© Bloomberg

China turbocharged its lending to overseas energy projects last year, burnishing the attraction of its “infrastructure diplomacy” to the developing world and reinforcing its position as the dominant supplier of global development finance as Donald Trump draws back on such US funding abroad.

A new database, published on Tuesday by Boston University’s Global Economic Governance Initiative, shows that lending by China’s two global development banks rose 40 per cent last year to $48.4bn, a figure estimated to be several times the total funds allocated to energy infrastructure by the World Bank and other western-backed lending agencies.

China is . . . exporting its model of infrastructure-led development abroad to those countries that are demanding energy and infrastructure but can’t get the financing from traditional sources,” said Kevin Gallagher, a Boston University professor and co-director of the Global Economic Governance Initiative.

He estimated that China’s lending to overseas energy projects was close to triple the average annual energy finance of $16.9bn provided by the World Bank and three other institutions, the Asian Development Bank, the Inter-American Development Bank and the African Development Bank, between 2007-2015.

Much of China’s lending to oil, gas, coal, hydropower and other energy facilities (see chart) in 2016 was directed toward the developing world and, in particular, to countries covered by “One Belt One Road”, a key geopolitical strategy championed by Xi Jinping, the Chinese president.

Mr Trump, by contrast, has proposed big cuts to funding for the US Agency for International Development, as well as for the World Bank and the International Monetary Fund.

This US stance is likely to cede further dominance of international development finance to China, analysts said. Taken together, the China Development Bank (CDB) and the Export-Import Bank of China (Ex-Im Bank) already eclipse the World Bank in total international assets, according to Boston University data.

Sam Geall, executive editor at China Dialogue, sees China’s increase in global energy finance in geopolitical terms.

“China is opening the prospect that it will be managing a lot of power infrastructure, particularly in the developing world and in the electrification sector and that puts them in a powerful position globally,” said Mr Geall, who is also an associate fellow at Chatham House, a UK think-tank.

In terms of sector, China’s finance was directed mainly towards oil, gas, coal and hydropower plants (see chart), marking a shift from previous years when Beijing devoted a larger share of its capital towards funding the construction of coal-fired power stations.

Of the $165.4bn in finance for overseas energy infrastructure extended by China’s two development banks since 2000, some $40.4bn has gone towards coal, second to the $59.6bn that went to fund oil projects, Boston University’s study estimates. Hydropower, gas, nuclear and renewables were other key categories.

In terms of institution, CDB maintained its dominance in overseas energy infrastructure lending last year, extending $23.2bn in finance to dedicated projects and a further $14.2bn in projects it funded jointly with the Ex-Im Bank (see chart). In the years since 2000, CDB has lent a total of $83.6bn alone and a further $26.4bn jointly with the Ex-Im Bank.

Geographically, CDB and Ex-Im Bank have fairly distinct theatres of operation, the Boston University study shows. CDB leads energy finance in Europe, Central Asia and Latin America, and the Ex-Im Bank dominates in Asia and Africa.

The motivation behind such funding is not simply to further China’s diplomatic clout in the developing world. It is also to transform local companies into multinational champions and open up overseas markets for industries blighted by chronic overcapacity, analysts said.

Support for the renewable energy industry reveals the way in which China’s financial muscle is assisting its goal to build globally dominant industries, Mr Geall said. “China is reaping the rewards of its long-term policy to support renewables as solar power becomes a genuinely cost-competitive technology that is creating a new market,” Mr Geall said.

China increased investments in green technology overseas by 60 per cent to $32bn last year, far in excess of the amounts deployed by any other country, according to the Institute for Energy Economics and Financial Analysis, a US-based think-tank.

Chinese companies made 11 outbound investments in excess of $1bn in 2016, adding up to a combined $32bn, compared with eight deals for a combined $20bn in 2015, according to research by IEEFA.

Get alerts on Emerging markets when a new story is published

Copyright The Financial Times Limited 2019. All rights reserved.

Follow the topics in this article