Leading up to the 2nd Belt and Road Forum from April 24-26 in Beijing, various working groups, think tanks and government agencies published accounts of the past achievements and challenges of the Belt and Road Initiative (BRI).
One of these accounts was given by the Advisory Council of the Belt and Road Forum for International Cooperation (the BRF Advisory Council) in their report “Belt and Road Cooperation: For a Better World”.
This article analyzes on the report’s suggestions in regards to green finance and explains some possible backgrounds of the suggestions. This should help to improve the understanding of challenges and thus the successful acceleration of the Belt and Road Initiative. An extended report of the challenges mentioned in the report also authored by Christoph Nedopil Wang can be downloaded here.
Background and Overview of BRI improvement suggestions by the BRF Advisory Council
Since the announcement of the Belt and Road Initiative in 2013, more than 100 countries have signed instruments of cooperation with China to promote the Belt and Road initiative. Today, the “total value of projects in the scheme stands at $3.67 trillion, spanning countries in Asia, Europe, Africa, Oceania and South America”. While Chinese investments abroad and Chinese integration in the world economy has a 40 years history, it has particularly accelerated since the early 2000s. In 2013, much of Chinese overseas investments and political ambitions were summarized into “Belt and Road Initiative”. China’s ambitions within the Belt and Road Initiative include many countries, many industries and envisage a new global governance involving social, environmental, economic, and political agendas. The BRI has increased hopes in many countries to accelerate infrastructure development, while other countries have intensified scrutiny on China’s international ambitions and the Belt and Road Initiative in particular.
The Belt and Road Forum in April 2019 was thus used as opportunity to take stock of achievements and challenges that the 6-year-young initiative faces. The BRF Advisory Council was established during the 1st Belt and Road Forum for International Cooperation in May 2017 to give intellectual support to the Belt and Road Forum (BRF). As a non-profit, international policy advisory body, it consists of 11 members from international organizations (e.g. United Nations), research (e.g. National University of Singapore) and politics (e.g. former Foreign Minister of Russia). The members come from 10 countries in Asia, Europe and Africa, while China contributed two members. It was led by Shamshar Akhtar, former Executive Secretary of the Economic and Social Commission for Asia and the Pacific of the United Nations and Justin Yifu Lin, former Senior Vice President of the World Bank and Honorary Dean of national School of Development, Peking University.
The report recognized the contributions of the BRI in providing new sources of economic growth, its possible contribution to the 2030 Agenda for Sustainable Development and its potential to remove infrastructure bottlenecks that impede growth. Looking at the next steps, the report highlighted seven priority areas for improving the Belt and Road Initiative, aiming to address some of the perceived challenges of the Belt and Road Initiative:
- Enhancing the multilateral dimension of the Belt and Road cooperation
- Reinforcing the open world economy by promoting trade and investment liberalization and facilitation
- Improving soft connectivity alongside hard infrastructure
- Promoting project-based
cooperation for more concrete results to build
- sustainable infrastructure, and
- infrastructure “which is financially viable and broadly beneficial”
- Strengthening industrial cooperation and promotion industrialization in Africa
- Expanding and leveraging diversified sources of financial support for projects
- Better branding the Belt and Road cooperation
The BRF Advisory Council further encouraged to build a “clean silk road” with “zero tolerance for corruption”.
A special recommendation in the report was to use green finance to accelerate achieving the ambitions of the BRI, e.g. to support the implementation of the 2030 Agenda that envisages to improve global development along 17 Sustainable Development Goals (SDGs). The Advisory Council emphasizes that “high quality” is at the center of the BRI, which should include the following five points, amongst them green finance:
- Ensuring economic, social, fiscal, financial and environmental sustainability of the projects. The projects should be consistent with national legal and regulatory frameworks, but should draw upon universally accepted international norms and standards;
- Supporting a “green silk road” towards ecological sustainability. The BRI should thus support to implement the Paris Agreement to limit global warming to well below 2 degrees Celsius through phasing out greenhouse gas emissions. Green finance, e.g. through
issuanceof green bonds, are seen as key to invest in green industries and support an ecologicallysustainable development;
- Building a “clean silk road”, that has “zero tolerance, zero
loophole, and zero obstaclefor cooperation to root out corruption”;
- Exploring an “innovative silk road” that uses opportunities in the digital economy and new industrial revolution; and
- Pursuing people-centered connectivity, e.g. through supporting improvements in health or education
The BRF Advisory Council further recommends to expand and leverage diversified sources of finance for BRI projects – particularly to fill the funding gap for sustainable infrastructure. The World Bank estimates that emerging market economies need 1.3 USD trillion per year to achieve the SDGs, the McKinsey Institute states that the World needs an average of 3.3 USD trillion per year only to support current growth rates – with 60% in emerging economies. The current shortfall is 350 USD million – and this does not even include sustainable infrastructure. With climate change bringing more extreme weather, leading for example to an almost “day zero” in Cape Town South Africa in 2018 as all water sources were depleted or drastic floods killing hundreds and forcing thousands to flee in several BRI countries in 2019, such as Indonesia in April, in Iran also in April, more funding will be needed to deal with the increased infrastructure requirements.
While the Advisory Council sees public capital as “irreplaceable”, the Council urges to crowd in investments from multilateral development banks, international and local financial institutions and the private sector. Green Bonds and Green Finance in a wider sense should enable a broader base for financing the infrastructure gap.
The Advisory Council even goes as far to suggest to develop a new asset class for infrastructure that would allow to better deal with the high up-front costs (Capex) of infrastructure, the lack of liquidity of local operators and the long asset life that makes a cash-positive investment only possible over the longer term.
The Advisory Council also encourages more than the current 27 countries to participate in the 2017 “Guiding Principles on Financing the Development of the Belt and Road”. However, compared to the “Green Investment Principles (GIP)” signed by 27 firms from around the world during the 2019 Belt and Road Forum, the Guiding Principles have no reference to green finance.
Summary – Making a(n even) better and greener Belt and Road Initiative
While the BRI continues to grow in size and ambition, it also needs to continue to improve on multiple dimensions. While much has been published about the achievements of the BRI, the BRF Advisory Committee (and other stakeholders) have provided ideas and recommendations how to improve the BRI.
Overall, the Advisory Group stressed the
potential contribution the BRI could make for green and sustainable
development, amongst others through green finance instruments. This seems to be
an important theme, which was picked up and accelerated during the Belt and
Road Forum itself. The challenge will, however, be, to let the words be
followed by actions and tangible results. The world and its leaders have talked
about green and sustainable development in all kinds of initiatives, while the
“economic necessities” have driven up both emissions and loss of biodiversity
to an unprecedented high in 2018. It would be a truly successful BRI, if it
would be able to combine economic, social and ecological goals to be sustainably
 Brenda Goh and Cate Cadell, “China’s Xi Says Belt and Road Must Be Green, Sustainable,” Reuters, April 25, 2019, sec. Sustainable Business, https://www.reuters.com/article/us-china-silkroad/chinas-xi-says-belt-and-road-must-be-green-sustainable-idUSKCN1S104I.
 “Infrastructure Finance,” Text/HTML, World Bank, February 2, 2018, http://www.worldbank.org/en/topic/financialsector/brief/infrastructure-finance.
 Jonathan Woetzel et al., “Bridging Global Infrastructure Gaps | McKinsey,” McKinsey Global Institute, June 2016, https://www.mckinsey.com/industries/capital-projects-and-infrastructure/our-insights/bridging-global-infrastructure-gaps.
 Aphiwe Deklerk, “April 22 Is Cape Town’s New ‘Day Zero,’” TimesLIVE, January 9, 2018, https://www.timeslive.co.za/news/south-africa/2018-01-09-april-22-is-cape-towns-new-day-zero/.
 “Indonesia Floods: At Least 29 People Dead, Thousands Displaced | Indonesia News | Al Jazeera,” AlJazeera, April 29, 2019, https://www.aljazeera.com/news/2019/04/indonesia-floods-29-people-dead-thousands-displaced-190429074356137.html.
 Shannon van Sant, “Flooding In Iran Kills At Least 70, Forces Evacuation Of Thousands : NPR,” NPR, April 7, 2019, https://www.npr.org/2019/04/07/710849530/flooding-in-iran-kills-at-least-70-forces-evacuation-of-thousands.
 Ministry of Finance of People’s Republic of China, “Guiding Principles on Financing the Development of the Belt and Road” (2017), https://eng.yidaiyilu.gov.cn/zchj/qwfb/13757.htm.
 “Green Belt and Road Principles Receive Industry Backing – People’s Daily Online,” accessed May 8, 2019, http://en.people.cn/n3/2019/0426/c90000-9572684.html.
Dr. Christoph NEDOPIL WANG is the Founding Director of the Green Finance & Development Center and an Associate Professor at the Fanhai International School of Finance (FISF) at Fudan University in Shanghai, China.
Christoph is a member of the Belt and Road Initiative Green Coalition (BRIGC) of the Chinese Ministry of Ecology and Environment. He has contributed to policies and provided research/consulting amongst others for the China Council for International Cooperation on Environment and Development (CCICED), the Ministry of Commerce, various private and multilateral finance institutions (e.g. ADB, IFC, as well as multilateral institutions (e.g. UNDP, UNESCAP) and international governments.
Christoph holds a master of engineering from the Technical University Berlin, a master of public administration from Harvard Kennedy School, as well as a PhD in Economics. He has extensive experience in finance, sustainability, innovation, and infrastructure, having worked for the International Finance Corporation (IFC) for almost 10 years and being a Director for the Sino-German Sustainable Transport Project with the German Cooperation Agency GIZ in Beijing.
He has authored books, articles and reports, including UNDP's SDG Finance Taxonomy, IFC's “Navigating through Crises” and “Corporate Governance - Handbook for Board Directors”, and multiple academic papers on capital flows, sustainability and international development.