Guest post by Simon Zadek, senior fellow at the Global Green Growth Institute
The annual, Chinese-hosted World Economic Forum “Summer Davos” – which took place last week in rainy Dalian – felt like a long-running rehearsal of a day not (quite) yet arrived. Chinese participants practice their global statecraft, and foreigners practice acknowledging this emerging truth. Both work hard to interpret the practical implications of this transformation in global affairs.
Normalisation is in the air. Chinese officials and business leaders today are more comfortable than ever openly discussing almost everything, from food security to water scarcity and the need to adjust – in the 12th Five-Year Plan and beyond – a development model that on current trends does not add up, a point made by many Chinese participants from premier Wen Jiabao down. Foreigners in turn are more willing to raise tricky issues and expect more than a blocking response from their hosts.
This is good news, strengthening the basis for many levels of less formal and more productive international co-operation. The enormous size of everything that is Chinese still counts almost reverently. But knowledge, competencies and collaboration in addressing the more troubling consequences of China’s rise are increasingly valued currencies.
If China’s trade surplus has to date symbolised its emerging place in the international economy, then the next decade’s symbolic and practical focus will be its surging outward investment (OI). OI today is a modest US$350 billion or so, barely a third of the US$1 trillion of foreign direct investment (FDI) in China. But in an eloquently delivered speech on China’s position on everything from European debt to climate change, Wen Jiabao predicted with quiet pride that dollar volumes of OI would be on a par with (still growing) FDI within just a few years.
With almost US$3.5 trillion in foreign reserves, and a profit-hungry financial and business community, there is little doubt as to the logic and possibility of this staggering growth.
The trillion-dollar question is whether this immense flow of capital into the global economy can be harnessed to support international green growth, especially in other developing countries. Or will it remain neutral, or worse still be seen by host countries as a “necessary evil” as the developed world – the traditional source of capital – stagnates?
This was the substance of one private dinner discussion made up of senior Chinese officials and business leaders alongside Korean, Japanese, European and North American participants. The policy focus of the discussion recognised the dangers of leaving enterprise alone to determine the “green or not” decision. Short-term profit criteria might deliver results that would damage the broader prospects for China’s OI, and for the global economy in making the transition to a sustainable economy.
Five possible Chinese policy instruments were identified that might together promote “green outward investment”:
1. Accelerate and integrate the ongoing work across the Chinese government to establish social and environmental guidelines for Chinese companies investing overseas.
2. Extend the domestic experiments in eco-industrial parks to the growing number of Chinese-sponsored overseas development zones, for example in Africa and Asia.
3. Take a leadership role in establishing a positive environmental focus in bilateral and plurilateral investment agreements involving China.
4. Support governments of countries in receipt of large volumes of Chinese OI in embedding such investment into domestic green growth strategies.
5. Establish an international green growth fund with an offering of green bonds to provide long term international finance for publicly and privately driven green infrastructure (e.g. power, transport and buildings).
This year’s Summer Davos witnessed a growing normalisation of international exchange across a surprisingly wide range of topics. Yesterday’s normal in international markets will not, however, suffice.
Let’s hope that this progress signals a “new normal” that places the green-growth aspirations embraced in China’s 12th Five-Year Plan, and the role of government in advancing this agenda, at the heart of China’s growing business presence in international markets.