On 21 September 2021 at the UN General Assembly, Chinese President Xi Xinping announced the creation of the Global Development Initiative (GDI), to counter the market shocks of the COVID-19 pandemic and advance the UN’s Sustainable Development Goals (SDGs) for 2030 in a multilateral and cohesive way.

The new initiative will potentially see clean energy and digital technology infrastructure projects funded by a multitude of different countries, under the Chinese aegis. The language of the initiative indicates a step away from China’s ailing flagship Belt and Road Initiative (BRI), a multi-billion-dollar project to finance infrastructure projects abroad, which concentrated on funding from Chinese banks.

Belt and Road Initiative
Formally inaugurated by President Xi Xinping in 2013, some 143 countries signed up to the Belt and Road Initiative through memorandums of understanding, while China has invested $932bn into projects since the BRI’s inception, according to the Green Finance and Development Center.

Despite a promising start to the BRI, loans have turned bad at an alarming rate in the past couple of years. Most recipients of BRI funding are economically risky states, whose problems have been exacerbated by the COVID-19 pandemic.

Since 2011, China has been forced to renegotiate $114bn worth of bad debts including non-BRI loans, of which $52bn were renegotiated between 2020 and 2021. Moreover, to limit the damage done by potentially defaulting states, China has now found itself doling out emergency loans to BRI recipient countries such as Pakistan, Sri Lanka, Argentina and Nigeria, to help keep them afloat and avoid a global debt crisis.

In 2020, Pakistan, a recipient of $14bn worth of Chinese loans, looked to renegotiate the repayment of its loans to build two power plants. Now, in 2022, China faces an even more dire situation. Sri Lanka, which owes China around $5bn, has crumbled as it ran out of foreign reserves in May, leading to shortages in daily commodities such as fuel and the ensuing collapse of the government after rioters stormed the presidential palace. In both countries, claimed ‘murky’ Chinese investment contracts and inflated prices have been an aggravating factor to their woes.

The BRI has long been criticised as being China-centric and drawing receiving countries into its sphere of influence, for ensnaring unwitting recipients into debt traps, and not promoting actual development in the receiving countries by employing Chinese instead of local labour.

The BRI has also come under fire for financing new coal plants globally instead of promoting clean energy (although a plan for greening the BRI came out in March 2022, which included a pledge to stop building new coal-fired plants overseas). However, despite the moratorium on coal plants, oil and gas projects still account for around 80% of Chinese overseas investment and around 66% of construction contracts.

Furthermore, Western powers have initiated a flurry of rival infrastructure investment projects to counterbalance the BRI and China’s growing soft power, but with little success so far. The latest attempt is US President Joe Biden’s Global Partnership for Global Infrastructure and Investment (PGII) which was launched at the G7 Summit in June 2022. The initiative aims to mobilise $600bn by 2027 from other G7 countries. The European Union has also drawn up a rival infrastructure project called the Global Gateway, which has pledged €300bn in seven years.

China – the world’s renewable factory
While the GDI is still broad in scope and with undefined parameters, it attempts to deal with the shortfalls of the BRI. The funding will come from a broad range of countries, concentrated on developing digital technology and clean energy infrastructure, and promises to eliminate poverty and enhance the UN SDGs for 2030.

However, one thing so far is clear – the GDI ties China’s foreign policy ambitions to lead the world through soft power with its domestic economic strategy.

The Global Development Initiative would cement China’s status as the global renewable factory and ensure the export of Chinese-produced digital and clean energy-related goods at a time when the Chinese domestic market is nearing saturation.

China holds a vast monopoly on the manufacturing of renewable hardware, from solar panels to wind turbines and everything in between.

Take the solar market, for example. China’s share in the solar panel manufacturing industry, through all stages of production, is over 80%, according to a new report by the International Energy Agency (IEA) on Solar PV global supply chains. China is also home to the top 10 suppliers of solar photovoltaic (PV) manufacturing equipment in the world. Government policies have poured $50bn into solar panel production, created 300,000 jobs across the manufacturing value chain since 2011, and brought the price of solar panels down by 80%, making them a widely available and cheap source of energy worldwide.

It is also a large part of China’s economy. Solar PV exports accounted for 7% of China’s trade surplus over the last five years.

China also holds 50% of the world’s market share for wind turbines, according to Wood Mackenzie research, and 90% of the global market for lithium-ion batteries. In addition, China controls 60% of the world’s rare earth minerals such as cobalt and lithium, which are key to making clean energy hardware. The runner-up is the US, which straggles behind at 15.5%. Furthermore, China holds an 80% share of the rare earth minerals refining market, according to the US Geological Survey.

A world shift 
In 2020, The Economist heralded the demise of ‘petrostates’ and the advent of ‘electrostates’, of which China is the prime example. The shifting energy world will invariably shift the geopolitics as well. Because China holds a majority market share in the manufacturing of renewable technologies, keeping it onside will be crucial to the global decarbonisation transition.

Looking pessimistically, the long shadow of a potential conflict between China and the US could have serious consequences for achieving global net zero by 2050 and has highlighted the need to diversify the renewable manufacturing value chain. The war in Ukraine has also highlighted the vulnerabilities of relying heavily on one country (ie Russia) for energy and raw material imports.

If hostilities between the US and China were not enough to spur other countries into manufacturing renewables hardware themselves, the COVID-19 pandemic has shown the world the vulnerabilities of supply chains and over-reliance on certain states for goods production. The closure of factories across Asia during lockdowns brought industries to a halt, from iPhones to clothing production.

In the solar industry alone, a lack of polysilicon in China, needed for building solar panels, has strangled the production of an otherwise booming market. Other parts, such as wafers, have been produced at over 100% of demand. Over-reliance on China for renewable hardware has been long warned against for this reason, as was outlined in the previously mentioned IEA report on solar PV deployment.

If the GDI goes ahead as planned, allowing China to continue to assert its hegemony in the renewable hardware sphere, it will be dangerous for renewable supply chains as more and more countries become reliant on the state for their decarbonisation journeys. Over-reliance on China could spell out trouble for global decarbonisation goals if supply shocks occur, whether they be war, disease or financial trouble.

While China advocates a multilateral solution to the UN’s SDGs, it needs to also be willing to relinquish its unilateral hold on the renewables manufacturing industry and create space for diversification of supply.