African leaders will soon travel to Beijing to participate in the upcoming Forum on China-Africa Cooperation summit, which will begin on September 4th. Many of those heads of state will arrive in the Chinese capital with a rather long wish list of infrastructure development projects they’re hoping to pitch to Chinese financiers.
Many of those initiatives will be focused on energy generation and distribution, particularly renewable solutions that are more affordable and easier to deploy.
Shuang Liu, China finance director at the World Resource Institute’s Climate Economics and Finance Program, and Li Shuo, director of China Climate Hub at the Asia Society Policy Institute, are among the world’s foremost experts on Chinese energy finance. They join Eric & Cobus to discuss what African leaders must do to align with China’s new overseas development finance priorities.
FOCAC Briefing Reports:
- The China-Global South Project: China’s Agenda at FOCAC 2024 by Cobus van Staden
- The China-Global South Project: Africa’s Priorities at FOCAC 2024 by Cobus van Staden
Show Notes:
- Standard Bank: China’s renewable energy interest in Africa by Jeremy Stevens and Simon Freemantle
- The China-Global South Project: Empowering Africa: How Host States Can Influence Chinese-Supported Power Projects by Naa Adjekai Adjei
- The China-Global South Project: Why Green Energy Will Likely Feature Prominently at FOCAC 2024 by Cobus van Staden
About Shuang Liu and Li Shuo:
As a Senior Associate at the Sustainable Finance Center, Shuang Liu leads the Center’s work on China finance and the Belt and Road Initiative. With governments, private financial institutions, NGOs, and other partners, she works to enhance the regulatory framework and provide enabling conditions to shift China’s investment to sustainable finance。 Prior to WRI, Shuang directed the Low Carbon Economic Growth Program and Long Term Strategies Taskforce at Energy Foundation China. In this role, she oversaw the development and implementation of the foundation’s strategies for climate mitigation and economic transition. The portfolio she constructed and maintained covered research and convening activities to advise the Mid-Century Strategy development process, national and regional carbon markets design and practices, fossil fuel subsidies review and reform, and green finance frameworks. Shuang has worked at Greenpeace East Asia, where she developed Greenpeace’s first coal campaign strategy in China. The True Cost of Coal report she worked on with leading economists and environmental groups generated many discussions with the striking finding of external costs of coal in China. Shuang has also worked for consulting firms to assess greenhouse gas mitigation opportunities for private sector clients and government agencies.
Li Shuo is the Director of the China Climate Hub at the Asia Society Policy Institute (ASPI) and a Senior Fellow with ASPI’s Center for China Analysis. His work analyzes China’s environmental and energy policies and supports the international community’s engagement with China’s climate agenda. Li Shuo has over a decade of experience in United Nations environmental negotiations, including climate change, biodiversity, ocean, plastic pollution, and ozone.
Transcript:
Eric Olander: Hello, and welcome to another edition of the China in Africa Podcast, a proud member of the Sinica Podcast Network. I’m Eric Olander, and, as always, I’m joined by China Global South’s Managing Editor, Cobus van Staden, joining us today from beautiful Cape Town, South Africa. A very good afternoon to you, Cobus.
Cobus van Staden: Good afternoon.
Eric: Cobus, we are just a few days away now from the 9th Forum on China Africa Cooperation that’s going to take place in Beijing. This is a summit this year, so we’re going to see lots of heads of state coming to town. Ministers will be in town. And around the FOCAC, there’s going to be a lot of activity, lots of events are going on, lots of young people are getting together. It’s just a wonderful event to be at. I’m disappointed that we’re not able to go this year because there’s just so many cool people getting together to talk about China-Africa. Now, Cobus, you have been writing all month for us, and we’ve been doing shows all month, talking to various scholars and analysts and stakeholders as to what they’re going to expect at the upcoming FOCAC in terms of topics and themes.
We actually haven’t put the question to you on the show, but you answered that in a column that you wrote on our website, why green energy will likely feature prominently at FOCAC 2024. So, you are forecasting that solar and renewable energies and distributed power are all going to be very, very important topics that are going to be discussed among the leaders and the ministers and all those young people that are there. Why do you think green energy in particular is going to stand out this year compared to previous FOCACs?
Cobus: I built my argument around a few big trends. One is that China’s global leadership in green energy technology. I think is really unassailable at the moment. I think China produces about 80% of the world’s solar components, and so there’s huge supply on the Chinese side. At the same time, a lot of these companies are facing political constraints in the traditional markets in the global north that China’s focused on. So, we are already seeing a lot of rumblings about possible tariffs on both solar products and electric vehicles coming from China in Europe and the United States. So, what we’ve seen as they face this kind of political pressure in the global north, many of these companies are pivoting to the global south, so there’s double supply. There’s both political alignment for this and commercial alignment.
At the same time, on the African side, I think there’s huge demand. About 44% of Africans don’t have access to electricity, and even those that do, frequently don’t have access to long 24-hour stable electricity. And Chinese actors are not only in the generation side but also in the grid side, the transmission side. Chinese actors are world leaders. So the demand and the supply align. And at the same time, a lot of this also fits into the budgetary financing goals that was set out, for example, at the Belt & Road Forum in October last year, which was one of the moments when it was made clear by Chinese leaders that what they’re really focusing on is what has come to be known as the small is beautiful funding model, with shorter repayment windows, smaller project sizes, and mixed finance models that tend to not load these countries with too much sovereign debt.
All of these factors are aligning, I think, to really putting green energy at the center of the FOCAC conversation.
Eric: And just to be fair here, it’s not just those economies in the global north that are thinking about putting tariffs on Chinese solar panels. Your government as well, Cobus, in South Africa is also thinking of putting tariffs on Chinese solar panels. So, that’s not uniquely a global north thing?
Cobus: No, it’s not uniquely global north, but I think the motivations are somewhat different in the global north and the global south. From what I’ve seen, the tariffs in global south countries are frequently aimed at trying to nudge a form of French shoring, where China moves some of their manufacturing to those countries. Whereas in the global north, it’s frequently aimed at trying to ringfence some of their own industries.
Eric: And very quickly, because we have just two fantastic guests that I want to get to today, you wrote in your column, “if China doubles down on both energy provision and renewables related training,” and that training component’s very important, you went on to say, “it could position itself, China, as a unique partner to a continent blessed with a unique youth wave and renewable energy potential.” What’s the role of training in all of that?
Cobus: Well, there’s this very interesting initiative, which a journalist friend of mine alerted me to, and it’s a Confucius Institute at the University of Venda in the northern part of South Africa, which is both a Confucius Institute and a green energy technology training center. So, the combination of the two was interesting for me. And I think we’ve already seen both government and private sector actors in China really leaning into training as a form of public diplomacy. And we are seen more green energy-related training starting to move in there. I think there’s this massive potential there for a double whammy because there’s this huge demand on the African side for both skills transfer and green energy itself.
So, not only the generation capacity, the networks, and so on, but also helping Africans to actually do some of that work themselves. And I think that is really two holy grails, I think, for Africa combined. And if China steps into that space, that will really position it as a unique partner, I think, to the continent.
Eric: Okay, Cobus, let’s dive into some of the issues that you have raised, both in terms of China-Africa energy training, what’s going to happen at FOCAC. And I am thrilled to have two of the best people that we could find and who are available out there to talk about this with just oodles of experience. Shuang Liu is the China finance director at the World Resource Institute’s Climate Economics and Finance program where she leads the center’s work on Chinese finance and the Belt & Road initiative. Shuang joins us on the line from Beijing this evening. Shuang, welcome to the show. Wonderful to have you on the program.
Shuang Liu: Thanks, Eric. I’ve always been a huge fan. So glad to be on the show.
Eric: It’s wonderful to speak with you and really looking forward to hearing your insights. And we’re also joined, from Li Shuo, who is the director of the China Climate Hub at the Asia Society Policy Institute in Washington, D.C., and was kind enough to get up very early in the morning to join us as well. A good morning to you Li Shuo.
Li Shuo: Thanks very much, Eric. Like Liu Shuang, I have been a long-term listener, so good to be on the show.
Eric: Welcome both of you, and thrilled to have this discussion, a very timely discussion given everything that’s been going on in the changes with the BRI and the upcoming FOCAC. Shuang, let’s start with you. Cobus expects green energy issues are going to be a major topic at the upcoming FOCAC Summit. You are in Beijing. What are you hearing in terms of the buzz that people are talking about, and what are you looking out for when it comes to China Africa energy issues?
Shuang: Yeah, I have a long list of my expectations. So, I’m going to just share some of the key priorities that we are looking into. We’ve heard in talking about renewable energy projects in China’s investment in those in Africa, I’ll argue that the Chinese investors are now going to be different from the other foreign investors who they’re looking at the renewable energy opportunities in Africa. Where to find bankable projects is probably one of the most important questions for the investors to answer. So, on the side of FOCAC, we actually are working with some of the partners to look at what kind of bankability criteria that the Chinese financial institutions could probably share and have a more coherent way of looking at the project development and projecting the pipeline for Africa investment. That’s the first thing.
Eric: I’m sorry, can you be a little specific as to, when you mean bankability, what do you mean by that? What does that translate to?
Shuang: Of course. Bankability means for financial institutions to look into what kind of projects they can invest into, there are certain criteria that financial institutions will use. For instance, the profit, the maturity of the return, and also the duration of the cash flow, whether that’s enough to pay back for the financial institutions. At this moment, many of the financial institutions, when they are looking at renewable projects in Africa, they’re using very different, so-called bankability criteria. That means for project developers on renewable energy, ones in Africa, they have to work on different proposals to fit into the bankability criteria that different financial institutions can use.
So, what kind of a coherent approach on matters that financial institutions can share in looking at the bankability of projects in Africa, that can solve a lot of the lack of bankable projects that’s perceived by international investors, including those from China.
Cobus: Shuang, I wonder if you could give us a bit of an idea of what are some of the biggest barriers to these funds flowing to African projects? In the past, other stakeholders we’ve spoken to have mentioned, for example, the issue of a pipeline of bankable projects being driven by African stakeholders as one of the problems. I was wondering from your perspective, what are some of the barriers that are holding back some of this finance?
Shuang: Yeah, and Cobus, you mentioned, and Eric was also highlighting the small and beautiful principle that we keep hearing from the Belt & Road summit last October, and sounds like that will be another thing to be highlighted during FOCAC. I do think that one of the biggest barriers to look into those smaller projects is for large financial institutions, the transaction cost of investing in smaller projects are so high. And by transaction cost, I mean for financial institutions, when they’re looking at five bigger projects versus five smaller projects, they are taking the same efforts, individual projects. They spend the same time doing, well, not necessarily exact the same time, but they spend similar amount of time looking at the project criteria and also doing the due diligence talking to their clients.
So financial institutions are very much incentivized to look at larger projects because that’s more efficient for them. One of the barriers to really facilitate the financing into smaller projects with not just the climate benefits but also a lot of the social benefits is how can we aggregate some of the smaller projects and to make it easier, more accessible to be considered and to leverage large funding from financial institutions. I know there are many efforts looking at this in Africa. And probably one of the opportunities to look into is how to match those efforts from the supply side, which is the financiers in China and also the side, which is the project developer and also the project aggregators in Africa.
Eric: Li Shuo, Shuang and Cobus have been talking about all of this in the context of Africa. Let’s pull that focus back a little bit and contextualize what you’re hearing into a global setting. How much of what we’re seeing happen in Africa are these issues in an African context apply to what China’s doing in other parts of the world?
Li Shuo: Sure. Eric, I think that’s a great question. I agree with what Cobus said at the very beginning. There’s actually quite some opportunities for China to further help other countries in the world, in particular in the global south in their decarbonization and energy transition forces. And this is based on a simple fact which is China is really now the powerhouse of renewable energy. It produces, manufactures, and invest heavily when it comes to wind or solar electric vehicles and energy storage technologies. So it has all the commercial interest to expand across the globe. And hopefully, by doing so, it will help other countries decarbonization forces. So, I think that’s a big trend that will be there for the years to come. This will definitely apply to many of the African countries, but also in places like Southeast Asia and elsewhere.
I think the other thing that I want to add here is if you look at the green renewable energy development on the African continent, it’s important to go back to what China committed a few years ago. In fact, in 2021, the Chinese president committed, in a pretty high-profile way that year, to not support overseas coal fired power plants anymore. And in the same commitment, he said China will help and ramp up his effort to help other developing countries to deploy renewable energy. Just looking at that announcement in retrospect, I think now is quite interesting that the commitment to not support coal has largely been fulfilled. We used to think, a lot of environmental complainers used to think that’s really hard for China to commit to because China still had, up until that commitment was made, a lot of commercial interest in developing overseas coal fired power plants.
But now that announcement has been made, it turned out the more difficult part is the second part of the Chinese commitment, which is to scale up renewable energy elsewhere. And the difficulties lies in exactly what Shuang just explained. It’s just intrinsically difficult for many of the green renewable energy projects in particular in the global south to receive finance. Renewable energy also works in a more complicated way compared to a large-scale coal-fired power plant where a hydro plant requires a lot of supporting infrastructure. It’s intrinsically smaller in scale, so you need to bundle them up for easier finance. And I think that’s what we’re dealing with now.
Now that China has committed to now support green, how do you move them to green? I would say here it’s also very important to recognize that to not support coal. It’s just a one side commitment that you need from China. But to scale up renewable energy, it takes at least two sides to tango. I think many African countries also have a huge responsibility to build the enabling environment, both in terms of the physical infrastructure they have in their countries, but also the policy framework to ensure investment return.
Eric: Cobus, can I bring these two issues that Shuang and Li Shuo have laid out and drop it at your front door? And I’m going to say something that I don’t think is politically correct in the climate community — Africa as a continent has contributed less than 3% to global climate emissions, and yet, as Li Shuo and Shuang have laid out, Xi Jinping said no more coal financing. And for a country like South Africa and for Zimbabwe, which is blessed with huge amounts of coal, that was a blow to the knees for them because they have massive energy deficits yet abundant coal.
So, as Li Shuo also pointed out, and as we’ve heard from Shuang, ramping up solar to the point where it can fulfill some of those or fill some of those energy deficits is going to take a long time. So then Africa, in countries like Zimbabwe, are getting screwed again because they don’t get the energy that they need in order to industrialize their economy. So they’re getting penalized for the fact that they didn’t cause this climate crisis and now on the solutions are holding them back from moving up the value chain and industrializing. What’s your take on that?
Cobus: I mean that is certainly the line that some South African and Zimbabwean politicians have taken. To a certain extent, I can see where they’re coming from, but at the same time what they’re leaving out of the equation is the huge numbers of coal pollution-related deaths and illnesses that also stalk these countries. South Africa, for example, has very large rates of asthma, for example. And we also see that the larger kind of environmental impacts of coal burning, particularly the non-captured coal burning that’s happening in South Africa is ruinous. A friend of mine lives quite close to a very large coal fired station, and the roofs in her town, the corrugated iron roofs in all of the houses of our town are rusting through because of the acid rain.
So, that kind of industrialization is not without its victims. But at the same time, in South Africa, about a hundred thousand jobs depend directly on the coal industry, and then another a hundred thousand depend indirectly on it. So, one can see why this is politically so tough, particularly in a country with such unemployment. The challenge is to try and use skills transferred to try and get some of these people to also work in renewable sector, but that is a very steep challenge. And Shuang, I actually wanted to ask your opinion. In the intervening years since the last FOCAC Summit, we’ve seen the coming to prominence of the Just Energy Transition partnerships between G7 countries and some global south countries, including South Africa.
And part of that, there is a budget allocation in some of those deals for the Just aspect of that transition to try and re-skill populations and to try and kind of buffer that impact of removing coal from the economy. I was wondering what you thought of how that’s going and more broadly how you see China’s engagement around these issues in the context of just energy transition partnerships?
Shuang: Yes, Cobus, I think you might have much better answer than me being sited in Africa. I have heard a lot of, and I think probably because of we don’t have that much time to build energy access that we need all to tackle the climate crisis. But there’s some upset I’ve heard about how slow the money has been mobilized under the JETP program, both in South Africa and Indonesia. That’s not just the fall when you have highlighted of the Just element of JETP. But even for, to build more renewable energy and also to build projects on transmission lines and, of course, to retire coal power station earlier than the timeline, well, earlier than the design.
I do think that China should learn from the process of JETP. And we’re talking about the components of coal early retirement, accelerating grid by investment, and then how to take into consideration of the Just component. I do think that China has some experiences it can share. And I myself from a region in China that has suffered from a lot of the transition, away from carbon-intensive industries and also some of the oil industries, there were certainly lessons learned in China of how to take into consideration of the community, the jobs that will be seriously affected. I think this is probably something as important as, if not more important, than just leveraging the funding from China. The knowhow, the lessons learned and what has been done well could also be shared in the collaboration between China and Africa.
Eric: Li Shuo, let’s pick up on that. You’ve talked about the policy frameworks in developing countries specifically in Africa. Shuang just talked about, again, understanding the changes that have happened in China and their financing of small is beautiful. How well do you get a sense that countries in Africa and elsewhere have understood the changes that have taken place in China? And I don’t mean that in a condescending way, I mean it in a way that it is very difficult to keep track with everything that’s been going on in terms of the Chinese policy framework. And we’ve been tracking, over the past couple of years, that China literacy in Latin America, in Southeast Asia, and certainly in Africa is lower than it should be where we are. And so can you talk to us a little bit about how well prepared do you think developing countries are to engage China, talking about bankability, talking about these policy frameworks in terms of their knowledge of where China is today?
Li Shuo: Well, look, Eric — look, I’m sitting here in D.C. and I can tell you the China understanding when it comes to very nuanced topics is not as deep as it should be.
Eric: So, it’s not just a global south problem. This is also a G7 problem too.
Li Shuo: I would say so, but look, I think for many global south countries, the key takeaway that they need to have is, number one, China will continue to be a major power when it comes to renewable energy deployment and manufacturing. Number two, indeed, as Shuang has already talked about, there has been a very tremendous transition on the Chinese side when it comes to the valid and relative initiative, or just in general is overseas infrastructure development to pivot from quantity to quality, to follow more on commercial terms. So, you know, the initial phase of the BRI emphasizes on a lot of high profile large scale projects, really on numbers as opposed to quality on the environmental sustainability, financial viability of those projects.
And that phase is over. I think the implication of that to many global south countries is they now have a heavier share of responsibility to make the investment case to China that they are good places for those investment for Chinese businesses to go there.
Li Shuo: I think the ball now is more on the court of the global south countries. And in our case, many African countries. And just on the JETP issue, just very quickly, I think it is a very good development, in fact, because when it comes to many of the global climate-related conversations over the last decade or so, I have certainly observed a pardon where many industrialized Western countries have been sitting on the sidelines. They haven’t got their own enhanced [inaudible 0:22:49] when it comes to supporting and help actually develop low-carbon infrastructure projects in Africa. And JETP is a great step toward that direction. It is finally many investing countries trying to get together to try to come up with real solutions for South Africa, for Indonesia, for countries like Vietnam.
But I think what the flaws of JETP has highlighted to me is, really, this is just a very difficult undertaking. It’s difficult for China, it’s difficult for Western countries. And there’s a lot that all these countries need to learn in this endeavor. And they can share experience, they can learn from each other, and they can perhaps, in some areas, work together, work with each other to help countries like South Africa to accelerate their energy transition.
Shuang: In terms of understanding China, I will argue that in terms of the investment renew, renewable energy projects in Africa, there is a China that’s investing in green renewable energy. We’re talking about a group of various shareholders who are involved and engaged in renewable energy initiatives in Africa. Cobus has been talking about the capacity of the training program in green renewable energy. I have been talking to several entrepreneurs, the Chinese entrepreneurs who have been actually working with the local technical and the vocational education and training institutions in Africa to build the curriculum and also to ship some of the model and the other equipment that’s needed to train local students on solar PV assembly and the other parts.
Those are very different from, let’s say, the China Development Bank and Exim Bank, who are the large financial institutions also investing in renewable energy initiatives in Africa. And there are also those that the EPC contractor that’s basically who are designing and constructing projects in Africa. So, we have to pay attention to very different interests and behave in the motivations of this diversified group of the Chinese investors and stakeholders. And also to take China and Africa collaboration on renewable energy in a global context. I do think one layer of the understanding Chinese investment in Africa in renewable energy, it is to look at how the Chinese investors are working with the other foreign investors in Africa. I can take one example of a solar PV project in Aswan in Egypt. That’s the Benban solar PV project in Aswan, Egypt, of 50 Megawatts.
Yes, we’re looking at the Chinese investors, that’s the industrial and commercial Bank of China, a commercial bank. There are Chinese contractors as well as the Chinese corporates who are the equity investors. There are also European bank for reconstruction and development who are joining ICBC, the Chinese commercial bank in lending loans to this project. And the loan is guaranteed by the Multilateral Investment Guarantee Agency, which is MIGA, hosted by Word Bank to provide guarantee for those type of infrastructure projects. So for Africa’s benefits, how to leverage this collaboration and for the Chinese as well as the other international investors to co-fund, to share the risks, to join and to enjoy each other’s projects in the pipeline, I think that will be able to leverage a lot more opportunities than just looking at investors individually into those single projects.
Cobus: Just following up on that, Li Shuo, you are in Washington, and, for a long time, the political climate in D.C. and other western capitals have not been very friendly to this kind of collaboration. Do you foresee in the next while, say, for example, Kamala Harris wins the U.S. election, do you foresee a friendlier environment for that kind of trilateral cooperation, specifically focused on the global south?
Li Shuo: That’s another great question, Cobus. In the very short term, the answer is no, unfortunately. We have a pretty clear sense that the very competitive spirit between the U.S. and China is definitely getting into the way of things like trilateral cooperation. The U.S. and China cooperating to support a third country in the global south in their decarbonization forces, I don’t think the political conditions frankly are there at this point in time. So, really, for the two countries to get close to that possibility, I think you do need a sort of a higher-level political reset.
There needs to be a new understanding, a new consensus between them. That in addition to the geopolitical competitions that they will have, there are areas where they can and they should work together. And the rest of the world is expecting them to work together, and doing so is in their self-interest. This new understanding needs to be re-established. And I think, again, to be frank, in the short term, that’s a very difficult understanding to be restored. I can also say that when it comes to trilateral cooperation, there seems to be a bit more space on the EU-China side. European countries working together with China, trying to complement each other in their respective projects or endeavor in global south countries.
But even that, I think political issues or geopolitics tend to make things more complicated. That said, I’ll still say I don’t know if this is the case for African countries, but for some of the Southeast Asian countries, I know for sure that different development partners, including China, including various European countries are working, and also Japan and Korea, they are working on different pieces of the decarbonization puzzle in those countries in Southeast Asia. So, at the bare minimum, you would think some level of coordination amongst those development partners would be needed just to make sure that their various strategies are coherent, they don’t step on each other’s toes, and their collective effort will deliver the maximum impact. That coordination, I think, needs to happen, and it is currently lacking.
Eric: Okay. Well, let’s step back after we’ve covered a lot of ground over the past half hour. Lots for us to think about. And I’d like to get both of your recommendations for what you would advise African government stakeholders, ministers who are attending FOCAC on how they can best approach their Chinese counterparts on energy issues. What is the message, again, that you think that Chinese stakeholders want to hear from African governments in terms of, and not just governments, corporate partners, civil society, and others? Shuang, let’s start with you. What’s the big takeaway? What advice would you give to African stakeholders who are at FOCAC when they’re talking about energy?
Shuang: That’s a big question. I do think that even though we are talking about FOCAC, but FOCAC is not the only venue, and it probably is, in terms of the real energy investment, it’s probably not the first venue to continue the conversation with the Chinese investors. I do think there are some initiatives where, for instance, there’s a lines of on the African and embassies in Beijing who have this regular round tables engaging Chinese stakeholders should be an initiative that beyond once in a while FOCAC convening to continue the conversation and to institutionalize matching the opportunity from Chinese side and Africa side. But on FOCAC itself, I will argue that some of the coordination that could be better conducted among some of the Chinese ministries, for instance, we’re talking about renewable energy projects, the Chinese embassy in Africa very often are in charge of developing certain projects, or at least identify some of the projects. And they will transfer the information back to the other ministries back in China. Some of better idea of how this information will transfer among different ministries to benefit Africa most in renewable projects is probably something that we can bring to the discussion at FOCAC.
Li Shuo: I would say, I mean for African leaders’ home base’s very concrete project proposal, home base’s explanation are making the case that the policy framework is there, where we’ll get there to support renewable energy. And I would also say, I very much agree with Liu Shuang, don’t take China just as one homogeneous bloc. Realize that, in addition to the state-backed apparatus, there is also a lot of private sector players. And this is particularly important for embracing renewable energy because a lot of the renewable energy players in China happen to be private companies. They’re not part of the state on apparatus. So, do realize their existence and do extend your outreach to those private sector players.
Eric: Li Shuo, Shuang Liu, thank you both for your time today and all of your insights. Shuang Liu is the China Finance Director at the World Resource Institute’s Climate Economics and Finance Program, where she leads the work on Chinese finance and the Belt & Road. And Li Shuo is the Director of the China Climate Hub at the Asia Society Policy Institute, and he joins us from Washington, D.C. Thank you both for your time today and all of your insights. It was great to have the chance to speak with you.
Shuang: Thanks everyone.
Li Shuo: I really enjoyed the conversation, and thanks, Cobus and Eric.
Eric: Cobus, the big thing that jumped out to me from the discussion with Shuang and Li Shuo is what we’ve been hearing all month from all of the different experts that it comes down to strategy. It comes down to understanding how to pitch the Chinese, the bankability that Shuang talked about, the policy frameworks that are accommodating to Chinese investors. Understanding that requires a lot, a lot of investigation, a lot of research, a lot of sophistication. It’s not easy. And that’s going to be my big thing that I’m watching is our African governments going to come to Beijing with plans and projects and initiatives that align with Xiǎo ér měi with the small but beautiful. Are they going to be able to do that? That’s the key thing. Will they have a strategy in order to engage the Chinese? And that’s, again, that’s been the consistent theme that we’ve heard all month.
Cobus: I mean, I really agree with that. What I’d also be looking at is, in addition to whether they their strategies align with these Chinese realities, is also, the big question for me is actually is also whether their strategies align with their own developmental needs. Are these strategies strategic in terms of really kicking off development in a targeted way? And also are they in alignment with their neighbors? Because frequently, particularly with electricity, we see already that there are systems in Africa for sharing electricity across borders. In theory there, it’s possible for countries with very high solar capacity, for example, a country like Namibia, for example, to be sending, to be basically be the Saudi Arabia of solar, to be sending solar energy across borders to some of its neighbors. Is it possible for African countries to really have very targeted developmental strategies based on green energy and then to make them integrated? Those are the other two questions that I’d like to ask as well.
Eric: Well, we focused most of our discussion on green technology and green energy. That’s certainly a part, but as we heard from both Li Shuo and Shuang is that they stopped financing coal, which was grand, in order to finance solar, which is green, but green is not on the scale of grand. Right? And countries like Nigeria, Angola, South Africa, they need big grand projects because they have a lot of people and a lot of needs to power. Let’s move away from some of the renewables and look at fossil fuels. The Chinese said they’re not going to fund coal power anymore, if I’m correct. And by the way, there’s a loophole in that. It’s coal power that’s connected to the grid. You explained to me that coal power that is off grid is still capable of being financed and still subject to being financed. Correct? So, if the Chinese want to build a coal power plant in country X in Africa, that is connected to a mine or powers a mine, that the China Exim bank can finance. Is that correct?
Cobus: As far as I understand, although I do think that the path to those projects are also narrowing. But as far as I understand, that was the way that some of those closed loop industrial power supplies that powered some of the nickel refining in Indonesia, those were passed.
Eric: Well, let’s talk about petroleum and oil and gas. Africa produces an enormous amount of unrefined petroleum oil. Oftentimes it has to ship that oil to other countries, then pay for that refined oil to come back using their precious foreign currency. And so the lack of refining capacity in African countries is a drain on the economy. China’s helping to build a refinery in Angola. The Dangote refinery came online in Nigeria earlier this year, if I’m correct. Refining capacity is still very important, and fossil fuel development is still going to be very important. At the end of the day, there’s a lot of cars and there’s a lot of homes and offices and factories that need to be powered through oil and gas. Is there a role for China, in your view, in financing some of the supply chain in the oil and gas sector?
Cobus: I think there is, but I think it’s increasingly a risky proposition. Obviously, African countries, I think for a lot of African countries, if they can move from coal to gas or from biomass burning to gas, that will be a lot cleaner option, and also a lot less carbon intensive, even though natural gas is still is carbon intensive. With oil, I think that would still be true, but at the same time, I think there’s also, I recently saw a projection saying that there is a huge oil glut coming. So, in that sense, just economically, I think African countries face the danger of being stuck with stranded assets down the line. And particularly around using oil to power cars, this is one field I think we may well see a more rapid transformation in Africa, more than say larger scale grid issues and so on.
Simply because there is such a… I think we are seeing the development of momentum to start importing more and more like small-scale EVs to Africa. In the medium term, that may well increase mobility while not necessarily threatening the largest status quo. In the slightly longer term, I think what we’re seeing is that there may well be the danger of African countries being stuck with outdated assets.
Eric: It’s interesting because I thought it was going to be the opposite here a little bit because our colleague Njenga Hakeenah just did a report on Chinese EVs starting to arrive in the market in Kenya. But the complaint from a lot of customers is the lack of a charging network. And that infrastructure for charging networks, by the way, is not unique to Kenya. It’s a problem in the United States, it’s a problem here in Vietnam. It’s a big problem. And apparently building an EV charging network that is large enough and robust enough, it’s a lot more complicated than it sounds. I mean, to me it’s just like, well, hook up some electric wires, plug it in, and you can have some banks and there you go. You’re ready to go. Apparently, it’s not that simple. What I was thinking was going to happen was that just like it is in the clothing sector, okay? Where the hand-me-downs get thrown to the poorest countries, the used clothing gets sent to the poorest countries, that the most polluting internal combustion engine cars are going to be sent to places like Africa while Europe, Japan, and South Korea and the United States, to some extent, go electric. And then they just dump their old-
Cobus: Well, that’s already happening.
Eric: But that’s right. That’s going to be the way it is for a long time.
Cobus: I’ve seen already worries being expressed both in Japan and in Europe about their very lucrative secondhand car selling business to Africa. What I was meaning more is like really small-scale EVs, the ones that you literally can just plug into a wall like bicycles, three wheelers. Those kinds of EVs, I think, will start increasing more rapidly. I think it’ll still take a while for electric SUVs, I think, to really arrive at scale because of the charging network problem. But it’s going to be very interesting to see how that goes because increasingly EVs are also a mark of modernity. We’ve seen that there is a strong kind of appetite for, once these kind of marks of modernity really take on a large scale prominence, that that creates its own demand. So, it’ll be interesting to see how African countries respond over the next five years or so. But I think in the short term, things like electric bikes or motorbikes, I think, are going to increase quite rapidly because they don’t need this kind of hard large scale charging infrastructure.
Eric: Okay, that’s a very good point. And I should know that myself. I have an electric scooter, an electric motorbike, and I charge the battery in my house and I just bring the batteries. And there’s battery swapping places around Saigon. I can bring it to charging places. So, we might actually see a development of a very robust two- and three-wheel ecosystem in developing countries rather than focusing only on EVs. And that might be where the secret goes. That’s the trick.
Cobus: I think so. And this week there was announcement that Chinese companies are going to be working with Pakistani companies to set up an electric bike factory that’s going to be focusing on electric bikes with swappable batteries. So, this kind of swappable battery model, I think, is going to become dominant I think.
Eric: Yeah, it’s absolutely fascinating. So, we are getting close to wrapping up our FOCAC preview. The summit’s going to take place the first week of September. We’re going to do one or two shows, we’re not going to go crazy on so many shows because I think there’s a little bit of FOCAC fatigue that’s starting to settle in a little bit. But if you are interested in FOCAC, and I say that because there really hasn’t been a lot of interest this year. In the first time that we’ve covered this in 15 years, Cobus, I am blown away by how little international news coverage, how the think tanks aren’t sending out policy papers the way they were.
There’s not a lot of buzz. We are just a few days away from this thing now and there’s not a lot of coverage of it. So, I’m very proud that the China Global South Project has been one of the few places that has been just robustly publishing lots of different opinion columns, podcasts, and then two incredible thought pieces and policy papers that Cobus wrote, which are available on our site. And they are just fantastic and they’re going to be linked in the show notes. This is looking at FOCAC from the point of view of Africans and looking at FOCAC from the point of view of Chinese. They are available on our site, they are available in the show notes. They are absolutely indispensable. And even after FOCAC, I think these are going to be reference pieces that people are going to use quite a bit in their dissection of what happens at these forums.
So, Cobus, congratulations on that. Fantastic work. I’m just so proud that we were able to publish these. And so just a reminder, again, the links to Cobus reports are in the show notes. And have also put a link to all of our coverage. And we’ve removed the paywall from our FOCAC coverage. So, if you go onto our site and you see a link for FOCAC, it is going to be outside of the paywall, free for everybody to use. But if you’d like to see everything else on the website, go to chinaglobalsouth.com/subscribe. Your subscription support the work that we do in the independent fact-based journalism that the team in Africa, Asia, and the Middle East is doing every single day. And we couldn’t do it without you.
And we want to give a very big shout out to all our Patreon supporters and those who are donating directly from the website, just as a heartfelt thank you to all of you for the support that you give, and it just means so much to us. So that’ll do it for this edition of the China in Africa Podcast. Cobus and I will be back again next week with another episode. For Cobus van Staden in Cape Town, I’m Eric Olander — thank you so much for listening.
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