China’s Global Power: Estimating Chinese Foreign Direct Investment in the Electric Power Sector

For many developing countries, inward foreign direct investment (FDI) fills the local financial gap in the power sector and helps fuel the economy. In the 1980s, China suffered from severe power shortages, as state investment alone could not meet soaring demand for electricity. The government later removed its regulatory barriers and restructured feed-in-tariff schemes to allow and attract private investment and FDI. China is now both the major destination of FDI inflows globally and the second largest country of origin after the United States for FDI outflows. Through outward direct investment, Chinese corporate investors own a diverse portfolio of power projects in both developing and developed countries.

In a new journal article published in Energy Policy, Zhongshu Li, Kevin P. Gallagher and Denise L. Mauzerall analyze the spatial and technological distribution of China’s overseas electric power investments around the world, and the pollution intensity of Chinese coal fired power plants relative to those held by non-Chinese entities. By 2017, China invested a total of $115 billion in 81 GW of power generating assets overseas. Chinese investment is largely found in emerging economies and is dominated by coal, gas and hydropower.

Main findings:

• Chinese firms hold approximately $115 billion in electric power assets globally, with an average of 73 percent ownership stake in a total capacity of 81 GW.
• Although China’s domestic power mix, measured by capacity, is currently dominated by coal (58 percent), China’s overseas portfolio is much more diverse and similar to the world average. Chinese power investments span the globe, but are largely found in developing countries, particularly in Asia and Latin America.
  • The vast majority of Chinese investment goes to coal (24.5 GW), gas (20.5 GW) and hydropower (18.1 GW), while the share of wind (7.2 GW) and solar (3.1 GW) is relatively small, but may be rising.
• China has invested overseas in all major types of electricity-generating assets and local resource availability strongly impacts Chinese technology preference, particularly for hydro- and coal power.
• In new greenfield investments, data indicates Chinese investors have utilized more efficient super-critical technologies than are typically used in a given recipient country. In terms of mergers and acquisitions (M&As), the vast majority of coal-fired M&As by both China and firms from the rest of the world are subcritical and tend to have less air pollution control technology than their Chinese counterparts.

Building on earlier work, this paper is the first to provide estimates of Chinese overseas investment in the global power market with technological and spatial information. China began investing in overseas power projects in 2003 and has been accelerating those investments ever since. In addition to compiling estimates of Chinese overseas investment, the research team proposes a consideration of a new accounting system to track such investments. The proposal may lend itself to broader global and policy analyses and would allow analysts and policymakers to obtain a more complete picture of a nation’s carbon footprint. This in turn, will also help hold China and other countries accountable for their CO2 emissions.