Europe and the US keep investing in Chinese coal

In 2020, Southeast Asia was the region with the highest deforestation rates. The area is home to half of the world’s mangroves, which act as natural carbon sinks. These extraordinary forests are on the brink of irreparable degradation, in part due to the expanding coal industry. Southeast Asia is a hotspot of new coal power, with 71 GW in construction or being planned across Indonesia, the Philippines, Vietnam and Thailand. Chinese companies are among the drivers behind these new coal plants. These companies are not only bankrolled by China, but by financial players from all over the world.

COP 15, the United Nations Convention on Biological Diversity, will take place in October 2021, hosted online by the city of Kunming, in China. The talks’ goal is to achieve a ‘Global Deal for Nature’. This would bring governments together to fully protect 30% of the planet’s surface, and sustainably manage another 20%. As all parties reiterated at US President Biden’s climate summit, the same commitment to cooperation applies to mitigating climate change. At a national level, China seems to be playing its part: it has had a climate change law since 2007 and in 2020 President Xi announced China’s emissions will be carbon neutral by 2060. During the recent summit, Xi even promised that China’s coal consumption will reach a peak in 2025.

But China’s booming coal industry makes both goals a distant prospect. Producing and burning coal harms the environment, putting biodiversity at risk. Moreover, burning coal is still the largest source of CO2 and is responsible for about one-third of the global temperature increase so far. Coal still accounts for about 60% of China’s present electricity consumption and, with over 1,000 GW of installed capacity, China operates half of the world’s coal-fired power plants. In 2020, 38.4 GW of new coal-fired capacity was also commissioned. A further 247 GW is under construction or planned, representing 49% of the global coal-fired power plants under development. This is in stark contrast to the repeated pleas of the UN’s secretary-general Antonio Guterres that “no new coal plants should be approved”.

What is wrong is the common belief that the west is unable to change anything in China’s policies and has nothing to do with the direction of China’s energy production. It is well known that China is the EU’s largest trading partner; therefore, many European goods are produced using Chinese coal power. Less obvious are the global financial flows: even though China’s coal companies are mainly domestically funded, foreign financiers also support the Middle Kingdom’s coal industry. According to research by the non-profit Urgewald, 467 international financial institutions have financed Chinese companies listed on the Global Coal Exit List (GCEL), which tracks all businesses operating across the thermal sector.

One-tenth of the money that has flowed into the Chinese coal sector in the last two years has come from abroad. Forty-eight international banks have provided USD 21.7 billion for the Chinese coal industry. The lion’s share of this sum was provided in the form of underwriting, namely by issuing shares and bonds.

By far the largest foreign financiers are from the UK and the US. English banks such as HSBC and Standard Chartered have lent USD 5 billion. US banks such as JPMorgan Chase and Citigroup are close behind with USD 4.9 billion. Banks from Japan, Switzerland and France have also sunk over USD 2 billion each into the Chinese coal sector.

The highest sum was pumped into China Petrochemical Corporation (Sinopec). China’s biggest oil and gas company, which also mines thermal coal, received USD 4.6 billion from foreign banks. In a very recent exploration in March 2021, Sinopec found abundant flows of natural gas and crude oil in northwest China’s Xinjiang Uighur Autonomous Region. Three million metric tons of oil were discovered and are planned to be explored.

A Sinopec spokesperson celebrated the development saying that “[the] Tarim basin is one of the key basins for oil and gas exploration in the 14th Five-Year Plan period [2021-2025], and natural gas will play an increasingly important role in the decarbonisation process while easing the country’s ever-increasing dependence on gas imports.” Just two months later, the International Energy Agency (IEA) warned that no new oil, natural gas and coal investments ought to be added for a chance to reach global carbon neutrality by 2050.

In May 2021, Sinopec’s subsidiary North China Petroleum Engineering Underground also signed a contract as drilling contractor serving Kazakhstan state-run KazMunayGas. In Pakistan, Sinopec just signed a long-term purchase and sales agreement with Qatar Petroleum. With deliveries starting in January 2022, the company agreed to buy 2 million tons of liquefied natural gas (LNG) per year for 10 years.

These may not be safe investments, as oil giants come under increasing pressure. Indigenous Amazonian people are now launching Ecuador’s first climate lawsuit against Sinopec’s operations in biologically sensitive areas.

The second-biggest recipient of foreign finance is the State Grid Corporation of China (SGCC), which received a total of USD 3.8 billion from international banks. SGCC is the world’s largest utility and owns transmission assets covering 90% of China’s territory. The long-term vision is to build and operate a worldwide energy grid. SGCC generates at least more than half of its revenue from the sale of coal-fired power, although the exact coal share of power production cannot be determined.

The company is involved in the planning and construction of various power projects connecting Myanmar and China, and is also participating in a new coal project in Russia. The Erkovetskaya (Yerkovetskaya) power plant is being developed with the Russian company Inter Rao and is expected to provide 1,000 MW of capacity in the eastern Amur province, near the Chinese border. The power is to be delivered to China. It is currently unclear whether the project will continue or whether it may be converted to gas.

Another key recipient of foreign money is China Huadian with USD 484 million. The company has installed about 92 GW of coal-fired capacity in China and plans to add another 18 GW, domestically and overseas. Huadian is involved in coal power projects in Indonesia, Cambodia and Kenya, totalling 4.3 GW. While the Lamu project in Kenya has been halted due to environmental concerns, the development in Cambodia is going in the opposite direction. In the Sihanoukville Special Economic Zone, set up through the BRI, the abundant coal ash from the two existing coal power stations is already putting a heavy burden on the health of local inhabitants, and official complaints have not improved the situation. Instead, a power plant deemed too polluting for China is set to be rebuilt in Sihanoukville. The project is set to add 700 GW of dirty coal capacity, with the first unit prospected to come online this year.

As of January 2021, 439 investors have acquired shares and bonds worth USD 19.6 billion in Chinese companies included in the GCEL thermal industry tracker. This surpasses the investments of country-owned financial institutions by USD 2 billion.

The ranking is topped by the world’s largest private investors: the American companies BlackRock, with USD 2.7 billion, and Vanguard, with USD 2.2 billion. In third place is the Qatar Investment Authority with USD 1.7 billion. US investors also lead the way overall, with a total of USD 11.5 billion in bonds and equities of Chinese GCEL companies. Far behind are investors from the UK, such as HSBC and Schroders, with USD 1.3 billion. Other large European investors include the Norwegian Pension Fund with USD 562 million and Swiss investors Pictet (USD 219 million) and UBS (USD 192 million).

China Energy is among the companies with the largest amounts of foreign investment (USD 1.8 billion). The company is one of China’s coal giants with about 160 GW of installed coal capacity and 510 million tonnes of coal production a year. China Energy is planning new coal mines and developing new coal-fired power plants with a total capacity of 51 GW. Two new power stations in Indonesia have just been brought online and Sumsel 1, which would add another 600 MW, is still under construction. The commencement of the project was delayed due to the Covid-19-related travel ban preventing employees from returning from China.

PowerChina is the Chinese company involved in most international coal projects. Partially through its subsidiaries Sinohydro and SEPCO III, PowerChina holds stakes in eight projects that will add almost 7 GW in Bangladesh, Pakistan, Indonesia, Tanzania, Madagascar, Zimbabwe and South Africa. The Banshkhali power plant in Bangladesh is probably the most controversial project. Through its subsidiary SEPCO III, PowerChina holds 20% in the 600 MW power plant, and has partnered with the Bangladeshi company S Alam Group. For the second time this year, workers were shot during a protest on the construction site, earning Banshkhali the label of “deadliest power plant in Bangladesh”.

50 western institutions are invested in the Power Construction Corporation of China. Even though each of them invests less than USD 1 million, this adds up to a total of USD 45 million. Speaking of carbon sinks and biodiversity, PowerChina is also involved in the Barisal Power Plant in Taltoli, a sub-district of the Barguna area in coastal Bangladesh, near a local wildlife sanctuary and mangrove forest. Mangroves are also under threat from the PowerChina Pangkalan Susu Coal-fired Power Plant in the Indonesian island of Sumatra, which was criticised for damaging local houses, dumping of waste water and exacerbating soil erosion.

What most citizens are not aware of is that their pension funds are helping to finance the destruction of our planet. In a prominent position is the world’s biggest Japanese Government Pension Investment Fund (GPIF). Investments of USD 635 million are making it the fifth-biggest investor in China’s GCEL companies. Following closely is the largest state pension fund in Europe, the Norwegian Government Pension Fund (GPFG). Norway’s GPFG started its coal divestment in 2014, also due to Urgewald’s campaigns, and has tightened its guidelines in 2019. Nevertheless, coal-fired power plant developers in particular are falling through the cracks, making it still the seventh-largest investor in China’s biggest CO2 emitters. The largest Dutch pension funds are also investing in Chinese coal, including the pension fund for all government and education employees and for the care sector. Despite the pressure on these institutions increasing in recent years, they are still ranked 20th among investors in Chinese GCEL companies with USD 128 million and 38th with USD 102 million, respectively.

Despite pledges to protect the environment and climate, China continues to build coal-fired power plants, some of which will not begin operation until 2025 and will continue to emit CO2 until 2065, with an average operating life of 40 years. Four of the five largest coal-fired power plant developers in the world are Chinese companies, and together they have 121 GW in the pipeline: China Energy, China Datang, China Huaneng and China Huadian. This is no longer about domestic power supply: China is now the world’s largest developer of coal-fired power plants in the world. In countries such as Bangladesh and Pakistan, China is the main driver of the expansion and establishment of the coal industry. International financiers can be found on the books of all Chinese companies operating internationally.

China is sanctioned, China is financed: the US and Europe stand out in both cases. The historically largest CO2 emitters are thus financing the largest current climate polluter. And this not only concerns the Chinese coal industry: as Urgewald’s research shows, investments are also being made in China’s oil and gas sector. 

If we are to stand any chance of limiting global warming to 1.5 degrees Celsius above pre-industrial levels and protecting our planet’s diversity, the expansion of the fossil fuel industry must cease. In October, the United Nations Convention on Biological Diversity will be tasked with drawing a new set of indicators for the protection of global biodiversity, after the previous Aichi Biodiversity Targets were missed. A stop to further financing of fossil fuel companies, and above all the coal industry, should be included in the updated list.

The Third Pole