MANILA, Philippines — After much diplomatic wrangling, three years ago, China’s Vice Premier Zhang Gaoli announced the creation of the country’s first climate change fund for developing countries. It would later be dubbed the South-South Climate Cooperation Fund with a budget of $3.1 billion — notably $100 million more than former-United States President Barack Obama’s $3 billion pledge to the Green Climate Fund. As part of the SSCCF, President Xi Jinping said that China would launch 10 low-carbon pilots, 100 mitigation and adaptation projects and capacity building opportunities for 1,000 trainees on climate change issues.
As China continues to grow as a global power, so too does its footprint on the development sector. Its rise comes at a moment when the status quo is shifting in the aid industry. Traditional standard bearers such as the U.S. and EU may still drive the majority of funds and set the agenda, but protectionist policies and changing domestic priorities are setting in motion significant changes.
In this six-week special series, Devex examines China's expanding role in aid and development across the globe. From tensions in Ghana to projects in Pakistan, from climate financing to donor partnerships, from individual philanthropy to state-financed investment, this series traces the past, present and future of Chinese aid and development.
No deadline has been set for the so-called “10-100-1,000” initiative and information on the SSCCF is extremely limited. Climate finance experts in China say that the government is currently negotiating details on how the fund will operate. “There’s very complicated procedure issues still under planning,” says Chai Qimin, a senior director at China’s National Center for Climate Change Strategy and International Cooperation, which is involved in designing the fund.
What we do know is that RMB 300 million ($45 million) per year is currently being dedicated to the “10-100-1,000” initiative, according to Chai. While there’s every indication that that the fund will offer bilateral support, the climate change expert says that SSCCF will be designed as a multilateral financial institute, similar in style to the Asian Development Bank and the Asian Infrastructure Investment Bank. The fund aims to provide a wide range of initiatives, such as technical support and private investment to target countries in the global south.
Forty projects across Asia, Africa, Latin America and some of the Small Island Developing States have already been approved. That includes a Chinese designed satellite that will help Ethiopia with its climate and weather monitoring. The African country is one of nine developing countries that signed a memorandum of understanding with China on climate issues last year. As of March 2017, China has signed memorandums with 27 developing countries to help them “improve their capacities in [climate] adaptation and mitigation, management and financing.”
But, helping these countries with their climate action plans is challenging. Whereas China’s domestic climate policy is focused on how to peak their carbon emissions and what low-carbon energy technologies are needed to achieve that goal, Chai says that the needs and interests of the least developed countries are “totally different.” With scientists warning that global warming will lead to highly variable rainfall patterns, LDCs are more interested in water issues and the impacts of climate change on farming. The Chinese realize that their experience over the last 20 years can’t be replicated and are struggling to establish key aspects of the fund, such as a market-based mechanism to offset carbon emissions.
In anticipation of these issues, China has been conducting preparatory research over the past three years on how to operate the SSCCF, including setting standards for how to choose projects and ensuring proper monitoring and evaluation. Chai says that China wants to ensure that both its needs and those of the target countries are met. To that effect, “China is open to discussions and consultations from third parties,” he adds.
Lack of clear information on the fund is of little surprise. When negotiating the terms of the Paris Agreement on climate change, China vociferously opposed the transparency mechanisms being pushed forward by the U.S. And unlike the GCF, the SSCCF is housed outside of the United Nations Framework Convention on Climate Change. So the Chinese fund is not subject to the scrutiny of the U.N. system and its transparency standards, including disclosing how and where its money is being spent.
“That is probably a big consideration as to why they committed the money outside the UNFCCC structure,” says Li Shuo, a Beijing-based senior climate and energy officer at Greenpeace East Asia. It is worth noting however, that under the current terms of the Paris Agreement, all countries committed to the deal are encouraged to disclose their financial contributions to developing countries for climate action every two years.
China has other reasons, too. Under the U.N. framework, the dominant narrative is that developed countries are disproportionately responsible for climate change and as such are obligated to provide developing countries with financial resources to help them mitigate and adapt to the effects of climate change. If China joins that effort, especially under the U.N. convention, China could imply that it’s graduating itself from its current developing country status to a full-fledged developed country.
See more related topics:
“And this is not a signal that they want to send,” says Li, explaining that China’s lack of interest in graduating is complex and partially attributed to the fact that it still has many relatively underdeveloped regions. “But, at the same time, they realize their increasing responsibility in causing climate change and they wanted to do something to help other developing countries. That is also one important element that helped us unlock the Paris Agreement in the end.” Admittedly, the U.N. encourages developing countries to voluntarily help its peers and some of them such as Vietnam and Indonesia have pledged support for the GCF, for example. But these countries offered millions of dollars at most, whereas China is talking about billions.
Also, China is “genuinely concerned” about not having the capacity to be transparent. “A regular report about how much it is financing and to which countries — that would add an administrative burden in their view,” says Li. The SSCCF is initiated and administered by the National Reform and Development Commission, whose entire climate department only has about 50 people. These people are responsible for both domestic and international climate policies. That includes receiving international climate finance from multilateral and bilateral agencies, as well as providing support to developing countries for climate action.
There are ways to address China’s capacity issues, but it’s not going to be easy. With the South-South fund, the government is compromising. And after all these years, some say that China putting money on the table should be perceived as a positive first step. “Then they want to reserve a few other steps so that they can gradually enhance their effort and get there,” says Li, adding that a second step could be divulging how the money is being spent. Then in the medium to long run, a potential third step could be bringing the fund under the U.N. system.
But, while the Chinese government is framing the SSCCF and South-South cooperation in general as foreign assistance, it is important to note that China’s policies also offers business opportunities for the rising superpower. For instance, if China plans to run the fund in a similar way to a multilateral bank as Chai mentioned, then China is poised to make money off of its investments. Providing much-needed funds to the world’s most vulnerable countries also gives China an opportunity to shape the international climate agenda. And since some surveys find that people around the world view climate change as one of the biggest threats to national security, the SSCCF enables China to influence international affairs more broadly.
Still, even Beijing realizes that global public opinion on its foreign aid policy is extremely polarized. A recent article in the state-controlled media organization, China Daily, stated: “Some argue that China’s no ‘strings attached’ approach is efficient and generates win-win outcomes. Others criticize this direct, economically-driven assistance as a form of neocolonialism.”
Regardless of public perception, one thing everyone seems to agree on is that the world is eagerly waiting to see how the SSCCF progresses. “There’s a lot of appetite to understand how that money will be deployed,” says Leonardo Martinez-Diaz, global director of the Sustainable Finance Center at the World Resources Institute. “And there’s a lot of pressure from governments to show some results.” If the past serves as any indicator, the Chinese government might be divulging more information about the fund at the U.N.’s annual climate change conference this November in Bonn, Germany. “It’s a good time for them to take stock of the progress,” says Li. “In Bonn, I would keep a very close eye on South-South finance.”
Update, August 22, 2017: This article has been updated to clarify that RMB 300 million ($45 million) per year is currently being dedicated to the “10-100-1,000” initiative.
In this six-week special series, Devex examines China's expanding role in aid and development across the globe. From tensions in Ghana to projects in Pakistan, from climate financing to donor partnerships, from individual philanthropy to state-financed investment, this series traces the past, present and future of Chinese aid and development. Join the conversation on our Facebook discussion forum.