A 2014 update of this presentation is available at https://www.slideshare.net/WorldResources/sustainable-finance-china-12-dec2014 When it comes to overseas development finance, China is definitely a country to watch. Due to the country’s unprecedented economic growth, China’s overseas investments have increased exponentially in recent years. Between 2009 and 2010, two Chinese state-owned banks lent more money to other developing nations than the World Bank did. In fact, between 2002 and 2011, China’s outward foreign direct investment (OFDI) stock grew from $29 billion to more than $424 billion. But what factors are driving all of this growth? What areas of the world are on the receiving end of China’s OFDI flows? And what sorts of social and environmental standards are in place for banks’ and enterprises’ investments? WRI answers these questions and many more in its recently updated powerpoint presentation, “Emerging Actors in Development Finance: A Closer Look at China’s Overseas Investment.”

1. Emerging Actors in
Development Finance
A CLOSER LOOK AT CHINA’S OVERSEAS INVESTMENT

2. Introduction
South-South financial
flows are changing the
nature of development
finance and assistance.
Between 2009 and 2010,
two Chinese state-owned
banks lent more money
to other developing
countries than the World
Bank.[1] During the
recent financial crisis,
Brazil invested $10
billion in International
Monetary Fund bonds, a
striking example of the
country’s transformation
from a debtor to
creditor.[2]
Expanding South-South trade and investment provides welcome and needed sources of
capital for countries in Africa, Asia, and Latin America. At the same time, these financial
flows – coupled with the emergence of powerful financial actors from China, India, Brazil,
and other economies – may pose new challenges for environmental and social sustainability.

3. Topics
The Changing Global Landscape
4
China Goes Global: OFDI & Lending by
Financial Institutions
7
Regional Example: China in Africa
15
Sustainable Financing and Investment
17
WRI’s Work & Influence Strategy
19

4. A New Geography of Growth
Relative shifts in economic power and political
influence are reconfiguring the global context for
sustainable development policy. We are currently
witnessing what the OECD terms “the new geography
of growth” – “a 20-year structural transformation of
the global economy in which the world’s economic
centre of gravity has moved towards the East and
South.”
Trends indicate that developing economies will
“account for 57% of world GDP by 2030.” [3] Despite
sharp differences among members, the G-20 is
supplanting the G-8 as the primary vehicle for global
economic policy coordination.[4] Large emerging
market economies are defining their own approaches
to development cooperation, governance issues, and
environmental and social sustainability outside of
many existing normative frameworks.

5. Expanding South-
South Trade
South-South trade is clearly a
dynamic force in the global
economy. While world trade
expanded four-fold between
1990-2008, South-South trade
grew more than ten times.
Developing countries now
account for around 37% of
global trade, with South-South
flows making up about half of
that total (19% of global
trade).[5] In 2009, for example,
China surpassed the US as
Africa’s largest trading partner.
[6] Sino-Africa trade volumes
exceeded 166 billion US dollars
in 2011. [7]

6. Topics
The Changing Global Landscape
4
China Goes Global: OFDI & Banking
Lending
7
Regional Example: China in Africa
15
Sustainable Financing
17
WRI’s Work & Influence Strategy
19

7. China Goes Global: OFDI
China’s outward foreign direct investment (OFDI) flows increased from under $1 billion in 2000 to $74.6
billion in 2011, while its stock of OFDI grew from nearly $27 billion in 2000 to over $424 billion in 2011.[8]
As reported by the Chinese Ministry of Commerce (MOFCOM), China’s OFDI
stock is largely concentrated in Asia, although investment has increased
significantly in Latin America and Africa over the past five years. However, this
figure assigns flows through the offshore centers solely to the corresponding
region, leading to possibly an overestimation of OFDI in Asia and Latin America.
Source: MOFCOM 2010 Statistical Bulletin of China’s OFDI
Regional Comparison of China’s OFDI Stock (2005 -2010)

8. Chinese OFDI Data
However, the MOFCOM figure assigns flows through the offshore centers solely to the corresponding
region, leading to possibly an overestimation of OFDI in Asia and Latin America. The U.S.-based
Heritage Foundation investigates these discrepancies by collecting information on individual
investment projects. Whereas MOFCOM designates Latin America as the second largest OFDI
destination, Heritage ranks it behind all other regions except Africa, with high level of investment in
Asia, Australia, North America and Europe. In 2010 whereas MOFCOM reports $2.11 billion in African
OFDI, Heritage records $7.11 billion.[9].
North America: Europe: Asia:
49.16 42.66 86.69
Africa:
Latin America:
37.21 Australia:
48.83
41.52
Aggregated Data on China’s Outward Direct Investments over USD 100 Million,
2005 – 2011 (USD Billion)
Data Source: Heritage Foundation

9. Enabling China's Growing OFDI and policy drivers
Policies 2009:
350 1997: May: new regulatory
2004:
China’s decades-long rapid 抓大放小 framework
MOFCOM releases
(zhua da Implemented to
growth has made it the 300 fang xiao,
Guidelines For
2001: further ease and
second largest economy in grasping
Investment in Overseas
decentralize approval
China joins Countries Industries;
the world, surpassing Japan the large and the WTO, procedures
250 Regulatory process
in mid-2010.[9] letting groof in advance Further reformed, forex
A major factor contributing the small) of which controls eases in his
Declaration 2006: Go Global
to China’s growth has been 200 China made speech at the 10th National
its integration into the Billions of dollors at CCP 15th great People’s Congress, Premier
strategy
Congress Progress in emphasized
global economy, a catalytic Wen Jiabao advocates
150 lays the liberalizing again in 11th 5
speeding up of Go Global
step in the country’s foundation its trade, and more effective
Year Plan
economic development. for the modern Financial coordination of Chinese
100
China’s transformation from and
investment
“isolated” to “globalized” is a 1992:Deng
direct result of the 50 Xiaoping’s
government’s desire to spur ‘Southern
2002: Go Global
and maintain lasting growth 0
tour to
strategy confirmed
promote
of its economy.[10] at CCP 16th congress
overseas
investment’
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Flows /通用格式/通用格式/通用格式/通用格式/通用格式/通用格式/通用格式/通用格式/通用格式
Stock /通用格式/通用格式/通用格式/通用格式/通用格式/通用格式/通用格式/通用格式/通用格式
In 2001, China’s tenth Five-Year Plan (2001-2005) formalized the directive for Chinese companies to “Go Global,” a strategy to
gain access to needed resources, stimulate the export of goods, and grow China’s multinational businesses and brands. Beijing has
provided diplomatic support, favorable tax exemptions, insurance, and, critically, access to low-cost finance.

10. China Goes Global: Bank Lending
Rather than seeking financing primarily through the capital markets, Chinese companies obtain
80-90% of their funding from Chinese banks.[11] As part of the Go Global strategy, China’s state-
owned policy banks, largely the Export-Import Bank of China (China Exim) and the China
Development Bank (CDB), were mobilized to facilitate international capital flows and support
mergers and acquisitions of foreign companies. Although not the largest in terms of total assets
and domestic investment, China Exim Bank and CDB play the leading role in overseas
investment. Other state-owned banks, such as the export and credit insurance company
(Sinosure), have also contributed on a lesser scale.
Relative lending comparison of public financial institutions 2010
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USD Millions
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WB
EBRD
BNDES
IFC portion
US
UK
JBIC
IDB
AsDB
Japan
France
AfDB Group
Germany
China ExIm
US ExIm
EIB (outside Europe)
CDB (RMB loans)
CDB (for cur loans)

11. China Goes Global: China Export Import Bank
The Export-Import Bank of
China (China Exim) was
formed in 1994 along with two
other “policy banks,” the China
Development Bank and the
Agricultural Development Bank
of China, “as tools of the
government, allowing Beijing
to allocate preferential or
targeted finance through a
hybrid of planning and market
means.”[12]As a policy bank,
China Exim finances and implements the government’s trade and overseas investment
policies.[13] The Bank is under the direct leadership of the State Council.
China Exim has exhibited phenomenal growth over the past decade. It has increased
lending volumes by 30% to 40% year-on-year – an indicator of the accelerating nature
of the “Go Global” strategy. China Exim is by far the largest export credit agency in the
world. It approved over $70 billion in new lending in 2009, more than U.S.
Exim, JBIC, and BNDES Exim combined.

12. China Goes Global: CDB’s Total Assets
/通用格式
China Development Bank /通用格式
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Billion RMB
Formed in 1994 along with China /通用格式
ExIm, China Development Bank (CDB) /通用格式
is a state-owned policy bank that provides /通用格式
financing to key infrastructure projects and
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industries in China. It also supports the
/通用格式
“Go Global” strategy by facilitating China’s /通用格式 /通用格式 /通用格式 /通用格式 /通用格式
cross-border investment.[14] Source: CDB annual report 2011
In 2008, CDB was restructured into a
commercial joint stock bank, but remains
under state control. CDB is now the fifth
largest bank in China by total assets, equal
to US$810 billion in 2010.[15]
CDB’s business presence has extended to
116 economies across the globe. By the end
of 2011, 15.86% of CDB’s outstanding loans
is outside mainland China.[16] A number of
large, international energy projects stands
out in the portfolio.

13. Loan for Resources Deals
Structure of Loan-for-Resources Deal
China has executed a number of
resources-for-infrastructure deals
in recent years, backed not just by
oil but also
bauxite, chromium, iron ore, and
even cocoa. In these deals, China
provides loans for infrastructure
development, which are repaid by
delivery or sales of the borrowing
country’s natural resources. This
structure is used most commonly
when a country does not have the
financial capacity to guarantee
and/or service a loan commitment
but has a natural resource (such as
oil) to offer as repayment. This
approach follows a long history of
natural resource-based
transactions and is far from unique
to China.

14. Topics
The Changing Global Landscape
4
China Goes Global: OFDI & Bank
Lending
7
Regional Example: China in Africa
15
Sustainable Financing
17
WRI’s Work & Influence Strategy
19

15. Growing
Chinese OFDI Stock in Africa (2010)
Investment and /通用格式 /通用格式 /通用格式 /通用格式 /通用格式 /通用格式
Trade in Africa South Africa
Nigeria
China’s investment position in Zambia
Africa is accelerating Algeria
DRC
rapidly, rising from an OFDI
Sudan
stock of less than $500 million in Niger
2003 to $13.04 billion in Ethiopia
2010.[17] Reportedly more than Angola
7,900 Chinese enterprises are Egypt
Tanzania
now established in Africa, with
Source: MOFCOM OFDI Bulletin 2010 USD Million
businesses ranging from home
appliances, textiles, clothing, infrastructure, power generation, and natural resource
extraction.[18] Returns on investment by Chinese companies in Africa are reportedly
higher than in other developing countries: from 24%-30% compared to between 16%-
18%, according to the Ministry of Foreign Affairs.[19]
Africa as a region has increased its rather minor share of China’s total trade from 2% in
2001 to 4.5% in 2011.[20] While China’s volume of trade with other regions is far more
significant, the opposite is true for many African countries: China has become Africa’s
largest export destination and the second largest source of imported goods. South
Africa recently announced that it would prioritize China and India as these countries
are now its biggest export markets.[21]

16. Imports from Africa
The bulk of China’s imports from Africa
originate from relatively few countries.
While investments are spread across 48
African countries, over 70% of Chinese
OFDI stock in 2008 was concentrated in
five resource rich countries: South
Africa, Nigeria, Zambia, Sudan, and
Algeria.
However, by international comparison, China’s investments in
Africa’s natural resources match well-established patterns.
50%-80% percent of all FDI to Africa goes to natural resource
exploitation.[22]Despite the rapid scale-up in Chinese
investment in Africa, most foreign direct investment (FDI) in
Africa originates from OECD countries – 91.6% of total inward
FDI stock in Africa in 2008.[23]Similarly, the bulk of U.S.
imports from Africa are sourced from relatively few resource
rich countries; 77% of total imports in 2009 came from five
countries: Nigeria (30.5%), Algeria (17.3%), Angola (15%,)
South Africa (9.2%), and Congo-B. (4.9%).[24] The top three
African oil exporters – Nigeria, Angola, Algeria for the U.S.
and Angola, Sudan, Libya for China – provided a quarter of
each country’s total imports (27.6% or the U.S., 25.1% for
China).

17. Topics
The Changing Global Landscape
4
China Goes Global: OFDI & Bank
Lending
7
Regional Example: China in Africa
15
Sustainable Financing
17
WRI’s Work & Influence Strategy
19

18. Regulating
OFDI
Chinese authorities have
simplified regulations to
facilitate investment abroad.
Three governmental bodies –
MOFCOM, SAFE, and the
NDRC – have primary but not
sole oversight of China’s
overseas investment (separate
from foreign assistance)
regime. MOFCOM is
responsible for developing
regulations for outbound
investment and for
coordinating activities with
commercial counselors posted
at Chinese embassies. SAFE
issued new regulations in
2009 that reduced
qualification requirements
for offshore foreign currency lending and expanded the sources of funds for lending (including access to
government foreign exchange reserves).[25] The NDRC reviews large outbound investments to ensure they align
with the country’s political interest and overall economic development policy.
In addition, CBRC and SASAC also play an oversight role. Risk management guidelines issued by the CBRC in
2008 opened the door for Chinese banks to provide loans for merger and acquisition purposes (previously
forbidden under a 1996 regulation.) They require “banks to perform due diligence regarding
compliance, operational, and commercial risks relating to the parties and the
transaction.”[26] MOFCOM, CSRC, CBRC and PBoC have all worked with MEP to formulate relevant

19. Environmental and Social Standards
for Foreign Investments
Domestically, strengthened environmental and information disclosure standards
Internationally, Developing guidelines for overseas lending and investments
China’s Emerging E&S Standards for Banks & Enterprises’ Investment
2007 2010
2008 Proposed
2004 China ExIm significantly
Landmark Open Guidelines
Brief environmental expands
Government for Environmental
guidelines by China environmental
2007/2008 Information Practices in
ExIm: guidelines
Corporate Regulations and Foreign
Impact assessments/ Measures for
China adopts a Green social Investment
monitoring/project Environmental
Credit Policy responsibi Activities
impacts Information 2012
review required restricts lending to polluting lity of Chinese
Introduced new
guidelines Disclosure went Enterprises, requiri
Companies Green Credit
issued into effect ng
2005 for banks compliance with Guidelines, calli
Guide on Sustainable ng for improved
China and Industrial Bank Chinese and host
Overseas management of
Development state-owned became the first country laws, greater
Silviculture by Chinese environmental and
Bank states it has enterprises Chinese Equator transparency,
Enterprises social risks.
an Principle financial community
introduced standards for
environment institution consultation, and
activities in forest
policy ecosystems grievance
mechanisms
2004 2005 2007 2008 2010 2012

20. Topics
The Changing Global Landscape
4
China Goes Global: OFDI & Bank
Lending
7
Regional Example: China in Africa
15
Sustainable Financing
17
WRI’s Work & Influence Strategy
19

21. WRI’s Work
WRI’s work on emerging actors in
development finance is led by the
International Financial Flows and the
Environment objective. The goal of this
research is to improve the
environmental, social, and climate change
policies that govern emerging actors’
investments, and to ensure that local
communities and civil society
organizations impacted by the
investments are able to engage with
“emerging actors” more effectively. This
preliminary research focuses on Chinese
and Brazilian overseas investments and
begins to look at the growth drivers and
geographic trends of those investments.

22. A WRI Influence Strategy
Three-linked Influence Strategy
Engage policymakers to develop
environmental and social guidelines to
Investor govern overseas investments.
Country Engage companies and financial institutions
(China & to develop and implement environmental
Inform and social risk management policies. Create
Brazil) enabling
decision-
makers of Strategy Build the capacity of local civil society conditions
potential organizations to create demand for stronger for local
environme environmental and social guidelines. communiti
ntal and Enhancing the roles of emerging actors in es to raise
social Internationa international and bilateral investment concerns
impacts on l Strategy standards setting directly
the ground with
Host Work with host country governments and decision-
local civil society organizations to facilitate makers
Country stronger environmental and social
Strategy performance among foreign companies