Coercive Coal: Chinese Energy Investment in Developing Countries
Coauthor: Kedar Pandya
From Brazil to Bangladesh, Chinese investment is playing a critical role in building coal power infrastructure throughout the developing world. Although these investments may appear to be benign, they actually further economic vulnerability of target states enhancing the effectiveness of China’s coercive leverage.
While China’s ever-growing presence on the global stage has increased country’s dependence, excessive dependence furthers the vulnerability of target states to China’s foreign policy objectives. This vulnerability, also known as asymmetric interdependence, “provides Beijing with coercive levers that can become viable policy options if and when situational factors allow Beijing to pursue desired policy objectives against a target state.” The higher the level of asymmetry in the relationship between China and its target states, the more effective coercive leverage is.
Chinese coal power investment in developing countries increases the asymmetry between the two, making coercive leverage a more effective tool. By July 2018, China committed or offered funding for 26% of all new coal plants throughout the world. The geographic distribution of investment is centered around East Asia, with 48% of plants being built by Beijing, with an additional 34% built in West Asia. Nearly three-fourths of all coal plants in developing countries are contracted out to Chinese companies, while the other fourth constitute investments initiated by China, which implicitly speak to the asymmetric relationship between the two.
The timing, nature, and method of coal power investment “threaten[s] to lock host countries into high-carbon infrastructure” leading to total Chinese power dependence. Furthermore, China’s rise in investment took place as much of the rest of the world withdrew from coal investments. By the end of 2018, the World Bank eliminated coal plants from its investment portfolio and most multilateral development banks followed suit. The international departure coupled with China’s recent advances allows Beijing to become a “lender of last resort” for many developing countries.
Meanwhile, the current nature of Chinese coal power investment leads to long-term dependence, increasing the vulnerability of the countries Beijing targets. Chinese coal investment usually includes rail and port infrastructure as well as massive mining facilities. These projects make target countries overly dependent on coal for their energy needs, preventing them from making a transition to renewables in the future. Difficulty in transferring away from coal can exclude other investors who might balance China’s role. By excluding other investors, China cements itself as the dominant economic actor in many of these countries for at least the near future, making them more vulnerable to the possibility of coercion.
In addition, the method of Chinese coal power investment furthers the dependence of developing countries on China. At least 20% of China’s coal investment utilizes Chinese labor, materials, and plans in the construction of power plants, while almost a quarter of all plants constructed involve joint ownership with Chinese corporations. By maintaining control of all aspects of the investment, China becomes the primary source of power fueling developing states, furthering Beijing’s leverage.
By taking advantage of international trends, investing in associated infrastructure, and maintaining majority control over investments, Beijing creates long-term dependency through coal investment in developing nations. This threat is not just a possibility for the future, but is starting to be realized in many target states. China is working on plants which will produce 50% or more of coal power capacity in South Africa, Pakistan, Bosnia and Herzegovina, Bangladesh, Egypt, and Zimbabwe. Chinese built plants produce 100% of coal power capacity in Kenya, Ghana, Ivory Coast, Kazakhstan, Romania, the Democratic Republic of the Congo, Madagascar, and Georgia.
Despite its possible effectiveness, changes in reception show that Chinese investment in coal is slowing or reversing. In April of 2020, Egypt cancelled a massive coal project due to “over-capacity concerns and a growing preference for renewable energy.” Chinese coal investment could also be a paper tiger; for every one gigawatt implemented two have been cancelled. Other countries are becoming wary of Beijing’s coal overtures, fearing the possibility of overcapacity or the environmental impact of new coal investment.
However, the existing dominance of Chinese investment in coal for power production provides ample room for Beijing to pursue a coercive foreign policy. China’s coal investments naturally result in a higher level of asymmetric interdependence between developing countries and Beijing. Increased asymmetric interdependence makes coercive leverage more effective as a tool of Chinese foreign policy which Beijing is highly likely to employ.
Kedar Pandya co-authored this article with Benjamin Zimmerman. Kedar is an undergraduate History and Political Science double major at Texas A&M University where he focuses on Asian security and Chinese interests in East Asia and India. This article is a part of a broader effort to analyze Chinese economic statecraft at the Bush School of Government.