China Global Newsletter | Edition 10: January 2025
Is China a “last resort” for financing high-risk projects?
As Chinese companies and banks expanded their global reach at the start of this century, a common narrative emerged that Chinese investors and financiers were willing to support projects that other investors saw as too risky. This narrative has stuck, even as Chinese firms have appeared to be taking a more conservative approach in recent years. While previous feasibility studies and due diligence often resembled tick-box exercises, Chinese stakeholders now appear to be more frequently identifying risks that lead them to reject or exit controversial projects.
A lack of transparency and proactive communication about these decisions, though, has left room for questions about Chinese involvement in some high profile or controversial projects. Among other things, this has allowed third parties, including project developers, to push their own narratives—with some claiming that Chinese firms have in fact committed to “rescue” high-risk projects after other investors or financiers have walked away.
In this edition of the newsletter, we examine rhetorical and policy changes that have influenced Chinese overseas investment in recent years, pushing firms toward a more cautious approach, and we present several case studies where Chinese actors have been portrayed as key supporters of risky projects—sometimes supporters of “last resort”—despite their role being less clear.
A Shifting Approach: “Small and Beautiful”
As discussed in an earlier edition of this newsletter, China committed in 2021 to no longer build new overseas coal plants, and there has been a steady trickle of other policies and guidelines issued by Chinese state bodies and industry associations over the past decade that require companies and banks to take a more comprehensive view of sustainability risks.
There have also been noteworthy rhetorical shifts. In 2019 at the second Belt and Road Forum, President Xi Jinping made numerous references to ‘high-quality’ projects, stressing the need for projects to be sustainable, affordable, inclusive and accessible. Around this time, the idea of “small and beautiful” (小而美) projects also entered the lexicon. Although not clearly defined, this signals a push from Beijing to promote smaller, less risky projects, with more immediate impacts on local livelihoods. Chinese state media reports promoting this shift mention projects in areas such as agriculture, green energy, and poverty reduction.
This does not mean that the days of China financing large-scale overseas projects are over. In his speech to the third Belt and Road Forum in 2023, President Xi mentioned these “small and beautiful” projects alongside “signature” projects (more traditional infrastructure and connectivity projects). Indeed, various large high-value projects have been proposed in recent years.
However, while some of these projects have moved forward, others appear to have dropped or stalled. Consistent with what appears to be a more cautious approach—and indicating that Chinese investors and financiers have begun to take due diligence and risk assessment more seriously—many have gone or are going through longer assessment periods than may have been the norm in the past. In several cases Chinese companies have tried to quietly withdraw or pause involvement in controversial projects, including following changes in Chinese government policy or after assessing the potential risks.
Further Reading/Listening
Liu Shuang & Wang Ye (2024), China Endorses ‘Small and Beautiful’ Projects in Africa Despite Challenges, Dialogue Earth
Lui Kanyi (2024), Podcast: Update on the State of the BRI in the New “Small and Beautiful” Era, China Global South Project
Open to Interpretation: Misunderstanding of China’s Role in High-Risk Projects
The lack of public communication on the part of Chinese companies about decisions to back away from or conduct further study of controversial projects means that the perception of Chinese stakeholders as having an appetite for high-risk projects continues. Other stakeholders, including project proponents, sometimes take advantage of this gap by implying that a project is backed by China, in order to increase the perceived viability of the project and attract finance and investment. In some cases, Chinese finance has even been presented as “rescuing” highly controversial projects that have been rejected by financiers from other countries, even before any decision has been made.
Following are case studies illustrating these issues, which have been especially apparent in relation to coal power plant projects.
Is China still backing new coal development?
China’s 2021 commitment to stop building new overseas coal plants has led to Chinese stakeholders stepping back from several projects. However, in some cases, there has been no official statement regarding the withdrawal, and in others there is conflicting information from different project stakeholders.
In Indonesia, China Huadian Corporation, a Chinese state-owned power producer, was set to develop the 700MW Jambi-2 coal power plant, but in 2022 stated it had withdrawn from the project, following President Xi’s pledge. However, Indonesia’s electricity utility, PT Perusahaan Listrik Negara (PLN) stated in 2023 that China Huadian was still developing the project and that the power purchase agreement between the two parties remains in effect. To date, China Huadian has not provided any further clarification or responded to civil society inquiries. The contradictory claims and the silence from the Chinese company have led some to doubt the authenticity of its withdrawal and, more broadly, the implementation of the no coal commitment.
In Pakistan, the United Kingdom-registered and London-listed company Oracle Power has for years been seeking to draw investors to the proposed 2×660 MW Thar coal-fired power plant (also known as the Thar Block VI Power Plant), in Sindh Province. Since 2013, Oracle has publicized the signing of memoranda of understanding (MoU) or non-binding agreements with various Chinese state-owned companies, naming China Export & Credit Insurance Corporation (Sinosure) and Chinese banks as the potential main financiers of the project in its annual reports. The named potential Chinese investor has changed multiple times; most recently, PowerChina International Group has been linked to the project.
None of these agreements proceeded to binding shareholder or joint venture agreements and the involvement of the Chinese companies has not passed beyond the feasibility study stage. Indeed, the project has stalled in the preliminary stages. However, announcements of past agreements have boosted Oracle Power’s share prices, for example in March 2018, December 2018 and February 2020. Oracle Power has continued to publicly bet on finance from China to move the project forward, and has said in annual reports that if it reaches an agreement with Sinosure, “[t]his should give enough confidence to incoming shareholders to allow the company to raise the balance of Oracle’s share of equity.”
In Bangladesh, GCM Resources, a British company established for the sole purpose of building a coal mine and power plants in Phulbari, has been frank about its plan of relying on Chinese State-owned enterprises (SOEs) to develop the projects and secure finance, as disclosed in its annual reports. Since 2018, GCM Resources has signed various MoUs and non-binding agreements with China Gezhouba Group International Engineering (CGGC) and PowerChina for developing coal plants with a total capacity of 6,000 MW, and with China Nonferrous Metal Industry’s Foreign Engineering and Construction (NFC) and PowerChina for coal mine development.
Although most of the agreements have expired without any project progress, the shares of the London-listed company often surged after announcing the agreements, or simply after stating that Chinese partners had reaffirmed commitments. In March 2024, GCM Resources shares surged by more than 40% after it awarded PowerChina the Engineering, Procurement, and Construction (EPC) contract for mine development and, in exchange, according to GCM Resources, PowerChina “expressed a willingness to support project financing.” This was despite GCM acknowledging that the project has not yet received the necessary approvals from the Bangladesh Government, which makes financial support from any Chinese investors or financiers impossible, according to Chinese policies.
After their agreements expired, CGGC and NFC have disappeared from GCM Resources annual reports. The company still named PowerChina as its partner for developing a 4,000 MW power plant in its 2024 annual report, despite its agreements expiring in March 2024, without further announcement of extension. To date, none of the proposed power plants have received approval from the government of Bangladesh.
Both Oracle Power and GCM Resources acknowledge in their annual reports that the various MoUs and agreements with Chinese partners were non-binding and subject to feasibility study, due diligence, and/or the Chinese companies’ internal compliance approval, in addition to the approvals from relevant authorities. However, this important information is rarely disclosed in company announcements.
Will China “save” the controversial East African Crude Oil Pipeline?
In some cases, messaging around Chinese involvement in a project comes from host country governments. One example of this is the reported involvement of Chinese finance in the East African Crude Oil Pipeline (EACOP), a buried 1,443km crude oil pipeline being constructed from the oilfields in Uganda to the coast of Tanzania. The project is a joint venture led by France’s Total, with minority shares held by China National Offshore Oil Corporation (CNOOC) and the governments of Uganda and Tanzania. The project has faced significant delays, with many international banks and insurers declining to support the project due to its ongoing and potential climate, environmental and social impacts.
In response, Ugandan Government officials have on several occasions indicated to the media that Chinese financial institutions, led by Sinosure and the China Export-Import Bank of China (China Eximbank), have committed to shouldering the majority of project finance. However, the Chinese financial institutions have not provided funding according to the timelines expected by the Ugandan government (i.e. by October 2023, the end of April 2024, June 2024 and September 2024), and have yet to announce any decisions as of the time of writing. In fact, Uganda revealed that the Chinese lenders demanded due diligence, including on environmental, social and governance (ESG) issues, and Sinosure’s internal process has been “prolonged.” With significant delays in debt financing—especially given the uncertainty of China’s financial support—it was reported that shareholders had to inject more equity investment, increasing the equity ratio from 40 to 52. As a result, the Ugandan government has more than doubled its budget for the oil industry for the coming fiscal year, adding to the concerns about Uganda’s rising public debt
Is China financing the Funan Techo Canal?
In Cambodia, the Funan Techo Canal is a priority project of the Cambodian Government. This ambitious plan to connect the central Kandal Province to the coast with a US$1.7 billion, 180-kilometer canal has been under discussion for some time. The sheer size of the project and its area of potential impact has raised concerns, and while the Cambodian Government has said affected people will be compensated, media reports indicate local people have very limited information about the potential impacts.
Media reports and analysis have often focused on the involvement of Chinese companies and finance, and Cambodian officials have said that China will finance it. China Road and Bridge Corporation (CRBC) did sign an agreement to work on a feasibility study in 2023. However, when the project broke ground in August 2024, it was for an initial stretch of 21 kilometers, funded by Cambodian companies. Media reports have since indicated that financing for the project is not yet confirmed. In response to an enquiry by Reuters, an official from CRBC described the situation as “very complicated,” and an unnamed government official said it would not be surprising if China did not invest in the project at all. Although their involvement may still be subject to negotiation, more transparency from Chinese stakeholders could diffuse the speculation around the project, including around the environmental and social due diligence they require for it to move forward.
Myanmar junta pushing its own narrative
The most striking example of this mismatch in messaging may be how the Myanmar junta has, as we discussed in an earlier edition of this newsletter, attempted to give the impression that the illegitimate regime could weather the political and economic turmoil following the military coup that commenced in 2021. The junta has regularly announced new approvals or agreements for Chinese projects and boasted of the progress made on high-profile ones. However, there has overall been limited movement on Chinese investment projects that were not already underway before the coup. On the contrary, several major projects that were gaining momentum before the coup have since ground to a halt. Although China’s plans for increasing connectivity and economic cooperation with Myanmar over the long term remain, it is clear that its companies and banks, like other investors, remain cautious about the risk of investing in post-coup Myanmar.
Filling the Vacuum: Enhancing Transparency
The projects highlighted above illustrate how information gaps can result in confusion, and in some cases are capitalized on by project proponents to give the impression that Chinese involvement is more certain than it is. This has occurred in the case of projects that are seen as potentially high risk, reinforcing the perception that China plays a role as investor or lender of “last resort.” The lack of communication by Chinese financiers and investors makes it challenging for stakeholders, including affected people, the public and civil society, to confirm their involvement and provides fertile ground for misunderstandings about Chinese investment. In some cases, such misperception could help keep problematic projects alive and affect the reputation of Chinese investors.
Global projects will continue to be a priority for China, and will continue to entail risks, but there have been promising signs and now a sustained rhetorical emphasis on not just delivering projects, but ensuring they are of high quality and support local people’s needs. The requirements for feasibility and impact studies, if implemented well, could help project developers and financial institutions to better identify risks that must be addressed, including economic and political risk, but also environmental, social and governance (ESG) concerns.
Often, we can only speculate on the reasons why a project may be dropped or altered, but there are some encouraging signs that some Chinese companies and financial institutions are following the policy trend and acting more cautiously overseas. Risk tolerance may not be as high as it once was.
However, improving public communication about involvement in, or withdrawal from, projects is a key element in achieving commitments to ‘green’ overseas projects. Enhancing transparency around projects, including proactive communication with the public, affected people, and civil society will help to clarify the extent to which sustainability considerations are impacting decisions around investment. This will not only make such decision by Chinese stakeholders more impactful, but also help build a more accurate perception of Chinese overseas investment in this new phase.
Further reading
Daniel Nesan (2024), Three years later: Impacts of China’s Overseas Coal Power Ban, Centre for Research on Energy and Clean Air
Jiaqi Lu, Diego Morro, Shengheng Li & Thang Ha (2024), ‘Small’ Belt, ‘Beautiful’ Road China’s Cautious Return to Global Energy Finance, Boston University Global Development Policy Center
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This newsletter was made possible by the generous support of Oxfam Hong Kong. The contents do not necessarily reflect the position of Oxfam Hong Kong.