Chinese lenders turn off the taps on international energy projects as ‘debt trap diplomacy’ criticisms mount
- Loans from two development banks fell by 71pc last year to US$3.2bn with three projects in Guinea, Nigeria and Turkey the only ones to benefit
- Concern is growing both in China and abroad about the sustainability of its lending practices
Funding for energy projects from two of China’s biggest policy banks dropped to the lowest level in more than a decade last year amid growing criticism of its “debt trap diplomacy”, according to a new report.
China Development Bank and the Exim Bank of China only advanced loans for three projects worth US$3.2 billion last year – the biggest drop since 2008, research by Boston University’s Global China Initiative found.
This marked a 71 per cent drop from the US$11 billion advanced in 2018, and came amid a general reduction of Beijing’s lending to foreign countries and growing concerns that it is burdening poorer countries with unsustainable debts.
The devastating effects of Covid-19, which has killed more than 2,000 people, and the effects of the prolonged US-China trade war will only worsen the situation in an economy already witnessing a deceleration in growth in recent years, the researchers said.
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Kevin Gallagher, director of the centre that compiled the report, said the lenders were becoming concerned about the debt sustainability of recipient countries. They were also facing growing opposition from politicians and civil society in these countries over their cost and environmental impact.
But he also said domestic caution was a factor. “China needs its US dollars for potential instability in the economy at home and has drawn down its foreign reserves.”
“This, and the [Covid-19] virus, will lead to likely decline next year too.”
Last year, Exim Bank of China financed two hydropower projects – the Gurara hydropower project in Nigeria at a cost of US$1 billion and the Koukoutamba hydropower project in Guinea at a cost of US$812 million. China Development Bank bankrolled the construction of the Hunutlu coal plant in Turkey for US$1.4 billion.
The US$3.2 billion total is a far cry from the peak figures of US$48 billion in 2009 and US$45.7 billion in 2016, according to China’s Global Energy Finance database, which is based on figures from the two global policy banks.
The study said that as of last year, the two lenders had granted a total of 270 energy sector loans since 2000, with a total value of around US$251 billion.
The report said nearly three-quarters of these loans went to belt and road countries.
The oil sector received the largest amount, followed by coal and hydropower.
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According to the study, a third of the 270 projects supported by the two banks were hydropower projects, followed by coal (25 per cent) and other transmission projects (15 per cent).
The study found that the largest number of projects they financed were in Africa (32 per cent), followed by Southeast Asia and Latin America and the Caribbean (both on 13 per cent).
However, the study said the East European and Central Asian countries had received the largest sums because of the region’s oil and gas projects.
Funding for coal projects was highest in Asia, with Africa receiving the largest sums for hydropower.
The researchers said that although the focus on a small number of projects last year may be a reflection of stricter risk management by the banks, they were not free from controversy.
The report said the Koukoutamba dam project in Guinea has become increasingly controversial due to
the potential impact on the new Moyen-Bafing national park – a crucial sanctuary for the critically endangered western chimpanzee.
It also warned the new roads and infrastructure would open up previously remote areas, potentially moving people into protected areas.
Similarly, the Hunutlu thermal power plant in Turkey is planned near a biodiversity hotspot and faces local and national opposition due to its potential impact on health and the environment.
The study found out that even though the power plant is adopting higher pollution and efficiency standards, its projected greenhouse gas emissions are still alarming.
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