ease of the transaction process. A prominent example is the Karot Hydropower Station project in Pakistan, a flagship of China’s Belt and Road Initiative (BRI). Even though it was the first project of its kind within the BRI framework and required a sizable investment of approximately USD 1.74 billion, the financing process for Karot was exceptionally swift, with loan agreements signed in November 2016 and financial closure by February 2017 – remarkably fast compared with comparable institutions, which take an average of 27 months in project preparation before a single dollar is disbursed. The project, which was supported by a consortium of lenders, including CDB and CHEXIM, also offered relatively low interest rates and flexible terms, including a 17-year repayment period with a six-year grace period.
China’s evolving role in energy development financing
After hitting a historic peak in 2016, China’s DFI financing in energy has steadily decreased. This has led to speculation that the era of China’s prolific official development finance in energy abroad may be coming to an end. However, several announcements and strategic shifts indicate signs of revitalization in China’s global financing efforts, reinforced by tangible financial pledges.
In October 2023, during the 3rd Belt and Road Forum for International Cooperation, President Xi outlined a continued focus on energy-related financing, allocating nearly USD 48 billion each to CDB and CHEXIM. These funds are intended for “small yet smart” and “small but beautiful” projects, reflecting a shift from large-scale infrastructure development . This strategic pivot addresses longstanding critiques of China’s lending practices, prioritising lower-risk projects with a stronger emphasis on clean energy and environmental sustainability. Additionally, China announced it would replenish the Silk Road Fund, the main investment platform for the BRI, with USD 11 billion in additional capital. In the recent 2024 Summit of the Forum on China-Africa Cooperation, the Chinese government also committed to providing around USD 51 billion in financial support to Africa over the next three years, including 30 clean energy projects.
However, unlike in previous years, when DFIs and state-owned enterprises spearheaded large infrastructure projects, these institutions are now ceding ground to state-owned commercial banks and private sector investors. This shift towards market-based loans reflects China’s evolving strategy of embracing more commercially-driven projects and reducing the role of concessional finance. While this approach can unlock greater capital flows for development, it also introduces new risks for recipient countries, such as higher interest rates and shorter repayment periods, potentially increasing financial risks for recipient countries and altering the nature of China’s influence in global development.
These trends make clear that China’s role in global energy financing remains significant, with its contributions shaping energy infrastructure across many emerging and developing economies. Continuing to engage with the country’s approach to financing is therefore crucial, requiring a nuanced understanding of both the evolving dynamics and their impact on the global energy landscape.
References
- While China’s DFIs, such as the China Development Bank (CDB) and the Export – Import Bank of China (CHEXIM), are central to its energy financing strategy, they represent just part of a broader array of institutions involved in overseas lending. This includes policy banks, commercial banks, and non-financial enterprises, each contributing to China’s extensive global energy investments.
- There is no definitive data set on China’s overseas financing due to the lack of official information. Various academic initiatives, such as the Global Chinese Development Finance Dataset by AidData, which was used for this particular commentary, offer different estimates. As these are based on investigative methods, they may not fully capture the true extent of China’s development financing. The Chinese Academy of Social Sciences has also acknowledged the challenges in accurately measuring these flows.
- The grant equivalent of a loan is a measure used to assess the concessionality, or generosity, of the loan. It represents the financial benefit provided to the borrower compared to what they would have paid under market terms. Essentially, the grant equivalent is the portion of the loan that can be considered as a “gift” or subsidy, calculated based on factors like interest rates, grace periods, and repayment terms. To qualify as Official Development Assistance (ODA), at least 10-45 per cent of the amount provided should be a grant-equivalent, and the OECD Development Assistance Committee average between 2015 to 2021 was 52 per cent. In the case of China’s ODA-like loans to energy-related sectors, the average grant element from 2013 to 2021 was 33 per cent. This difference indicates that, on average, China’s loans are less concessional, meaning they provide a smaller financial benefit to the borrower compared to loans from OECD countries.
- Based on calculations by the Chinese Academy of Social Sciences research paper 《生产性金融：中国海外贷款与发展中国家经济增长》。The financial terms are not limited to the energy sector only, but are estimated average interest rates calculated based on debt stock and interest payment data available in the World Bank’s International Debt Statistics database.
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