OCOI 21 | Extension of Global Governance Roadmaps: the “Belt and Road” Forum for International Cooperation, AIIB Annual Meeting and G20 Summit

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Over the spring and summer in 2017, the “Belt and Road” Forum for International Cooperation and the AIIB’s Second Annual Meeting were successively held. The Forum outlined a new roadmap for global strategy while the latter focused on sustainable strategies for development finance and governance practices at the operational level.

 

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Over the spring and summer in 2017, the “Belt and Road” Forum for International Cooperation and the AIIB’s Second Annual Meeting were successively held. The Forum outlined a new roadmap for global strategy while the latter focused on sustainable strategies for development finance and governance practices at the operational level.

 

As the “Belt and Road” Forum for International Cooperation concluded in May, Miniseries and Commissions issued roadmaps for strategizing and promoting a green and sustainable “Belt and Road”. However, in response to that, some European countries expressed concerns, which signaled that further improvements in the transparency of policy making and higher social and environmental standards in economic and trade activities will be vital within “Belt and Road” in the future.

 

 In July, the G20 summit was held in Hamburg, Germany. Besides the US, all other 19 member countries reaffirmed their strong commitment to the Paris Agreement, and at the same time, Merkel announced that the “G20 Hamburg Climate and Energy Action Plan for Growth” will be published as one of the agreed documents. As climate issues become integral of the global governance process, efforts and determination to push decarbonization of the global economy to a new height will not be reversed by any independent political factors.

 

 

 

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After a two-day forum, “Joint Communiqué of Leaders Roundtable of ‘Belt and Road’ forum” and “List of Deliverables of the ‘Belt and Road’ Forum for International Cooperation” contained 76 major items and 270 sub-items that were published. In the next 3 years, the Chinese government will increase its assistance to the developing countries along the “Belt and Road” with total assistance reaching no less than RMB 60 billion; China will also provide a replenishment of US$1 billion to the South-South Cooperation Assistance Fund, and will provide relevant international organizations with US$1 billion.  Moreover, the Ministry of Environmental Protection issued “The ‘Belt and Road’ Ecological and Environmental Cooperation Plan” which makes special mention of encouraging exchange and cooperation of non-governmental environmental organizations, and the Plan also makes it a key point to facilitate green financial policy making. The day after the forum, the Ministry of Environmental Protection, Ministry of Foreign Affairs, and the National Development and Reform Commission as well as Ministry of Commerce jointly issued “Guidance on Promoting Green ‘Belt and Road’”, and set forth specific goals as follows; build up pragmatic and efficient eco- environmental protection cooperation and exchange systems, support and service platforms and industrial technological cooperation bases, formulate and execute a series of eco-environmental risk prevention policies and measures and laying a solid foundation for green ‘Belt and Road’ Initiative within 3 to 5 years; and establish a relatively complete eco-environmental protection service, support and guarantee system, implement a cohort of key eco- environmental protection projects, and achieve favorable results within 5 to 10 years.

 

However, some European countries expressed concerns over the signing of this trade document. It was reported by AFP that European Union countries including France, Germany, Estonia and Greece, as well as Portugal and UK indicated that they would not sign one of the summit documents on trade. They believed that the document did not sufficiently address European concerns on transparency of public procurement and social and environmental standards. In response,spokesman of the State Council confirmed positively (CN) when answering to reporter's questions, saying that the report refers to “Trade Connectivity Initiative” as one of the 6 parallel summits.

 

 From June 16 to 17, 2017, the AIIB held its 2nd Annual Meeting of the Board of Governors in Jeju, Korea. Nearly 1,000 representatives from the AIIB, private sector, CSOs, and media attended the annual meeting. The meeting focused on "sustainable infrastructure", and discussed how AIIB may meet regional economic infrastructure needs under a new structure of global governance. During the meeting, AIIB held a dialogue with CSOs reaffirming AIIB’s strong support for international climate convention, including the Paris Agreement, and a renouncement on coal and hydro projects. As President Jin said in the opening remarks, "…AIIB will support countries to meet their goals of global initiatives, like the Paris Agreement and SE4ALL… There are no coal projects in the pipeline, and we will not consider any project if they will have environmental impacts or damage to the reputation of AIIB."

 

 Since their formal establishment in 2015, AIIB has been developing and improving its governance structure, mechanisms and policies. In early 2016, the AIIB published the"Environment and Social Framework" Afterwards,“The Energy Strategy” was drafted last year, and was approved on June 15 after two rounds of public consultation. The"Public Information Interim Policy" is currently in the consultation stage and the "Complaints Handling Mechanism" will be drafted by August.

 

In late April, the World Bank President Jim Yong Kim and AIIB President Jin Liqun signed the Memorandum of Understanding. The Memorandum provides an overall framework to strengthen cooperation and knowledge sharing between the two institutions, including development financing, staff exchanges, and research work. The two institutions have co-financed 5 projects together. By signing this memorandum, AIIB is actively promoting in-depth cooperation with other multilateral development banks, which includes sustainable finance policies and governance.

 

 On July 8, the G20 Hamburg summit adopted a communiqué.  The US position was the reason for the difference on trade and climate issues, therefore the negotiation on climate was rather intense. The other 19 countries made no concessions to the US’s insistence on inclusion of clean fossil fuels and cooperation on clean fossil fuels access, however such insistence was deemed as an attempt to promote US gas exports. The communiqué has become a compromise with widened differences. As 19 members of the Group of 20 have reaffirmed the Paris Climate Accord as “irreversible”, whereas US had been "noted" as an ad hoc object several times in the communiqué.

 

During the summit, Chinese President Xi Jinping delivered a speech. He mentioned green finance and inclusive finance when speaking of global economic governance. Xi said that promoting green finance and inclusive finance will help the financial industry to provide better and tailored financial service to boost real economy.

 

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On May 2, the public in the Irkutsk region of Lake Baikal lodged a petition on the Internet asking the government to restrain Chinese enterprises from building bottled water plants by Lake Baikal. The total number of people signing the two Petitions reached 300,000. It is said in the Petition that building a bottled water plant by the lake will bring irreparable damage to the local ecology. Moreover, getting water will entail pipeline laying and large-scale lake blockade, which will affect the fishing nearby.

 

More than 10 years ago, a similar petition was presented against the Russia – Pacific oil pipeline in this very area. As a result, President Putin signed a presidential decree in 2006, deciding to move the original pipeline 40 kilometers northward away from Lake Baikal.

 

Building on China Overseas Investment Risk Map, SynTao and School of Economics and Management of Tsinghua University jointly developed the "China Overseas Investment CSR Country Risk Index". On June 6, the index release conference and the seminar on "Chinese enterprises in Latin America" were held in Tsinghua University, and a Spanish version of "Chinese Enterprises Overseas Investment Community Communication Guide" was also released. Participants discussed and identified non-traditional risks Chinese enterprises may face in Latin America; they also discussed a more sustainable and responsible path for Chinese enterprises to invest in, in Latin America.

 

On May 12, the Research Institute of Emerging Market and Research Institute of “Belt and Road", two Institutes of Beijing Normal University, released a Report on the Evaluation of Countries along the “Belt and Road”. The report, covering 65 countries, evaluates countries on their economic development, national governance, resource use, environmental protection, social development, business environment, and ranks these countries based on both single factor evaluation and a comprehensive development level. For the ranking based on comprehensive development level, Singapore came first, China came second, followed by Malaysia, Estonia and Lithuania; Afghanistan, Syria, Yemen, Iraq and Palestine are in the bottom standings of the ranking with Afghanistan coming last.

 

The report shows that politics and governance are key factors. A proportion of manufacturing value added to the GDP of countries along “Belt and Road” continues to climb, reaching 22.4% in 2015; the average manufacturing growth rate of the region is the fastest in the world. However, unbalanced economic development is a thorny problem for countries along “Belt and Road”. Financial markets are not stable and some countries face the risk of market volatility. As to resources, these countries are rich in total cultivated land resources, but per capita resources are in shortage, and the grain production rate is low which threatens the national food security. At the same time, fresh water per capita available is in serious shortages. Moreover, some countries rely heavily on energy, thus they are fragile within sustainable economic development.

 

On March 14, the German Agency for International Cooperation (GIZ) and the Natural Capital Finance Union (NCFA) launched an analytical framework and tools developed for an Environmental Stress Test, which enables banks to quantify and assess the impacts of drought on their loan portfolio. The environmental stress testing tool has successfully passed trial tests by banks from Brazil, China, Mexico and the US.

 

On May 11, 2017, Beijing International Studies University released " ‘Belt and Road’ Investment Safety Blue Paper: China ‘Belt and Road’ Investment Safety Research Report. The report presents an "Investment Safety Index”, and uses the index as a measure to identify key issues China may face. These issues could include investor protection, risk in merger and acquisition evaluation, tax policy, legal safeguard, insurance mechanism, and terrorist activities. At the same time, the report analyses investment safety in different industries and regions, such as military trade, financial cooperation, fossil energy trade, a special analysis is also conducted on ASEAN and other target regions.

 

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Zhou Xiaochuan wrote on China Finance Net that the investments and financing of Belt and Road should be market-oriented and adhere to sustainability and reciprocal principles. The article analyzes the limitations of concessional support in investment and financing practices. Concessional capital support, including concessions in interest rates, maturity, and grace period, has been provided widely to developing countries in investment and financing cooperations. Although concessional support is more flexible than commercial capitals, it may cause ethical risks due to limited fiscal resources. Under such support, some countries rely on the support and lack awareness of equality and reciprocity within cooperation. Moreover, it may also cause market distortions, limit the effective allocation of resources, and ultimately may constrain the development of developing countries. Therefore, promoting "Belt and Road" financing connectivity will require an investment and financing system that is market-oriented, sustainable and reciprocal.

 

On March 17, 2017, the economic experts at the Brookings Institution and the Center for International Governance Innovation (CIGI) submitted a policy briefing on “Towards a Comprehensive Approach to Climate Policy, Sustainable Infrastructure, and Finance” to the G20 Finance Minister. The briefing proposes a policy package of low-carbon growth stimulation through a steep increase in sustainable infrastructure, mobilizes sustainable finance, and adopts carbon pricing to simultaneously achieve the objectives of the Paris Agreement and the Sustainable Development Goals. The policy brief points out that promoting long-term financing for green infrastructure is key to expanding investment in sustainable infrastructure. In that respect, "Green finance" plays an essential role. Also, the policy briefing proposes a series of specific policy recommendations

 

Shi Yulong, Director of the Land Development and Regional Economic Research Institute of NDRC, said that the "Belt and Road Initiative” has a groundbreaking significance which entails complex and systematic work. During the process, problems that need solving are more difficult and complex than what we have encountered when formulating domestic development strategies and policies. Participating institutions, enterprises, and even experts are not fully aware of specific information about countries along the “Belt and Road”. Therefore, think-tanks can give full play to their talents to fill such gaps. It is time for think-tanks and institutions to sort out information and to provide a reliable database, carry out in-depth research on countries along “Belt and Road”, and present timely risk assessments, early warnings, and recommendations.

 

Green Watershed thinks that AIIB improved on their stakeholder engagement, by engaging more with civil society organizations to express opinions in its second annual meeting. It was a progress compared with AIIB’s first annual meeting. As to energy investment, Green Watershed also conveyed civil society organizations’concerns on coal and large hydro projects, and hopes  “[AIIB will] end all investment in coal and related infrastructure by 2030”, and carefully consider the investment in the Georgian hydropower station in the project portfolio.

 

Growing evidence showed that social and environmental standards become quickly diluted, and transparency could hardly be guaranteed when a bank investment is involved with a financial intermediary. Regarding investment projects involving a financial intermediary, it is still a question whether AIIB’s new energy strategy, coupled with its Environmental and Social Framework, can provide sufficient safeguards to local people and the environment.

 

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In April, 2017, the United Nations Environment Programme, Frankfurt School-UNEP Centre and Bloomberg New Energy Finance published “Global Trends in Renewable Energy Investment 2017”. Key insights are as follows. Driven by lower costs, renewable energy installed capacity hit a new high with the amount of new capacity installed increasing from 127.5GW in 2015 to a record 138.5GW in 2016, up 9%. Due to the falling cost of clean technology, global new investments in renewables fell by 23% to $241.6 billion, but there was record installation of renewable power capacity worldwide in 2016. The report also finds that renewable energy investment in developing countries fell 30% to $116.6 billion, while those in developed economies dropped 14% to $125 billion. Jordan was one of the few new markets to buck the trend, with investment there rising 148% to $1.2 billion.

 

On May,17, 2017, Social Resource Institute (SRI) published “Social Responsibility and NGO Participation in China Enterprises’ Overseas Investment: A Case Study on Letpadaung Copper Project in Myanmar ”. The research report analyzes the status and challenges of Chinese NGO participation in overseas investment. SRI points out that priorities set forth in “Vision and Actions on Cooperation in Jointly Building Silk Road Economic Belt and 21st-Century Maritime Silk Road” issued in 2015, which are” increasing exchange and cooperation between non-governmental organizations of countries along the “Belt and Road”, organize public interest activities concerning education, health care, poverty reduction, biodiversity and ecological protection for the benefit of the general public, and improve the production and living conditions of poverty-stricken areas along the Belt and Road.“

 

Compared with that vision, there is still a limited number, and participation of Chinese NGOs who are dedicated to promoting sustainable overseas investment of Chinese enterprise. But NGOs that are on such a course still face multiple challenges.

 

 Inclusive Development International finds that more and more social and environmental policy and guidelines related to overseas investment are adopted in China’s investment activities. Chinese state institutions and industry groups have developed a formidable body of policies and guidelines that apply to Chinese companies developing, operating or financing overseas projects. 

 

Yet, publicity and implementation on these policies and guidelines still needs to be strengthened. In June ,2017, IDI released “Safeguarding People and the Environment in Chinese Investments”, explaining guidelines that apply, and providing practical tips on how these guidelines can be used in advocacy with relevant Chinese institutions, and helping civil organizations and communities understand guidelines, policies and standards adopted by China-based financiers in outbound investment.

 

In August, 2016, Greenovation Hub published a report on environmental and social risk management, highlighting the importance of environmental and social risk management for domestic financial institutions in overseas investment. The report stresses the vital role of global cooperation mechanisms, including G20, in environmental and social risk management, and presenting 6 recommendations for major economies.

 

 

Observation on China's Overseas Investment (OCOI) wishes to present multiple views and perspectives to enhance understanding concerning China's overseas investment and global footprint, so as to promote China's "going out" in a more responsible and more sustainable way.

 

We welcome experts and scholars sharing related cases and views with us.

 

Please send us your comment to policy@ghub.org.
We welcome your feedback and will share some selected insight upon permission in next issue.