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The policy directions for China's 14th Five-Year Plan (FYP:
2021-25), approved in March 2021, indicate a partial reversal in
the country's approach toward involvement in overseas initiatives,
while encouraging Chinese companies to invest in regions and
sectors that offer clear benefits to China's strategic goals.
China's renewed focus on its national objectives and the Asia
Pacific region, along with a focus on environmental sustainability
and climate change, could translate into a stricter selection
process of target markets and initiatives. Consequently, a shift in
priorities, including a revision of the scope of the Belt and Road
Initiative (BRI), may affect the largest beneficiaries of Chinese
support. The new BRI guidance for the 14th FYP highlights the
importance of commercial viability of the target projects,
indicating a leading role shift from the government to the
enterprises with more commercial orientation for BRI projects and
more diversified funding sources.
While most African and Middle Eastern countries have a
preliminary agreement with China and are part of the BRI, only a
handful of them were identified as "primary bilateral partners" by
the Chinese government, which IHS Markit defines as having a higher
diplomatic relationship than does a "strategic partnership" in
China's diplomatic hierarchy. The level of diplomatic relationship
has been a more important driver of China's involvement in the
region, provided that projects served national interests, despite
most of the initiatives carried out by Chinese players being
branded under the BRI.
Chinese energy investment is increasingly directed
toward "green" projects
Chinese companies have been heavily involved in the construction
of gas-fired and coal-fired plants across Africa and the Middle
East, as well as transmission and distribution infrastructure.
Along with the participation of China in most of the large hydro
projects in Sub-Saharan Africa, Chinese companies' presence in
power-related activities has facilitated a gradual expansion into
other sources of generation such as wind and increasingly solar
photovoltaics (PV). The availability of local resources has
directed the focus of the investment as support was given to local
governments to increase their power supply levels.
Chinese participation in the Middle East and North Africa's
power and renewables sector is gradually expanding to the
construction of power plants, and more recently, the strategic
acquisition of key assets. But Chinese players are likely to play a
much larger role in clean energy initiatives as the region has
embarked on an energy transition path.
African and Middle Eastern countries need substantial funds to
support long-term renewables buildout; they will have to raise more
than $230 billion in project financing, according to IHS Markit
estimates, to be able to achieve the expected level of renewables
additions projected in the long term. Multilateral institutions and
bilateral development support have been key and will likely
continue to represent the region's main source of financing in the
medium term. Yet, China has a big role to play in this context, as
Western economies, which sponsored large renewables projects in
countries like Egypt and Tunisia, are still dealing with the impact
of the COVID-19 pandemic on domestic economies while China has
largely recovered.
The positioning of Chinese companies along the value chain in
some of the key countries in terms of market potential will likely
lead to more participation in future projects. Their presence will
allow the consolidation of existing partnerships with local
players, thus facilitating an expansion of their role in future
initiatives.
