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Paw Tracker newsletter (Week of Apr 19)


China had a “whirlwind week” of climate diplomacy after John Kerry’s ice-breaking visit to Shanghai was followed by two key video addresses made by President Xi Jinping at the Bo’ao Asia Forum and Leaders Summit for Climate organized by President Biden. The BRI’s carbon footprint was high on the agenda of external stakeholders engaging with China on climate (the EU raised it last September when its leaders met with Xi ahead of China’s carbon neutrality pledge). After rounds of diplomatic pressure and mounting expectations, China still hasn’t budged. Xi’s consecutive speeches nimbly danced around the issue in a carefully worded manner, signaling that the economics and politics of a total coal phaseout overseas is still contested domestically. Instead, Xi promised “strict control” of coal power inside China. 

The Paw Tracker newsletter, developed by Panda Paw Dragon Claw, provides up-to-date and granular project-level information on the Belt and Road Initiative. Drawing from Chinese sources of information that are often disjointed and difficult to access, the newsletter also aims to become a convening space for watchers of the BRI to share and cross-check information about projects and their impacts on the ground. 

Talk of the Town


The US-China Joint Statement Addressing the Climate Crisis, reached between John Kerry and his counterpart Xie Zhenhua in Shanghai on April 16, kicked off a week of heated speculation about what new policies China may announce with regard to its involvement in coal projects along the Belt and Road. 


In the statement, both countries committed to “take appropriate actions to maximize international investment and finance in support of the transition from carbon-intensive fossil fuel based energy to green, low-carbon and renewable energy in developing countries.” It fell far short of a total phaseout of coal financing from China that some were expecting. 


Observers then anticipated that President Xi would provide some elaboration (or “upgrade”) on this point in his keynote address at the 2021 Bo’ao Forum in Hainan Island on Apr 20. After all, the forum’s theme this year was “Join Hands to Strengthen Global Governance and Advance Belt and Road Cooperation.” But Xi’s address at the event was even vaguer: “We could [sic] strengthen cooperation on green infrastructure, green energy and green finance, and improve the BRI International Green Development Coalition, the Green Investment Principles for the Belt and Road Development, and other multilateral cooperation platforms to make green a defining feature of Belt and Road cooperation.” 


For China’s international finance heavyweights at Bo’ao, debt sustainability appeared to be a bigger concern than climate sustainability. At a roundtable session, former central bank governor Zhou Xiaochuan, AIIB President Jin Liqun, China Eximbank President Hu Xiaolian and Vice Minister of Commerce Qian Keming discussed the role of sustainable finance along the Belt and Road. Qian provided probably the only marginally substantive elaboration on Xi’s green BRI comment. When outlining priorities for BRI infrastructure development in the next phase, he highlighted “green and low-carbon energy, including gas, solar, wind, hydro and nuclear,” noticeably not mentioning “clean” coal. But he did say that such green energy projects should work hand-in-hand with “conventional energy enterprises” to produce energy projects that “bring higher [net] environmental benefits and total benefits to host countries”, which may suggest some sort of bundling of fossil fuel and renewable developments as is happening in China right now.  


Other roundtable participants focused their attention on the debt burden of BRI countries. Jin Liqun insisted that only new financing, rather than withheld financing, can pull debt stressed countries out of their difficulties. “The priority is to control the pandemic,” he said, “only a healthy country can be a productive country.” Hu Xiaolian stressed that Chinese financing should aim at strengthening a host country’s “self-revitalisation capabilities”. It should be “measured in its scale” and “controlled in its pace,” not going beyond a host country’s absorbing capacity. She mentioned that China is actively participating in G20’s second round of debt suspension. But she did not forget to emphasize that in debt renegotiations China has to take care of both sides’ (debtor and creditor) interest: “Sustainable finance is not grant or welfare support,” she said, “some financing costs actually incentivise host countries to better spend the money.”


As the Bo’ao Forum did little to add substance to the “coal-free BRI” vision that the Kerry-Xie statement only alluded to, the hope that China might ditch overseas coal financing in one stroke (or speech) quickly dissipated as observers ran out of plausible scenarios in which that could happen. Xi’s much anticipated appearance at Biden’s Leaders Summit for Climate was only announced 24 hours ahead of time. Speaking immediately after Biden and UN Secretary General Guterres, Xi only gave Green BRI a side-mention. The big announcement was that China will “strictly control” coal power domestically in the next five years and aim to reduce coal consumption starting from 2025. In the domestic context, this is probably the first time that coal (and its decline) was given such a central place in the top leader’s address. On the other hand, it signals that overseas coal is a (perhaps distant) secondary consideration compared to the domestic energy transition and development pathway.


At the same Summit, South Korea’s President Moon Jae-in pledged that his country would stop public financing for coal-fired power plants overseas. "It is imperative for the world to slow down coal-fired power plants, although developing countries that will struggle due to the heavy dependence on coal should be given due consideration and proper support," he said.

This week's highlight projects

Vietnam - Dongfang Electric sign EPC for 110MW lignite power plant unit 


In presumably coincidental timing, rather than being a big week for stepping away from involvement in coal projects on the Belt and Road, last week saw Dongfang Electric sign an EPC contract for the construction of the 110MW second unit of the Na Duong lignite plant in Vietnam. The signing took place via video conference with plant owners Vietnamese mining and industrial conglomerate Vinacomin on Apr 19.


The plant is a “mine-to-mouth” project which will burn locally mined lignite coal. Though the coal is low quality and polluting, the plant will utilise circulating fluidised bed (CFB) technology to improve efficiency.


Why it gets our attention: The signing is a sign that Chinese companies are still keen to pick up contracts for coal power plants, despite the leaderships’ rhetoric on “greening” the Belt and Road that was on full display this week and despite (or maybe because of) the fact that East Asian peers such as Korean and Japanese power companies are turning away from coal projects. 


It also indicates that China is taking differentiated approaches to coal power projects across the Belt and Road’s geographies. Last month, a leaked letter from the Chinese Embassy in Dhaka to the Bangladeshi power ministry stated that “the Chinese side will no longer consider” coal power projects in the country. The memo clearly did not reach Vietnam.


One more thing: The second unit of Na Duong has been in the works since as early as 2009, when Japanese company Marubeni signed an MOU for its construction. Since then it has encountered numerous obstacles, not least an inability to find financing as the Vietnamese Finance Ministry refused to provide the project with a state-backed guarantee. Where the latest round of financing to enable Dongfang’s EPC contract is coming from is so far unknown. 2015 estimates put the cost of constructing the second unit at USD 200 million.    


Namibia - Gezhouba and China General Nuclear Power Group sign 8-year services agreement at Husab uranium mine 


On Apr 14 the two state owned companies signed a services agreement which will include mining at the Zone 1 site of Husab uranium mine, supplying explosives and drilling equipment, and other mining and transportation engineering operations.


The Husab mine sits atop the world’s third largest deposits of uranium and was originally constructed and brought into operation in 2016 by a joint venture between China General Nuclear Power Group and Namibian company Swakop Uranium. Mine construction cost over USD 4.8 billion, but is expected to single handedly boost Namibia’s GDP growth by 5%. Annual uranium output stands at 293,000 tons.


The services deal signed is essentially the extension of a “Build, Operate, Transfer” arrangement in which the Chinese company not only constructs the mine, as in an EPC contract, but also contributes to daily operations for a set period of time. 


Why it gets our attention: Namibian uranium extraction has grown rapidly in recent years - as much as 20% in 2018 - and was the world’s fourth largest producer of uranium as of 2019. The Husab mine contributes to nearly 68% of the country’s total production. While demand for uranium is cooling in most major import markets, Chinese demand continues to grow. Fitch Solutions forecast Namibian uranium production to increase this year and next, after a decline in production in 2020 due to the pandemic. Along with diamond exports, uranium will be central to Namibia’s economic recovery.

Other project & corporate updates


Chinese construction companies turn back to the domestic market


First quarter economic data released by China’s Ministry of Commerce last week showed that Chinese construction companies are signing fewer contracts overseas, and significantly more domestically. January to March this year saw the value of newly signed overseas contracts decline 27.8%. In contrast, domestic contracts signed over the same period grew by 36.4%. The data demonstrates just how strong China’s domestic economic rebound is and how global economic downward pressure is affecting the pace of infrastructure construction along the Belt and Road.


Consultancy Goal Fore compiled a breakdown of domestic v overseas contracts for five major state owned companies active along the Belt and Road. 

If you have further details of any of the above mentioned projects that you would like to share with the community, please reach out to us through pandapawdragonclaw@gmail.com

Worth your time

As we are on the topic of climate change, sustainable finance and overseas coal investment, US Treasury Secretary Janet Yellen's wide-ranging remarks on Apr 21 is worth reading. In the address, Yellen demonstrates a solid grasp of the urgency of the climate crisis, and outlines the range of fiscal and financial interventions the US government will be making to address this issue. 

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