China provided an estimated $3bn per year in climate-related finance to developing countries through bilateral and multilateral channels over 2015–2021, according to new analysis. This makes China a significant global contributor, despite it having no formal obligation to provide such finance under the UNFCCC framework. As the world debates how to mobilise at least $1.3tn per year in climate finance to developing countries by 2035, understanding how China contributes is of acute relevance. Notwithstanding its welcome efforts to date, China can take practical steps to improve the governance, transparency and quality of its finance.
Our report seeks to paint a comprehensive picture of how China manages its climate-related finance to developing countries, drawing on official announcements and documentation from Chinese authorities, supplemented by interviews with experts. To quantify and characterise finance flows we analysed third-party data from AidData and the OECD.
China was the 6th largest provider of climate-related finance to developing countries over 2015–2021
Our analysis of third-party data showed China delivered an estimated average of $3bn per year to developing countries through bilateral and multilateral channels. This puts China well among the top OECD-member countries in terms of finance levels.
This overall estimate is the combination of results from analyses of bilateral climate-related finance (AidData) and climate-related finance through multilateral institutions (OECD) over the period covered by both sources, namely 2015–2021.
China’s position in this ranking fell over time. Whereas the financing from other countries in the top 10 trended upwards, China’s contributions were on a downward trend from 2018. This was driven primarily by a reduction in bilateral climate-related finance, where the reduction in finance through public institutions was particularly sharp.
Key findings related to bilateral climate-related finance flows (over 2010–2021) include:
- 73% of finance was allocated to mitigation projects, although the distribution by number of projects was more balanced.
- Climate-related bilateral finance made up only about 2% of China’s overall international development finance over this period.
- Almost all (96%) finance was in the form of loans, and over 40% was channelled to Africa.
China’s governance of its climate cooperation with developing countries is difficult to map
Public information on the bodies involved and their responsibilities is fragmented, and cross-government coordination is a work in progress. Managing and financing international climate projects and engagement with developing countries through dispersed efforts hinders the effective use of funds and other resources. It also prevents policymakers from having a clearer overview, which makes it difficult for project implementers to collaborate efficiently with partners.
We identified 12 central government departments and agencies that hold responsibilities relating to climate cooperation with developing countries. The Ministry of Ecology & Environment was given overall leadership in this area in 2018, with budget allocated by the Ministry of Finance. Official budget records do not provide sufficient granularity to quantify and characterise China’s climate-related finance to developing countries, making it necessary to rely on third-party data.
Recommendations for China’s approach to climate-related finance
- Stabilise climate-related finance flows. China’s climate related financing to developing countries has reduced over the period analysed. Stabilising the finance flows would signal enduring commitment, inspire greater ambition in recipients’ national climate agendas, and encourage developed economies to uphold their own obligations.
- Enhance transparency and data alignment. Aligning reporting with the Paris Agreement Enhanced Transparency Framework (ETF) would ensure comparability with global efforts, facilitate tracking of contributions towards the $1.3tn goal, and bolster trust in multilateral cooperation.
- Balance adaptation and mitigation funding. Almost 75% of bilateral finance over 2010–2021 was for mitigation projects, but in most developing countries adaptation needs are greater. Rebalancing its finance towards adaptation will allow China to draw on its own experience with disaster risk reduction and nature-based adaptation solutions.
- Align strategically with a new generation of country platforms. China can enhance the impact of its climate-related finance by prioritising alignment with a new generation of plurilateral country platforms with credible decarbonisation strategies, programmatic financing structures, and clear implementation frameworks.
This report is a joint publication from E3G and ODI Global. Yue Cao is a Research Associate at ODI Global specialising in sustainable finance and climate adaptation. Tony Kamninga is a Research Officer at ODI Global whose work encompasses tracking and advocating for development (climate) finance flows.
