China’s International Development Finance and Risks to Global Biodiversity [ 5 min read ]

China is a leading lender of global development finance today, issuing international financing comparable in sum to that extended by the World Bank. While such investments regularly generate developmental benefits, projects such as roads, railways, and power plants also often result in environmental and social degradation. Yet, the social and ecological risks from China’s development finance are still poorly understood. What are the risks to biodiversity and Indigenous lands posed by China’s multibillion dollar finance worldwide? How do they compare to those posed by the World Bank?

The data. To evaluate risks to biodiversity (defined as critical habitats, protected areas, and threatened species) and Indigenous lands, researchers collected high-precision, geospatial data on China’s overseas development finance projects around the world. They targeted international loans issued by China Development Bank and the Export-Import Bank of China, China’s two leading development finance institutions (DFI), to foreign governments, inter-governmental bodies, and state-owned entities from 2008 to 2019. Of these, researchers incorporated 594 loans for which reliable spatial locations of the financed projects were mapped and verified on the ground. Researchers then established buffer zones of 1-25 km surrounding the project sites to represent the areas that might be impacted by the loans.

Researchers gathered data on three types of ecologically sensitive features: (i) critical habitats collected from United Nations Environment Program World Conservation Monitoring Centre; (ii) protected areas as designated by the World Database on Protected Areas; and (iii) distribution range maps for threatened species obtained from the International Union for Conservation of Nature Red List and from Birdlife International. The research team also obtained the most current and comprehensive map of Indigenous lands produced by Garnett et al.

In addition to data on China’s overseas finance, the research team also collected detailed information on World Bank development projects, including commitment amounts, sector designations, and their geolocational data. Such data were all gathered from the World Bank’s official website and AidData.

Significant socio-ecological risks posed by China’s DFI loan projects. Researchers found that 372 out of 594 loans (63% of China’s DFI loans) have project sites that overlap with critical habitats, protected areas, or Indigenous lands, with up to 24% of the world’s threatened species potentially impacted by the projects. Fifty percent of China’s loans have project sites overlapping with critical habitats, 30% with designated protected areas, and 24% with Indigenous lands. Furthermore, many project sites lie in close proximity to sensitive areas: 38% of areas located within 1 km of China’s DFI sites, for example, include critical habitats, protected areas, or Indigenous lands.

China’s DFI loans pose heightened concerns within several countries in particular: Ethiopia, Laos, and Argentina have more than 70% of their loans overlapping with Indigenous peoples’ lands. China’s DFI loans to Benin, Bolivia, and Mongolia all overlap with ecologically sensitive areas. According to analysis contained in this research, the greatest socio-ecological risks from China’s development lending are distributed across northern sub-Saharan Africa, Southeast Asia, and parts of South America.

Risks to biodiversity and/or Indigenous lands

Comparing project risks: China’s DFI and the World Bank. Researchers calculated multiple measures of risk for development projects financed by China’s DFI and the World Bank: average risk per site, average risk per loan, and maximum risk per loan. The research team found that while World Bank loans also present considerable risks to global biodiversity and Indigenous peoples, overall, a greater share of China’s DFI project sites overlap with critical habitats, Indigenous lands, and distribution ranges of threatened species.

Comparison of risk per site to critical habitats, Indigenous lands, protected areas, and threatened species 

The need for increased risk mitigation. China has demonstrated strong political will to address social and environmental concerns over its overseas development finance, as evidenced by a series of recent guidelines such as the Belt and Road Ecological and Environmental Cooperation Plan and the Guidance on Promoting Green Belt and Road. Yet implementing these guidelines is far from straightforward. In particular, researchers highlight China’s willingness to defer to host-country standards on socio-ecological issues, which may leave their policy banks vulnerable to attracting high-risk loan proposals declined by other financial institutions. Assessments reached by this research suggest that China’s policy banks might consider undertaking proactive planning, management, and increased staffing to realize sustainable development goals and work more closely with borrowing countries to establish stricter risk mitigation standards.