Size and sustainability: China always thinks big. In 2014, when we first started writing about China’s plan to build a New Silk Road along the centuries-old trading routes, it was little more than a bold idea. More than three years on, what has come to be known as the Belt and Road Initiative (BRI), is being billed by President Xi Jinping as “the project of the century”, encompassing almost two-thirds of the world’s population and 29 per cent of global GDP. But the country’s leadership also wants this ambitious plan to be economically sustainable and environmentally friendly.
Railways, highways, airports and infrastructure: The BRI aims to increase infrastructure investment and promote cross-border trade to ensure that goods, services and capital can flow easily on land (the “belt” connecting China, Central Asia, Russia and Europe) and sea (the “road” linking China to ASEAN, India and Africa). This presents an historic opportunity to not only provide much-needed infrastructure in the form of transportation links and energy systems, but also to ensure it is directed along an environmentally sustainable path. We look at the economic logic of this ambitious project, and the available funding approaches.
Green belt, green road, green infrastructure: Infrastructure should be designed to last. Climate resilience is important as evidenced by the extreme events of the past year, where Munich Re expects insured losses to be the highest ever. At the same time, we think infrastructure should be built in a way that avoids carbon lock-in. Since these structures and systems will maintain their emissions profile for decades, their emissions should be low, in our view. The UN’s Sustainable Development Goals are also giving new direction to financiers as they fund large infrastructure projects.
Greener finance: Infrastructure must be financed and we believe green financing has an important role to play in the transition to a lower-carbon future. The signs are good – President Xi has offered strong policy support and Chinese banks are beginning to issue BRI-focused green bonds. For financial instruments such as bonds, loans, insurance and securities, explicit “green labelling” signals a commitment to sustainability to the outside world. If “the project of the century” is to be climate-resilient and sustainable, we think it should also be ‘green-financed’.
Disclaimer and disclosuresMore, collapsed
This report must be read with the disclosures and the analyst certifications in the Disclosure appendix, and with the Disclaimer, which forms part of it.
Issuer of report: The Hongkong and Shanghai Banking Corporation Limited
View HSBC Global Research at: