Modernization Through Globalization

Why China Finances Foreign Energy Projects Worldwide

Bo Kong

• Publisher: Palgrave Pivot
• Year: 2019
• Print ISBN:
  9789811360152
• eBook ISBN:
  9789811360169
• Topic: Politics & International Relations
• Subtopic: Energy Industry
• Index: Politics & International Relations

This pivot considers how China deals with the globalization of its energy companies in the face of global efforts to combat climate change. It examines how China, following its emergence as the world's largest energy consumer and its resultant growing dependence on foreign energy, engages the world on energy, and its implications for global governance of energy. It notably focuses on the policy impact of China's global engagement for the accelerated "going out" strategy and the so-called "one belt one road" (OBOR) initiative, and profound climate implications for the rest of the world, contending that the type of energy services, technologies, and infrastructure China finances around the globe today will determine the global community's carbon footprint in the foreseeable future. 

© The Author(s) 2019

Bo KongModernization Through Globalizationhttps://doi.org/10.1007/978-981-13-6016-9_1

Begin Abstract

1. Introduction

Bo Kong¹

(1)

ConocoPhillips Petroleum Chair in Chinese and Asian Studies David L. Boren College of International Studies, University of Oklahoma, Norman, OK, USA

Bo Kong

Email: [email protected]

Abstract

One of the most profound transformations of global finance in our time is China’s rise. What truly epitomizes the country’s surge in preeminence is the globalization of Chinese energy finance , for it is in this sector that China has outshined all other players. This chapter thus poses the research question: Why has China become the largest global finance of energy through its two policy banks—China Development Bank (CDB) and China Export and Import Bank (CHEXIM)? Understanding this question carries major implications for policy and theory. However, the literature on China’s global energy finance has little to say about why China has globalized its energy finance and energy firms through CDB and CHEXIM. This chapter lays out how the book aims to fill the lacuna and answer why China has globalized its Official development finance (ODF) for energy through CDB and CHEXIM at the beginning of the twenty-first century.

Keywords

Development financeOfficial development finance (ODF)China Development Bank (CDB)China Export and Import Bank (CHEXIM)

End Abstract

One of the most profound transformations of global finance in our time is China’s rise. In a short span of time, China has emerged to become a leading force in development finance worldwide at the beginning in the twenty-first century. It first surpassed the United States as a global development finance provider in 2009 and has maintained this lead since 2011 (Dreher et al. 2017). Its development finance extends across a diverse range of sectors worldwide, ranging from agriculture to infrastructure and from technical assistance to water supply and sanitation. Nevertheless, what truly epitomizes the country’s surge in preeminence is the globalization of Chinese energy finance, for it is in this sector that China has outshined all other players. On the one hand, the development financing China has provided to the energy sector for foreign governments since the beginning of this century puts it on par with the combined total of the World Bank and major regional multilateral development banks (MDBs) during the same period (Gallagher 2017). On the other hand, China has also provided its energy firms with massive financing in support of their global expansion. This type of financing primarily takes the form of loans for Chinese outward foreign direct investment (OFDI) in the global energy sector (Gallagher and Irwin 2014). If one were to include this financing for Chinese OFDI in energy worldwide, which also carries development implications for the relevant destination countries, China’s actual contribution to global energy finance would be likely to be much larger than the size of its official development finance (ODF) for energy (Kong and Gallagher 2017).

Recent research focused on understanding China’s rise in global energy finance point to the country’s two policy banks—China Development Bank (CDB) and China Export and Import Bank (CHEXIM). With over $2 trillion in combined assets inside and outside China (China Development Bank 2017; China Export and Import Bank 2017), CDB and CHEXIM are the world’s biggest provider of development finance and export credit in the world, respectively. Despite the fact that they account for only 7.7% of the market share of China’s financial system (China Banking Regulatory Commission 2017), they form the backbone of the country’s global energy finance . A robust body of literature already exists on the topic of Chinese finance for OFDI in energy around the world (Gallagher and Irwin 2014; Kong and Gallagher 2017); this book will focus attention chiefly on the role of CDB and CHEXIM in globalizing Chinese ODF for energy.

Specifically, this book seeks to understand a simple question: Why China has become the largest global finance r of energy? This is especially perplexing given that China’s per capita income is below world average, poverty remains a prominent issue, and a large part of its economy is struggling to gain access to financing at home. Indeed, despite China’s emergence as the world’s second largest economy, China remains a middle-income country, with GDP ranked 70th in the world in terms of GDP per capita. According to the National Statistical Bureau, there are still over 30 million in China that live below the official poverty line (National Statistical Bureau of China 2018). Further, despite the country’s transformation from a net debtor into a net creditor country in 2009, the country’s private sector and small and medium enterprises (SMEs), which pay more taxes and create more jobs than the state sector (Wu et al. 2008), are still confronted by challenges in accessing sufficient financing (Gregory and Tenev 2001; Wu et al. 2008). There thus arises the puzzle of why China provides foreign countries with financial backing for energy projects abroad when the needs for financing in China are enormous and insufficiently met.

Understanding this puzzle carries major implications for policy and theory. Practically speaking, having a solid grasp of the puzzle helps the world discern the motivations and priorities behind the globalization of Chinese ODF for energy. On this basis, the world can make appropriate adjustment to its endeavors to simultaneously address three profound challenges concerning the energy sector—energy supply security, energy poverty (lack of access to electricity), and climate change. China, known for its demonstrated record in both rural electrification and clean energy investment, stands poised to contribute to tackling energy poverty and climate change worldwide. Further, the capital, technology, and know-how embedded in the globalization of its ODF for energy and the globalization of its energy firms also offers promise for increasing energy supplies, thus enhancing global energy security. However, the challenge for the world, especially for those least developed countries plagued by the abovementioned triad of challenges, is to figure out how to maximize benefits while minimizing the risks associated with the globalization of Chinese energy finance and energy firms. One obvious danger the world needs to guard against is not to fall further into the trap of growing dependence on fossil fuels, which will provide it with the short-term benefit of energy supply security and energy poverty alleviation, but only to complicate its long-term need for curtailing CO₂ emissions and mitigating climate risks.

This need to understand the puzzle has gained urgency recently. Under President Trump, the United States government has advocated “America first” and declared its intentions to cut back on engagement in global development finance. For instance, the Trump administration has proposed budget cuts for both the US Agency for International Development and international financial institutions, including the World Bank and the International Monetary Fund. In contrast, the Chinese government, under President Xi Jinping, has increased its commitment to global development finance. In addition to spearheading the creation of two MDBs—the Asian Infrastructure Investment Bank (AIIB) and the New Development Bank—and at least 13 regional funds with combined assets exceeding $100 billion (Gallagher et al. 2016), in 2013 China under Xi accelerated its “going out” campaign by launching the Silk Road Economic Belt and the 21st Century Maritime Silk Road, better known as th...

Table of contents

• Cover
• Front Matter
• 1. Introduction
• 2. Globalization of Chinese Development Finance for Energy
• 3. Drivers Behind Chinese Development Finance for Energy Worldwide
• 4. State Control
• 5. Capital Mobilization
• 6. Conclusion
• Back Matter