China’s Green Investment in the BRI Countries: The Case of Turkey

This essay is part of the series “All About China”—a journey into the history and diverse culture of China through essays that shed light on the lasting imprint of China’s past encounters with the Islamic world as well as an exploration of the increasingly vibrant and complex dynamics of contemporary Sino-Middle Eastern relations. Read more ...

China is engaged in the use, production, and export of green technologies. As a part of this policy, China is extending its commitment to green technologies to its Belt and Road (BRI) partners. This article looks at China’s role in Turkey’s green transformation.

China’s Green Turn in Finance

Three decades of rapid industrialization and modernization in China came at the cost of massive environmental degradation.[1] China is repeatedly accused of contributing to global environmental degradation and climate change since its opening up triggered tremendous economic growth. Contrary to the previous trend, China lately appears to be championing the production and use of environmentally friendly technologies. Currently, the Chinese state engages in bilateral deals within the framework of the Belt and Road Initiative (BRI) to increase the financial value of this technology. A recent report on technologies of carbon emission reduction discusses the Chinese existing and potential investments in the BRI countries  This article will evaluate China’s claim of implementing and spreading environment- friendly technologies with a particular focus on Turkey. The article will also critically assess how Turkey responds to China’s proposal of green investment.

China had a period of rapid industrialization and urbanization during which it disregarded the norms of environmental protection in order to facilitate accelerated development as a late industrialized country. In this period, the Chinese state often criticized the international norms on environmental protection, claiming that these normative regimes are an instrument to constrain the development of the latecomers.[2]

The change in China’s attitude took place in a two-stage process. In the 2000s, the environmental protests became an issue for the government despite that they were mostly “not in my backyard” type protests. China survived this phase by forcing the local government to include environmental protection in their performance criteria, and by enlisting, if not coopting, the local environmental NGOs in the development of the market for environment-friendly technologies.[3] Relatedly, the understanding of environmental protection changed from keeping private corporations or state-owned enterprises with polluting facilities responsible in a systemic way, to coping with environmental issue individually by changing lifestyles, as in the case of carbon footprints.

As a part of the cooptation process, the state transferred environmental protection projects to NGOs and the private sector. This transformation has created a niche industry for privately-owned consultancy firms that develop and implement environment-friendly technologies. Consequently, environmental pollution was reduced and the state was relieved of its responsibilities on environmental protection.

China's struggle with environmental protection has recently reached a third stage. As a global economic player, China is now reinventing itself as a constructive actor in environmental issues, global warming in particular. The BRI, a regional integration project started in 2013, consists mostly of transportation and energy investments. The project has been criticized since the carbon emission levels of the BRI projects are drastically high and they contribute to global warming.[4] Lately, China has taken steps to align its domestic and BRI investment goals with the needs of green economy. Besides, China is a vocal advocate of the Paris Climate Change Agreement.[5]

There are political and economic factors behind China’s change of policy. Politically, China’s economic rise requires a more prominent diplomatic presence in the international community. China is investing in its soft power in addition to its economic and military power. Advocating and promoting a set of normative ideals  such as environmentalism is a timely intervention in international politics when the current US administration seems to be turning away from liberal institutionalism that set of values. In this context, China lending full support to the Paris Climate Agreement is only as surprising as the United States withdrawing from it. A tide shift is in the horizon.

Economically, China has not volunteered its support for the fight against climate change solely to promote environmentally friendly values. While its support for the Paris Agreement earns legitimacy in the international community, China concurrently has become the primary producer of the most profitable fields in green technologies. The green technologies include wind, electric cars, and waste recycling, decontamination of rivers and seas. China’s share in these sectors is more than the sum of both the United States and European Union.[6]

Green investment has also created its own financial markets. Green bonds yield the highest return rates. China “is now engaged in this global green finance field, claiming that green financial markets will encourage private investors to invest in environmentally friendly technologies.[7] However, environmental protection and economic growth may conflict with each other. The negative outcomes of green investment for environmental sustainability include the subsidiary sectors and supply chain of the so called green technologies contributing to, rather than preventing, global warming.[8]

In other words, experts suspect that green investment serves the purpose of creating new investment fields. For example, the Bank of China announced that they are considering incorporating “clean coal” among the technologies that green bonds can fund,[9] which defies the purpose of environment-friendly capital accumulation. Besides, premier Li Keqiang reiterated the centrality of coal for China’s energy production after the New York summit ended.[10] Trump has also embraced the concept of non-hazardous coal energy while disagreeing with Xi on all other issues.[11]

China, most of whose foreign investments are in coal mining, will now sell carbon emission prevention technologies to the countries in which it has invested. Being a “green power” is already on the conditionality list for BRI Middle Eastern partners.[12] There were two major developments that took place on the eve of the annual summit of the BRI in 2019. First, the Chinese bank ICBC's Singapore headquarters launched its first “green bond” of $2 billion in April 2019, the revenue of which will be used in BRI countries.[13] The second was a public opinion poll in the BRI countries that receive foreign green investment. The survey revealed that Turkish public opinion finds foreign-produced green technologies more reliable than domestically produced ones.[14]

Two weeks before the Climate Change Summit held in New York, the Center for Finance and Development affiliated with Tsinghua University, known for its direct impact on Chinese public policy-making processes, issued a report titled “Decarbonizing the Belt and Road” in collaboration with Vivid Economics, a UK-based environment consultancy and the Climateworks Foundation, a US-based philanthropy organization. The report suggests concrete steps to reduce carbon emissions and form a “green financing line” along the BRI countries. It also invites potential stakeholders and partners from international organizations, from the UN to private companies to support the scheme.[15]

The effectiveness of the report is certainly contested. The fact that it is supported by a British environmental consultancy and an American philanthropic organization may seem to be an attempt by the international community to pressure China. This report is a follow-up of the closing roundtable on sustainability and green investments at the closing of the Belt and Road Summit. Besides, Vivid Economics also provides consultancy on environmental issues to several BRI countries, including Turkey.

Tsinghua University, located in the capital city of Beijing, is one of the most important technical universities in the country, but is also one of the prominent universities in the field of public administration and political economy. This institution, which had a direct impact on decision-making, especially during the current period, is also the university that Xi Jinping graduated from. Vivid Economics, one of the organizations which supported the report, is working with Turkey's Ministry of Environment. Hence, we may conclude that these intermediary institutions conduct bilateral diplomacy. Turkey and China, two of the three countries the company advises, are also involved with the BRI projects. Other countries such as South Korea, Mexico, Brazil, and Australia also have strong economic ties to China.[16]

Such a network increases the applicability of the report. The report is a sign of certain tangible steps China would eventually take. The next section will discuss the applicability of China’s policy proposals for the BRI countries in the short run.

The Green Turn in Sino-Turkish Relations

In response to the criticism raised against increased carbon emissions of the BRI projects and in order to find new financial markets, China turned towards producing and selling environment-friendly technologies. China, at this stage, being one of the foremost promoters of the Paris Agreement, shows indications that it will impose a reduction of carbon emissions on the countries to which it promised investments through the Belt and Road Project.

Turkey had declared its intentions to take an active part in the BRI projects early on by being a founding member of the Asian Infrastructure Investment Bank (AIIB), which administers the funds of the Belt and Road Project under the strong influence of China. However, later on, Turkey failed to develop tangible proposals to benefit from the BRI capital. This is partly due to the tumultuous relationship between the two governments in recent decades as well as the inability of the Turkish bureaucracy that is embedded in the EU structure to develop policies outside of it.[17] The current Turkish government aims to make its presence in the Belt and Road Project summits more visible. In the meantime, Chinese investments in Turkey have visibly scaled up, notably in the field of energy investments.[18] Recently, the Turkish government also received financial aid from China.[19]

Despite the ups and downs in the bilateral relations, Turkey seeks to attract Chinese investments specifically in the field of energy. These investments, however, involve technologies that would increase carbon emissions, such as coal thermal power plants.[20] Presently, China too demands transition to green technologies, from the countries in which it has investments.         

Turkey is dependent on foreign investment credits for large-scale investments in the field of energy. As Europe shifts from technologies of high carbon emissions to environment-friendly technologies, Turkey’s investments are on the brink of becoming “dead investments.”[21] Credits, hitherto coming from European countries and international institutions, such as the European Union, are now in decline due to the EU’s sustainability policy for sustainability and Turkey’s shortcomings in its projects regarding the issue. Turkey has failed to obtain the capital needed for a shift to green technology from Europe since it has not committed to adapting its regulations to the EU framework. Turkish industry does not have the capacity for conversion to green technologies without state support and the current government announced on multiple occasions its unwillingness to offer subsidies.[22] The Turkish government approached China for the initial lack of conditionality in China’s energy investments within the BRI framework.

Turkey has had green investments for a while now. Investments for renewable energy and other sustainable technologies are mostly done by EU-based funds such as the European Bank for Reconstruction and Development, the French Development Agency, Global Environment Facility, and the Climate Investment Fund.[23] The Turkish government wants to benefit from the UN’s Green Climate Funds to switch to green technologies, and it has not allowed the ratification of the Paris Agreement, to which it is a signatory, by the Turkish parliament until these funds are secured.[24]

As for green financing, several banks have credit plans for small and medium scale enterprises since the acceleration of preparations for the Paris Agreement after 2012. Despite this, there has not been an increase in the usage of renewable energy technologies in Turkey in comparison to other countries in the EU area.[25] The reason for this is insufficient infrastructure and deficient regulations that would dissuade investors. For example, business models using alternative energy began to increase profits slower than those with carbon emission. Moreover, purchase guarantees in Turkey are not good enough to prevent investors from going bankrupt. Furthermore, Turkey needs to make its electric networks compatible with alternative systems such as wind energy and to install power distribution units close to natural resources.[26]

Turkey has approached China for its unconditional approach in its investments. However, Turkey is among the Belt and Road countries that China wants to decarbonize in accordance with its newly-forming policy. Regarding the feasibility of the solutions proposed in the Tsinghua report, sustainability risks are higher for countries that are not ready for transition to a carbon-free policy agenda.[27] Turkey is considered among those countries, with its existing fossil fuel-based investments and its repetitive failure in meeting its targets for reducing greenhouse gas emissions.

In order to prepare Turkey for green investments, China has to come up with a series of proposals that could overcome these structural drawbacks. Besides transfer of green technologies, an investment proposal that would support Turkey in monitoring and evaluation processes can increase Turkey’s motivation. The Tsinghua Report mentions this necessity, but whether its suggestions will immediately translate into concrete proposals remains to be seen. Similarly, the inertia of the bureaucratic institutions and financial markets in transitioning to green economy remains a hindrance.

The same obstacles and concerns are also valid for the other BRI countries. When China wanted to launch the Eurasian railway corridor, it faced the similar regulatory and infrastructural problems. That is the reason those railways still do not operate at full capacity.[28]

Funneling great amounts of money may not be enough to implement green investments, as in the case of the railways. China, or a UN-sponsored platform as China suggests, must first work to harmonize the regulations in the Belt and Road countries. Legislative compliance evokes the example of the EU. Regionalization practices that prioritizes a transnational organization’s regulations over domestic ones is against China’s non-intervention principle. China has repeatedly underlined that it is against a regionalization process that would intervene in the domestic affairs of the member states.  The Belt and Road Initiative is not a regional organization in this sense, but rather a flexible and open-ended network-building process. It remains to be seen what China’s attitude will be when the carbon emission reduction target conflicts with this foreign policy principle.