Paw Tracker newsletter (Week of Jul 19)

With less than three months until the UN climate talks in Glasgow, the world’s attention is turning to emissions, and in particular coal. The Belt and Road’s so-far negative role on this front may be beginning to change. Last week the American Enterprise Institute’s latest China Global Investment Tracker showed that in the first half of 2021 Chinese companies invested in no new coal power plants along the Belt and Road, a first in the seven year history of the initiative. Much hope will now be placed Chinese investments in renewable projects. As this week’s newsletter shows, Kazakhstan is increasingly becoming a focal point for those hopes, with major wind projects being developed and moves to establish Astana as a green financing hub of Central Asia. 

Talk of the Town

Continuing a trend we have seen since 2017, Chinese overseas investment was down once again in the first half of 2021, according to the latest half-year update American Enterprise Institute’s (AEI) China Global Investment Tracker published early last week. Perhaps of particular interest to our readers, the database shows zero new investments in coal power, the first time a half yearly period has ever seen no new coal investments as far back as the tracker’s data goes. 

We urge some caution in celebrating an end to Chinese support for global coal power plants, as, for one, this newsletter has reported on three coal power EPC and equipment supply deals signed over the last six months - in Indonesia, Bosnia Herzegovina and Vietnam - which do not seem to have been picked up by the database. Secondly, at this stage, the zero new investments in coal power comes about due to a coincidence of diverse factors, such as coal power plant cancellations and postponements, changing energy sector forecasts and difficulty finding financing, rather than a binding policy to end investments in coal power from Beijing. More deals could trickle through in the second half of 2021, particular for plants for industrial usage. The development is, however, indicative of a very clear trend - investment opportunities in coal power across the developing world is waning.

The collapse in coal power investments does not necessarily mean the greening of BRI energy investments has arrived, however. The database also shows a continued decline in investments in renewable energies, a trend that will need to be proactively addressed with investment and financing incentives. More immediately, investments in renewables are likely to pick up over the remainder of the year, as Chinese companies have dominated bidding for tenders in Myanmar once again and renewable investment opportunities abound in key BRI countries such as the Philippines. The database also shows a large (and probably anomalous) uptick in oil investments, largely driven by China National Petroleum Corporation’s and CNOOC’s signing a USD 2.94 billion production sharing contract with Petrobras for the Búzios oil field off the coast of Rio de Janeiro, the biggest infrastructure related deal of the year so far.

Investments and construction contract deals for transport projects were down significantly, continuing a downward trend seen over the last four years. The biggest transportation construction deal signed so far this year was China Civil Engineering Construction Corporation and China Railway Construction’s USD 1.32 billion contract for a 341km rail line in Tanzania. Investments in metals were also down compared to recent years.

As we have previously noted, China’s overseas investments are changing shape in the pandemic era. Though Foreign Minister Wang Yi just last week emphasized that “the pandemic will not press pause on the construction of the Belt and Road”, the most recent data from AEI is further evidence that, when it comes to infrastructure construction, a slowdown is underway. A shift away from carbon intensive coal power investments is also underway, but Beijing will need to find ways to enable expectations for “green Belt and Road” investments, such as in wind and solar projects, to become on-the-ground reality.

This week's highlight projects

Kazakhstan: Central Asia’s largest wind farm project connected to the grid

The 100MW Zanatas wind energy project in southern Kazakhstan recently went into operation, People’s Daily reported on Jul 19. The 40-turbine wind farm, constructed by Sinohydro, will be owned and operated by a special purpose vehicle set up jointly by China Power International Holding and Visor Investments Cooperative of Kazakhstan. 

What’s interesting: When presenting the project, People’s Daily brandishes the project’s potential to “decarbonize” Kazakhstan’s energy system. “For a long time, 80% of Kazakhstan's power generation came from coal. 70% of the country’s power consumption is in the southern part of the country. Therefore, China proposed to harness the rich wind resources in southern Kazakhstan and develop clean wind energy projects.”

A bit more context: In reality, the “greenness” of the Zanatas wind project is the result of a convergence of interests. The project was financed jointly by the EBRD, AIIB, the Green Climate Fund and ICBC. Both multilateral banks in this case have strong incentives to promote low-carbon energy in the country. In their stated objectives for the project, EBRD states that it aims “improve the regulatory and legislative environment for renewables generation” while the AIIB’s objective is to “mobilize private capital to promote use of renewable energy.” The participation of multilateral financiers probably paved the way for this wind project in terms of financial viability and risk control, and should serve as an important case study for the model of greening BRI.  

Other project & corporate updates

Kazakhstan: Astana to become leading example in BRI green financing? 

Besides building clean energy projects, the Kazakhstan government is also considering publishing its own “green taxonomy” to facilitate the issuance of green loans and green bonds in the country, according to Chinese media International Finance News. The newspaper learned from the Astana International Financial Center (AIFC) that the government is committed to promote ESG development in Eurasia through the new taxonomy. 

Why it gets our attention: Astana hosts the field office of the BRI Green Investment Principles (GIP). Setting up a green taxonomy of sustainable economic activities and assets is a precondition for channelling investments into such sectors. According to the report, the AIFC has set up a Green Finance Center under it to support companies issuing green bonds with paperwork and certification. Chinese capital and Chinese enterprises are very much in the mind of Kazakhstan policy makers with such initiatives. According to Global Times, AIFC is developing into a regional settlement center for RMB in Kazakhstan, while the Astana International Exchange’s Belt and Road Market Segment is where yuan-denominated securities, including bonds, stocks and other products, can be listed and traded.

Pakistan: Chinese company gets Karachi urban waste disposal contract

Gansu province’s GEMC, a company specializing in urban waste collection, was awarded a RMB 900 million contract to handle urban waste disposal in Korangi Town, Eastern Karachi. The contract term is nine years, within which GEMC will essentially “lift and dump” the city’s garbage. At the signing ceremony on Jul 18, GEMC also expressed interest to invest in manufacturing waste collection machinery and waste-to-energy facilities in Karachi.

Why it gets our attention: When it comes to BRI “infrastructure” investment, what comes to mind is normally heavy infrastructures such as roads and bridges. GEMC is a company that produces street-sweeping vehicles and kitchen-waste collection trucks. These aren’t eye-catching items but are highly related to urban quality of life. The company celebrated the deal as the first time it has exported not only equipment but also services. 

GEMC also promotes the project as offering major employment opportunities for the city. According to Dawn, the company will deploy 2,000 sanitary workers and 500 sanitary machine workers in the city. Imagine Karachi residents seeing Chinese trucks cleaning up the streets every morning and how it affects China’s “soft power” in the country.

Worth your time

Cambodia occupies an interesting position as a major destination of Chinese overseas finance and a major exporter of goods - primarily garments - to Europe. The country finds itself at a crossroads in its development pathway as Chinese investors facilitate the Cambodian government’s planned expansion of coal power plants and European markets threaten to impose taxes on goods whose production is becoming more carbon intensive. In this article published last week, Inclusive Development International’s Mark Grimsditch asks whether Chinese investments in the country are helping to fuel or hinder development.