China Is Providing Billions in Climate Finance to Developing Countries

The climate crisis is escalating at an alarming rate, causing devastation around the world - especially in countries that contribute little to the world's greenhouse gas emissions.

Coping with climate impacts and investing in the transition to a low-carbon, climate-resilient future present special challenges for developing countries. Global climate goals can't be reached unless developing countries are part of the effort, too - but given their reduced responsibility and resources, they need and deserve help from the global community. This is especially true for the poorest and most vulnerable countries.

Very soon, world leaders will have a chance to show their resolve to meet this need. The main agenda item for COP29 is adopting a new global climate finance target. This new collective quantified goal, or NCQG, would replace the goal set in 2009 for developed countries to mobilize $100 billion a year, from 2020 to 2025, for climate action in developing countries. A new target, with increased financial support for developing countries, should enable their ambitious investment in climate mitigation and adaptation.

The NCQG has its share of complications, however. One of the most hotly contested topics is the role that emerging economies like China should play. China remains a developing country according to UN classifications, but it has grown impressively in recent years - and its emissions have risen along with it. Many developed countries argue that such rapidly growing economies should be required to contribute to the NCQG. Developing countries have had no obligation to contribute to the $100 billion goal, but many have been doing so voluntarily - including China, a fact that has often been overlooked.

The upcoming NCQG negotiations should be founded on a clear understanding of the climate finance that's already flowing, including from China and other non-traditional donors. However, little official reporting on developing countries' voluntary activities is available.

To help address this challenge, new research from WRI presents a fuller picture of the climate finance China has been providing and mobilizing to support other developing countries' climate actions. We estimate that China's climate finance provision averaged close to $4.5 billion per year between 2013 and 2022. Our research also highlights how China's contribution compares to existing efforts, details the channels through which its finance flows and sheds light on the pieces of the larger climate finance puzzle that are still missing.

China Is a Significant Climate Finance Provider

To date, China's contributions have been a blind spot in the climate finance discussion. Little data is available, and unofficial disclosures often show only partial glimpses of the picture because many estimates only consider a single type of financing, like bilateral or multilateral. What's more, those frameworks typically don't facilitate a useful "apples-to-apples" comparison with other countries' financing.

Our research presents one of the first analyses to allow face-value comparisons of climate finance mobilized by China and developed countries. To foster greater comparability, we adopted the most widely used framework on climate finance, borrowing the methodology that the Organisation for Economic Co-operation and Development (OECD) uses to assess developed countries' progress towards the $100 billion goal. (This method counts all types of finance in the same way, regardless of its terms. For instance, grants and concessional finance, with interest rates or repayment periods that are friendlier than what is available on the open market, are valued equally with market-rate loans.)

Our estimate shows that the climate finance flowing from China to other developing countries, via four distinct channels, amounted to just below $45 billion between 2013 and 2022. That equals 6.1% of the total climate finance developed countries provided during the same period.

What do these new findings mean for China's "fair share" contribution to global climate finance? Neither the data nor existing United Nations Framework Convention on Climate Change agreements provide unequivocal answers about who should pay what. Moral and technical choices need to be considered, and could be informed by different scenarios reflecting on countries' historic responsibility and capacity to pay.

Estimates based on historical emissions and income offer an idea of efforts proportional to China's role. (One analysis by Center for Global Development, for example, calculated its responsibility to be between 3.4 % to 6 % of international climate finance.) But our interest doesn't lie in a definite answer on China's fair share. Instead, we aim to spotlight China as a significant climate finance provider and acknowledge that China and other emerging economies' voluntary climate finance contributions could better inform the NCQG process in the leadup to COP29 and beyond.

How China Is Funding Climate Action in Developing Countries

How does money move from China to developing countries' climate projects? The OECD methodology we used in our analysis breaks its contributions into four categories:

• Bilateral public, provided by China's development finance agencies and institutions
• Multilateral public, provided through multilateral development banks and climate funds
• Export credits, provided by China's official export credit agencies like China EXIM and SINOSURE
• Private finance, mobilized by China's development financial institutions or guarantors

Both China and conventional contributors channel over 70% of their climate finance through bilateral and multilateral public mechanisms. But whereas developed countries rarely deploy export credits in their climate finance - they make up only 3% of their contributions, on average - export credits account for more than a quarter of China's climate finance.

The inclusion of export credits (as well as mobilized private finance) in climate and development finance is a topic of ongoing debate. Some argue that these financial instruments do not necessarily represent additional resources for climate action and can even potentially exacerbate debt burdens in developing countries. However, export credits have frequently supported large infrastructure projects, which could help fill developing countries' funding gap in meeting climate and other development goals. Notably, some conventional contributors like Japan and Italy increased their development finance through export credits between 2009 and 2018. We need further examination and deliberation to address the role of export credits in climate finance and China should be part of these essential, collective efforts.

Missing Puzzle Pieces

Like conventional climate finance contributors, China's climate finance flows through a complex and interwoven architecture. Governmental agencies responsible for financial decisions related to climate include environmental, economic and aid ministries as well as financial regulators; they may also rely on implementors, in and outside of China, to identify opportunities and channel the funding. Developing countries must navigate this complex web to access the climate finance China can provide. This makes it hard for participants and observers to know exactly what's going on.

Key government agencies in China's climate finance architecture

Agency	Role	Category
China International Development Cooperation Agency	Manages and coordinates China's foreign aid with other ministries	Bilateral public
MOF	Funds China's foreign aid and other bilateral finance	Bilateral public
PBC and SAFE	Funds bilateral public finance	Bilateral public
China EXIM	Provides concessional loans and sponsors overseas investment funds	Bilateral public
CDB	Manages special overseas lending and sponsors overseas investment funds	Bilateral public
MOF	Funds multilateral finance	Multilateral public
PBC and SAFE	Funds multilateral finance	Multilateral public
China EXIM	Funds multilateral finance	Multilateral public
China EXIM	Provides export credits	Export credits
SINOSURE	Provides guarantee and insurance	Export credits
China EXIM	Provides loans	Mobilized private
CDB	Provides loans	Mobilized private
SINOSURE	Provides guarantee and insurance	Mobilized private

External actors trying to count climate finance also find it hard to do so in a comprehensive way. Due to the conservative approach we took in our research, in addition to the limited publicly available information, China's nominal climate finance contributions are likely much higher than we estimated.

For instance, since 2013, China has established several overseas investment funds and lending programs to support projects in areas including climate change, agriculture, food security and development. But since these fund managers disclose very little on how funding is allocated across these priority areas, we couldn't identify or quantify the climate elements of that $140 billion in funding.

Our calculations also under-captured the amount of private finance China has mobilized. Using the current OECD framework, private finance can be attributed to Chinese official actors, but very little qualitative information on such arrangements is available. Estimates show that at least 10% of China's total overseas lending was enabled through the state-owned export credit insurance corporation, SINOSURE, and we know that CDB and EXIM China are the two largest Chinese lenders on renewable energy projects abroad. But, in our research, we could only confidently attribute 15 projects as mobilized by China, which we recognize is an underestimate.

Greater transparency on China's part would enable a more consistent and comparable evaluation of China's role in climate finance that, in turn, would facilitate climate finance negotiations and provide greater clarity for those seeking to access climate finance. Greater transparency could also motivate required contributors to ramp up their commitments to climate finance. Finally, transparency could provide leadership to other voluntary contributors on how they can report their own climate finance, giving a clearer picture of the whole landscape.

Toward the New Global Finance Target

Acknowledging that China is already a significant, voluntary contributor to climate finance could make developed countries more comfortable increasing their own contributions, and ultimately facilitate negotiations for larger collective climate finance commitments. The discussions could also be better informed by evaluating countries' responsibility for climate change and capacity to pay.

A robust climate finance goal agreed upon at COP29 should include a roadmap for improving the consistency and quality of climate finance reporting. The existing framework and practices governing mandatory reporting need to be reformed to provide a clearer picture of the quantity and type of finance available and to better hold countries accountable for fulfilling their climate finance commitments. China should be part of this global effort to enhance transparency and coherence - a move that will help the country overcome the siloed structure of its domestic international development governance and facilitate better communication of its efforts.

Whichever direction negotiations on climate finance take, all countries have a shared interest in the ultimate goal of ensuring sufficient finance for developing nations to achieve an inclusive, low-carbon, climate-resilient future. Cracking the code of how emerging economies - including China - should contribute will play an important role in achieving this shared outcome.