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China's financial contributions to tackling climate change in developing countries may be far greater than previously thought. In a policy paper released last month, we found that China's bilateral and regional climate contributions—totalling $3 billion a year—have surpassed bilateral climate finance from the United States.
In this blog, we explore how China’s recent contributions compare with the United States in scale and composition. We find that, after including both countries’ contributions to multilateral organisations, the US provided more finance than China’s combined $3.8 billion per year in the period to 2021 (although the US is arguably further from its global “fair share” of finance based on its emissions and income level). Even so, we argue that the current UNFCCC approach of reporting climate finance solely on a face-value basis would flatter China’s contribution relative to most other providers’, and that the new goal should include a grant-equivalent measure to enhance accountability for relative fiscal effort.
A defining year for climate finance and US-China climate cooperation
Crucial decisions regarding the New Collective Quantified Goal (NCQG) are expected at COP29, with negotiators aiming to establish an ambitious new target for climate finance to developing countries exceeding the previous $100 billion per year goal. China is not currently obligated to report or provide international climate finance under the UNFCCC framework, but "developed" countries like the US and EU members are increasingly interested in seeing Beijing formally contributing the NCQG.
The US-China climate relationship is characterized by both collaboration and competition, with the US urging China to contribute more formally to the NCQG and China arguing that its inclusion would “dilute” the historical responsibility of developed nations. This debate has fuelled discussions on expanding the contributor base to include "developing" countries and defining individual countries' "fair shares" of global finance. Adding further complexity, the upcoming US presidential election casts uncertainty over the future direction of climate finance leadership and collaboration from both countries.
Accounting for China’s climate finance under the Belt and Road Initiative
Our report reveals that China has emerged as a significant provider of climate-related development finance, especially since the launch of the Belt and Road Initiative (BRI) in 2013. Between 2013 and 2021, China contributed on average $3.8 billion per year in bilateral and multilateral finance to developing countries, totalling $34.3 billion (of which $20.4 billion was in the most recent five-year period since 2017).
Figure 1. China’s climate-related finance to developing countries under the BRI
Most of this, or $27.0 billion, has come through China’s bilateral and regional programmes, although its multilateral contributions—including direct contributions to multilateral climate funds and its “attributable” outflows of multilateral development banks’ (MDB) climate finance—have risen sharply in recent years. The latter trend reflects China’s rising role in both replenishments and shareholding in “traditional” MDBs such as the World Bank and its IDA, but also its global leadership in setting up the Asian Infrastructure Investment Bank and the New Development Bank. Both of these banks have become increasingly integrated into the existing multilateral climate finance architecture and now report on their finance through the joint annual MDB climate finance reports.
While China has been promising to “green” the BRI since 2017, translating these pledges into practice has been challenging, with COVID-19 travel restrictions and Beijing’s lower risk tolerance likely contributing to a general slowdown in BRI-related finance. Still, notwithstanding wider BRI shifts, our analysis reveals that China’s climate-related investments since 2017 have not only seemingly decreased by annual volume, but also proportionally, or as a share of China's overall outbound finance to developing countries (Figure 1). Furthermore, the significant year-on-year volatility in China's climate finance figures (likely a result of both substantive shifts in financial outflows and data limitations and poor transparency) reveals a lack of predictability in Chinese funding, which can be especially detrimental to recipient countries’ long-term planning.
Unpacking China’s recent climate contributions compared to the United States’
Despite these challenges, China's climate contributions remain substantial on a global scale, even when considering the most recent five-year period. Our analysis reveals that China’s most recent bilateral and regional climate-related assistance has rivalled and even surpassed the US’s UNFCCC-reported climate finance, although US contributions since 2017 surpass China’s when taking both multilateral and bilateral programmes into account (Figure 2). Bilaterally, China has provided $15.0 billion relative to the US’s $7.6 billion in the five years to 2021, though in the final year, the US’s efforts overtook China’s. Taken on an annual average basis, this means that China provided bilateral and regional climate-friendly finance of roughly $3.0 billion every year—twice as much as the $1.5 billion in bilateral climate finance provided by the US. Still, the United States’ strong shareholding in MDBs—not least the World Bank—means that its “attributable share” of MDB climate finance remains much higher, with the US’s multilateral climate contributions averaging 5.9 billion a year, compared with China’s 0.9 billion.
Figure 2. China and the US’s climate finance contributions since 2017, by channel
Looking beyond 2021, President Biden committed to increase US international climate finance to over $11.4 billion per year by 2024. Initial data for 2022 and 2023 from the US Department of State looks promising, indicating that US climate finance (excluding MDB-attributable finance) has increased sharply since the pledge was made, to $5.8 billion in 2022 and $9.5 billion in 2023. This finance has not yet been formally recorded to the UNFCCC. We also lack comprehensive data on China beyond 2021.
How does this compare to “fair shares” analysis?
Models estimating providers’ "fair shares" of global climate finance suggest varying contribution levels for China and the US based on their historical emissions and income levels. A recent model from CGD estimates that around 5-10 percent of global climate finance by 2030 should come from China, compared to at least 40 percent coming from the United States. In face value terms, China’s contributions appear to reach closer to its fair share than the US’s. Still, this highlights the flaw of considering only the face-value of finance under the current UNFCCC regime, and we argue that accurately accounting for each provider's relative effort requires analysing the grant-equivalent of finance provided. Perhaps paradoxically, the UNFCCC’s current reporting and accounting standards make it easier to estimate the grant-equivalent of China's climate finance (albeit using secondary sources and AidData's database) than for "developed" Annex II countries that report to the UNFCCC.
Rising loan-based finance and the need for the new climate target to be expressed in grant-equivalent terms
As our research shows, expressing climate finance in grant-equivalent terms can drastically alter the picture of contributions—especially in China's case. Our analysis reveals that China's bilateral climate-related finance is primarily delivered in the form of loans, often at or near market rates, with only 3 percent of finance provided directly as grants. By contrast, 47 percent of US UNFCCC-reported bilateral and regional climate finance since 2017 has come in the form of grants. When we consider the grant-equivalence of China’s overall bilateral climate contributions—which accounts for the varying financial terms and concessionality of its loans, in addition to its direct grants—this figure rises to 22 percent (or $6 billion of the $27 billion provided bilaterally and regionally since 2013). Unfortunately, based on the UNFCCC reporting, we can only calculate the grant share of the US’s climate finance, but not its grant equivalent.
Our analysis for both countries shows worrying declines in bilateral climate finance concessionality. While overall concessionality of China’s climate finance seemingly peaked in 2018 (at 33 percent of bilateral finance being grant equivalent, or 5 percent being given directly as grants in that year), and has been declining ever since, the grant-share of US bilateral climate finance has also declined from 60 percent in 2017 to 40 percent in 2020. It is also worth noting that US official development assistance (ODA) increased only modestly in 2023, making it likely that much of the US’s recent increase has come from allocating less-concessional finance to climate, including, for example, through its Development Finance Corporation (DFC). Chinese climate finance comes with hefty repayment obligations for recipient countries, notable especially in the context of current debt and climate debates. While US finance is still much more concessional than China’s, the move away from grants is striking.
The basis of a deal at COP29 and beyond
Our analysis reveals three implications for the ongoing climate finance negotiations:
First, achieving an ambitious NCQG hinges both on the US demonstrating greater financial commitment, and China accepting its role as a major industrialised country and significant climate actor. Our findings show that the two are not, in fact, so different. Both already contribute billions for international climate action, suggesting a potential "win-win" scenario where the US increases its efforts, and China commits to a more modest voluntary increase while working towards improving its reporting capacities with UNFCCC support. Based on colleagues’ fair shares analysis, a rule of thumb would be that for every $4 billion to $5 billion the US provides, China commits $1 billion.
Second, our analysis demonstrates that a transparent and fair NCQG requires grant-equivalent accounting. Based solely on a face-value analysis, China has provided more bilaterally than the US between 2013 and 2021, but this obscures the dominance of near-commercial loans in China's portfolio compared to the US's more grant-based approach. We're encouraged by the references to grant-equivalence in the draft negotiating text and urge parties to pursue that formulation, with a more modest headline target that reflects true value.
Third, parties should acknowledge China's existing climate finance efforts and its unique experience as both a recipient and provider of climate finance, and aim to foster a more collaborative approach to global climate action. For China’s part, this would also mean responding to recipients’ calls for more transparency and grant-based finance, and accelerating its BRI climate commitments.
Climate change is the key issue of our time, and finance is the crucial sticking point. We hope the world’s two largest emitters can both step up their efforts.
Join us on 7th November for a discussion on China's international climate finance landscape with E3G, ODI, and the World Resources Institute (WRI) .
Disclaimer
CGD blog posts reflect the views of the authors, drawing on prior research and experience in their areas of expertise. CGD is a nonpartisan, independent organization and does not take institutional positions.
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