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The BRI in Southeast Asia - energy mineral investments and sustainability.pptx
- 1. China’s Belt and Road Initiative in Southeast Asia: energy, mineral investments, and sustainability implications Belt and Road Initiative – Investment, Trade, and Sustainability UCL European and International Social and Political Studies Angela Tritto, Ph.D. Institute of Emerging Market Studies, HKUST Email: tritto@ust.hk
- 2. Research areas • Fintech (P2P lending in Indonesia) • Industrial parks (Indonesia e Malaysia) • Coal power plants (Indonesia) • Smart City (ASEAN, Malesia) Case studies • SOEs’ role in the BRI • Energy sector investments • Industrial parks’ investments • Chinese medical assistance under Covid19 Quant studies
- 3. Contents Overview of an upcoming study on energy in SEA The case of Indonesia and the MSR How has the BRI changed FDI in Indonesia? Link between smelters and coal power plants Some insights from my field research Conclusions – where is the BRI headed?
- 5. Key updates on this study • Completed extensive review to understand the determinants of each of the different types of energy Literature Review • We use the FT data, merge it with the American Enterprise Institute data, and reclassify the sector of investments to produce 4 main categories Methods • Descriptive stats • Run MLR to understand what determines why certain countries have received green vs non-green investments Analysis
- 6. Green or Black?Smart or not? GREEN: Renewable energy (Solar, wind, biomass, waste to energy, geothermal) and EnvironmentalTechnologies LIGHT GREEN? Hydro BLACK: Coal power plants, Mining,Oil and Gas GREY? Minerals and metal manufacturing, natural gas SCIENCE &TECH: ICT, new technology development, electronics, automation, aerospace, biotech OTHER: All the rest
- 7. 0 5000 10000 15000 20000 25000 30000 35000 40000 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Investments in ASEAN Countries between 2008-2021 Green Light Green Black Grey ST Other
- 8. Results 0 5000 10000 15000 20000 25000 30000 Pre-BRI Post-BRI Pre-BRI Post-BRI Pre-BRI Post-BRI Indonesia Malaysia Myanmar Green Black Grey Digital
- 12. “For all China’s (and Xi Jinping’s) self- confidence, the Belt and Road depends upon active cooperation from others. China cannot realize it on its own” Ferdinand (2016:956)
- 13. Sino- Indonesian partnership • From Yudhoyono onward, we see Indonesia becoming more focused on infrastructure development • At the same time, we see Indonesia drawing closer to China as one of its main economic partners • The main goal of this relationship strengthening is “to look for an opportunity to fulfill our national interests” (Yudhoyono – Indonesia President in Sukma, 2009, 603).
- 14. The Xi – Widodo close alliance • Signing of MOUs between Chinese and Indonesian companies & banks • 12 during APEC Summit (2014) • 5 in April 2018 • Once key flagship projects are identified, Jokowi’s strong commitment shown in: • Personal visits to monitor joint projects in Indonesia (Jakarta – Bandung, Morowali) • Presidential decrees and other regulation signed to smoothen path of investment projects (Jakarta – Bandung) Improvement of Foreign relations Frequency of high-level meetings Strengthening, updating, and renewing cooperation Paving the way for investments “Indonesian government generally has a positive attitude towards China because of the good relationship between Xi Jinping and our Indonesian president” (Interviewee34 - ADB).
- 15. China’s Maritime Silk Road & Indonesia’s Global Maritime Fulcrum • Leverage on the glorious maritime past HERITAGE DIPLOMACY • Upgrade ports and increase connection frequency INCREASE CONNECTIVITY & TRADE • Energy: 35,000MW • Transport: Toll roads, airports, rail • Industrial parks & SEZ INFRASTRUCTURE INVESTMENTS
- 16. 0 2000 4000 6000 8000 10000 12000 14000 16000 18000 20000 Other manufacturing & services Oil & gas ICT & consumer electronics Tourism Real Estate Coal and rare minerals mining Coal power plants Renewable energy Minerals and metals manufacturing Greenfield FDI in Indonesia - Before and after the BRI (USD mil) After BRI (2013 - 2018) Before BRI (2008- 2012) Earlier investments (2004 - 2007) Source: Financial Times FDI markets database.
- 17. Industrial parks and coal power plants Is there a link? This Photo by Unknown Author is licensed under CC BY-SA
- 18. Indonesia Morowali Industrial Park (IMIP)
- 19. Morowali Industrial Park (IMIP) • Established in 2009 in Bahodopi, Central Sulawesi • Collaboration between Shanghai Decent (part of Tsingshan Group, 66.25%) and Bintan Delapan (33.75%), a local mining company • Activities in the park: • Nickel Pig Iron mining • Production of stainless steel slabs, high- carbon ferrochrome and stainless steel cold rolling • Facilities: 730MW coal power plant, residential compounds, land and sea access shipping to initially to Fu’an in Fujian and then to other major ports in China • From 2013 until now – around US$ 3billion investments Tsingshan group is the largest producer of ferro- nickel and the second-largest stainless steel producer in China
- 20. Chinese companies investing in CPP in Indonesia Before BRI After BRI (2013 onward) Shanghai Electric 1 1 Shenhua Group 1 3 China Huadian Corporation 2 3 China Electric Power Construction 1 - China Energy Engineering Corporation (CEEC, Gezouba) 1 2 Power Construction Group (Sinohydro, PowerChina) 1 4 China Hongqiao Group / Shandong Weiqiao - 1 Dingxin Group - 1 Huadi Steel Group - 1 China's Golden Concord Holdings (GCL-Poly) - 1 SOE; Private
- 21. CPP technology financed by key foreign investors (2000-2017) 0 5000 10000 15000 20000 25000 China Japan Korea Japan & Korea Malaysia Singapore MW Subcritical Supercritical Ultra-supercritical / CFB N/A
- 22. Impact of mining on environment & society Source: Koplitz et al., 2018
- 35. China’s pledge to stop coal • Xi Jinping’s pledge that China will stop building coal power plants overseas • Coal power plants financing has already decreased • But IP-linked CPP are the ones that have been build in the fastest time • What will this pledge mean for Chinese invested IP? 0 1000 2000 3000 4000 5000 6000 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 MW China Indonesia US, EU Japan Korea Malaysia HK, Singapore
- 36. Indonesia’s pledge to stop coal
- 37. How sustainable is the BRI in a post-Covid world? Conclusion…
- 38. IMPACTS GOVERNANCE • CORRUPTION • RENT SEEKING BY POLITICAL AND ECONOMIC ELITES • BYPASSING OF EIA AND NON-COMPLIANCE WITH ENVIRONMENTAL STANDARDS ENVIRONMENTAL • PROLIFERATION OF MINING BY LOCAL COMPANIES • WORSENING OF ENVIRONMENTAL CONDITIONS (AIR POLLUTION, SEDIMENTATION, LOSS OF FOREST) • COAL POWER PLANTS WILL LOCK THE COUNTRY INTO A FOSSIL DEPENDENT FUTURE SOCIAL • LOSS OF LIVELIHOODS (Farming, fishing) • HEALTH ISSUES, CONCERNS OVER INCREASE OF WORK-RELATED ACCIDENTS • INCREASING PROTESTS AND LEGAL ACTIONS • DIFFERENTIAL TREATMENTS BETWEEN CHINESE AND LOCAL WORKERS
- 39. Conclusion Indonesia seems set to maintain business as usual pathway of coal production and coal power generation for the foreseeable future But the questions is… Will this lead Indonesia to a path similar to China’s, with high economic growth, but at the expense of the country’s environmental and social conditions?
- 40. Thank you
Editor's Notes
- Good morning everyone, I am going to follow Jan’s talk with a quick overview of Chinese investments in Southeast Asia, focusing on their sustainability implications in the Post covid time
- Most of my work has been carried out together with the group led by Professor Albert Park at HKUST and here is a list of the topics I have worked on that are all related to some sustainability dimension. At the beginning we focused more on case for instance on Chinese investments in P2P lending in Indonesia, on industrial parks and smart cities in Malaysia but also above all I worked on investments in resources and energy. And now we are moving towards quantitative analyses of various databases that we have developed in recent years always in the branch of energy investments and industrial parks but also my latest work examines the determinants of Chinese medical equical equipment and vaccines during the pandemic. So if anyone is interested in one of these topics, feel free to reach out me
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- So let me start by showing you the very preliminary results of this upcoming study. The aim of this study is to understand why Chinese companies invest in fossil fuels in certain countries and in renewable energy in others – and we take Southeast Asia as our field of study
- So ultimately the answer to this question is a combination of push and pull factors, so domestic incentives and corporate motivations to go out and host country endowments of different types of resources as well as policy incentives. So to understand all of these we conducted a very extensive literature review to understand the determinants of all the different types of energy. Then in terms of data we took the FT database, merged it with the American Enterprise Institute Global China Investment Tracker and then we reclassified the sector of investment to produce 4 main categories that I will explain in a moment And finally in the analysis we have two main phases: the first is the one we are currently finalizing where we look at simply descriptive statistics of what is happening and the second one is the multiple regression analysis to understand what explains the difference in Chinese energy investments across Southeast Asia.
- And these are the current 4 categories but I am thinking of changing them. Basically at the moment we have the green category that includes all types of renewable energy but I am thinking of creating the light green category to differentiate the investments in hydropower Then we have the black category which includes all the activities that connect to mining and extraction and the production of energy via fossil fuels and from this category I am thinking of distinguishing grey investments that are in manufacturing of metals as well as natural gas because they are slightly different from oil and coal. Then we have investments in science and tech that include mostly ICT and electronics but most recently there are more investments in automation, aerospace and biotech And finally all of the remaining investments are in this other category
- So basically these are the preliminary results for the most recent data analysis and just by looking at this chart we can see two things: one is that mineral and fossil fuels related investments are by far the largest ones and second if that we are seeing some changes in the last few years however don’t be fooled because in 2018 a lot of these renewable energy investments come from a single large hydropower plant in Indonesia which is still in the negotiation phase so actually we can only say that last year marked a significant change in the trend but we need to see if this is going to continue.
- And this is a chart that compares the 3 main countries on which I did research on in the 5 year before the BRI so 2008 to 2012 with the 5 years after so 2013 - 2017 . First of all, you can see quite an increase in investments under the BRI which establish a platform to catalize state support for investments especially in Indonesia and Malaysia. Secondly, we can notice a difference between the type of investments in each country that goes back to the question of agency. So if you look at Indonesia, you see how much more investments the country has been able to attract, and this is really the result of a strong push from the Indonesian government as we will see in a short while. In Malaysia, you see instead how the current government made it a priority to attract green investments and the interesting point to make here is that these are mostly carried out by private companies that use the various incentives in Malaysia to move their supply chain there. Finally, Myanmar is still ranking low in terms of FDI, and these are mostly in oil and gas. Another point is on the digital or science and tech investments, which are increasing especially in more developed economies like Indonesia and Malaysia, who have also made it a priority to attract hi-tech Chinese firms.
- So from here I made a different chart for each Southeast Asian country but in the interest of time I will not focus on these unless anyone has a specific interest on any of these countries…
- and I would like to start examining more closely the case of Indonesia…
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- This agenda started to materialize during Yudhoyono’s presidency and consolidated when Widodo was elected President in 2014. Under these presidents, Indonesia started to show a strong developmental attitude for which China, like Japan, is seen as close partners to bring much needed capital and technology to restructure and propel the country’s economy
- Indonesia has received the largest amount of Chinese investments and this is not only because of its economy, resources, and large population that draw Chinese companies to its market but also to the say of many this is because of the strong relations between President Xi and Widodo, who met very frequently between 2014 and 2017 to define a lot of their common agendas and these meetings were not just talks and MOU-making but were followed by a lot of real actions to pave the way for large investments in the country.
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- Ok so now I would like to talk about the fact that the two largest flows of investments – the ones in mineral manufacturing and the ones in coal manufacturing are actually connected
- But while the future of the high speed rail is uncertain, the Morowali Industrial Park is already in full bloom.
- It started as a mining investment for nickel in 2009 but the plan was quite slow as you can see from the satellite images and it started to accelerate in 2012. It is a collaboration between a subsidiary of Tsingshan group, which is the largest producer of ferro-nickel alloy and the second-largest stainless steel producer in China and Bintan Delapan, a local mining company. The activities in the park include mostly Nickel Pig Iron mining and production of stainless steel. But as you can see from the satellite images there was basically nothing in this area before the industrial park was set up, so the project also included a coal power plant as well as land and sea transportation infrastructure, as well as residential compounds for workers. Initially the products were mainly shipped to Fu’an in Fujian, but as the output is rising this may also be used for the rising domestic demand. From 2013 until now, this project has generated around 3 billion USD investments. Two main factors pushed the completion of this process at a very high speed. One is the Belt and Road, as this was one of the key projects on which a memorandum was signed in the 2014 APEC Summit, and the second…
- And this table of coal power plants announced before and after the BRI shows just that. So here there are two main points to make. First of all is that if you compare the announcement of new coal power plants in the 4 years before and after 2013 they went from 7 to 17. Luckily some of these plants were cancelled, delayed or postponed but others instead were built very quickly The second point is that this group of power plants that are all already in operation are owned by private companies that are actually not in the energy sector, but rather they are metal and steel manufacturing companies so actually these 4 plants were to power their investments in industrial parks. And looking at the very latest data, some more of these are likely to be built due to some new investments in smelters that were announced this year.
- And another important thing I found in one of my earlier studies is that Chinese companies tend to build coal power plants with the least advanced level of technology that is also the most damaging and polluting. And this is in contract with other leading sources of investments in coal like Japan and Korea, which tend to build rather advanced plants.
- And while these new investments have brought thousands of new jobs and tax revenues to Indonesia there are a lot of negative impacts connected to mining that have been documented by local NGOs, such as increased floods due to deforestation, water and soil contamination and therefore loss of livelihoods for the people who live nearby these plants. There are also a number of social issues connected to mining but above studies like the one that produced this map on the right handside have showed that Indonesia will suffer around 25000 death by 2030due to all of these coal power plants.
- Ok so from now on I’d like to show you some of the pictures I took during my field research to show you the reality of these industrial parks. This is a picture of IMIP’s entrance and there you see the large trucks transporting coal to the power plant
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- So to conclude we have two sides of the story. On the one hand we have Xi Jinping’s pledge this September that China will stop building coal plants abroad, in a significant step in reducing global emissions. We have seen that actually as a results of perhaps this shift in policy and a greater commitment from the central government level of the PRC that coal power financing has decreased, and a number of coal power plants have been cancelled or shelved as a result. Most of the financing from China has peaked in 2014 and 2015, but has significantly decreased after as you can see from this chart. So the question is what will this pledge mean for upcoming Chinese invested industrial parks? Will this mean a radical shift towards new ways of power generation or perhaps can we expect a decrease in new industrial parks overseas too?
- And from the other side we have Indonesia’s pledge to phase out coal power plants by 2040, decommissioning a quarter of its coal capacity by 2030 yet still maintaining its coal production unchanged for the next foreseeable future, to cover the rising demand from India and China. https://news.mongabay.com/2021/11/cop26-cop-out-indonesias-clean-energy-pledge-keeps-coal-front-and-center/ https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/indonesia-expected-to-remain-world-s-top-thermal-coal-exporter-post-pandemic-58874688
- So in conclusion, how sustainable can we envision the BRI to be in a post Covid world?
- So in terms of impacts I believe that there are three main areas to watch out in terms of sustainability. Ultimately why did these investments linked to mining happened so fast? Because the issuing of mining permits in Indonesia is linked to rents by local political elites and this report by a coalition of local and international NGO reports exposed very top level politicians like the President himself. Because of the facilitation and political support that these projects received they often bypassed environmental regulations and compliance with local regulations, even though these are generally quite lax in Indonesia especially compared to China Then there are a number of environmental impacts that I explained already, but two more to consider are first that coal power plants will lock Indonesia into a fossil dependent future for at least other 3 decades, because that’s often the lifespan of a coal power plant and secondly that the mushrooming of smelter related industrial parks might lead to a fast depletion of mineral resources in Indonesia, and this would not be the first time that this has happened in the country And finally we have quite a few adverse social impacts related to these investments, which might further exacerbates inequality in the country.
- So what will the future hold? We clearly see a pattern of maintaining business as usual for the next decade at least while both countries have ratified the Paris Agreement and therefore must known that this won’t be enough to contain climate change. But the most important question is… Does this mean that Indonesia is embarking on a development path similar to China’s, with high economic growth but at the expense of the country’s environmental and social conditions?