Investitionsbericht 2022 of the China Belt and Road Initiative (BRI) - Center for Finance and Green Development (2023)

The new BRI investment report covers the period up to December 2022. Download the full report here

important discoveries

• BRI Stable finances and investmentsto $67.8 billion in 2022 compared to $68.7 billion in 2021;
• Investments as a proportion of BRI commitment reached record levelsto 48%, up from 29% in 2021 and compared to an average of 40%;
• Since 2013,Cumulative exposure to BRI is $962 billion, approximately US$573 billion in construction contracts and US$389 billion in non-financial investments;
• New coal projectsannounced in 2022, including Indonesia's own coal-fired power plant and coal mining;
• Commitment related to energy at the lowest level$24.1 billion – compared tostrong commitment to manufacturing technology, For example. B. A $7.6 billion investment in a gigafactory
• Fossil fuels accounted for about 63% of China's overseas BRI energy exposureparticularly in pipelines that potentially undermine global climate goals;
• The commitment to green energy (solar, wind, hydroelectric) increases by 50% in 2022: Investments from US$0.1 billion to US$2.7 billion; Construction projects increased $1.9 billion to $5.3 billion;
• 14 countries saw a 100% drop in BRI engagement, including Angola, Nepal, Peru, Russia and Sri Lanka;
• Exposures to sub-Saharan Africa and western Asia fell to their lowest levels,while Arab and Middle Eastern countries could increase their share of the Chinese share;
• The main beneficiaries of Chinese investment were Hungary(US$7.6 billion), Saudi Arabia and Singapore. The Philippines and Argentina have been the main beneficiaries of Chinese participation in the construction;
• Average The transaction size for construction projects was the smallest since 2013, which fell from $496 million in 2021 to $330 million in 2022; the average transaction size for investment projects has increased, driven by some large transactions, e.g. B. Battery manufacturer CATL's $7.6 billion investment in Hungary;
• BRI investmentsin 2022 they were unusualdominated by private sector companies including CATL and Alibaba,while construction contracts were dominated by state-owned enterprises (SOEs);
• 2022,Likewise, global FDI in emerging markets has developedon China's commitment to the BRI, with a mix of growth and decline;
• By 2023, a further recovery of Chinese exposure to BRI is possiblewith the lifting of COVID-related travel restrictions, particularly relevant for Chinese developers;
• Possible future engagements are expected infive types of project: New technology manufacturing (eg batteries), trade-enabling infrastructure (eg pipelines, roads), ICT (eg data centers), resource-backed businesses (eg ., mining, oil, gas), high-visibility or strategic projects (eg, railways) .

Chinese commitment through financial investment and contractual cooperation until 2022 in147 countries in the Belt and Road Initiativewas approximately $67.8 billion based on more than 200 transactions. This is roughly equivalent to China's BRI 2021 commitment of $68.7 billion. Of that exposure, approximately $32.5 billion was in investments and $35.3 billion in construction contracts (partially financed by Chinese loans). China's overall exposure shows a steady development since the COVID-19 outbreak since 2020.

The BRI's cumulative commitment since the BRI was announced in 2013 is $962 billion, approximately $573 in construction contracts and $389 in non-financial investments.

Investment share in China's BRI is the highest on record
China's share of the BRI through investment vs. construction peaked in 2022: investment reached about 48% of the BRI share, compared with 29% in 2021. Many of the BRI contracts construction are financed by loans issued by Chinese financial institutions and/or project contractors. , which often receive guarantees from host country government institutions.

Investment business size is getting bigger, construction smaller
The average transaction size for investments increased from about $444 million in 2021 to $650 million in 2022. This is the highest since 2019. Compared to the peak in 2014, the investment transaction size is 21% higher little.

For construction projects, transaction volume in 2022 was the lowest since the BRI was announced in 2013, with approximately US$321 million in 2022 compared to US$496 million in 2021.
One reason appears to be that some large investment deals were resource-based (eg mining, oil, gas), as well as significant investment in battery production in Hungary, pushing the averages higher. On the other hand, construction projects tended to be smaller, possibly because they relied on government guarantees, which were more difficult to obtain due to tighter government budgets and adjusted risk management models by Chinese financial institutions amid economic uncertainty. world.

BRI countries continue to do significantly better than non-BRI countries
China's total exposure through construction and investment activities to the BRI was about $50 billion higher than that of non-BRI countries in 2022: BRI countries outperformed non-BRI countries in USD 21,000 million in investment agreements; In construction exposure, BRI countries outperformed non-BRI countries by $30 billion.

Regional and national analysis of China's commitment to the BRI

Strong growth in the countries of East Asia and the Middle East and a significant decline in the countries of sub-Saharan Africa
Chinese exposure to BRI was not evenly distributed across all regions. The BRI countries in East Asia saw a 151% increase in Chinese investment and a 76% increase in construction orders, making the region the top recipient (34% of the total) of Chinese participation . Middle Eastern countries also expanded their cooperation with China, receiving about 23% of China's BRI exposure in 2022 (up from 16.5%) and about 21% of China's investment volume, double the amount in 2021. By contrast, sub-Saharan Africa saw the largest decline in China's share of both construction (-44%) and investment (-65%) compared to 2021. Likewise, Western Asia saw a significant decline in Chinese participation.

China's financing and investment is spread across 54 BRI countries in 2022, with 26 countries receiving investment and 47 with construction commitments. The country with the largest construction volume in 2022 was the Philippines with around USD 3.3 billion, followed by Argentina (around USD 3.3 billion) and Indonesia (around USD 2.5 billion). In terms of BRI investments, Hungary was the largest single recipient with investments of around US$7.6 billion, followed by Saudi Arabia (US$5.6 billion) and Singapore (around US$2.5 billion).

14 countries saw a 100% decrease in BRI engagement compared to 2021,including Russia, Angola, Sri Lanka, Nepal and Peru. China's exposure to Pakistan for the China-Pakistan Economic Corridor (CPEC) decreased by around 34%.

The countries withThe highest growth in BRI engagement was Hungary (+6,233%), Malaysia (+877%), the Philippines (+578%), Cambodia (+371%) and Argentina (+371%).

Trend branch BRI-Commitments

China's overseas engagement with the BRI continued to focus on infrastructure, particularly energy (36%) and transportation (18%), up from a combined 60% in 2021.

In 2022, the financial and technology sectors, in particular, saw significant growth in share of 3,450% and 7,536%, respectively, compared to 2021. One reason for the expansion is the significant increase in technology manufacturing. For example, China's largest battery maker, CATL, announced in August that it would build a 100 GWh battery factory valued at $7.6 billion. This would be the largest battery plant in Europe and CATL's largest foreign investment. Likewise, there has also been significant investment in battery production in non-BRI countries. In Germany, for example, Svolt has expanded its commitment to build a second battery cell factory near Tesla's Brandenburg factory (near Berlin). In the United States, battery maker Envision also got involved, investing between $700 and $800 million to build a 30 GWh plant in southern California to supply German automaker BMW.

While the metals and mining sector slowed, it remained the fourth largest sector with exposure around $6.7.Metals and mining remain strategicespecially for minerals related to the green transition (eg lithium) and batteries for electric vehicles, especially in African and Latin American countries for mining and in Europe for batteries.
Distinguishing China's BRI exposure to various sectors between investment and construction, the data shows that the proportion of exposure through investment increased significantly in 2022, from an average of around 25% in 2013-22 to around 46% in 2022. Metals and mining are now the second largest investment sector for Chinese exposure to BRI countries.

Energy related exposure in BRI at the lowest level

Chinese exposure to the energy sector accounts for the majority of China's exposure to the BRI. In 2022, the total exposure to the energy sector reached USD 24.1 billion, the lowest level of energy exposure since the BRI began in 2013. This represents, for example, an exposure of USD 25.3 billion in 2021 and USD 26.2 billion over billions in 2020.
In 2022, the largest share of energy exposure supported gas-related projects (40%), followed by solar and wind (26%) and oil (16%). Coal (described in the next section) has had renewed exposure to PowerChina's coal mining activities in Indonesia.

Money

1.5 GW of new coal plants were announced by 2022, plus financial and diplomatic support for coal plants in Pakistan and involvement in coal mining in Indonesia.

Following China's announcement in September 2021 that it would not build new coal-fired power plants, some new coal-fired power plant projects appear to be moving forward.

An unfortunate case for green development is the recent approval of the 300 MW coal plant in Gwadar, Pakistan, in January 2023. Although Pakistan announced in December 2020 that it would not build new coal plants, several sources report that China was interested in providing funding. and technical support for the project, including the project, which requires the import of coal (rather than potentially using cheaper domestic coal in Pakistan).

Another issue is the power plants themselves: in February 2022, China Energy Engineering Corporation won the tender for a 4 x 380 megawatt thermal power plant on the Indonesian island of Obi. The project owner is PT Halmahera Jaya Feronikel, a joint venture between China's Lygend and Indonesia's Harita Group, which owns a plant in an industrial park in Indonesia.

Other than that,Power Construction Corporation (PowerChina) participates in a coal mining projectin the province of Central Kalimantan, Indonesia, with the goal of selling 30 million tons of coal.

oil and gas

Exposure to oil and gas construction reached US$6.8bn (51% of China's overseas energy construction) and investment of US$4.8bn (60% of China's energy investment).

Gas-related investment reached the second highest level in BRI history at US$4.8bn, representing 60% of China's energy investment (up from US$170m in 2021), driven by a $4.6 billion investment in Aramco Gas Pipelines Company in Saudi Arabia. Gas-related construction contracts reached $6.8 billion in 2022 (up from $9.4 billion in 2021) with projects in Argentina (a $1.9 billion contract for a gas pipeline), Iraq, Thailand, Algeria and Kazakhstan.

China's exposure to oil-related projects in the BRI accounted for about 17% of China's total energy exposure to the BRI, totaling about $3.6bn in 2022 (up from $8.3bn in 2021). ).

Outside of the BRI,CNOOC China participated in a $1.9 billion manufacturing divisionContract with Petrobras for the exploration of the Buzlos field, in Brazil.

Green Energy/Hydroelectric

Chinese investments in green and hydropower increased from US$1.3 billion in 2021 to US$2.3 billion in 2022.

China's total commitment to green energy (solar and wind) and hydropower was around US$5.8 billion in 2022. This compares with US$6 billion in 2021 (see Figure 9).
Construction projects related to green energy (including hydropower) increased from $1.4 billion in 2021 to $3.5 billion in 2022.

Energy commitment in different countries

Analyzing China's energy exposure to various BRI countries, we found that Saudi Arabia was the country that received the largest energy exposure in 2022 ($5.4 billion), followed by Argentina.

With strong exposure to Saudi Arabia, including collaboration on solar projects such as a $210 million project with Jinko Solar, Saudi Arabia moved from 6th in cumulative BRI energy exposure in 2021 to 3rd in 2021-2022 (Pakistan remains the largest partner, followed by the Russian Federation).

An interesting case is PDR Laos, which saw a strong commitment to green energy through a collaboration between Thai energy company Bangchak Corporation (BCPG) and PowerChina International to build a USD 1.5 billion wind farm in Laos.

Transporteengagement in der "Belt and Road"-Initiative

Transport-related engagement is key to providing the means for trade between China and the BRI countries, where trade is a core component of the BRI. Thus, China has invested in and built road, rail, air, sea, and logistics projects around the world.

Aviation:Three aerospace construction projects have been announced in 2022, including in Tanzania, worth around $190 million.

Lane:Total rail exposure was valued at $7.3 billion (all through construction contracts). Most of China's rail share can also be found in East Asia in 2022, including the continuation of high-speed rail projects linking China to Singapore via Thailand and Malaysia (Kunming-Singapore Rail). The 422 km China-Laos railway line began operations in December 2021. In January, the Philippine Department of Transportation (DOTr) awarded a US$2.8 billion contract to a Chinese consortium to build the first phase of the railway project. 565 km Bicol on the country's main island, Luzon. No new rail commitments have been announced on the African continent, while non-Chinese contractors have managed to close big deals, such as the $8.7 billion rail project in Egypt won by Siemens in May 2022.

road transport: China continues to participate in road construction projects in many countries. Construction volume reached USD 3.4 billion in 2022 (up from USD 2.5 billion in 2021). Part of the commitment to highways is now done through investments in toll roads or highway annuity projects. However, some projects announced several years ago have yet to be built, such as:

doors: No investment in port projects has been announced for 2022, but Chinese companies are supporting the construction of various shipping-related projects, especially in Africa.

Key players in BRI investments

Unlike in most previous years, the main participants in BRI investments in 2022 were not exclusively Chinese state-owned companies, but also private companies.

The most prominent Chinese companies in construction projects in the BRI in 2022 were Power Construction Corporation (PowerChina), followed by China Railway Engineering and China Energy Engineering.

For investment projects, battery maker CATL led the BRI exhibition, followed by various funds (eg Silk Road Fund, represented by the State Administration of Foreign Exchange).

China's Belt and Road Investments Compared Globally

After foreign direct investment (FDI) rincrease to pre-pandemic levels in 2021and continued to grow in the first quarter of 2022, a variety of global crises (eg, debt pressures, Ukraine invasion) led to slower FDI growth in subsequent quarters, resulting in aLoss of value of 6% in mergers and acquisitions and stagnation in the financing of international projects. According to UNCTAD, project finance and mergers and acquisitions (M&A) "have been the most affected by deteriorating financing conditions, rising interest rates and growing uncertainty in financial markets." The amounts of financing of international projects were reduced by 30% in 2022.

However, the impact of lower FDI was more widespread in developed countries, while ASEAN economies saw a 21% increase in greenfield project announcements. Similarly, Brazil saw a 30% increase in new facility announcements. Another winner was India, which attracted as many R&D projects as the US, UK and China combined. It also overtook China to become the largest destination and source of greenfield FDI in Asia-Pacific by 2022.India received $60 billion in direct investment and invested $35 billion in other countries.

In terms of the number of greenfield projects, developing countries experienced a 26% increase, mainly countries in Africa, while international project funding fell by 6%. Likewise, the value of cross-border M&A sales in developing countries fell by 6%, mainly in

Central Asia, Southeast Asia and South Asia (see Figure 13).
A particular focus of global FDI in 2022 has been in semiconductors (for example, a $28 billion investment by Taiwan Semiconductor Manufacturing (TMSC) in the United States) and renewable energy (for example, a $13 billion investment billion from Indian ACME Group in Egypt). Europe has been the main source and destination of FDI for wind energy projects, with USD 55 billion committed by Western European wind developers, of which USD 23 billion has gone to places like North America, Latin America, Africa and Asia-Pacific.

However, another focus of foreign direct investment was oil and gas production, which in August 2022 reached US$42.15 billion – the same as foreign direct investment accumulated between 2018 and 2021.

Foreign direct investment prospects for 2023

According to fDi, the outlook for foreign direct investment in 2023 is "challenging", with potential "regional outliers" offering huge opportunities for foreign direct investment. Reasons for the challenges include high inflation and interest rates (which restrict financing opportunities for projects and M&A), as well as geopolitical tensions and rising protectionism.

However,some optimism has returnedwith falling inflation rates and macroeconomic activity proving stronger than expected.

Countries are expected to perform well and attract foreign direct investment, including those with relevant natural resources to finance the green transition (eg lithium) and those with relevant markets or technical capacity to locate the supply chain to secure (eg , for the production of semiconductors) . . African countries would perform very differently depending on their governance, debt levels, and opportunities (for example, as a market or as a source of raw materials). Developing countries in Asia areGrowth of 4.9% is expected in 2023, possibly also due to investment shifts in China to neighboring economies, mainly by companies dependent on Western markets.

Also with the much needed green energy transition and political will and direction.FDI in renewables should continue to accelerate.

Financing of the Belt and Road Initiative (BRI) and investment prospects.

Chinese finance and investment in the Belt and Road countries in 2022 remained stable.

By 2023, when the COVID-19 related lockdowns in China are fully lifted, a broader recovery in BRI construction and investment orders seems possible. On the one hand, there is a clear need for investment to stimulate growth in the post-COVID-19 world, with the support of global financial institutions, including developing financial institutions (such as the World Bank, Asian Development Bank, AIIB ) that Chinese contractors can trust to benefit. On the other hand, once travel restrictions are lifted, Chinese developers will be able to travel freely to negotiate, plan, and implement new projects.

We do not expect China's BRI exposure to reach 2018-2019 levels. This is also an acknowledgment from China's Ministry of Commerce (MOFCOM), which halted rapid overseas expansion in its 14th Five-Year Plan (FYP) for 2021-2025: plans for China to spend $550 billion (including non-EU countries) BRI) are down 25% from $740 billion in 2016-2020. Furthermore, the volume of Chinese orders is expected to decrease from USD 800 billion in the previous fiscal year to USD 700 billion in this fiscal year.However, given the relatively low participation of the BRI in 2021 and 2022, some acceleration should be possible..

Based on our previous predictions, this does not necessarily mean that the number of transactions will decrease. As we have seen in 2021 and early 2022, many smaller projects have been funded even under more difficult economic conditions and often provide the means to drive sustainable economic development, create jobs and better protect the environment.

At the same time, we see two types of large projects that must go ahead: strategic commitments (eg, in strategic transportation infrastructure in the region) and resource-backed deals (eg, in mining, oil and gas).

To encourage BRI investments, we have expanded our recommendations from previous reports:

1. Focus on financially sustainable projects and reduce losses on unprofitable projects: Investors in BRI projects inside and outside of China should focus on smaller projects that are easier to finance and faster to implement. Especially when it comes to infrastructure and energy investments, scalable investments in solar and wind seem feasible, as long as local conditions provide the right grids to handle renewable energy supply.
   With renewable energy costs falling, we also see an opportunity to invest in an early phase-out of existing legacy coal projects, which would be economically and environmentally relevant.
2. Support to partner countries and associated companies in processing (government) debt paymentsfrom BRI projects already invested, eg B. Through debt-for-nature swaps and performance-for-nature bonds: Debt is a major concern for future growth in many BRI countries. As we noted in our in-depth BRI debt review, China has a unique opportunity to help BRI countries with debt management, both bilaterally and multilaterally. Addressing the debt problem is crucial to give BRI countries the necessary fiscal space for future investment.
   While debt-for-cash or debt-for-equity swaps may seem advantageous to China in the short term to ease the debt burden of BRI countries, these swaps tend to undermine future growth opportunities for BRI countries. Rather, relevant Chinese stakeholders, together with international partners, should support green recovery through multilateral frameworks, trading debt for nature, and providing the necessary frameworks to increase transparency and accountability in the use of funds.
   Also, sustainable debt instruments can be used to raise more funds, for example B. through natural services bonds.
3. Expansion of international cooperation for BRI projectsBeing able to build on existing and significant projects even in difficult times: tripartite cooperation with international financial and implementation partners can support BRI projects through better access to finance, risk and knowledge sharing. In particular, non-state enterprises, which often have a greater burden to access investment from large Chinese financial institutions, could benefit from broader access to finance, as seen, for example, in the China wind farm. Zhanatas in Kazakhstan, managed by EBRD, AIIB, GCF and ICBC are co-financed. while it was built and operated by China International Power Holding. Chinese financial institutions could also benefit from financing risk reduction projects by expanding their international cooperation. A new report, the "China Third-Party Market Cooperation Financing Mechanism Manual for China", was released in September 2021 to speed up the financing of tripartite projects.
   As the European Union (EU) launches its Global Gateway and the US moves forward with its Build Back Better World (B3W) initiative, competition for the BRI is increasing. However, if the goal is cooperation in financing and developing projects in emerging markets, Chinese investors and developers can speed up their cooperation with public and private financial institutions from different economies, especially if they can meet common standards.
4. Greater use of common environmental and social standards in project evaluation(for example, Environmental Impact Assessment, EIA) and for Environmental and Social Risk Management (ESMS): In July 2021, the Ministry of Commerce (MOFCOM), together with the Ministry of Ecology and Environment, issued the Guidelines for Greener Investment and Cooperation Abroad. and in January 2022, the guidelines for ecological environmental protection in foreign investment cooperation and construction projects.” Under this policy, Chinese developers are encouraged to adhere to Chinese or international environmental standards, particularly in countries whose national environmental standards and governance do not conform to international standards.
   This is a formalization of a number of earlier guidelines, including the "BRI Project Benchmark Study Green Development Guide" and the "Application Guide for Enterprises and Financial Institutions", endorsed by various relevant Chinese ministries and endorsed by BRI. Green Development Coalition (BRIGC) were published. in December 2020 and October 2021. These guidelines require Chinese foreign investors to undertake independent environmental impact assessments (EIAs) and rigorous environmental and social risk management (ESMS) to ensure projects and investments minimize environmental damage and maximize environmental benefits. Additionally, the Green Investment Principles (GIP) integrate sustainability into corporate governance, requiring boards to understand environmental, social and governance risks and disclose environmental information.
   By applying international standards, Chinese financial institutions can more easily raise capital in global capital markets, speed up co-financing with international partners, and take responsibility for achieving the goal of building a "Green Belt and Road."
5. Develop socially and environmentally responsible exit strategies for distressed investments:Several investments in the Belt and Road initiative had to be halted, stalled, or canceled due to financial (eg, financing difficulties or debt service) and operational (eg, travel restrictions or supply chain issues) reasons. According to our study, more than 50% of announced coal plants were decommissioned.
   In order to avoid reputational, social, and environmental risks from stalled, halted, or canceled projects, financial institutions, including insurance companies, developers, local governments, and relevant Chinese authorities, should develop and implement plans that reduce losses for workers and companies even compensating to a certain extent, and that ensure that the nature around paralyzed and especially disrupted projects can be rehabilitated. It also helps prevent skeletal designs from serving as reminders of unfinished projects.

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