China’s just-completed conference touting its Belt and Road initiative certainly looked like a triumph, with Russian President Vladimir Putin playing the piano and Chinese leaders announcing a string of potential deals and massive financial pledges.
Underneath all the heady talk about China positioning itself at the heart of a new global order, though, lies an uncomfortable question: Can it afford to do so?
Such doubts might seem spurious, given the numbers being tossed around. China claims nearly $900 billion worth of deals are already under way, with estimates of future spending ranging from $4 trillion to $8 trillion, depending on which Chinese government agency is doing the talking.
At the conference itself, Chinese President Xi Jinping pledged another $78 billion for the effort, which envisions building infrastructure to link China to Europe through Asia, the Middle East and Africa.
From no other country in the world would such pledges be remotely plausible. Yet even for China, they’ll be difficult to fulfil without clashing with the country’s other objectives.
The first question is what currency to use for all this lending. Denominating loans in renminbi would accelerate China’s stated goal of internationalizing its currency. But it would also force officials to tolerate higher levels of offshore renminbi trading and international price-setting. So far, they’ve shown little appetite for either.
Additionally, countries along the Belt- and-Road route would need to run trade surpluses with China in order to generate the currency needed to repay such loans. In fact, as Bloomberg Intelligence economist Tom Orlik has noted, China ran a $250 billion surplus with Belt-and-Road countries in 2016. It will be mathematically impossible for Sri Lanka and Pakistan to repay big yuan-denominated loans when they’re running trade deficits with China close to $2 billion and $9 billion, respectively.
Financing projects in dollars is no panacea either. Unless China conducts US- dollar bond offerings to fund these investments, it’ll have to tap its official foreign-exchange reserves. Those now hover around $3 trillion.
That sounds like a lot. But outside estimates suggest anywhere from a few hundred billion to nearly $1 trillion of that money is illiquid. China needs nearly $900 billion to cover short-term external debt and another $400-800 billion to cover imports for three to six months. Pouring additional billions into Central Asian infrastructure projects would only tie up money China needs to defend the yuan.
And, borrowers would need to run significant dollar surpluses in order to repay dollar-denominated loans. Obviously, not every country can do so, or undervalue its currency to try and build up a surplus.
Beyond the specific mechanisms, it’s unclear whether China has the financial capacity to lend at these levels to borrowers of dubious creditworthiness. As French bank Natixis S.A. has noted, in order to finance $5 trillion in projects, China “would need to see growth rates of around 50 per cent in cross-border lending”.
This would wreak havoc on Chinese creditworthiness and raise external debt from a “very comfortable” level (around 12% of gross domestic product) to “more than 50 %” if China can’t bring in other lenders.There are a couple ways around these difficulties.
First, China could use this as an opportunity to liberalize the renminbi fully, allowing yuan to flow out of the mainland into countries targeted for investment.
However, given Chinese leaders’ worries about a plunge in the currency and the impact on a rickety domestic financial system, this seems unlikely.
Second, China could opt to bring in other countries and multilateral institutions to share in the task of financing projects.
Chinese leaders say they support this (just as they favour internationalizing the yuan); Xi has even welcomed involvement by rival Japan. But in the past they’ve refused to co-finance projects with international institutions such as the Asian Development Bank and have been prickly about working with other countries, even supposed friends like Russia, on overlapping projects.
Meanwhile, European countries refused to sign the final statement at last weekend’s conference after it omitted language on corruption and governance; the US, too, has been stand-offish.
Enticing Western countries and banks to finance projects that haven’t been suitably analysed and vetted will be an uphill task.
There are two more likely, if less appealing, outcomes. China could stretch public finances even further to fund projects its leaders admit will likely lose money. For the moment, they seem willing to lend in dollars even if it ties up hard currency.
But it’s almost certain that the amount of money that makes its way into Belt-and-Road projects will be significantly lower than advertised.
Grand in ambition but short on details, Xi’s sweeping initiative may be better thought of as a “philosophy” or “party line” rather than a fixed commitment. One thing’s for sure: It’s going to be a lot harder than putting on a conference.
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- Lowering Emissions by Accelerating Forest Finance (LEAF) Coalition, a collective of the United States, United Kingdom and Norway governments, came up with a $1 billion fund.
- LEAF is supported by transnational corporations (TNCs) like Unilever plc, Amazon.com, Inc, Nestle, Airbnb, Inc as well as Emergent, a US-based non-profit.
- The world lost more than 10 million hectares of primary tropical forest cover last year, an area roughly the size of Switzerland.
- Ending tropical and subtropical forest loss by 2030 is a crucial part of meeting global climate, biodiversity and sustainable development goals. Protecting tropical forests offers one of the biggest opportunities for climate action in the coming decade.
- Tropical forests are massive carbon sinks and by investing in their protection, public and private players are likely to stock up on their carbon credits.
- The LEAF coalition initiative is a step towards concretising the aims and objectives of the Reducing Emissions from Deforestation and Forest Degradation (REDD+) mechanism.
- REDD+ was created by the United Nations Framework Convention on Climate Change (UNFCCC). It monetised the value of carbon locked up in the tropical forests of most developing countries, thereby propelling these countries to help mitigate climate change.
- It is a unique initiative as it seeks to help developing countries in battling the double-edged sword of development versus ecological commitment.
- The initiative comes at a crucial time. The tropics have lost close to 12.2 million hectares (mha) of tree cover last year according to global estimates released by Global Forest Watch.
- Of this, a loss of 4.2 mha occurred within humid tropical primary forests alone. It should come as no surprise that most of these lost forests were located in the developing countries of Latin America, Africa and South Asia.
- Brazil has fared dismally on the parameter of ‘annual primary forest loss’ among all countries. It has lost 1.7 mha of primary forests that are rich storehouse of carbon. India’s estimated loss in 2020 stands at 20.8 kilo hectares.
- Between 2002-2020, Brazil’s total area of humid primary forest reduced by 7.7 per cent while India’s reduced by 3.4 per cent.
- Although the loss in India is not as drastic as in Brazil, its position is nevertheless precarious. For India, this loss is equivalent to 951 metric tonnes worth carbon dioxide emissions released in the atmosphere.
- It is important to draw comparisons between Brazil and India as both countries have adopted a rather lackadaisical attitude towards deforestation-induced climate change. The Brazilian government hardly did anything to control the massive fires that gutted the Amazon rainforest in 2019.
- It is mostly around May that forest fires peak in India. However, this year India, witnessed massive forest fires in early March in states like Odisha, Uttarakhand, Madhya Pradesh and Mizoram among others.
- The European Union’s Copernicus Atmospheric Monitoring Service claimed that 0.2 metric tonnes of carbon was emitted in the Uttarakhand forest fires.
- Implementation of the LEAF Coalition plan will help pump in fresh rigour among developing countries like India, that are reluctant to recognise the contributions of their forest dwelling populations in mitigating climate change.
- With the deadline for proposal submission fast approaching, India needs to act swiftly on a revised strategy.
- Although India has pledged to carry out its REDD+ commitments, it is impossible to do so without seeking knowledge from its forest dwelling population.
Context:-
At the recently concluded Leaders’ Summit on Climate in April 2021, Lowering Emissions by Accelerating Forest Finance (LEAF) Coalition, a collective of the United States, United Kingdom and Norway governments, came up with a $1 billion fund plan that shall be offered to countries committed to arrest the decline of their tropical forests by 2030.
[wptelegram-join-channel link=”https://t.me/s/upsctree” text=”Join @upsctree on Telegram”]What is LEAF Coalition?
Why LEAF Coalition?
Brazil & India
According to the UN-REDD programme, after the energy sector, deforestation accounts for massive carbon emissions — close to 11 per cent — in the atmosphere. Rapid urbanisation and commercialisation of forest produce are the main causes behind rampant deforestation across tropical forests.
Tribes, Forests and Government
Disregarding climate change as a valid excuse for the fires, Indian government officials were quick to lay the blame for deforestation on activities of forest dwellers and even labelled them “mischievous elements” and “unwanted elements”.
Policy makers around the world have emphasised the role of indigenous tribes and local communities in checking deforestation. These communities depend on forests for their survival as well as livelihood. Hence, they understand the need to protect forests. However, by posing legitimate environmental concerns as obstacles to real development, governments of developing countries swiftly avoid protection of forests and rights of forest dwellers.
For instance, the Government of India has not been forthcoming in recognising the socio-economic, civil, political or even cultural rights of forest dwellers. According to data from the Union Ministry of Tribal Affairs in December, 2020 over 55 per cent of this population has still not been granted either individual or community ownership of their lands.
To make matters worse, the government has undertaken systematic and sustained measures to render the landmark Scheduled Tribes and Other Traditional Forest Dwellers (Recognition of Forest Rights) Act, 2006 ineffective in its implementation. The Act had sought to legitimise claims of forest dwellers on occupied forest land.
Various government decisions have seriously undermined the position of indigenous people within India. These include proposing amendments to the obsolete Indian Forest Act, 1927 that give forest officials the power to take away forest dwellers’ rights and to even use firearms with impunity.
There is also the Supreme Court’s order of February, 2019 directing state governments to evict illegal encroachers of forest land or millions of forest dwellers inhabiting forests since generations as a measure to conserve wildlife. Finally, there is the lack of data on novel coronavirus disease (COVID-19) deaths among the forest dwelling population;
Tardy administration, insufficient supervision, apathetic attitude and a lack of political intent defeat the cause of forest dwelling populations in India, thereby directly affecting efforts at arresting deforestation.
Way Forward
Tuntiak Katan, a global indigenous leader from Ecuador and general coordinator of the Global Alliance of Territorial Communities, aptly indicated the next steps at the Climate Summit:
“The first step is recognition of land rights. The second step is the recognition of the contributions of local communities and indigenous communities, meaning the contributions of indigenous peoples.We also need recognition of traditional knowledge practices in order to fight climate change”
Perhaps India can begin by taking the first step.