Interview: China’s position on ‘international climate finance’ ahead of COP29 

As part of the UN climate process, developed countries have been encouraged to donate “international climate finance” to help developing countries cut emissions and prepare for climate disasters. 

There has been a significant debate around whether China, as an increasingly wealthy developing country, should also contribute.  

China’s stance remains controversial. The country did not make a pledge to the “loss-and-damage fund” established at COP28, but has provided alternative climate funding through its South-South Climate Cooperation Fund and the Belt and Road Initiative (BRI).

Ahead of next week’s Bonn conference – where delegates are expected to negotiate climate finance – Carbon Brief has interviewed Li Shuo, head of the China climate hub at the Asia Society Policy Institute (ASPI), on the prospects for China’s climate contribution. 

Through talking to various climate experts, including Chinese government officials and consultants, Li examines the motives behind China’s current policy and strategy. 

He tells Carbon Brief that focusing on China’s ability to encourage investment that increases use of affordable low-carbon energy solutions worldwide could be one way to encourage the nation to play a greater role in international climate finance. 

The wide-ranging discussion with Li covered possible outcomes from this year’s COP29, prospects for US-China alignment, barriers and incentives for China to increase its financial contribution, and more:

The interview is reproduced in full, below, with some editing for clarification. An abridged version of the transcript has been published in China Briefing, Carbon Brief’s fortnightly email newsletter focusing on climate and energy developments relating to China. (Sign up for free.)

Carbon Brief: At the upcoming COP29 climate talks [in Baku in November], countries will be negotiating a new climate finance target to replace the current $100bn goal for developed countries. As the world’s biggest emitter, China is facing growing calls to start contributing. How is China responding to these calls?

Li Shuo: I think we are expecting a pretty heated debate at COP29. This is indeed one of the most controversial issues…that sees very strong division between the global south and the global north. And, of course, China is in this unique position: it is still firmly in the developing country camp, but, at the same time, it has become one of the largest economies and the largest emitters in the world. So with that, you know, there’s this argument that China should shoulder more responsibility internationally, including by providing future climate finance. 

The geopolitical environment is definitely not helping that transition: the tension between China and the west, and also this long-standing deficit on the part of the developed countries to deliver what they have promised. In addition to that, China’s domestic political and economic situation – let’s just say, it’s not at a particularly helpful moment for that transition to happen, [with] the domestic economic slowdown and so on. So we see a lot of risk factors. There is a critical need for other countries and China to work out, to align, ahead of COP29 on this issue. I think the next few months will be very important. 

CB: We have seen the US president Joe Biden ramp up tariffs across China’s “new three” types – electric vehicles, solar products and lithium-ion batteries. Some in China might argue that they are contributing to the energy transition by providing affordable, clean energy technology and, therefore, they shouldn’t be pressured to scale up climate finance. Do you think that this could be one of the arguments made by the Chinese negotiators against greater ambition at COP29?

LS: Well, I actually hope this could be one solution to the $100bn – or $1tn – NCQG [new collective quantified goal] question. I actually genuinely see that it could be a solution based on which we can find a path forward for China, but also the rest of the world.

The reason I say this is, indeed, as you outlined, in addition to China’s emission portfolio, the country also happens to be the biggest solution provider when it comes to low-carbon products. Of course, there are increasing political controversies around China’s position in this regard, in particular between the US and China. But, I think, if you were China, what you want to achieve is, of course, to make sure that you can continue to sell those low-carbon solutions to the rest of the world. 

So I would argue it actually works in China’s self-interest to make sure that they can facilitate the deployment of renewable energy in the global south. And, that way, I think it helps address the geopolitical problem, the so-called overcapacity [problem]. I mean, they realise that overcapacity always has two sides: oversupply and under-deployment. If you can tackle the same problem from the under-deployment side, that’s helping you geopolitically, but that’s also helping your businesses, that’s helping your companies in real ways. How do you do that? I think a role to provide finance or facilitate investment in developing countries is the way to achieve that. And if China can play a role in this regard, at the bare minimum, it is helping its own companies.

CB: Do you think that that would be politically viable? It would require the EU and the US signing off on saying: “Even though we’re launching investigations and tariffs into Chinese companies domestically, we support China’s global deployment of the ‘new three’ types.”

LS: I doubt it will be. I mean, if you’re talking about the NCQG package, I doubt the NCQG will ever be as explicit as China committing to support developing countries to buy China-made products…The decision will be made in more general terms; general enough to not agitate the US and the EU. In my mind, of course the NCQG discussion is still an ongoing one, but you might be familiar with this “onion” [structure] approach, a kind of multi-layer package. You have a core: public international finance. The controversial issue there is you will have a number, but who will be accountable for that number? That’s one thing. Then the second [layer] might be some sort of investment facilitation, if you will, and that’s where I think China can play a role. 

I think it is in that layer that I feel like this is actually the interesting ongoing geopolitical development. You can actually make a stronger argument [now] than before to convince China that they should really play a role in that second layer, because it is helping its trade and investment facilitation, in essence. It is helping them to sell to the rest of the world. So they should be willing to play a role there. As long as that provision is not framed as sensitive to the West, I think there is an area where the two sides can converge. Because at the end of the day, developed countries are also trying to gain more money, so that they can be a little bit less liable on the public international finance side. So there might be a point of convergence.

CB: While often not widely recognised, China has contributed climate funding via both its “South-South Climate Cooperation Fund” and the Belt and Road Initiative (BRI). How significant is this funding? 

LS: I think here, the number is even secondary – to both China and its international counterparts. I think the most important point here is to realise that China can actually contribute internationally to the decarbonisation agenda, and China is already doing so. So the political question then is not whether China will do it or not, but how can we make sure [it plays] a larger role? I think that is the key political point…You have a base to build on, we’re not talking about ‘ground zero’. 

But when you look at the details of what China has been doing, I think, number one, there has been real investment and financial support to the global south, primarily through the BRI. The BRI now is going into a second phase which will [have more emphasis on] quality and sustainability. I hope that actually will help China to do more to help developing countries to scale up their renewable energy development. I think the second part that China has been doing is more kind of public finance – south-south cooperation and so on. There, we didn’t do the number crunching, but if you look at [climate thinktank] E3G‘s report, their argument is that there has been a gap – a huge gap – between what China has committed to in the past and what it has actually delivered. 

In addition to that, we understand that the existing support and projects are done on a rather ad-hoc basis, lack a coherent strategy and are also constrained by various domestic policies. One example that I can give you – and this is well known as part of China’s south-south climate support – [is the] domestic procurement policies dictate that [what are] essentially development aid projects can only rely on Chinese-made products, which is fine, but a lot of times not services. So it has to be hardware – it has to be hardware – [which is donated] a lot of the time, not know-how. So that’s a problem. You would think that’s a problem that China can easily solve. And that’s also our argument. When we draw attention to the non-monetary actions needed, this is one of them – to reform domestic policies, so that it better facilitates effective action. I can also say, as a result of the domestic procurement policy, you see mostly solar water heaters, roadside solar-powered lights and quite a few satellites – literally satellites – being donated to the global south. These are the result of the rather outdated domestic procurement policies. So that needs to be reformed as well.

CB: Over the course of your research at ASPI on climate finance, you’ve spoken to various Chinese stakeholders – government officials, non-government organisations and industry participants. Do you see an increasing internal alignment to try and unify this kind of domestic policy-making process, in procurement or in other climate financing issues, or is there still a lot of fragmentation? 

LS: The answer is no, there’s still a lot of fragmentation. I think the tricky situation that we have now is, if you go back to the early 2010s, the country was on the rise and there was a “go out” spirit, very much accelerated by the BRI. And, as a result of that, you have the “hundred flowers blooming” [bǎi huā qí fàng 百花齐放, which here means various industries growing successfully], right? Different agencies are all handling some sort of overseas project, be they aid-, investment- or trade-related. So you end up with an unavoidable fragmentation. What has happened since a few years ago is that, all of a sudden, there is a declining political appetite – or ability – to go as much out as [there was] a decade ago. But you still have the various channels. So that’s where we are: a shrinking political will or economic ability, but still a very fragmented bureaucratic picture.

So how do we go from here? I think the country – and this is a bit of a side-note – I think the country is in a bit of a “soul-searching” mode. On one hand, dealing with lack of political will or economic capacity. On the other hand, there is still a deeply fragmented bureaucratic landscape. It’s a bit hard to see how the situation will improve in the very near term. Ideally, there needs to be a high-level signal to call for a coherent strategy, but I don’t think that signal will happen anytime soon. I also think – and this is also just a side-note – bureaucratic fragmentation is a long-standing consistent theme in Chinese political culture. It even goes beyond the specific issue that we’re talking about in this area of development aid. If you look at other areas, it’s a similar situation. Fragmentation is the rule, not the exception.

CB: What do you think could be some practical short-term changes to improve the BRI as a vehicle for climate finance?

LS: I think this is increasingly something many organisations are looking at: namely, the Chinese role in helping developing countries. I think primarily – let’s just use southeast Asian countries as an example, looking at how to help southeast Asian countries to scale up their renewable energy deployment. The complicating factor there is it is not a one-party exercise. It’s not as easy as saying China has the equipment, it has the political will to sell the equipment, and the equipment will somehow be installed in the Philippines or Indonesia. The recipient country also plays a very important role providing the policy framework, the political economic environment in which those projects will be developed. There are still many gaps in those environments. It takes two to tango. 

The question is what role can China play to facilitate a better environment for its own engagement with those countries. And that role will increasingly require China to engage, not only on the commercial level – providing the hardware, investment or construction – but also engage with the policy framework of those recipient countries. That’s going to take some time, but I think that’s increasingly where China needs to go. The good news is, at a very high level, all these countries have committed to various decarbonisation courses, and we have committed too, also, at COP last year, to the tripling of renewable energy. So how do we operationalise those very high-level visions at the ground level in a country like Indonesia, and what’s China’s role in it?

CB: This question might lean towards over-generalisation, but wouldn’t a counter-argument be that China is an attractive investment partner precisely because it doesn’t [engage with the policy framework of] recipient countries? Is there an incentive from the investment recipient’s side to make China have these higher standards?

LS: Again, it’s a two-way tango. But I think the good news is, number one, on the Chinese side – at least when it comes to the energy sector – China has already committed to not support coal-fired power plants. So, in a way China is going there without principles, without any kind of pre-judgments, but, in a way, China has already made a very strong rule for itself with “no coal”. And this has been largely implemented – with a few exceptions here and there, but we’re certainly not talking about what happened in the 2010s: 10 coal-fired power plants here in Indonesia, [and] on another island in Indonesia five more. That’s not where we are. 

So, in a way, that question has really been partly solved, by a self-imposed rule from China and we should give them credit for that. They’re trying to move to the “greener” side. But, indeed, how do we also accelerate the necessary policy framework on the part of developing countries? This is a critical area.

I would just say we’re still quite new in this exercise. China only announced not to support coal [three] years ago. We’ve only made big strides when it comes to the global energy transition and the big visions at COP28 half a year ago. It takes a long time for domestic policy reforms in countries, such as the Philippines and Indonesia. There are also physical infrastructure constraints in those countries. So it takes time for the two sides to work things out. But I think the general mission, or the general direction, is there. It’s not a “whether” question, but a “how” question: how can China accelerate its cooperation with Indonesia, and vice versa.

CB: How do you think that requests for China to contribute to climate finance, be they made by Western countries or by potential [recipient] countries, could be more successful? And, then, which countries do you think could be the most effective and the most amenable partners?

LS: When you talk about UNFCCC climate finance, it is an intrinsically more political debate. The core of the question is: how does China see itself in relation to the rest of the world, and in relation to other traditional donor developed countries, right? Does it see itself graduating to shoulder the same, or similar, responsibilities? Or does it see itself as still not there yet? And how will China think about the lack of delivery of the traditional donor countries [of the $100bn climate finance goal]. This is the core of the question.

I think, going forward, messages that are crafted in a more inviting way will probably work better with China. But that’s precisely the challenge. The political environment that we have will almost prevent that conversation from happening. That’s why the NCQG donor base question will be such a difficult one. I think, in an ideal world, a facilitating, inviting political environment, is what you want to create to facilitate higher aspiration on the Chinese part over time.

CB: Could you explain what you mean by “inviting”? 

LS: I think there are two examples. One is simply how we talk about this issue, right?…If your framing is ‘China needs to pay’, or ‘we believe China is ready’ or ‘China is responsible’, then I think politically this will become very difficult for China. Because a lot of the framing – even just enlarging the donor base, that phrase – if you think about it, it assumes kind of a moral high ground. Somebody is saying we need to enlarge the donor base: who is that somebody? That is somebody who thinks they occupy a moral high ground. That framing also implies a legal argument – there’s a legal argument to actually formally enlarge the donor base, which I think China will not agree with.

Enlarging the donor base also carries this undertone that “we want more people to pay so that we can pay less”, if you think about it. It’s very – given the current geopolitical environment – it’s very easily perceived as just an extension of the political tension between China and the west, an extension to the climate finance field. So, given all these reasons, we just need to find a different way, a better way, to talk about this issue. We’re not trying to shy away from this issue, but [we need] a better way to talk about it. 

The other example that I can give you is not narrative or framing, but concrete project-level action. [Our research has looked at] whether trilateral cooperation would be possible – if not solving all the problems, at least a few demonstration projects that will convey a political signal that we’re all in. This is not about shying away from our responsibility, but it’s all hands on deck: everybody trying to play to their strengths and play a role. What we mean by trilateral cooperation is one side, of course, is the recipient country – climate-vulnerable countries – and China and traditional donor countries. We do believe there could be areas where China and other traditional donor countries can complement each other. They need to work out the specific areas where they share synergy. 

From our conversation with practitioners, I think they all realise that this is a very good idea, there is a political will to embrace that model. But when it comes to the practical details, I can give you one example: if you want to play into the strengths of China’s ability to deliver low-carbon products, and it strengths to be able to get those projects deployed very fast, and you want to tap into the financial resources that developed countries have – you could easily imagine that this will not work for developed countries, because they are essentially channelling their taxpayer money to buy China-made products. That’s a political no-go. [Despite] the desire [for cooperation] and everybody seeing the benefit of trilateral cooperation, I also wouldn’t want to underestimate the practical challenges – there are a lot of constraints, a lot of them imposed by the current geopolitical environment.

CB: Something that struck me, whilst I was looking more into US-China moves on climate finance, is that the South-South Climate Cooperation Fund was actually announced by Xi during a press conference at the White House in 2015. How would you say that conditions in the US-China dynamic have changed since then? And is there a possibility we could ever get back to that 2015 cooperation?

LS: I had the same lightbulb moment when I reviewed what happened in 2015. The two countries actually came together on finance and they actually announced [funds worth] the same amount of money to developing countries. What signal does that send? That signal says: “Hey, China believes it is shouldering the same responsibility as the US when it comes to supporting the global south”. That was what happened nearly 10 years ago. That’s striking if you think about it now. We’re in a very different time now. 

I think the G2 (the US and China) angle is critical because, if you think about it, for the last couple of COPs, I think this one [COP29] is probably the best recipe for huge tension between the US and China. Given the agenda set for this COP: it is finance, right? I’m not saying for the last couple of COPs there were no controversial issues between the G2, but this one is particularly controversial. If one side or both sides want to weaponise this issue, they can find all the ways to weaponise it and blow up the COP. 

This year we are also facing a unique challenge, which is we’re in a US election year, and we also have two [new] climate envoys on both sides. So [this is] different from the last couple of years, when at this point in the year you probably already knew that [former climate envoys] John Kerry and Xie Zhenhua are working on something, trying to resolve their differences before the COP. We don’t have clarity on that at this point in time. 

In our view, the two sides will definitely need to find a minimum level of alignment on the NCQG question, on the donor-base question. That’s a necessary condition for the COP to be a smooth-sailing one. Will they be able to do that? I think that’s the real question. I can’t imagine a COP which features the US sitting on one side of the table and the Chinese sitting on the far other side. That will make for a very contentious COP. I hope that they get this message that it’s actually also in their interest to find alignment in advance. We’re also – to add one more thing – dealing with a rather inexperienced COP president. So if you want to make the job easier for them, you’d want some big power alignment ahead of time.

CB: We’ve talked about big changes regarding the negotiation teams, the changes due to the fact the US election is coming up. But we’ve also seen significant changes in China’s economic situation, especially compared to 10 years ago. You interviewed various people on this impact, in particular. What are the barriers in their view to China scaling up current climate financing and future pledges?

LS: I think the economic challenges are high on people’s mind and, politically, it imposes a very strong mental barrier – I think we felt this very strongly in our conversations – mental barriers with our Chinese interlocutors, for an idea that would push them to do more internationally. It’s just very difficult to achieve that now. 

That’s the reality that we need to deal with. That is also why our sense is that there are indeed very real and challenging barriers for China to scale up its international climate finance in the near term. I don’t think we can be naive about it. But, that said, we also tried to find ways to ensure that [China] will actually be able to do more and achieve more in practice. That’s why [ASPI] also made the suggestion that we can drive an even stronger emphasis on sustainability in China’s existing international infrastructure initiatives – such as the BRI. I think that’s a pragmatic way to actually ensure more finances go into the low-carbon dimension. 

And I also think – one more piece of advice here – is that people who are working at the international level when it comes to climate finance tend to be COP-oriented. People’s timeframes when thinking about their strategy is on a yearly basis. But I think we also need to realise that this is a multi-year exercise. There are certain political conditions that you will need to build over time to convince China or facilitate China to do more. 

So what are the multi-year investments? What are the seeds that you can plant now to cultivate over time? That’s the background against which we make recommendations such as…more sharing of knowledge and experience from traditional donor countries to China, on how they have managed their climate aid – what’s the right institutional setup; how they developed their strategy; how were projects selected and developed; and their experience working with recipient countries…You guys are familiar with, for example, the ETS [China’s emissions trading system], right? It’s a huge undertaking to build up the technical capacity in China – there has been a decade of capacity-building support, from the European side primarily. I would say China’s development of international aid is an exercise on a similar scale, if not even larger.

CB: Recently, the two new climate envoys, Liu and Podesta, met in the US. Can you share any signals from their meeting about how US-China interactions might look – not just on climate finance, but across the board?

LS: I think I’ll just say three things. Number one: I think this visit proves that there is still willingness between the two countries to engage with each other, there is still a strong commitment to implement what they agreed last year in the Sunnylands agreement. Liu’s visit in DC, we should note, is the meeting of the bilateral working group that the Sunnylands agreement re-established. So this is a continuation and the implementation section. As you saw in the readout, there was also progress made during his visit in DC. So that’s message number one. I should also add that the two envoys are, I think, also committed to learn from what has served this relationship in the past, including by building a personal relationship with each other. They had a working lunch and then reportedly John Podesta also hosted Liu and part of his team at his house for dinner.

The second message is that, despite all of the shared commitment to implement and to continue their engagement, there are many differences and contentious points. Many of those disagreements are structural – disagreements for which it is very difficult to see any near-term solutions or breakthroughs. The US concerns over China’s energy sector and the continued investment in coal, for example. The gap between the US’s expectations on China’s NDC [nationally determined contributions] and what China is willing to commit to. And, on the Chinese side, their scepticism about the US’s ability to deliver what it has promised, both when it comes to climate emission reduction targets, and also climate finance. And, added on top of that, of course, is the trade issue. So there are still many disagreements. 

I think this dynamic, this disagreement, also puts the bilateral climate relationship firmly into the pattern of the rest of the bilateral relationship. What I mean by this is: if you look at ongoing bilateral dialogues on finance, trade and many other issues, the pattern is very clear: the two sides are committed to engage with each other; keep communication channels open; they will meet, either in China, or in the US, or in third countries; and, when they meet, there is normally a set of standard talking points without too many substantive agreements, let alone progress. 

I think this is a dangerous pattern, if not for other issues, at least for climate change – because this issue is a time-bound, global, environmental crisis that requires real solutions and real progress between the two countries. And we still haven’t seen the political courage to set this issue aside so that, in an overall competitive relationship, progress can be made on certain issues: issues that are in the shared interests of both countries, but also of the rest of the world. We haven’t seen the political courage to allow that to happen and allow progress in a small number of issues. So that, I think, is very concerning. But, to be honest with you, I think this will be the pattern for the rest of the year, in the run-up to the [US] election. 

That brings me to my third point, which is looking ahead. If some of the structural disagreements cannot be addressed between the two countries, there are at least a few issues on the multilateral agenda – in particular, climate finance – that would require the two countries to work together to bridge their differences and to find minimum levels of alignment ahead of the COP. The question is will they be able to do that? I am not entirely sure what signals this trip has sent – this is something that I think will require all of our attention. I think, fundamentally, on climate finance, it works in both countries’ interest if they can find alignment before the COP.

CB: Great, thank you.

LS: No worries, anytime.