The Asian Infrastructure Investment Bank, Paris Alignment, and the Role of China

The Asian Infrastructure Investment Bank (AIIB) was launched as a new multilateral development bank (MDB) in early 2016, just over a month after governments adopted the Paris Agreement—the landmark international treaty on climate change. To counter fears that the new China-initiated bank would engage in a race to the bottom in terms of upholding social and environmental standards, in his inauguration speech, AIIB President Jin Liqun promised to build the new institution ‘on transparency, openness, accountability and independence’. Moreover, he committed the AIIB to doing its ‘best to protect the environment’ and to running the ‘AIIB as an organisation which is “lean, clean and green”’ (AIIB 2016).

Despite these promising commitments, and despite the AIIB being created without the high carbon legacy of other MDBs, it has to date failed to put its ‘green’ aspirations into practice. From the early adoption of its Energy Sector Strategy (ESS), which failed to rule out fossil fuels, even coal, and continues to support natural gas in the new update, the AIIB has not seized the opportunity to leapfrog dirty development to more sustainable investments. Questions arise as to why the AIIB has failed to make its mark as a truly ‘green’ institution and whether its Chinese leadership plays a part or whether it is simply caught in the same ‘business as usual’ operational model as its peers, preventing it from paving its own more sustainable and ‘greener’ path as a post-Paris financial institution.

A Chinese Bank or a New Multilateral?

The bank was born with the birthmark of China because China proposed it, but it’s been brought up deeply embedded in the international community.

—Jin Liqun, AIIB President, February 2021 (Campbell 2021)

In October 2013, on a visit to Indonesia, Chinese President Xi Jinping first announced the country’s intention to set up the AIIB, with the aim of bringing ‘greater connectivity’ between China and the member countries of the Association of Southeast Asian Nations (ASEAN). Xi presented the commitment as ‘win-win cooperation’ that would bring ‘more benefits to both China and ASEAN and the people in the region’ (Xi 2013). Eighteen months later, in April 2015, 21 Asian countries signed a memorandum of understanding (MoU) on establishing the AIIB (AIIB 2015a).

The motivation for China’s move to initiate the bank has been much debated. Some analysts point to China’s unsuccessful calls for reform of the World Bank’s shareholding formula, which has left China with no more than 5 per cent of voting power despite its gross domestic product (GDP) now representing almost one-fifth of the global economy (Humphrey 2021). China also failed to secure a larger GDP-based share of the New Development Bank set up by the so-called BRICS countries (Brazil, Russia, India, China, and South Africa), which was under development at the same time as the AIIB and launched in July 2014 (Bretton Woods Project 2014). Others point to the AIIB as a vehicle for Xi’s Belt and Road Initiative (BRI)—launched in 2013 (Dollar 2015)—or as a challenge to the reign of the US and Japan–dominated Asian Development Bank (ADB) in the region (Campbell 2021), or a mixture of all these factors (Grieger 2021).

Jin Liqun became the AIIB’s first president when it was launched in early 2016. He had taken on the position of secretary-general of the interim secretariat tasked with establishing the bank in October 2014 and became president-designate in August 2015. Jin has served at China’s Ministry of Finance, climbing to the rank of vice-minister, but also has significant MDB experience, having held several senior positions representing China at the World Bank and, from 2003 to 2008, was vice-president and ranking vice-president of the ADB (WEF n.d.).

At the time of its launch, the AIIB’s mission had expanded from the original announcement and its links to China were downplayed. It was no longer described primarily as a vehicle for improved cooperation with ASEAN countries. In Jin’s inauguration speech, he thanked not only President Xi and China’s government ‘for their extraordinary support and visionary leadership in spearheading AIIB’s establishment’ (AIIB 2016), but also the members of the ‘MDB family’, including the World Bank Group and the ADB, calling their support ‘most valuable’. In the next 13 months, the AIIB proceeded to sign MoUs with all the main MDBs (AIIB n.d.).

The AIIB is headquartered in Beijing and China continues to hold the presidency, with Jin re-elected for another five-year period from January 2021 (AIIB 2020). While officially the presidency is determined by election by bank members, it is plausible that the AIIB will follow a similar tradition to the World Bank, the International Monetary Fund (IMF), and the ADB, which have always been led by a US national, a European, and a Japanese national, respectively (Lichtenstein 2018).

Shareholder Dynamism: Who Are the Main Players?

The UK was the first major Western economy to join the AIIB … Joining the AIIB is a further step in the government’s plan to build a closer political and economic relationship with the Asia region and maximise opportunities for British businesses.

—UK Chancellor George Osborne, November 2015 (AIIB 2015b)

Almost a decade after it was first announced, with over 200 projects worth nearly 39 billion USD approved, the AIIB is now a truly global institution. Since its inception, the bank’s membership has almost doubled to 106 countries, covering most continents (AIIB 2022c). This makes it the second-largest MDB by membership, after the World Bank (Gu and Liu 2022). Even in its early investments, it was clear the AIIB did not intend to restrict itself to ASEAN countries—in fact, the first project approved was in Tajikistan in Central Asia, followed by two projects in Pakistan and one in Oman. The latest influx of AIIB member countries come from Latin America—six approved and two prospective. Several more African countries are also prospective members (AIIB 2022c).

The AIIB applies a GDP-based formula for shareholding, but only for Asian members, which, according to its Articles of Agreement, must represent at least 75 per cent of total subscribed capital stock (Gu and Liu 2022). China thus holds the largest share with more than one-quarter of voting power (26.6 per cent) (AIIB 2022c). Significantly, several European countries came onboard just before the AIIB was launched. Luxembourg was the first, in March 2015 (Ministry of Finance 2015). It was rewarded by hosting the first annual meeting outside Asia, in 2019 (AIIB 2019). The United Kingdom followed soon after, then a rush of European countries including Germany, France, Italy, and the Netherlands joined just before the mid-April deadline (Reuters 2015). Germany holds the fourth-largest vote share (4.2 per cent), after China, India (7.6 per cent), and Russia (6 per cent). If European countries vote as a bloc, their share represents 22 per cent of votes—almost matching China’s share (AIIB 2022c).

The United States confirmed early on that it would not join, and Japan has also not joined; the two countries are jointly the largest shareholders of the ADB. The United States actively lobbied allies to not join the AIIB, leading to the absence of Australia, Indonesia, and South Korea at the inauguration ceremony in 2014; however, these countries subsequently joined as the bank began operations (The Economist 2014). The United Kingdom’s decision to apply for membership upset its relations with the United States (Bremmer 2015). The move came as the UK Government was actively soliciting new investments from China. At that time, a US official warned of ‘a trend toward constant accommodation of China, which is not the best way to engage a rising power’ (Watt et al. 2015).

Further, the White House publicly questioned whether a China-led institution would be able—or willing—to meet the standards of other MDBs, such as the World Bank (Watt et al. 2015). To counter these claims, the AIIB released its first Environmental and Social Framework (ESF) shortly after it officially opened in January 2016, following a brief consultation period. This was vital for the bank’s European shareholders, who needed to prove to their governments and citizens that the new institution was taking environmental and social issues seriously.

At the AIIB’s official launch in 2016, President Jin did not make any references to the BRI and, while many AIIB members have signed MoUs and/or expressed support for the initiative, its second-largest shareholder, India, is firmly sceptical of it (Grieger 2021). Turning down its invitation to join the BRI, India emphasised the fact that China had failed to ‘engage in meaningful dialogue’, suggesting the BRI did not respect ‘sovereignty and territorial integrity’ and lacked necessary principles such as ‘balanced ecological and environmental protection and preservation standards’ (MEA 2017). Despite this, India joined the AIIB as a founding member and is its second-largest shareholder (AIIB 2022c). In a speech shortly after the AIIB’s launch, India’s then foreign secretary explained that India preferred the AIIB’s ‘consultative processes’ to ‘more unilateral decisions’ (MEA 2015). To date, India has received by far the largest share of the AIIB’s investments, with 36 (20 per cent) of all approved projects disclosed as of the end of September 2022. India’s projects were worth almost 9 billion USD—more than double the bank’s investments in China or Turkey, which have received the second-largest investment by value and by number of projects, respectively (AIIB 2022d).

Further complicating the shareholder dynamic, Russia is the AIIB’s third-largest shareholder and was due to host the bank’s annual meeting in October 2022. After Russia’s invasion of Ukraine, however, the AIIB withdrew this offer. In an unprecedented statement, the AIIB expressed ‘thoughts and sympathy to everyone affected’ by the invasion and announced that ‘all activities relating to Russia and Belarus are on hold and under review’ (AIIB 2022a). Two projects in Russia and two in Belarus were subsequently moved to a new page on the bank’s website titled ‘On Hold’, where they remain at the time of writing.

Europeans quickly made their mark in the top ranks at the AIIB. German-born World Bank veteran Joachim von Amsberg and former UK Government minister Danny Alexander joined as vice-presidents in February 2016, soon followed by French national Thierry de Longuemar—another MDB veteran. The AIIB’s management extends to the other top shareholders, too, with Indian, Russian, and Indonesian nationals holding senior management positions since its inception.

AIIB and Paris Alignment

We are at a defining moment in history—one which calls for bold, fast and wide-ranging collective action if we are to limit global warming and protect our fragile planet.

—Jin Liqun, AIIB President, October 2021 (Jiang 2021)

The AIIB has set a 1 July 2023 deadline to align its operations with the Paris Agreement (AIIB 2021). What this means in practice is less clear and the AIIB has so far refused to open the process for developing its institutional methodology for Paris alignment (Recourse 2022b). There is no agreed definition of what ‘Paris alignment’ means in practice, but the methodology will build on a framework in development by a group of MDBs. However, this process is also obscure, and the group generally only publicly reports back during the UN Framework Convention on Climate Change (UNFCCC) yearly Conference of Parties (COP). The latest COP, in Egypt in November 2022, failed to report much progress, and civil society campaigners remain concerned about loopholes in the framework for fossil fuel funding (The Big Shift Global 2022b).

It is therefore unclear whether the AIIB’s forthcoming methodology will be ambitious enough to adequately respond to the Paris Agreement’s goal to limit global warming to 1.5ºC above pre-industrial levels. The IPCC’s most recent assessment further raised the threat of catastrophic impacts of climate change in the coming decades if rapid decarbonisation does not take place—in particular, in the energy sector (IPCC 2022). This leaves no room for emissions growth.

The AIIB’s first ESS, approved in June 2017 (AIIB 2018), was widely criticised as failing to introduce limits on the funding of fossil fuel projects, particularly those involving coal (Recourse 2022a). This not only contravened the Paris Agreement, but also went against other institutions, such as the World Bank, which had in 2013 outlined tight restrictions on financing for coal power (World Bank 2013). Early analysis and media coverage suggested that at least four of the major shareholders—China, India, Indonesia, and Australia—would resist a move to ban coal investments (Horta et al. 2016; Hutchens 2016). Reporting on the consultations, the AIIB (2017) noted ‘split opinions on support for coal’.

Just days before the approval of the ESS, in a move possibly meant to calm European shareholders, AIIB Vice-President Longuemar told the media that the bank would not finance coal-fired power plants (Baert 2017). President Jin has since repeatedly stated a similar message, countering claims that China was behind the setback on coal exclusion. In 2020, he added that the AIIB would also ‘not finance any projects that are functionally related to coal—for instance, roads leading to the plant or transmission lines serving coal power’ (Yi 2020). The review of the ESS finally began after China in September 2021 pledged to stop building coal-fired power projects overseas and the ADB, in the following month, committed to phase out most of its support for coal power (Ng 2021).

It is, however, not true that the AIIB has not supported coal. Research by Recourse, Inclusive Development International (IDI), and the Centre for Research on Multinational Corporations (SOMO) revealed that the AIIB invested in the International Finance Corporation (IFC) Emerging Asia Fund in 2017, which in turn invested in Shwe Taung Cement in early 2018—a project in Myanmar involving both the use of coal in the industrial process, nearly quadrupling greenhouse gas emissions from the cement plant, and increased extraction from a dedicated coalmine (BIC Europe et al. 2018).

This form of financial intermediary (FI) investment, where the AIIB essentially ‘outsources’ funding decisions to commercial banks or private equity funds, which in turn invest capital in ‘subprojects’ or ‘subclients’, represents a growing share of the AIIB’s overall portfolio—almost doubling in value over the past four years. The AIIB has also funded other fossil fuel projects through FIs, including gas projects in Bangladesh. In response to civil society and shareholder concerns, the AIIB strengthened the language on FI due diligence in its revised ESF, which came into effect in October 2021. However, further reforms are necessary to improve FI transparency and accountability, including in the ESS (Recourse 2022a).

Next Steps for AIIB’s Energy Sector Strategy

After the AIIB updated the ESS five years since it was approved, it is at long last on track to exclude coal investments in most circumstances (AIIB 2022b). However, this is the bare minimum needed to address climate change and become Paris aligned. Unfortunately, fossil fuels still feature strongly in the updated ESS, sending mixed signals about the AIIB’s priorities. Significantly, the draft puts a strong emphasis on gas as a ‘transition fuel’ with losse restrictions, leaving giant loopholes for unabated support for gas to continue. Meanwhile, references to renewable energy are weak and often associated with outdated assumptions (Recourse 2022a).

Since its inception in 2016, the AIIB has invested almost 2.3 billion USD in gas projects, excluding indirect finance, representing almost 40 per cent of its energy portfolio. While the proportion has dropped from more than 60 per cent in 2018 (BIC Europe and The Big Shift Global 2018), it remains a significant share. This includes financing for the controversial greenfield Bhola gas power plant in Bangladesh, which has caused widespread social and environmental harms (BIC Europe et al. 2019), and the Myingyan gas power plant in Myanmar, which was chosen over wind and solar alternatives. Concerningly, the AIIB added two new greenfield gas projects into its pipeline in 2022—one in Bangladesh, which was approved in December 2022, after the new ESS came into effect, and one in Uzbekistan. Moreover, the bank’s renewable energy share has not grown proportionally; in four years, it has increased by only a few percentage points and now represents just over one-quarter of the energy portfolio.

A first draft of the ESS was made available for public comment in April 2022. Further drafts were not made public before the ESS, which retained a focus on gas, was approved in late November 2022. Gas is often promoted as a transition fuel, but most of its uses already have cost-competitive renewable energy–based alternatives (Muttitt et al. 2021). In its 2021 report Net Zero by 2050, the International Energy Agency (IEA 2021) concluded ‘there is no need for investments in new fossil fuel supply’—not just coal but also ‘no new oil and natural gas’. In fact, gas, rather than coal, is now the main driver of the global increase in carbon dioxide emissions (Hausfather 2019). This leaves the AIIB behind the curve. The European Investment Bank (EIB 2019), which is at the forefront of Paris alignment among MDBs, is already phasing out support for all fossil fuel energy projects, including gas.

The AIIB’s European members should have been natural allies in the shift away from gas; for example, the United Kingdom introduced a new policy on financing overseas fossil fuel projects in March 2021. However, this ruled out support for coal but allows support for gas in certain circumstances, including the condition that it ‘does not delay or diminish the transition to renewables’ (Department for Business, Energy & Industrial Strategy 2021). In February 2022, the European Commission endorsed a controversial proposal to include gas as a transition fuel in the European Union’s new taxonomy, which will classify whether activities are environmentally sustainable. Germany was a major proponent for gas to be included. The proposal caused uproar, including an open letter from the Institutional Investors Group on Climate Change, which represents almost 400 investors managing more than 50 trillion EUR in assets, in which it declared it ‘strongly opposed … any inclusion of gas within the scope of the Taxonomy’ (IIGCC 2022). Russia’s invasion of Ukraine has since changed the narrative on gas in Europe, but so far mainly from a security perspective (see, for example, EC 2022). Allowing a ‘green card’ for gas leaves Europe lagging behind China, which excludes gas power from its own taxonomy (Ng 2022).

More hope came from a new initiative launched at the UN climate conference in Glasgow in November 2021, which saw 39 countries and institutions from around the world (including 22 per cent of the AIIB’s members) committing to end direct international public finance for unabated coal, oil, and gas by the end of 2022 (UKCOP26 2021). This includes the European Investment Bank, but so far, no other MDBs have joined. This represents an opportunity for the AIIB to join the climate leaders, rather than being a laggard.

In his inauguration speech in 2016, President Jin promised that the AIIB would be an ‘agile and innovative institution that learns from the past and recognises the promise and opportunities for the future’ (AIIB 2016). As has been shown, while China will no doubt maintain a leadership role, the AIIB has primarily sought to establish itself as part of the MDB landscape, rather than following in the footsteps of China’s bilateral banks. Dealing with the enormity of the climate challenge, public finance has an important role to play in shifting incentives away from ‘business as usual’. As the AIIB sets out to become Paris aligned, it remains to be seen whether it will lift its ambitions and support a truly green, gender-responsive, and sustainable transition away from fossil fuels. Disappointingly, judging from the updated ESS, it seems that rather than learning from the mistakes of the past, the AIIB is on course to replicate the fossil fuel–heavy practices of its MDB peers.

PS: The article was originally posted on 17 November 2022 but subsequently updated on 15 January 2023 for inclusion in Global China Pulse, vol. 1 no. 2.

What is Global China?

In the past two decades, China’s ascendance in the world has given rise to ‘Global China’ as a subject of public debate and scholarly inquiry. If ‘Global China Studies’ is an emerging field of knowledge, it may be helpful to reflect on what our central concept is. We can discern at least three meanings of ‘Global China’ in circulation.


At the most empirical and commonly used level, the term refers to China’s expansive engagements beyond its geographical boundaries and national jurisdiction. In the past few decades, the international media has provided extensive, albeit uneven, coverage of China’s presence and activities in different countries and arenas of world affairs, from human rights to climate change, commodity markets, digital technology, international development finance, foreign direct investment (FDI), soft-power projects, and medical diplomacy. In this usage, ‘Global China’ is widely portrayed as and assumed to be a grand strategy masterminded by the Chinese Communist Party (CCP) leadership and, more recently, motivated by President Xi Jinping’s personal ambitions. As the policy names of this grand strategy—from Going Out to the Forum for China–Africa Cooperation, to the Belt and Road Initiative (BRI) and Made in China 2025—enter world headlines, Global China as an empirical phenomenon also becomes reified as a cohesive set of policies constituting an indomitable force that is predatory and imperialistic to some, but developmental and beneficial to others.

Thanks to China’s immense geopolitical and economic influence, and the public’s insatiable appetite for information on this global force, there is now a sizeable journalistic, non-fiction, and scholarly literature tracking Global China’s footprint and its consequences. As a staple of international news, the Global China story has been told by amplifying key phrases in Beijing’s policy announcements, aggregating volumes of outbound investment, loans and migration, or engrossing details of corporate battles for strategic minerals between China and the United States in Africa. While the voluminous information reported is important to keep track of a monumental phenomenon, quantity is no guarantee of quality, or even accuracy. As Deborah Bräutigam (2009, 2015, 2020) has consistently highlighted in her myth-busting research, factual errors plague reports by even the most reputable Western media sources. The scope and secrecy of Chinese activities are definitely challenging constraints, but journalistic errors are sometimes egregious—from mistaking Chinese yuan for US dollars, thereby inflating Chinese concessional loan amounts, to stories about non-existent Chinese grabs for land and farms, and using inaccurate information about international loan standards to assess Chinese loan practices. Academic publishers have also joined in the market frenzy, releasing non-fiction mass-market tomes that offer no more than airbrushed descriptions and facile prescriptions (Strauss 2019). The peril of adopting a solid empiricist approach to Global China is that China’s officialese often becomes the analysis rather than the object of analysis, drastically underestimating the existing scope, depth, and complexity of Global China.


The second meaning of ‘Global China’ is more analytical and approaches the idea as a power project—that is, its essence is not policy or geography, but power. In this perspective, Global China is a bundle of generic power mechanisms—economic statecraft, patron–clientelism, and symbolic domination—that China deploys in specific ways in pursuing its project of outward expansion (Lee Forthcoming). The intellectual payoff of seeing Global China as a power project is that one will ask questions about agency (who?), interest (why?), method (how?), and consequences (so what?). Power is relational, so we would attend to resistance, bargaining, accommodation, appropriation, and adaptations by the germane players in this power project, not as an afterthought or secondary supplementary study but as constitutive of Global China. If you want to understand Chinese investments in African mines, you must look at the African elite and African labour and not just at China, and you must look at non-Chinese mining companies competing with Chinese ones to specify the Chinese method of FDI.

Emphasising power rather than policy also allows us to avoid singling out, essentialising, and demonising China. For instance, while only China has a policy like the BRI, the essence of the BRI is ‘economic statecraft’—using economic means to achieve political and diplomatic goals. The use of concessional loans and infrastructure as geopolitical leverage is by no means a Chinese invention or exclusive practice. The World Bank, the International Monetary Fund, and Western donor countries have famously imposed structural adjustment as a loan condition on debtor countries with the goal of changing the latter’s political economy and forging dependence on the West. Noting Western parallels also opens comparative questions of process and politics: what and who are the unique interests and players driving China’s lending spree? In most debates, people write about ‘China’ as though there was a wilful, sinister mastermind in Beijing pulling levers and making decisions. In reality, there are many bureaucratic, ministerial, corporate, and private interests behind the Going Out policy and the BRI (Jones and Zeng 2019; Zhang 2021); they compete as much as collude, and often end up defying, derailing, or defeating Beijing’s grand strategy.

In The Specter of Global China (Lee 2017), I detail the relational dynamic producing these supply-driven loans in Zambia: they were initiated not by would-be debtor countries but by Chinese state-owned enterprises (SOEs) going abroad to export surplus capacity. The clout and connections of these SOEs allowed them to secure financing from the Export–Import Bank of China or the China Development Bank and then peddle these approved, shovel-ready projects to government officials in Zambia. To maximise corporate profit, these powerful contractors exploited the clause of non-competitive single sourcing from China to set inflated price tags (30–40 per cent higher due to the lack of bidding, according to Zambian technocrats). Not only are these projects lucrative, they also guarantee payment by the Chinese Government as loans to African governments. African technocrats knew full well the problem of inflated loans would come back to haunt them, but election-minded politicians were more concerned about getting the roads and bridges built quickly to keep themselves in power than about repayment in 20 years when they would be long gone.

Elsewhere, China’s united-front strategy has drawn a lot of policy and academic attention. Scholars at the Hoover Institution have popularised the notion of ‘sharp power’—a term coined by international media and think tanks, and defined as the coercive, corrupting, and covert exercise of influence and power that undermines democratic institutions. But at its heart, the united front is just old-fashioned patron–clientelism—namely, the exchange of benefits for political loyalty or support, at either the elite or the mass levels. Once again, China is hardly the first regime to use this means of power. The US domestic lobbying industry and US security partnerships with autocratic regimes abroad are prime examples of patron–clientelism. The questions we should ask are comparative ones: how are Chinese ways different, why, and under what conditions does the united front work, fail, or become appropriated?

Other examples are China’s Confucius Institutes (CIs) and the China Global Television Network (CGTN), which we can empirically examine as Chinese policy tools to achieve soft power. But viewing the CIs and CGTN, as well as scholarships, academic exchanges, and social media, from a power analytic means recognising them as generic strategies used by many nation-states, not just China, to achieve ‘symbolic domination’—mobilising symbols and cultures to shape habits of thought, dispositions, and the classification of reality. The questions then become what is unique about the Chinese way of symbolic domination, and what explains its uneven local reception and effectiveness? Maria Repnikova’s (2022) research on Chinese soft power and CIs in Ethiopia shed important light on the unique Chinese conception and practice of soft power; its target audience is not just international but also domestic, and its enticement not just cultural, but also pragmatic and economic.

A new generation of Global China scholars is producing cutting-edge scholarship adopting this power and relational approach. Among the works featured in a forthcoming special section of The China Quarterly, Liang Xu (Forthcoming) and Derek Sheridan (Forthcoming) consider the local dynamics and histories of South Africa and Tanzania, respectively, when they study Chinese investments in factories and wholesale trades. Their arguments are not just clichéd assertions or politically correct posturing that Africans have agency and can resist Chinese interests. They analyse how race, class, and gender hierarchies and imaginations in African contexts shape Chinese–African encounters. Juliet Lu (Forthcoming) and Wanjing Chen (Forthcoming) turn to Global China in Laos. Lu chronicles how a Chinese state investor in rubber plantations had to navigate the vagaries of local state politics in both China and Laos and was at times pulled by contradictory interests as a profit-driven business and a development partner. Chen, on the other hand, highlights how overseas Chinese business leaders can usurp the patron–client ties spun by Chinese united-front officials to privilege their personal interests above those of their patrons.


The third approach to Global China emphasises the ‘global’ context, conditions, and impetuses of Chinese developments. Even domestic practices within China are influenced by global forces. Global China in this approach is less about China going out, and more about how transnational and global interests, imaginations, institutions, and politics shape what is happening inside China. I call it a ‘method’, as it is an analytical strategy that helps us overcome the longstanding ‘methodological nationalism’ that has plagued China studies, area studies, and the social sciences in general.

Darren Byler’s (2021) new book on Xinjiang as a penal colony is a prime example. He shows how digital surveillance systems and forced labour in cotton fields, factories, and concentration camps targeted at Uyghurs are atrocities accomplished by both the Chinese Government and a litany of global actors. American research universities, global IT giants, and the global apparel industry are business partners complicit in Xinjiang’s human rights violations. Beyond global capitalist interests, legal scholars have called out the global rhetoric and legalisation of the ‘War on Terror’ of the past two decades. The equivalents of the US Patriot Act enacted in 140 countries and counterterrorism measures required by the United Nations after the Security Council passed Resolution 1373 in 2001 (HRW 2012) have enabled and encouraged China’s ‘people’s war on terror’. In short, China has been part of a global trend of leveraging national security legislation to curb civil and ethnic-minority rights and consolidate executive power in different regime types (Cody 2021). How autocratisation, as a global political movement not reducible to global capitalism, has shaped China and its variant of authoritarianism is an important topic for Global China scholars.

Beyond Xinjiang, Franceschini and Loubere (Forthcoming) illustrate a ‘Global China as method’ approach by tracing Chinese/global entanglements—that is, material and discursive parallels and linkages—in various domains, from labour practices, surveillance capitalism, and overseas development financing, to the neoliberalisation of universities and academia. Elsewhere, Hung (2020) reveals how US and Chinese corporate collaboration and competition underlie the rise and fall of ‘Chimerica’. Before the 2010s, China recruited US corporations to be its proxy lobbyists in Washington. Amid China’s economic slowdown after 2010, state-backed Chinese corporations became increasingly aggressive in expanding in domestic and global markets at the expense of US corporations, which ceased to lobby keenly for China in Washington. This means Reform and Opening-Up and its current incarnation are the results not just of the reform architect Deng Xiaoping or the CCP, as contemporary China scholarship has emphasised, but also of the alignment and contestations of global and domestic interests and players. Both global and domestic dimensions must be considered simultaneously, and not artificially compartmentalised as subjects for international relations and domestic Chinese politics, respectively.

Past and Present

A new wave of scholarship has exhumed from the dustbin of history a pre-globalisation and pre–reform era ‘Global China’. During the Cold War, despite US embargoes, communist China sustained international trade with and imports of technology from Europe and developing countries (Kelly 2021). The predecessors of today’s BRI were China’s extensive international development cooperation projects (Monson 2021; Zhang 2021; Rudyak 2021). As a sociocultural force, the ideology and practice of Maoism travelled widely in the Global South during the 1960s, and among the American and European Left (Calhoun 2008; Lanza 2017; Lovell 2019). Mao’s Little Red Book, consciousness-raising, armed struggle, the people’s war, and more were inspirations for the Black Panthers in the United States and many national-liberation movements in Asia, Latin America, and Africa (Evans 2021; Snow 1989). Providing scarce material resources ranging from military training and medical aid to scholarships and railways, Maoist China was the self-proclaimed leader in the global fight against racial injustice and colonial subjugation and in the non-aligned movement that sought Third World solidarity and development models beyond those of the United States and the Soviet Union. Beyond the radical Left, transpacific exchanges between American and Chinese journalists, musicians, dancers, Christians, and diasporic activists defy the facile idea of an insulated China before the official beginning of the Reform and Opening-Up era (Gao 2021; Wilcox 2019).

In a nutshell, Global China is an exciting invitation to rethink existing paradigms of the study of China and the world, past and present. The China–global nexus—connection, complicity, competition, collaboration, contrast, and convergence—compels us to move away from naturalising China as a geographical entity defined by its territorial boundaries, and assuming without empirical evidence or comparison that anything that happens therein is uniquely and quintessentially ‘Chinese’. At a time of rising (ultra-)nationalism and international rivalry, as methodological nationalism garners ever-more political, moral, and emotional purchase, Global China, as a critical and intellectual resource, is even more important and urgent.

Understanding the China Development Bank in Latin America

In terms of lending power, the China Development Bank (CDB) is the largest development bank in the world, one of the most important financiers of infrastructure and extractive projects globally, and a key instrument to support Chinese international economic policies such as the Going Out strategy of the late 1990s and the more recent Belt and Road Initiative (BRI). In Latin America and the Caribbean (LAC), the CDB has provided finance to governments and companies for more than 200 projects in 18 countries (Song 2019), among which are numerous large-scale projects such as the Las Bambas mine in Peru, Mirador in Ecuador, and the Santa Cruz River Hydroelectric Complex in Argentina (on the Mirador and Santa Cruz River Hydroelectric projects, see LAS 2020 and LAS 2022, respectively). Some of these projects are in or near ecologically vulnerable areas and indigenous territories—a situation that has generated much debate and many concerns about the socio-environmental impacts of the CDB’s activities in the region.

Despite the importance of its activities in LAC, the CDB is relatively little known in the region, partly due to the lack of information available in Spanish, as well as the very limited disclosure of information concerning its loans and standards. In December 2021, our organisation—Latinoamérica Sustentable (LAS) (for background, see Mark Bo’s conversation with the organisation’s founder, Paulina Garzón, in the current issue of the journal)—launched a report titled Understanding the China Development Bank: Financing, Governance, and the Socio-Environmental Challenges for Latin America and the Caribbean. In it, the authors provide information on the critical role of the CDB in China’s international development finance system, its influence in LAC recipient countries, and its environmental and social governance mechanisms and standards, which we now summarise.

CDB’s Role in Latin America

In the past two decades, China and LAC have developed a vibrant and interdependent relationship, in large part due to the voluminous financing deployed by the CDB in the extractive and infrastructure sectors. Since the CDB became a lender to Latin American governments in 2005, it has financed more than 200 projects in 18 countries and has established two representative offices, in Río de Janeiro and Caracas, as well as eight working groups for the region (Song 2019).

Much of the CDB’s loans to LAC countries has been state-backed finance issued to governments or state-owned enterprises (SOEs) such as national oil companies (Petrobras in Brazil; Petroecuador in Ecuador; PDVSA in Venezuela). The CDB also provides corporate loans that are typically awarded to Chinese companies either to invest in extractive projects or to buy equity in companies that are participating in projects and sectors of interest to China. In LAC, the CDB has funded well-known projects such as the Santa Cruz River Hydroelectric Complex in Argentina, the El Dorado International Airport in Colombia, the Shougang Iron Mine and Las Bambas mining project in Peru, the Mirador Copper Mine and Villonaco wind power plant in Ecuador, and the Las Cristinas Gold Mine in Venezuela, among others.

Since the CDB does not publish details of its loans deal by deal, it is not possible to determine all the projects in which it participates, especially in the case of corporate loans. However, based on the China Latin America Finance Database (Gallagher and Myers 2021), which documents Chinese finance based on reports, official declarations of contracts, and other verified official and non-official documents, between 2005 and 2021, the CDB lent a total of US$111.3 billion (US$97.9 billion directly and US$13.4 billion jointly with other Chinese banks) to LAC countries. We found three patterns. First, 94 per cent of the loans were concentrated in four countries—Venezuela (US$57.3 billion), Brazil (US$28.1 billion), Argentina (US$15.5 billion), and Ecuador (US$9.4 billion)—with a minimal presence in countries like Mexico, Colombia, Peru, Chile, and the Caribbean. Second, the loans are highly concentrated in the energy sector, which received approximately US$41 billion, mainly for oil and gas projects. And third, in commodity-exporting countries like Brazil, Venezuela, and Ecuador, an important part of the CDB’s lending has been conditioned on the sale of certain commodities to China, especially crude oil. These loan contracts often have collateral arrangements, in which the borrowing country holds an account with the CDB into which oil export revenues are deposited, and that account repays the loan through regular payments. If the borrower defaults on the loan, the deposits in the bank account can be seized (Gelpern et al. 2021).

Loans to LAC peaked in 2010 (reaching US$33 billion) and maintained a constant flow until 2017 when they began to decrease to the extent that no new credits were registered in 2020 and 2021. The CDB, and Chinese banks in general, have been more cautious in granting sovereign loans and more prone to disbursing corporate loans (Myers and Ray 2022). This is partly due to the difficulties faced by countries in paying their sovereign debt, and reflects the attempt by Chinese companies to shift towards public–private partnerships. Although CDB loans have declined, it does not mean the bank is retreating from the region. In fact, the CDB is diversifying its portfolio towards more sophisticated financial mechanisms in at least two ways. First, issuing finance directly to Chinese and LAC companies—for example, loans granted to the Chinese–Colombian consortium Autopistas Urabá or to the state-owned Chinese logistics firm COSCO for its BRI projects in LAC. Another mechanism is partially funding regional private equity funds such as the China–LAC Cooperation Fund, the China–LAC Industrial Cooperation Investment Fund, and the China–LAC Cooperation Fund.

We should bear in mind that the CDB is one of the most important financiers of the BRI—the Chinese Government’s overarching strategy for global connectivity. At the time of writing in April 2022, 21 countries from LAC have signed agreements with China for cooperation under the BRI and even though the initiative has been challenged by the Covid-19 pandemic, it is anticipated its influence in the region will continue to grow. The visits of the presidents of Ecuador and Argentina to Beijing in February 2022 are a continuation of this trend, and renewed financing commitments within the context of the BRI were signed on those occasions. Even though so far very few projects in LAC have been officially labelled as part of the BRI, many of the more than 200 infrastructure and extractive projects financed by the CDB in LAC fit the priorities of the BRI—namely, enhancing connectivity.

Omissions and Commissions on Environmental and Social Governance

According to the United Nations Environment Programme (UNEP 2017), LAC hosts approximately 60 per cent of known terrestrial species, while it is estimated that the Amazon region is home to 10 per cent of Earth’s biodiversity. Moreover, approximately 58 million people belonging to more than 800 indigenous communities live in the area, which represents almost 10 per cent of the regional population (ECLAC 2021). These unique ecosystems and territories have suffered serious impacts because of the large extractive and infrastructure projects financed by the CDB in LAC countries, most of which are within or close to ecologically vulnerable areas and indigenous lands.

As the CDB’s foreign lending grew, the Chinese Government encouraged the bank to improve its methods for assessing environmental and social impacts in the approval and supervision of loans, just as it had been doing with green financing in China. However, a significant number of its projects in Latin America have been challenged by local communities, delayed, or even suspended because of the lack of meaningful and enforceable principles, policies, and methods for assessing and managing environmental and social risks. Examples include the mining projects Mirador and San Carlos Panantza in Ecuador, Las Bambas and Tomorocho in Peru, and Las Cristinas in Venezuela, as well as infrastructure projects such as the Santa Cruz River Hydroelectric Complex in Argentina (for more details on these cases, see the mid-term report for the Universal Periodic Review of China; CICDHA 2022).

The CDB has a dual nature, operating as both a national development bank (NDB) and a commercial bank. This makes it difficult to compare its environmental and social requirements with those of other financial institutions. Traditional NDBs such as the National Development Bank of Brazil (BNDES) or the US International Development Finance Corporation have for years been pressured by civil society groups and domestic legislatures to ensure their policies meet appropriate standards. Likewise, multilateral development banks such as the World Bank and the Inter-American Development Bank have faced civil society scrutiny for decades, and must meet the demands of shareholders, many of whom have utilised their influence to ensure that standards on project implementation and disclosure are developed and updated over time. These internal and external pressures have resulted in policies that are more sophisticated than those of the CDB in terms of environmental and social risk assessment, transparency, and participation principles and policies.

Moreover, regarding accountability and the disclosure of information about loans and standards, our report shows that the CDB has no public document that explains its environmental and social policies, their implementation procedures, or even the structures within the bank responsible for their administration and monitoring. Also, the CDB lacks a dedicated department or team to handle environmental and social assessment and associated complaints, and its bureaucratic structure does not promote effective coordination within the bank and makes it challenging for civil society to communicate with bank representatives. In fact, as we prepared our report throughout 2021, the working group at LAS attempted to contact the CDB offices in Beijing, Anhui, and Río de Janeiro several times with requests for interviews, comments, and feedback on drafts, but there was never any response.

To understand the bank’s performance in the region, our report examined seven loan contracts signed with the CDB: three with Argentina, three with Ecuador, and one with Costa Rica. They confirmed that while contract clauses emphasise compliance with national and international laws, there is a lack of environmental and social provisions. For instance, no contract mentioned the CDB’s obligation to monitor the use of the loans; only two contracts mentioned environmental law; all contracts had strong confidentiality clauses; just one contract had a clause on corruption prevention; and none of the contracts included information regarding the CDB’s criteria for environmental and social protection, or guidelines for its loans in this regard. Moreover, the CDB’s credit lines are often approved before the projects they finance become publicly known. These credit lines typically support projects with high environmental and social impacts in the infrastructure, mining, transportation, energy, and telecommunications sectors. These facts show that while China has proved it can learn very quickly on many fronts, improvement of environmental and social governance at the CDB is happening in slow motion.

Some examples of these problems can be observed in the Santa Cruz River Hydroelectric Complex in Argentina, the largest dam financed and built by Chinese entities in LAC, which is in Patagonia and affects the Perito Moreno Glacier, a World Heritage Site (for more details about this project, see LAS 2022). This project started despite having an incomplete and inadequate environmental impact study, which resulted in the Supreme Court of Argentina ordering that complementary studies be carried out before construction continued. Another instance is that of the Villonaco I Wind Power Plant in Ecuador, also financed by a CDB line of credit, which only carried out its definitive environmental and social study after construction of the plant was complete. In other cases, especially in Venezuela, projects financed by the CDB were suspended due to corruption issues—for instance, the Tinaco–Anaco Railway Line and the PDVSA Agriculture rice plant in Delta Amacuro. Despite this, the bank continued disbursing funds.

Challenges and Opportunities

In February 2020, the Ministry of Commerce (MOFCOM) of China and the CDB announced that to ‘minimise the impact of the pandemic’, the CDB would provide special loans to increase financing support for selected enterprises implementing ‘higher-quality’ projects affected by the pandemic (MOFCOM and CDB 2020). Two months later, more than 260 civil society groups from across the world published a joint statement calling on MOFCOM and the CDB to refrain from granting such relief to 60 projects (14 of them in LAC) with severe environmental, social, climatic, and financial problems (IDI 2020). The organisations recommended specific principles to ensure that projects are of ‘high quality’, including ensuring credible, robust environmental impact studies; obtaining free, prior, and informed consent from indigenous communities; committing to not impact key biodiversity areas; and ensuring alignment with international norms, best practices, and China’s green finance policies.

This opened a window of opportunity for improving the environmental and social governance of China’s state-backed banks. As the Chinese Government has committed to reach domestic carbon neutrality by 2060 (NDRC 2022), and with President Xi Jinping’s 2021 commitment to cease building overseas coal plants and support developing nations to expand their renewable energy capacity (see Li, Li and Bo’s essay in this issue of Global China Pulse), the CDB is expected to play an increasingly important role in greening the BRI and supporting clean energy in developing countries towards the 2030 Agenda for Sustainable Development. In this matter, in October 2021, the CDB signed a memorandum of cooperation with the Green Climate Fund (GCF)—the world’s largest climate fund and the operating entity of the UN Framework Convention on Climate Change and the Paris Agreement—the first Chinese financial institution to do so. The two parties agreed to ‘carry out capacity building and knowledge sharing in such areas as climate project development, structured solutions for green infrastructure projects, climate investment standards, and project impact assessment’ (CDB 2021). This could be a sign that the CDB is willing to learn from international experiences and best practices, implement green financial products, and help clean industries to grow.

There are also opportunities to explore new and innovative approaches to greening CDB finance. This includes debt-for-nature swaps—a financial mechanism in which a portion of debt is cancelled or reduced by a creditor in exchange for the debtor making financial commitments to conservation (Soutar and Koop 2021). In LAC, Ecuador is one of the top candidates for a debt swap with China based on its high biodiversity. In fact, there is already a very plausible proposal (Larrea and Ramos 2021) for a 10-year reduction in the country’s deforestation rate in exchange for a debt reduction of US$421 million—equivalent to 8 per cent of the country’s outstanding debt to China. According to the authors, this would save 200,000 hectares of Ecuadorian Amazon rainforest, while simultaneously avoiding the emission of 117 million tonnes of carbon dioxide.

We believe that to truly capitalise on these positive developments and opportunities, the CDB must begin by establishing rigorous and mandatory environmental and social safeguards, including environmental, social, transparency, and anticorruption provisions within loan contracts, and improving information disclosure and due diligence. These steps are essential if the CDB is to meet its responsibilities as one of the world’s most important providers of development finance.

The full report, Understanding the China Development Bank: Financing, Governance and Socio-Environmental Challenges for Latin America and the Caribbean, can be read here in Spanish and English.

What’s Behind the Diplomatic Spat between China and Lithuania?

In late 2021, Lithuania, a small country in Eastern Europe, managed to infuriate Beijing by welcoming a Taiwanese Representative Office in its capital, Vilnius. In Lithuania—a member of the European Union and the North Atlantic Treaty Organization (NATO) that gained independence from the Soviet Union only three decades ago—Taiwan’s fight for freedom and democracy resonates strongly. But in addition, it appears that specific local security concerns and economic interests converged in late 2020, when traditional supporters of Taiwan gained office in Lithuania. This has led to a foreign policy change that also has significant implications for the European Union’s relations with China.

Going against the Current

Over the past few years, the list of Taiwan’s diplomatic partners has shortened significantly. During Tsai Ing-wen’s first term as president (2016–20), Taiwan lost diplomatic recognition from seven countries; Nicaragua also shifted recognition to the People’s Republic of China (PRC), in 2021. Back in 2019, the People’s Daily warned Taipei it would lose all its diplomatic allies if President Tsai Ing-wen was re-elected in 2020 (Zheng 2019), in what Shattuck (2020) defined as Beijing’s strategic ‘race to zero’. At the time of writing in April 2022, only 14 countries still maintained full diplomatic relations with Taiwan.

Indeed, until recently, Beijing’s strengthening diplomatic position worldwide at the expense of Taipei appeared to be an irreversible trend as China’s economic clout gave Beijing great leverage. Against this background, it came as a surprise when, in late 2021, Lithuania openly signalled it was turning away from China and instead seeking to expand relations with Taiwan.

While the move fell short of extending formal diplomatic recognition to Taiwan, in November 2021, Lithuania welcomed the opening of a Taiwanese Representative Office in Vilnius. While there are 18 other such Taiwanese de facto embassies within the European Union, all bear the name of Taipei to avoid direct reference to Taiwan—a widely accepted balancing act between the red line drawn by Beijing and the willingness to extend at least limited recognition of Taiwan as a sovereign entity. Lithuanian leaders kept insisting the country still adhered to the One-China Policy, as the name of the office in Lithuanian (Taivaniečių) means ‘Taiwanese People’s’ rather than ‘Taiwan’s’. Yet, once translated to Chinese, this distinction disappears. Thus, China strongly objected, arguing Lithuania had violated the agreement the two countries signed on the establishment of diplomatic relations in 1991. In response, Beijing downgraded bilateral diplomatic relations to the level of chargé d’affaires and launched an unprecedented campaign of unofficial economic sanctions against Lithuanian businesses (Macikenaite 2022a).

Given China’s response, in early January 2022, Lithuania’s President, Gitanas Nausėda (in office since July 2019), unexpectedly stated that choosing that name for the representative office was a mistake (BNS 2022a). In the same month, it was leaked that Lithuanian officials were discussing whether to ask Taiwanese authorities to modify the Chinese translation of the name of its representative office in Vilnius to reflect the original name as agreed in English—that is, ‘Taiwanese’ rather than ‘Taiwan’ (Sytas 2022). The following month, the leader of Lithuania’s largest opposition party asked the prime minister to give him an official mandate to negotiate with China and resolve the conflict under the condition the government changed the name of the office (BNS 2022b).

But the name of Taiwan’s representative office in the country was only the culmination of a longer process of estrangement from China under the new coalition government led by the Homeland Union–Lithuanian Christian Democrats (TS–LKD) (previously in power from 2008–12), which took power in late 2020. In February 2021, Vilnius refused to send the highest-level representative as requested by China to the meeting of the 17+1 platform, downgrading its participation to the ministerial level. In May of that year, Lithuania officially confirmed its withdrawal from the platform and called on other EU countries to follow (Lau 2021). To warn Lithuania of possible consequences, Beijing recalled its ambassador from Vilnius in August and demanded Lithuania reciprocate. Reportedly, Beijing had already enforced some retaliatory economic measures in the spring of 2021, when credit insurance became unavailable for trade between Lithuania and China (Ammann 2022), but the reaction escalated in the wake of the opening of the Taiwanese Representative Office on 18 November 2021 (Bounds 2021).

After the inauguration of the office, Lithuania was removed from the Chinese customs clearance system for a few days. Later, Lithuanian exports and imports were stalled at Chinese ports for ‘technical reasons’ (Bounds et al. 2022; Macikenaite 2021). As later became evident, Chinese export restrictions targeted specifically Lithuanian manufacturers, as the supply of components and industrial materials was shut (Macikenaite 2022a). Reportedly, China also pressured multinational corporations to cut ties with Lithuanian manufacturers. The situation escalated to a full-scale diplomatic row—a crisis that is now also engulfing the European Union. European policymakers widely regarded China’s behaviour towards Lithuania as an attack on the European Union’s single market. As a result, in January 2022, the EU referred China to the World Trade Organization.

Amid the wave of commentaries that have been published in the past few months, a key question has seldom been answered: How did this come to pass?

Changing Perceptions

Arguably, these changes took place in light of changing perceptions of China in Lithuania. Several factors—security concerns, economic interests, as well as ideological orientation—converged, and the results of the parliamentary elections in 2020 opened a window of opportunity for the new coalition government to reorient Lithuania’s foreign policy away from China.

In its annual National Threat Assessment report released in February 2018, Lithuania’s State Security Department for the first time identified hostile cyber activities against local state institutions coming from China—a finding that helped redraw a global map of threats previously dominated by Russia. After Lithuania’s security agencies recommended excluding companies like Huawei from infrastructure projects and sectors of special importance, other Baltic states, Latvia and Estonia, followed suit (Deveikis 2020). The National Threat Assessment released by Lithuania’s security agencies in 2020 further elaborated on threats from China by pointing to its attempts to gather technical intelligence on Lithuanian information systems and gain access to critical infrastructure.

As this information was coming to light, the discourse regarding China’s engagements within Lithuania also began to undergo a dramatic transformation. In November 2015, Lithuanian Railways had signed a joint-venture agreement with a Chinese logistics company (MTC 2015). The following year, the Lithuanian Government expressed strong support for prospective investment by the China Merchants Group in the Klaipėda Port, Lithuania’s only seaport and a strategic hub for NATO in the Baltic states (MFA 2016); while in 2017, Lithuania officially joined the Belt and Road Initiative (BRI). But by the summer of 2019, President Nausėda rejected the possibility of Chinese investment in the port due to concerns over national security (Jakučionis 2019). Later that year, the country’s Defence Minister, Raimundas Karoblis, cautioned that any Chinese investment in the port could pose strategic risks as most US and overseas NATO forces arrive via Klaipėda (LRT 2019b), which should be read in the context of NATO having served as a guarantor of Lithuania’s security and being widely seen as a protector against possible aggression from Russia since Lithuania joined the alliance in 2004.

These discursive changes led to China being included in Lithuania’s security equation. Once perceived as a source of opportunities, China has increasingly come to be regarded as an approaching threat. Another sign of this shift was an investigation by Lithuania’s national broadcaster, LRT, which exposed the possible conflict of interest of a Chinese company that owns an enterprise in Lithuania and takes part in strategic energy projects in the country (Aušra 2019b). First, it was pointed out that the company, North China Power Engineering, is a subsidiary of the state-owned Power China—a fact previously somewhat overlooked. Second, the same company is a key contractor connecting the Astravyets nuclear power plant, on the Belarusian side of the border with Lithuania, to the Belarusian power grid. Lithuanian authorities have long regarded the Astravyets nuclear plant, financed by the Export–Import Bank of China, as a national security threat due to its noncompliance with international standards of environmental and nuclear safety (MFA 2018). To address the problem, Vilnius has aimed to isolate Minsk by rallying its neighbours and the European Union to block energy imports from Belarus (Aušra 2019b).

Moreover, an incident in Vilnius in August 2019 has been widely framed in the local press as an attempt by China to draw on its diaspora to advance Beijing’s agenda in the country. In a demonstration organised by, among others, now Vice-Foreign Minister Mantas Adomėnas, about 200 hundred people gathered in Cathedral Square in Vilnius to express their support for a free Hong Kong and a free Tibet (LRT 2019a). They were approached by a handful of Chinese counter-protesters, which led to verbal clashes. As a result, two Chinese protesters were fined by police for disturbances (BNS 2019). Lithuania’s national broadcaster reported that diplomatic staff from the Chinese Embassy in Lithuania—including the Chinese Ambassador, the Defence Attaché, his deputy, and the embassy’s second secretary—also appeared at the rally (Aušra 2019a). Footage from the rally was said to show the pro-China protesters removing banners from a car with diplomatic licence plates parked next to the venue (Aušra 2019a). The Lithuanian Ministry of Foreign Affairs summoned Chinese Ambassador Shen Zhifei and handed him a note underlining that actions by the staff of the Chinese Embassy that violated democratic freedoms and disturbed public order were not acceptable and would not be tolerated (MFA 2019). This incident, while small in scale, significantly contributed to the change in popular perceptions of China in Lithuania.

When it comes to economic partnerships, under the current government, a narrative has emerged that years of efforts to engage China have not produced substantial economic results. As I have documented in the country profile I compiled for The People’s Map of Global China (Macikenaite 2022b), contrary to high expectations, as of 2020, China ranked only 22 among Lithuania’s export destinations, with exports to mainland China amounting to barely 315 million EUR. Foreign direct investment from China in Lithuania also remains limited, with China fortieth on the list of foreign investors in 2020. Thus, the current government is now aiming to diversify Lithuanian exports and open markets to other Asian destinations, including Taiwan.

Changes in Lithuania’s China policy under the current government are also guided by normative principles and an increasingly widespread perception of China as an authoritarian regime. Within the Cabinet, which is led by the party traditionally very critical of Russia, there is a deep-rooted belief that sustainable and reliable economic partnerships are possible only with likeminded democratic countries. As Lithuania has long suffered from Russia’s energy price manipulations and politically motivated sanctions on its exports, the perils involved in economic reliance on authoritarian partners are evident. When it comes to China specifically, after then Lithuanian president Dalia Grybauskaitė met privately with the Dalai Lama in 2013, China put all economic negotiations on hold for a few years. Learning from these experiences, the current government, in a program approved by the parliament in December 2020, has outlined its aim for strategic diversification—specifically: ‘to get into new markets that would reduce our dependence on limited sources of supply in autocratic countries and open up new opportunities for Lithuania’s exporters in the most advanced democratic world markets’ (LRS 2020). Considering this, ‘closer relations with East Asian countries, where Lithuania has not as yet used the full cooperation potential’, are singled out (LRS 2020). South Korea, where Lithuanian embassy opened just last year (BNS 2021), and Japan are the countries in mind; Taiwan is also an attractive option.

A Political Shift

Amid such momentous shifts in narratives and perceptions, parliamentary elections that brought into power a new coalition government marked a turning point for Lithuania’s China policy. In December 2020, a coalition led by the conservative TS–LKD backed by two liberal parties took office, promising a change in foreign policy, with the initial coalition agreement committed to supporting those fighting for freedom ‘from Belarus to Taiwan’ (Sytas 2020). This explicit reference to Taiwan did not survive in the final government program, and was replaced with the goal of ‘expanding the area of freedom and democracy in our region and beyond’ (LRS 2020).

Already in June 2020, then members of the opposition and now Minister and Vice-Minister for Foreign Affairs, Gabrielius Landsbergis and Mantas Adomėnas, published a commentary titled ‘Lithuania: It’s Time for Choosing’ in one of Lithuania’ major online media outlets, outlining a new China policy for the country (Adomėnas and Landsbergis 2020). The steps at the top of the list were, first, to withdraw from the 17 + 1 platform and, second, to ‘comprehensively strengthen … relations with Taiwan and support its political recognition in the international community as a de facto independent democratic state governed by the rule of law’.

While the publication of that article represented a milestone in the public discourse on China in Lithuania, Taiwan has had a support base in the Lithuanian Parliament for some time. The Parliamentary Group for Relations with Taiwan, which already existed in the 1990s (although its legal status has changed over time), is now dominated by members of the current ruling coalition. When the question of setting up a parliamentary group for relations with the PRC was raised in the late 1990s, it was also presented as a matter of making a sensitive choice between two options: an authoritarian China and a democratic Taiwan. In May 2000, the Parliamentary Group for Relations with Taiwan registered a resolution titled ‘Regarding Relations with the Republic of China (Taiwan)’ (Parliamentary Group for Relations with Taiwan 2000), which suggested the Lithuanian Government establish a trade representative office in Taipei that year. An amended resolution was then adopted the following month, enshrining the Parliament’s resolve to expand economic, trade, and cultural relations with Taiwan (LRS 2000). However, at that time, the European Law Department under the Government of Lithuania ruled that referring to Taiwan as a state was not compatible with the European Union’s official position on Taiwan.

In April 2020, 54 of 141 members of the Lithuanian Parliament from different political parties submitted a resolution calling for the Lithuanian President and government to support Taiwan’s membership of all international organisations where recognised state sovereignty is not a membership criteria and in which Lithuania also takes part, as well as to support its observer status in those organisations where membership is based on recognition of sovereignty (Members of the Parliament of the Republic of Lithuania 2020). Notably, the resolution also called for the Lithuanian President and the government to raise the question of Taiwan’s independence at the European Council and other channels for EU political activities. At the same time, about 200 Lithuanian politicians and public figures sent an open letter to President Nausėda calling on him to support Taiwan in its dispute with the World Health Organization (WHO) regarding membership and to advocate for the country’s independence. The president rejected the calls on the grounds that only UN members can formally join the WHO (LRT 2020).

Yet, despite the support for Taiwan from some political groups in the country, Lithuania’s decision to deviate from established practice and welcome a Taiwanese Representative Office in Vilnius came as a surprise. Reportedly, even members of the TS–LKD—many of whom traditionally support Taiwan—have questioned this decision, while the Lithuanian media has named Adomėnas as the architect of the policy (Samoškaitė 2022). No doubt, as the supporters of freedom and democracy in Taiwan (as well as in Hong Kong) took office, long-simmering issues with Lithuania’s approach to China gained momentum. Moreover, as the country’s government has eyed Asian markets for its companies, Taiwan, which sees the recent development as a diplomatic achievement, has offered to cooperate with Lithuania in its semiconductor industry, presenting the country’s leaders with further incentives for the policy shift.

Small Steps, Significant Implications

Welcoming a Taiwanese Representative Office is far from an extension of formal diplomatic recognition to Taiwan, although Beijing has actively sought to frame it as a violation of the One-China Policy and Taipei has celebrated it as a diplomatic achievement. It is a rather small step, and likely one that will prove hard to sustain. The shadow cabinet in Lithuania has already vowed to change the name of the office should it win the next elections, in 2024 (Brunalas 2022). That is understandable given public support for the government’s ‘value-based policy towards China’ had fallen to as low as 13 per cent in mid-December 2021, after China’s response to the policy became evident (LRT 2022).

Nonetheless, Lithuania’s case will likely send ripples beyond the country’s boundaries for years to come. First, it has demonstrated to what lengths China is prepared to go to defend what it deems to be a violation of its interests. Importantly, it has revealed that China is prepared to use whatever economic leverage it has vis-a-vis European states and companies. Further, Lithuania’s experience underscores the extent of economic interdependence in today’s global economy and the vulnerabilities associated with this. It was indeed anticipated that the opening of the Taiwanese Representative Office in Vilnius under such a name would anger Beijing. Yet, it was deemed that Lithuania would not pay too high a price given its relatively limited economic relations with China.

When reports surfaced of Lithuanian producers losing contracts with European partners that shipped their finished products to China, it became evident that different channels of contact between countries put limits ‘on the ability of statesmen to calculate the manipulation of interdependence’ (Keohane and Nye 2012: 28). Moreover, the aim ‘to seek a united principled position vis-à-vis China in the political formats of the European Union’ (Adomėnas and Landsbergis 2020) has proved to be relatively difficult in the short term. While there have been signals that the European Union is changing its perception of China, a quick substantial change is unlikely, mainly due to the reluctance of some member states to antagonise Beijing (Barkin 2022).

Nonetheless, Lithuania’s experience has put the spotlight on the necessity for the European Union to reconsider the implications of its often-asymmetrical interdependence with China. It has only reinforced the recent trend of worsening EU–China relations. In late 2020, many in the bloc were optimistic about future economic relations with the Asian economic giant as the European Union celebrated completion of seven years of negotiations on the EU–China Comprehensive Agreement on Investment. A year later, EU–China relations look radically different. In February 2021, the European Commission proposed introducing an anti-coercion instrument to protect European companies and citizens from unfair trading practices (EC 2021a). In May 2021, the European Parliament halted ratification of the agreement until Beijing lifts countersanctions on EU politicians in relation to Xinjiang (European Parliament 2021). As the European Commission returned to its proposal to counter the use of economic coercion by third countries against EU member states in December 2021 (EC 2021b), at the time when Lithuania was under unprecedented informal sanctions from China, Lithuania’s case might be a harbinger of things to come. 

How Global Capitalism Became Humanity’s ‘Fate’ in Xi Jinping’s New Era

Western media regularly and casually suggest that China is pursuing ‘world domination’ (The Economist 2021). US national security officials evangelise the view that the country has a ‘grand strategy to displace American [global] order’ and perhaps even reduce their country to a ‘deindustrialized, English-speaking version of a Latin American republic’ (Doshi 2021; Lind 2020). The Biden administration, in line with such views and its immediate predecessors, has characterised China as the ‘most serious long-term challenge to the international order’ (Forgey and Kine 2022).

Beijing rarely has effective responses as it tries to insist that it, not Washington, is a true defender of multilateralism and global stability. After successive rhetorical frameworks declaring China’s ‘peaceful rise’, advocating a ‘new type of major country relations’, and insisting on the possibility of a ‘win-win’ relationship with developed Western states, Beijing’s most recent slogan of choice is the cryptic call for a ‘community of shared future for all mankind’ (renlei mingyun gongtongti 人类命运共同体). A slightly more accurate English version, which as we will see would better reflect the phrase’s etymology, is the ‘human community of fate’.

It was this formula that took top billing when Chinese President Xi Jinping gave the most agenda-setting foreign policy address of his tenure thus far, in his September 2015 speech before the UN General Assembly. The slogan has since been advanced in Chinese resolutions at the United Nations and other important forums, included in thousands of official statements, and even written into the Preamble to the Constitution of the People’s Republic of China (PRC) (Qian 2019). So, if the phrase is anything more than just empty verbiage, what does it imply for global society?

Somewhat surprisingly, the genealogy of Xi-era Beijing’s most important foreign policy slogan has less to do with Marx or Mao than with mid-twentieth-century German Christian Democrats and Japanese industrialists. Rather than some novel Sinocentric order, renlei mingyun gongtongti is ultimately about enshrining the core ideas and practices of today’s extant capitalist order.

Romantic Origins

The expression ‘community of fate’ seems to have first become widespread as the nineteenth-century German expression Schicksalsgemeinschaft. Literally referring to a community (Gemeinschaft) of fate (Schicksal), the term was sometimes used to describe the various German-speaking lands undergoing gradual coalescence into a unitary nation-state. By the early twentieth century, this term often referred to the romantic idea that a shared ‘fate’ united the German (or any other) people, regardless of state borders or internal class conflicts (Weber 1991: 176; Bauer 1907; Renan 2012).

This flexible notion was taken in different directions by various voices in European politics. It was cited by forces as incompatible as leaders of the Social Democratic Party of Germany, Catholic corporatists, Nazis, and even European integrationists, though orthodox Marxists were sceptical of appeals to communal identity not based on class relations.

None of those early twentieth-century uses, in any case, directly impacted on Chinese political discourse in any meaningful fashion at the time. Instead, like many other modern political terms, Schicksalsgemeinschaft was introduced to China via its reception in Japan, where it was rendered into Kanji characters as an item of ‘wasei kango’ (‘Japanese-made Chinese’). Today’s Chinese term, mingyun gongtongti (命运共同体)—that is, ‘community of fate’—is fairly easily traced to the original German expression via the discourse of unmei kyōdōtai (運命共同体) that emerged in 1930s Imperial Japan. Though it never exclusively denoted the Japanese drive for a ‘Greater Asian Co-Prosperity Sphere’, that was indeed the context to which it most often referred in Chinese texts of the period, generally now-forgotten collaborationist tracts, or direct translations from Japanese (Shanghai Branch of the Chinese Federation of the East Asian League 1942).

In the postwar period, of course, that history was seen by most in China as something to be either condemned or ignored. It would be decades before the term reappeared in wide usage, by which point its brief association with Japanese imperialism and more distant European political debates was almost forgotten. Ironically, however, it would ultimately be reintroduced to China primarily by association with Japan and Germany. Meanwhile, the term’s new implications in Chinese discourse from the 1980s also closely mirrored its changing meanings in those countries.

While Schicksalsgemeinschaft/mingyun gongtongti initially referred mainly to a romanticised ‘unity before fate’ of peoples or cultures (even ones as contestable as ‘Europe’ or ‘Asia’), by the late twentieth century, it became a way of portraying economic relationships as reflections of a fixed, unchangeable destiny.

Exporting Modernity

When mingyun gongtongti came back into Chinese discourse, it was again due to Japanese influences—this time in a primarily economic context. A small number of (negative) references to the term mingyun gongtongti appeared in the People’s Daily in the 1960s and 1970s in connection with the developing United States–Japan–South Korea regional security alliance (Qian 2019). However, the term did not catch on at this point in Chinese discourse—certainly not in any positive sense.

Instead, the floodgates for the term’s new reception were opened in October 1978, two years after Mao Zedong’s death and two months before the Third Plenum of the Eleventh Party Congress—the meeting of the Chinese Communist Party (CCP) that is viewed as the official start of the ‘Reform Era’. As CCP Vice-Chairman Deng Xiaoping’s modernisation and ‘opening-up’ push was gestating, he made an important symbolic visit to Japan with officials including members of China’s National Economic Council, seeking to frame Beijing’s new approach to political economy (Wu 2021).

Both the visit itself and subsequent reports produced by its participating economists were to have significant impacts on aspects of the early reform period. Among the symbolically important episodes was Deng’s tour of a colour television factory in Osaka with Panasonic founder Kōnosuke Matsushita, during which he explicitly asked the latter for guidance on China’s economic modernisation, entreating: ‘Mr Matsushita, you are called the god of management in Japan. Would you be willing to help us advance the modernisation of China?’ (West 2020).

Matsushita, along with Sony co-founder Morita Akio and other leading postwar Japanese CEOs who had developed reputations as management gurus and public intellectuals, had promoted the idea of a ‘community of fate between workers and management’ (rōshi unmei kyōdōtai 労使運命共同体), as a kind of third way between capitalism and socialism (Itō 1973). In practice, that supposedly new path mostly just referred to Japan’s prevalent ‘company as family’ approach, emphasising loyalty, ‘lifetime’ job security, strict seniority structures, low lateral mobility, limited collective bargaining power for workers, and ambitious productivity goals in the service of world-beating exports.

Though this system was sometimes seen as representing patriarchal or even remnant feudal aspects of Japan’s corporate world, Morita and especially Matsushita gave it a more grandiose image by drawing on quasi-Buddhist cosmic themes. These, for example, are still spread today via the Peace and Happiness Through Prosperity (PHP) Institute, founded by Matsushita in 1946 after several years contributing to Tokyo’s wartime economic program, which aims to develop corporate leadership skills and free the ‘untrapped mind … capable of transcending all concern for profit and loss, ideology, power, and social status’ (PHP Interface 2022).

Naturally, during Deng’s conversations with Japanese industry leaders, he did not explicitly embrace any of these more esoteric ideas. However, he did much to establish the basis for the reception of Japanese-style economic organisation as a compelling ideal in Reform-Era China. The notion of looking to Japan for guidance in transforming a ‘backwards’ China was one that Deng reiterated throughout the trip. After seeing robots in use at one of Nissan’s automobile factories and hearing about the extraordinary advances in industrial productivity the company had achieved, for example, Deng had openly declared: ‘Now I understand what modernization is’ (Vogel 2011).

After this historically important journey, one of its participating economists, Ma Hong, wrote a report in which he echoed Deng’s positive appraisal of the lessons to be learned from Japanese capitalism. Among the aspects that Ma picked out for analysis was the Japanese notion of the community of fate between owners and workers. The concrete aspects of this arrangement that Ma identified were lifetime employment, benefits tied to overall company and individual performance, a clearly defined seniority system, and company culture promoting belonging and esprit de corps (Ma 1979). While carefully noting that all these remained ultimately ‘methods for the capitalists to carry out exploitation’, Ma nonetheless praised the model’s practical utility. Indeed, he even adopted the mingyun gongtongti concept into some of his own subsequent writings (Ma 1981).

As vice-president and then president of the Chinese Academy of Social Sciences (CASS), as well as founding director of the PRC State Council’s Research Centre of Technology and the CASS Institute of Industrial Economy, Ma’s influence in the early 1980s was significant. He was also one of those who did the most to promote the notion of a ‘socialist market economy’ (Weber 2021). His influential 1979 report, and the study trip itself under Deng’s unofficial leadership, marked a turning point at which the mingyun gongtongti notion started to become a fixture of Chinese discourse.

Fittingly, Matsushita Corporation (Panasonic) factories sprang up in China throughout the 1980s as one of the earliest models of Chinese–foreign joint enterprises. By the late 1980s, the firm’s Chinese factories were helping to achieve the founder’s stated goal ‘to create material abundance by providing goods as plentifully and inexpensively as tap water’ (PHP Interface 2022). Whatever its philosophical origins, that aim fitted well with the Deng-era Party’s drive to ‘develop the forces of production’ in China. At the same time, the Japanese corporate credo of companies as ‘communities of fate’ increasingly caught on, seeming to capture the spirit of the times.

Stability and Risk

Throughout the 1980s, the term mingyun gongtongti gained currency with academics and eventually Party officials as a shorthand way to describe corporations that would be productive while avoiding some excesses of free-market competition and exploitation. Often explicitly linked with the Japanese examples then stunning their Western rivals, this discourse suggested that China did not have to look exclusively to Anglo-American capitalism as it transitioned away from a state-led economy (Zhang 1985; Huang 1985; People’s Daily 1989; Chengdu Party School Research Office 1992; Chen 1996).

Although it was never a fully fleshed-out concept, the expression had appeal in part because the CCP itself at this time was deeply divided over the nature and pace of economic reform (Weber 2021; Gewirtz 2017). During these years, especially between 1987 and 1989, when Zhao Ziyang served as general secretary, an ideological contest raged between blocs of ‘pragmatists’ and ‘package reformers’, in which the former argued for caution about the latter’s Friedmanite strategies of price liberalisation, privatisation, and deregulation (Weber 2021; Tooze 2021).

Aside from Japan’s corporatist ideologues, a still more important source of support on which pragmatists could draw was German ordoliberalism—a loose body of thought associated with thinkers of the Freiburg School, such as Walter Eucken and Franz Böhm. In general, ordoliberals discouraged one-size-fits-all–style reforms and instead promoted ideas related to building an ‘economic constitution’ for society. While encoding many supposedly fundamental economic rights and relationships in law, the ordoliberal approach differed from Anglo-American ideals of laissez faire, and free and deregulated markets, especially as crystallised during the Reagan–Thatcher era. Instead, figures such as long-time Christian Democrat minister of economics Ludwig Erhard—credited as one of the main authors of West Germany’s postwar Wirtschaftswunder—had invoked ideas of a ‘social market economy’, with regulatory action to safeguard ideal market outcomes and distribute responsibility (Cerny 2016; Slobodian 2018; Hentschel 1996). It was no coincidence that the ‘socialist market economy’ that would be promoted by Ma Hong and others closely resembled this West German formula.

Combining a commitment to market freedoms with an emphasis on rules to keep their operation orderly (and, ostensibly, to mitigate knock-on effects such as inequality) might seem well suited to a society transitioning away from state planning. However, explicit ordoliberal influence on Chinese economic discourse receded after 1989. Some pragmatists drawn to German-style orderly reforms left Beijing after Zhao Ziyang was removed from power over his refusal to support violent suppression of protesters. In the ensuing Jiang Zemin era, especially after the call to restart economic reform signified by Deng’s ‘Southern Tour’ of 1992, rapid liberalisation in the economy was juxtaposed with a continued commitment to unchecked Party fiat. Spectacular and unequal wealth creation took place alongside mass exploitation of workers, rampant corruption, pollution, and other social ills. Rather than checking these trends with strict oversight, China’s ensuing path to the World Trade Organization (WTO) more often involved removing existing regulations seen as overly protectionist.

China’s rapid shift in the 1990s to becoming an export-oriented, trade-surplus–generating economy was thus very different from the ‘Erhard miracle’ of postwar West Germany. Nonetheless, German discussions of Schicksalsgemeinschaft, which had often been invoked by ordoliberal policymakers in the contexts of German and especially European economic integration, had a major new impact on Chinese mingyun gongtongti discourse. As the 1990s saw a dramatically new order constructed in Europe, largely based on economic interconnections and technocratically governed trade relations, the ‘community of fate’ notion became the byword for the project of European regionalism. Influenced by this example, Chinese commentators began to apply the notion to the relationship between mainland China and Taiwan, suggesting a path to unification by means of growing trade ties. This formula for the relationship with Taiwan was eventually endorsed by Jiang’s successor, Hu Jintao, at the Seventeenth Party Congress, in October 2007 ( 2007).

That same year, premier Wen Jiabao also broadened the term to refer to China’s relationship with Asia in general. At the East Asia Summit held in Cebu, Philippines, he called for a ‘new kind of community of fate that can develop together in tranquil times and respond together in times of crisis’ (Oriental Morning Post 2007). These uses, referring to solidarity before shared risks, mirrored increasingly frequent references to the concept in Europe as what would become the Global Financial Crisis (GFC) of 2008 gathered pace (Kundnani 2018). Between 2008 and 2012, as European leaders frequently invoked the notion of the fragile eurozone as a Schicksalsgemeinschaft whose existential unity must be preserved, the CCP leadership under Hu’s loose management also increasingly embraced the idea ( 2012).

It was during Hu’s second term that the mingyun gongtongti idea as used in China fully took on its present implications for global geopolitics and geoeconomics. As the fallout from the GFC continued, and China embarked on a massive campaign of debt-fuelled infrastructure spending that was credited with rescuing the global economy, the CCP was also formulating new foreign policy ideas. The crucial 2008–12 period, during which Xi Jinping served as a vice-premier, was when the CCP formulated its current positions on a host of major issues, including the need for stable, rules-based international economic governance, a more decisive rejection of Western efforts of democracy promotion as well as NATO-led humanitarian interventions, and the need to invest China’s own capital abroad to facilitate the country’s dramatic transformation from a net debtor to a net creditor state.

Fated Relations

The period between 2008 and 2012 is also crucial for understanding the subsequent Xi era because—for the first time since Deng’s Southern Tour—it saw the resumption of major ideological debate about the fundamental direction of China’s political economy. Marking a partial return to the ordoliberal-influenced positions of the 1980s, the Hu–Wen leadership promoted regulatory efforts to curb the social and environmental excesses of the Jiang era’s almost unchecked capitalism. Meanwhile, Chongqing Party secretary Bo Xilai staked out a radical position in favour of a turn back to more redistributive policies and invoking the Mao-era slogan of ‘common prosperity’ (共同富裕), alongside other callbacks to the pre-Deng period. Although Xi defeated Bo’s implicit political challenge to become the core of the Party’s next generation of leadership, his subsequent agenda has often borrowed from his erstwhile rival, as well as from the Hu-era Party leadership. Though Xi has attained a remarkably elevated intraparty status and his ‘Thought’ now stands unquestioned, the content of that Thought consists almost entirely of a grab-bag of intraparty consensus positions circa 2012.

It is in this context that the dramatic new emphasis on the term renlei mingyun gongtongti should be understood. The ‘human community of fate’ concept was in fact first articulated by Hu Jintao at the Eighteenth Party Congress in 2012, which concluded his second term (Hu 2012). Significantly, it was used in reference to PRC positions on a host of international policy challenges, including both the risks of an unregulated world economy put on display in the GFC and the ‘instability’ generated by the revolutions of the US-supported Arab Spring movement. All chaotic forces—whether those of unrestricted capitalism, environmental disaster, or democratic protest movements—are potential threats to stable, rules-bound growth. The term’s subsequent uses by Xi and other officials have reiterated this sensibility (Wang 2021; Xi 2013).

A decade on from Hu’s use of the term in 2012, the ‘human community of fate’ idea is now a pillar of Xi Jinping Thought on Socialism with Chinese Characteristics in the New Era (习近平新时代中国特色社会主义思想). All PRC foreign policy positions are, one way or another, made to fit into this schema. To be sure, academics regularly secure funding and write publications discussing the ‘meaning’ of the concept, such as a notable recent initiative by international law scholars under the aegis of the Ministry of Foreign Affairs (Research Team on Community of Shared Future for Mankind and International Law 2019). However, their conclusions tend just to reiterate China’s longstanding positions on issues such as the legitimacy of the UN system, commitment to the basic principles of international law, emphasis on supporting development in the Third World, calls for increased global economic cooperation, and so on.

If there is something new in the mingyun gongtongti idea as deployed today by Beijing in countless forums, it is a feature that is shared by another of Xi’s borrowed umbrella terms: ‘common prosperity’. In both cases, the ideological platform carries an implicit critique of raw capitalism and its proclivities for both crisis and exploitation. In practice, however, that critique has only been invoked to check the most egregious forms of the ‘savage growth of capital’—as seen in the limited crackdowns on China’s tech and property sectors—without signifying any commitment to a more robust redistributive socialism, locally or globally. As was already the case in its early twentieth-century uses, the community of fate concept in modern China is most relevant as a way to diminish the relevance of class-based political struggles by invoking a rhetoric of ‘destined’ solidarity.

The major Xi-era international policies such as the Belt and Road Initiative, the creation of the Asian Infrastructure Investment Bank, increased participation in UN organisations, and active commitment to the WTO system, as well as pursuit of overlapping regional free-trade agreements—all fit well with a broad agenda of greater economic integration and stabilisation via rules-based institutions that, ultimately, reinforce the capitalist order as such (Shaffer and Gao 2020; Ewing-Chow and Losari 2020; Gelpern et al. 2021).

In the end, the concept rules out the idea of China forging some radical, disruptive new path of the type Western national security analysts ascribe to Beijing in their regular breathless warnings. Instead, stability of the extant order, including many of its inherent inequities, is paramount. As Xi himself said in his 2017 speech at Davos, economic globalisation is an ‘irreversible historical trend’, based on objective historical laws and conditions: ‘Whether we like it or not, the global economy is the big ocean that we simply cannot escape’ (He 2021).

China’s Overseas Coal Pledge: What Next for Cambodia’s Energy Development?

In September 2020, Chinese President Xi Jinping announced in a speech to the UN General Assembly that China aimed to hit peak carbon emissions by 2030 and achieve carbon neutrality before 2060 (Xi 2020). The statement focused on China’s domestic emissions, but in the months that followed, there was much speculation about what it would mean for China’s involvement in overseas coal power plants. Just short of one year later—again, in a speech to the General Assembly—President Xi addressed this speculation, stating that China would no longer build new coal-fired power plants abroad (Xi 2021). This section of the speech is worth quoting in full:

We need to improve global environmental governance, actively respond to climate change and create a community of life for man and nature. We need to accelerate transition to a green and low-carbon economy and achieve green recovery and development. China will strive to peak carbon dioxide emissions before 2030 and achieve carbon neutrality before 2060. This requires tremendous hard work, and we will make every effort to meet these goals. China will step up support for other developing countries in developing green and low-carbon energy, and will not build new coal-fired power projects abroad. (Xi 2021; emphasis added)

After years of campaigning by local and international civil society groups to bring an end to the construction of new coal plants, this statement was welcomed, but a number of questions remain. What does ‘build’ mean? Which projects will be regarded as ‘new’? When will this come into effect?

As documented in various project profiles on The People’s Map of Global China, Chinese energy projects often involve a diverse range of actors, all of which, in their own ways, contribute to the ‘building’ of coal power plants. While public attention often falls on the project developer, Chinese policy and commercial banks provide financing, insurers such as Sinosure provide risk guarantees, and (usually state-owned) Chinese firms are brought on board as engineering, procurement, and construction (EPC) contractors. Subcontracts are then awarded to other firms for survey and design work, inspection and monitoring, equipment supply, and construction of components for the plant and supporting infrastructure (Zhang 2021). If Xi’s statement is interpreted broadly, the interests of a huge number of actors are potentially at stake.

The question of which projects will be regarded as ‘new’ is crucial. A conservative interpretation could exclude projects that are already under discussion, whereas a broader reading, and one that climate campaigners, including my organisation Inclusive Development International, and affected communities are pushing for, is all projects that have not yet reached financial close—that is, signed a binding financing agreement. Complex and expensive energy projects may sit in the pipeline for years as they are studied, discussed, restudied, and shepherded through host-country approval processes. Even when EPC contracts are signed, they often stipulate the contract will come into effect only when the project reaches financial close and secures insurance. Because of this protracted project cycle, many Chinese-linked coal plants around the world are now in a state of limbo as developers wait to see how state agencies, banks, and insurers formalise their positions in light of Xi’s announcement.

While we wait for a clearer signal on how President Xi’s speech will be interpreted, a few actors have taken the initiative and publicly set out their own positions. One of the first movers was the Bank of China. Just three days after the General Assembly speech, the bank announced that, from 1 October 2021, except for projects for which an agreement is already signed, it would no longer provide financing for new overseas coal mining and coal power projects (Bank of China 2021). Private steel company Tsingshan Holding Group was even faster to react and, within 24 hours, issued a statement saying it would ‘proactively implement the spirit’ of the announcement by moving away from overseas coal power projects and prioritise hydropower, wind, and solar (Tsingshan 2021).

Both announcements are significant. Bank of China is one of the largest financiers of coal plants in the world (Bank of Coal 2021) and, although a commercial bank, it is majority state-owned. Importantly, the bank’s statement goes a step further than Xi’s by excluding coal mining and may also give an indication of how ‘new’ will be interpreted by other financial institutions. The move by Tsingshan could also have major impacts, as it is the world’s largest steel producer and the driving force behind the huge steel and nickel production complex Indonesia Morowali Industrial Park (Ginting and Moore forthcoming). The park has its own dedicated power stations, with 1.26 GW generated from coal. There were plans to expand this capacity, but these may now be reassessed. Just the month prior, the Tsingshan announcement, the company signed a contract with China Energy Engineering Corporation to build three 380 MW coal power units in Morowali. It is unclear whether this contract will be affected by Tsingshan’s new commitment (Seetao 2021).

Amid such uncertainty, countries that have included new coal plants in their near-term national energy planning—such as Indonesia, Vietnam, and Pakistan—may find themselves having to rapidly adjust these plans (Yu 2021). Another country that could feel the impacts of this shift in both the near and the long term is Cambodia. Chinese capital has played a huge role in developing the country’s energy infrastructure and, in addition to operational plants and those under construction, Cambodia is depending on as-yet-unrealised coal projects to meet the power demands predicted by its energy planners. Looking at the Cambodian case, therefore, can yield some insights into the challenges ahead as China shifts away from coal.

Stung Hav coal power plants​. PC: ​Dmitry Makeev​ (CC).

China’s Role in Developing Cambodian Coal Power Plants

As I discussed in another essay earlier this year (Bo 2021), all but one of Cambodia’s proposed, under construction, and operational coal plants have some level of involvement from Chinese stakeholders. Chinese investment, finance, and aid have played an indispensable role in drastically expanding Cambodia’s energy-generation and transmission infrastructure and boosting domestic generation capacity. The role of Chinese companies is so extensive that, by 2018, almost three-quarters of Cambodia’s domestic power supply came from Chinese-built and financed power plants (Mao and Nguon 2018). Much of the power generated reaches businesses and homes via transmission lines that, in many cases, are also Chinese funded and built; according to the then Chinese Ambassador, as of mid-2019, about 8,000 kilometres of transmission lines had been built by Chinese companies (Huang 2019).

Chinese companies are the driving force behind five coal plants, one of which is operational, three under construction, and one in the stage of clearing and preparing land (see Table 1).

Table 1: Cambodian Coal Plants Developed by Chinese Companies

ProjectChinese developerFinancingProject statusInstalled capacity
CIIDG Erdos Hongjun Sihanoukville Coal Power PlantErdos GroupBank of ChinaOperational405 MW
CIIDG–Huadian Sihanoukville Coal Power PlantHuadian GroupICBCUnder construction700 MW
Sihanoukville Special Economic Zone Coal Power PlantWuxi GuolianICBC, Bank of ChinaUnder construction100 MW
Oddar Meanchey Coal Power PlantGuodian KangnengUnknownUnder construction265 MW
Botum Sakor Coal Power PlantSinosteelUnknownUnder preparation700 MW
Total   2,170 MW

The development of these projects came in response to the Cambodian Government’s drive to expand energy-generating capacity and ensure stable and affordable power. While Chinese investment in power projects initially focused on hydropower, the precarity of Cambodia’s reliance on dams for close to 50 per cent of its power was laid bare during recent droughts. This resulted in the fast-tracking of approval for the Botum Sakor and Oddar Meanchey plants (Bo 2021).

The expansion of coal power in Cambodia has alarmed not only environmentalists, but also private sector actors, principally manufacturers who produce or source products from Cambodia and who have made pledges to green their supply chains (Bo 2021; Turton 2020). Some estimates suggest that current energy planning puts Cambodia on track to an energy mix that is more than 75 per cent dependent on fossil fuels by 2030 (Zein 2020)—a huge jump from the 51 per cent in 2019 (Electricity Authority of Cambodia 2020). This shift could push companies with public commitments to move towards 100 per cent renewable supply chains to take their business elsewhere (Ford 2020). Vietnam has committed to a target of 30 per cent renewables in its energy mix by 2030 (Tachev 2021) and is moving towards allowing companies to buy power directly from renewable energy producers, which will likely create further competition for Cambodia (Nguyen 2021).

On the ground, the full impacts of Cambodia’s already operational coal plants are not well understood. Most have not made their environmental impact assessments widely available and, if there is monitoring being conducted of air and water pollution, it is not being published. Cambodia now has three operational coal plants and one under construction, with this coal power concentrated along a stretch of Preah Sihanouk Province’s coastline, and one plant under preparation across the Bay of Kampong Som in Koh Kong Province. This is an important marine fishery for local people and no studies have been published that examine the impacts of industrialisation of this coastline.

One of the most immediate impacts on those living in the vicinity of the existing plants in Stung Hav District, Preah Sihanouk Province, has been pollution from coal ash waste. Companies purchase the waste ash and process it for use in products such as cement. For years, media have reported on the plight of villagers close to the ash-processing factories, who reported suffering rashes, sores, hair loss, and breathing problems because of the ash falling on their homes (Pike 2019; Sony and Keeton-Olsen 2021). The largest ash-processing factory in the area was finally closed in 2021 after years of warnings from local government (Soth 2019; Ouch and Keeton-Olsen 2021). However, as more coal plants come online, the amount of ash and other types of waste will increase, as will associated harms to local communities, inevitably testing the already stretched regulatory capacities of provincial and environmental authorities.

How Might Xi’s Statement Impact Cambodia’s Coal Power Plants?

While noting that there is still a lack of clarity around how President Xi’s statement will be interpreted and implemented, given the centrality of Chinese investment and finance to Cambodia’s energy sector, it is important to assess the impact this may have on the country’s power development. Of the projects currently under construction, the 700 MW CIIDG–Huadian plant and 100 MW Sihanoukville Special Economic Zone (SEZ) plants are well advanced and have received financing from Chinese commercial banks (Ham 2021a, 2021b). These projects are unlikely to be affected by Xi’s statement.

The situation for the Oddar Meanchey and Botum Sakor plants is less clear. The 265 MW Oddar Meanchey plant is under construction, but this has been slowed by the COVID-19 pandemic (Ham 2021c). The lead EPC contractor of the Cambodian-Chinese joint venture, Guodian Kangneng Technology, reports that the project will be financed 25 per cent by the developers’ equity and 75 per cent through bank financing. It provides no information on which bank(s), and no information could be found indicating the project had reached financial close. The Botum Sakor plant has a similar equity–finance structure (IDI 2021). In November 2020, local company Royal Group signed an EPC contract for the project with Sinosteel, and one of the conditions for the contract to become effective was the project reaching financial close (Sinosteel International 2020). Again, no further information is accessible confirming whether financial close was achieved. If the two projects are not yet fully financed, Xi’s no-coal pledge could have serious impacts for the developers.

The statement could also have potential impacts beyond Cambodia’s borders that will have to be reckoned with. Cambodia still imports power from neighbouring countries to meet domestic demand and, in September 2019, signed an agreement with Laos to purchase 2,400 MW of electricity over 30 years (Khan 2019). These purchases were set to begin in 2024, with power coming from two as-yet unbuilt coal power plants in Xekong Province (Xinhua 2019). Cambodia approved a new US$330-million 500 kV transmission line linking Phnom Penh to the Laos border to facilitate this power transfer (Thou 2020). This raised serious concerns among conservation groups, as the powerlines will run directly through the heart of Prey Lang Forest, a wildlife sanctuary and the largest of Southeast Asia’s few remaining major lowland forests (Keeton-Olsen 2020). There is limited transparency around the status of these plants and who is developing them, but Chinese companies are connected to at least one of them (MofCOM 2013). If they have not yet reached financial close, they could also be in jeopardy.

While we can only speculate on whether the projects in Cambodia and Laos will be impacted by China’s move away from overseas coal, if these projects are indeed dropped by Chinese firms and banks, it could leave a sizeable hole in Cambodia’s power development plan. To date, Cambodia’s strong reliance on Chinese energy infrastructure investment has been a boon in terms of enhancing domestic generation capacity, but also leaves the country exposed to policy shifts within China. With the global coal power industry on the rocks, various countries including key coal financiers South Korea and Japan have moved to stop public finance flowing to overseas coal projects, followed by several key commercial banks (IDI 2020). While these commitments vary in terms of their comprehensiveness, the pool of coal financing available is drying up, and the likelihood that non-Chinese actors will step in to finance coal power around the world is increasingly slim.

Developing Green and Low-Carbon Energy

While committing to stop building new overseas coal plants, President Xi also said: ‘China will step up support for other developing countries in developing green and low-carbon energy.’ Even though no concrete measures in this sense have been announced yet, in 2019, China was described by the International Renewable Energy Agency as ‘the world’s largest producer, exporter and installer of solar panels, wind turbines, batteries and electric vehicles, placing it at the forefront of the global energy transition’ (IRENA 2019: 40). As such, it is well placed to make such a commitment a reality.

Both China and countries that heavily rely on Chinese-backed coal plants now find themselves at a crossroads and, once again, Cambodia is a good example of this dilemma. Even if all existing coal power projects in Cambodia move forward as planned, there is unlikely to be financing to cover new plants in the future, yet power demand will continue to grow. Although China views hydropower as green technology, such projects often come with extensive environmental and social impacts and in some cases have proved highly controversial in Cambodia (see, for instance, Mahanty 2021, on the Lower Sesan 2 Dam). There are plans to increase imports of natural gas and develop national infrastructure for its distribution, but this will not address the worsening climate crisis.

Cambodia’s renewable energy industry is nascent and growing slowly, but China’s move away from overseas coal could represent an important catalyst for its development. Cambodia has now approved at least 11 solar power projects; Chinese actors are involved in more than half of these.

Table 2: Cambodian Solar Power Projects with Chinese Involvement

CompanyRoleProvinceStatusInstalled capacity
JinkoSolarProvide solar panelsKampong SpeuOperational60 MW
Risen EnergyDeveloperBattambangOperational60 MW
China Energy Engineering GroupEPC contractorBanteay MeancheyOperational39 MW
JA Solar TechnologyProvide solar panels
JinkoSolarProvide solar panelsKampong ChhnangOperational60 MW
JinkoSolarProvide solar panelsPursatUnder construction30 MW
China CACS EngineeringEPC contractorKampong ChhnangUnder construction60 MW
Total   309 MW

As can be seen above, the installed capacity from Chinese-linked solar projects is a little more than one-tenth of that of Chinese coal plants. However, there is much potential for Cambodia’s solar industry to grow. In September 2021, a Chinese company received approval for a US$30-million solar panel factory, which could further improve the competitiveness of the solar market (Phal 2021). Cambodia does not yet have any wind farms, but a Chinese firm is currently studying a US$200-million 100 MW wind farm in eastern Mondulkiri Province (Hin 2021).

For the past few years, there has been a gradual shift in Chinese overseas energy investment, with renewables on the rise (Springer 2020). However, Chinese renewable energy companies face challenges expanding globally and have been less likely to receive state financing than firms involved in traditional energy. It is important to consider here the ‘pull’ and ‘push’ factors at play (Kong and Gallagher 2021). On the one hand, Chinese investment is generally market and demand driven. If a country does not actively seek financing for renewables and if local market circumstances are not favourable, it is much less likely to attract investors. On the other hand, China’s policy banks often view overseas renewables as unattractive as they have less experience financing such projects, which are often small in scale and distributed (rather than grid-based), and of much lower value. Financing multiple smaller projects creates more work for bank investment managers and makes it harder to hit lending targets.

Meanwhile, Cambodian energy planners have been reluctant to move decisively towards renewables, often presenting the technology as unproven or unable to meet demand. A recent Nikkei Asian Review article quoted a director-general from Cambodia’s Ministry of Mines and Energy defending the fast-tracking of fossil fuel projects as a necessary balance between ‘green’ and ‘the economy’ (Turton 2021). However, renewable energy advocates challenge this calculation. Local nongovernmental organisation (NGO) EnergyLab Cambodia argues that current modelling shows solar, wind, and storage can build on the already operational fossil and hydropower output and meet demand, and at a lower overall system cost (McIntosh 2021). The economic argument for shifting to renewables has been bolstered by the recent rocketing price of coal, which in the past 12 months has almost quadrupled (Duguet 2021). Cambodia’s shift to coal was in part motivated by a desire to increase energy security and reduce dependence on imports, yet operational plants are 100 per cent fuelled by imported coal—almost all of which comes from Indonesia. This means Cambodia is exposed to both price volatility in the coal market and the risk of supply chain disruptions.

The above calculation does not consider the economic costs of the health impacts of polluting energy projects or the costs associated with decommissioning plants when they reach the end of their operating life. Nor does it consider the millions of dollars that could be generated by nurturing a local renewable energy industry, with parts of the production based in Cambodia, generating revenue and jobs, and providing economic stimulus to support the country through the post–COVID-19 economic contraction. NGOs are not the only ones championing renewables for Cambodia. In an interview with The Third Pole, Pou Sothirak, an academic and former Minister for Industry, Mines and Energy, National Assembly member, and Cambodian Ambassador to Japan, stated:

Solar energy represents a viable prospect for meeting energy demand in Cambodia and diversifies renewable power. For a nation that counts on large dams, fossil fuels and coal power to meet increased energy demand, solar energy in Cambodia has potential to be a significant step toward a lower-carbon electricity grid. Solar is a renewable energy that allows Cambodia to opt away from controversial hydropower that could adversely affect the Mekong River and it reduces Cambodia’s dependence on fossil fuel–generated power. (Roney 2021)

A New Chapter in ‘Greening’ the Belt and Road?

President Xi’s statement came as a surprise to many, perhaps including stakeholders who have significant interests in the construction of overseas coal plants. In particular, state-owned construction companies that have ‘gone global’ have benefited hugely from coal plant contracts, and they could take a significant hit. With coal plants representing such a large portion of China’s global energy portfolio, it will not be a simple task to shift focus, but countries like Cambodia, with still developing energy infrastructure, present promising testing grounds for an invigorated push into renewable energy development. In Cambodia and beyond, excluding the most polluting forms of overseas energy projects could represent a major shift towards the ‘Green Belt and Road’ China has been promoting.

Is the Asian Infrastructure Investment Bank a Responsible Investor?

When the Asian Infrastructure Investment Bank (AIIB) was first announced by China in 2013, a flurry of speculation erupted around which countries would join and how closely the new institution would follow the path trodden by traditional multilateral development banks such as the World Bank. Human rights advocates and environmentalists were particularly concerned that the gains they had made in accountability in development finance over the past decades would be shunned by the AIIB, generating a new race to the bottom in social and environmental standards.

From the outset, the secretary-general and later president of the bank, Jin Liqun, proclaimed the AIIB would be ‘lean, clean, and green’ (Zheng 2015). But the slogan contained an inherent conflict: how would a lean bank, with a small staff, be equipped to conduct the rigorous due diligence necessary to ensure that its clients operating in high-risk countries implement international environmental and social standards in their infrastructure projects?

Power generation, transport, telecommunications, and water infrastructure are badly needed across Asia and beyond, but their development comes with risks to people and the environment, including forced displacement, destruction of forests and biodiversity, and pollution of air and waterways. In many countries, those who raise concerns or objections regarding investment projects that threaten the rights of communities face reprisals (Coalition for Human Rights in Development 2019). Since the 1980s, development banks such as the World Bank have required governments and companies to agree to a set of environmental and social standards to secure financing to develop infrastructure projects. While they are not perfect, when applied properly, they help mitigate the harm that infrastructure projects can cause.

In 2015, a few months before becoming operational, the AIIB began to develop its own environmental and social framework to guide its investments. To the surprise of some pundits who anticipated that it would reject the approaches of Western-led development banks, the AIIB brought on board seasoned veterans from established institutions. Jin Liqun himself was previously vice-president at the Asian Development Bank, the AIIB’s general counsel and chief financial officer both previously worked with the World Bank Group, and development of the AIIB’s Environmental and Social Framework (ESF) was led by an advisor who had worked for more than 25 years at the World Bank, where he also developed institutional safeguard policies. Following a contentious initial drafting process in 2015, the ESF adopted in 2016 was ultimately a scaled-back version of the environmental and social policies of the World Bank and other multilateral development banks (Humphrey and Chen 2021). This was reviewed and updated over the past year, and a revised version came into force in October 2021 (AIIB 2021).

The World Bank’s environmental and social framework, like that of most other development finance institutions, contains a broad set of standards to which clients must adhere to avoid and manage risks their operations pose. These standards include tailored requirements on labour and working conditions, resource efficiency and pollution prevention, community health and safety, land acquisition and involuntary resettlement, biodiversity conservation, protection of the rights of Indigenous peoples, cultural heritage, and stakeholder engagement. In contrast, the AIIB chose to impose specific requirements on its clients only in relation to two areas: resettlement and Indigenous peoples. Both frameworks contain a general ‘catch-all’ standard on environmental and social management, but the generalised nature of the requirements, which apply to all types of risk, means that much discretion is left to the bank’s clients to decide which types of risks to consider (and which ones to ignore) and how precisely to manage those risks. This is likely to result in weaker protections on the ground and ultimately an increased risk of harm to communities and the environment.

Financial Intermediaries

One area where the AIIB has adopted a robust policy relative to other development banks is in its financial intermediary investments. As the bank’s lending has expanded, financial intermediary investments have begun to occupy a significant portion of its portfolio. This form of lending, which has previously been described as ‘outsourcing development’, has become increasingly popular in development finance (Roasa 2016)—a trend that started in the 2000s, when institutions like the International Finance Corporation (IFC), the private sector arm of the World Bank Group, began to redirect much of its financing away from direct investment in projects and towards commercial banks and private investment funds. These intermediaries then on-lend this financing to end users.

While this ‘financial intermediary’ approach is justified as a way to broaden the reach of development banks to small and medium-sized businesses, it also makes it much more difficult to trace funds and ensure that institutional environmental and social standards are met where the rubber hits the road. For instance, investigations by our organisation, Inclusive Development International (IDI), revealed that the IFC was exposed to a host of harmful projects via its financial intermediary investments. This included projects linked to land rights abuses, state violence, deforestation, pollution, and a vast expansion of climate-wrecking coal-fired power plants, among others (IDI 2020).

The AIIB did not originally envision a large financial intermediary portfolio, but by October 2021, these types of investments made up almost one-quarter of the bank’s approved projects. This increased investment in commercial banks and funds came with attendant risk: civil society groups have raised concerns regarding intermediary investments through which the AIIB is exposed to problematic projects in countries including Myanmar (BIC Europe et al. 2018) and Bangladesh (BIC Europe et al. 2019), and the risk of the bank supporting fossil fuels via the ‘back door’ (BIC Europe and IDI 2018).

With its revised environmental and social framework, the bank should in theory be able to avoid indirectly backing these types of harmful projects. The framework expands the AIIB’s role in reviewing and approving—or excluding—the highest-risk projects from intermediary portfolios and adds important requirements for clients to develop environmental and social management systems (AIIB 2021). Whether or not the ‘lean’ AIIB will have the capacity to rigorously assess and monitor the potential investments of its clients and reject projects that will violate human rights or damage the environment is yet to be seen.

Capital Markets

While progress has been made in the way financial intermediary lending is handled under the AIIB’s ESF, the bank is now piloting an entirely new form of financing in capital markets. In 2019, the AIIB launched a series of new operations aimed at attracting institutional investors to finance infrastructure development in Asia (AIIB 2019). These operations delegate portfolios to a third-party asset manager, which makes decisions about investments in securities (for example, bonds) traded through capital markets.

As we have previously written (Bugalski and Grimsditch 2021), the AIIB’s new ESF expressly excludes capital market operations from its application, meaning that even its truncated standards on environmental and social management, resettlement, and indigenous peoples do not apply to these investments.

The AIIB argues that capital market operations cannot be subject to its regular environmental and social accountability system. Instead, it uses nebulous ‘Environmental, Social, and Governance (ESG) Frameworks’ to guide external asset managers. ESG began as a rudimentary way for investors to exclude from their portfolios companies that operate in controversial industries, such as tobacco and weapons, and has grown into a complex ecosystem in which dozens of ratings firms score companies using proprietary, big-data methodologies.

But as we articulated in our earlier article (Bugalski and Grimsditch 2021), ESG tools do not function as a risk-assessment and management system; they essentially help investors channel money towards companies that rate well across a range of criteria and limit investment in those that do not. While this may be an important goal for private investors, it is no substitute for the environmental and social safeguards that prevent harms from infrastructure development on the ground.

Although at present the AIIB has only approved four such projects, their total value is US$1.1 billion, and the approach seeks to crowd in additional finance from the private sector. The bank is also in the ‘proof of concept’ stage, in which it is piloting the projects with a view to potential future expansion. AIIB’s capital market operations seek to advance the bank’s ‘lean, clean, and green’ strategy. This represents an attempt at a non-bureaucratic, efficient mode of investment that mobilises private capital for infrastructure. But while it may be lean, its clean and green credentials are questionable: the public is still in the dark about what is in the AIIB’s capital market operations portfolio. With no public disclosure of portfolios by the bank, and no information published on how the bank interacts with fund managers, these projects effectively operate in a transparency and accountability void.

Safeguarding the Rights of Those Impacted by AIIB Projects

With the new ESF now in effect, attention must turn to implementation and ensuring accountability for noncompliance. The AIIB has expressed a commitment to learning as it grows, and nowhere is this as important as environmental and social protection. The bank’s portfolio has expanded to almost 150 projects worth close to US$30 billion (as of October 2021), and the bank is increasingly financing projects alone—rather than co-financing with other established banks. When the AIIB co-finances projects with other banks, the policies of the co-financier are generally applied, rather than those of the AIIB (Geary and Schäfer 2021). Going forward, the AIIB’s environmental and social standards will need to be interpreted and applied by its clients in an increasing number of projects across Asia and beyond.

Adequate disclosure is crucial to ensure that the public is informed when the AIIB is involved in a project—both directly and indirectly. This will require full transparency about projects and companies that receive AIIB support, as well as the recipients of its intermediary lending. A major question mark remains around the bank’s capital market projects. At present, with minimal information available, there is no way for the public to assess the effectiveness of their ESG frameworks. What’s more, because there has been extremely limited disclosure of specific portfolio investments, it is currently next to impossible for the public to trace where funds from these projects are flowing.

Another crucial test of the AIIB’s commitment to responsible and sustainable investment will be the independence and effectiveness of the bank’s accountability office, the Project-affected People’s Mechanism (PPM). As its name suggests, the mechanism’s mandate is to receive and address complaints from people affected by AIIB-backed projects who are seeking redress for harms. The office, which is yet to receive a complaint, has commenced outreach activities in several countries (World Bank Inspection Panel 2021), but remains relatively unknown. In several areas, it also falls short of the operating standards of the accountability mechanism of other development finance institutions (Pike 2019). Worryingly, the AIIB’s capital market operations are immune from accountability through the PPM. Nonetheless, the office may ultimately play a central role in interpreting how the ESF should be implemented on the ground and whether the AIIB’s standards are effective at protecting local people from the risks of development projects.

The AIIB’s membership has now swelled from its 57 founding members to more than 100 countries, with membership expanding beyond Asia to include most EU countries, Australia, Canada, and others from Latin America and Africa. Policy developments at the AIIB reflect the fact that the bank’s shareholding is structured in a way that gives Asian countries, including borrowing nations, a much larger voting share than European countries (which, when combined, account for around 25 per cent of the votes). The lean approach of the bank and the stripped-back nature of its policies are likely welcomed by many borrowing members, who see bureaucracy at established institutions as cumbersome and imposing unwelcome conditions on them. However, if the AIIB is to build a reputation as a responsible infrastructure investor, it will ultimately have to reckon with the fact that high-risk infrastructure projects must have in place the strongest possible safeguards and corresponding mechanisms for addressing harms when they occur. The jury is still out on whether its policies and systems are yet up to the task.

This op-ed was authored by Natalie Bugalski and Mark Grimsditch, respectively Legal and Policy Director and China Global Program Director for Inclusive Development International.

Subscribe to Our Newsletter

Follow Us

Our content is published under Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International (CC BY-NC-ND 4.0). Map based on OpenStreetMap.