Commentary: A New Green Partnership for China and International Financial Institutions

The relationship between China and international financial institutions (IFIs) like the Asian Development Bank (ADB) has been evolving, particularly with a stronger emphasis on the climate agenda. While China still borrows from IFIs, its dependence on these loans has diminished over time. [para. 1]

The IFI lending program with China has increasingly focused on climate mitigation, adaptation, and addressing significant environmental challenges such as biodiversity preservation. This is crucial for the ADB, which positions itself as the climate bank of Asia and the Pacific. [para. 2]

The impact of IFI lending to China has been significant, bringing tangible development outcomes and an improved quality of life for its citizens. However, moving forward, it is essential to diversify beyond traditional lending programs to foster meaningful progress on the climate front. New modes of engagement are promising, emphasizing that benefits should extend to the regional and global levels and align with IFIs' new mandates supporting regional and global public goods. [para. 3]

Specifically, the ADB's partnership with China needs to deliver results across Asia and the Pacific, as the region is grappling with the dual challenge of securing development gains and meeting net-zero emissions commitments. Climate-related issues, such as the effects of heat stress and the rising frequency of natural disasters, further complicate this agenda. [para. 4]

Despite its leading economic position, China faces similar challenges and must transition its relationship with IFIs from that of a developing country client to a full partner in regional and global goals. [para. 5]

This partnership should be structured around two main objectives: accelerating domestic reductions in greenhouse gas emissions and collaborating on regional and global strategies for clean energy transitions and climate resilience. Effective partnerships should also promote knowledge transfer and technology adoption in developing nations. [para. 6]

Domestically, China has significantly invested in renewable energy, with 2023 investments in major projects surpassing 769.7 billion yuan ($108.5 billion), representing roughly 80% of its power generation investments. China dominates global production for key wind turbine components and photovoltaic products. [para. 7]

However, fossil fuels still account for about 70% of China's energy production, which is responsible for 35% of global greenhouse gas emissions. Significant emissions also emerge from the power, industry, transport, urban development, and agricultural sectors. [para. 8]

To reduce greenhouse gas emissions, collaboration with the ADB and other IFIs is crucial, necessitating early and synchronized interventions with the Chinese government across all levels and sectors. [para. 9]

IFIs play a catalytic role by supporting policy reforms, technological advancements, and innovative financial tools like green bonds. Strengthening local governments' capacity to manage climate initiatives, coupled with providing toolkits and methodologies for better local ownership, is vital. Moreover, maximizing climate finance while solidifying the role as a knowledge partner is essential. [para. 10]

China and IFIs should leverage China's progress on climate for regional and global benefits, including underfunded areas of climate resilience which demand regional solutions. The partnership, such as the ADB's initiative with China for migratory birdlife protection, underscores the commitment to regional ecological issues. [para. 11]

Addressing debt constraints in developing countries to enhance climate investments, including mechanisms like debt-for-climate swaps, is another promising collaboration area. [para. 12]

Overall, the partnership between China and IFIs, especially the ADB, must evolve to set a high standard and serve as a model for upper-middle-income countries across Asia and the Pacific in achieving development and climate goals. Future engagement must not be about simple continuity but strive for transformational outcomes. [para. 13]

Scott Morris, vice-president for Southeast and East Asia and the Pacific at the Asian Development Bank, emphasizes this evolving partnership at the East Asia Forum hosted by the ADB in Beijing on September 19. [para. 14]