In the name of climate change, and by calling into play the European Investment Bank (EIB), the grand treasurers of the Union have been granting concessional loans to China, thus turning a blind eye to its blatant, in-your-face violations of human rights. While the money — a large drop of water on the balance sheet of the EIB — may not be the problem, it may be the prelude of a problem.

China, paradoxically, is a recipient of the EIB’s subsidized loans and the largest beneficiary in Asia, having borrowed €3.1 billion so far. A partnership which goes back to 1995, when the EIB helped fund the Pinghu Oil-Gas Field on the East China Sea, roads in Guangxi and a water treatment plant in Chengdu, a few years later

In addition, the EU Bank’s subsidized loans made in various parts of the world vastly benefit, in some instances, Chinese interests, as is notably the case in Greece, Senegal and Scotland (SDIC Power) where Chinese corporations grabbed the lion’s share of open tenders.

So how come?

At a glance, and beyond the official narrative – the “saving the planet” story spun ad nauseam by the bank (more on that to follow) –, the rationale is unclear and questions, still to be raised, far from incongruous.

How come, indeed, that Beijing – who just slashed €209 billion on its military last year (three times more than India), €167 billion on public security and surveillance; whose policy banks, meanwhile, lavish tens of billion of euro in commercial loans across Belt & Road, in a wild display of firepower – needs the money anyway?

How come, moreover, that a “strategic rival” – with whom Europe sustains an enormous trade asymmetry; whose party-state, via the Assets Supervision and Administration Commission (SASAC), owns and/or operates more than a dozen port terminals in Europe, and bought its way deep into the continent’s power grid (via a cryptic network of subsidiaries in Cyprus, Greece, Portugal, and Italy) –, finds itself the beneficiary of the Official Development Assistance (out of an allocated share of the EU’s Gross National Income), on an equal footing with Bangladesh, Nepal or Cambodia?

A credible narrative

On paper, the official argument underpinning the bank’s Chinese policy is undeniably coherent.

In line with the Paris Agreement, and pursuant to its External Lending Mandate (2014~20) – which requires the bank to allocate at least 25% in external lending to “climate change mitigation” –, the EIB offers to finance large swaths of “forest” in China, as part of its mission to “preserve the planet”.

The lender, moreover, is traditionally big on forestry. It already invested in a variety of ventures, from afforestation and land management to fiber processing, across Europe; so what’s more natural, for the “climate bank”, than to roll out its expertise in Asia and (hand in glove with Indufor, a Finnish private consultant) to extend credit worth €1.3 billion to China (for forestry alone, as of December 2020)?

Timberland, a fortiori, often makes for a bankable investment, as an “asset class” which, aside from the invaluable merit of shining green, offers both cash flow and capital appreciation.

As for the Chinese, it’s a no-brainer: after over-harvesting their forests for decades and ruining their own resources, the authorities, via the National Forestry and Grassland Administration, had hardly any choice, but to enforce massive afforestation plans (deforesting, meanwhile, other continents), in order to make up for the devastation — hence were they ever to decline some cheap loans, along with pro bono expertise, coming their way?

But here is the thing: not matter how coherent that narrative may be, it’s only one side of the story.

To see how, let’s consider two cases, whose lending volume accounts for roughly a third of EIB loans to China (in forestry alone). In Inner Mongolia, last year, the bank agreed to lend €300 million (at 1.8% over 25 years, with a 5-years grace) to “protect biodiversity and enhance resilience and adaptation to the negative impacts of climate change”, as the main purpose of the investments, states the EIB.

And yet, out of the 138 000 hectares in targeted land area, 83% pertains to “the upgrading of existing plantations with rare and precious tree species”, says Chinese state media.

In Anhui and Jiangxi, in 2018, it lent another €200 million, whose proceeds were to “establish 32 000 hectares of new forests and to improve the quality of 75 000 hectares of existing forests”.

But here again, “new forests” means “industrial plantations” for fiber and timber, indicates the project’s balance sheet (available on the Chinese web, in a commendable effort at transparency), in which evergreen hardwood and softwood trees are mixed with coniferous; while “existing forests”, on the other hand, refers to the “upgrading of existing plantations with rare and precious tree species”.


Because China — which has to import 50% of the wood it consumes (half of 631 millions m3 in 2019), in order to feed its large industrial base of paper and construction companies — is in a rush to reduce its over-dependence on foreign timber.

This is especially true for “rare and precious species”, as the country’s growing needs for tropical wood rely heavily on the global South, at a time when supply chains prove frustratingly unreliable.

Ecology, in other words, is only part of the objective, and by no means the only drive behind Beijing ’s afforestation policy, as China seek to implement a grand national plan which, conceptualized by the Chinese Academy of Sciences in 2014, is calling for the establishment of 20 million hectare of “strategic reserve forests” by 2035. The ultimate goal? Self-reliance in timber.

Which entails the following:

First, carbon sequestration rates are notoriously much lower in industrial plantations than in natural forests; and while disappointing figures in Inner Mongolia (11kt/a), for instance, are attributed by the bank to the trees’ low grow rate in the region, here again, that may be only part of the story.

In addition, had the EIB not stepped up, its Chinese projects might have been financed anyway, as they largely coincide with the pre-planned

“strategic forests”, in that the National Forestry and Grassland Administration has been steering the loans in their direction (by 2017, the overlapping reached 87% in land area and 86% in budget).

In such context, either the China Construction Bank (CCB), the Agricultural Bank of China (ABC) or the China Development Bank (CDB) would have filled in, as the latest recently announced it will inject €19.3 billion (Y150 billion) in forestry across the country by 2024.

One EU, two standards

In light of the above, how far-fetched is it to assume that, to some extent, “climate change mitigation” makes for a catchy slogan? A ploy to show grounds for the bank’s presence in China; some fantasy flag while, indeed, a less conspicuous deal is at stake?

For surely, vast and powerful forces must be at work here, and pressing privately to forsake the moral high ground, at a time when credible reports of abuses in Xinjiang, along with unassailable facts in Hong Kong keep surfacing, in that concessional loans are a political act.

This transpired from the fact that, when Russia annexed Crimea in 2014, the European Council swiftly called on the EIB to freeze all new funding to Russia. Crimes against humanity in Xinjiang, however (including forced abortion and forced labor), only elicit a symbolic blacklisting of four Chinese officials years later. Meanwhile, impervious, the bank’s Chinese operation is expanding.

In the name of “economic cooperation” indeed, (another selling point of the official pitch), the EIB has kept hyping up, in both words and deeds, the benefits to be derived from close ties with China and, by all accounts, played a key role in talking European states into subscribing to the Asian Infrastructure Investment Bank (led by Beijing).

Yet, in sharp contrast, the Export-Import Bank of China (Eximbank; one of Beijing’s two institutional lenders), for instance, has been pursuing its unequivocal agenda — advancing Corporate China’s interests overseas — with undeviating commitment, and with little concern for not-for-profit “climate action” wherever.

And when, eventually, a Chinese lender elects to invest in clean energy in Europe — as it so happened on the island of Crete, last year (Minos 50MW solar farm; Industrial and Commercial Bank of China) — the collateral benefit of gratifying us with clean air proves unintended.

For consider this: when no one else would, Eximbank lent €613 million to utility firm EPBiH, in 2019, to support Gezhouba, a Wuhan-based consortium, in building a coal power plant in Bosnia, and would have doubled down in Western Macedonia, had the Commission not weighed in (on procedural grounds) — at the very time when, in partnership with the Chinese lender, the EIB provided €300 million in framework loan for green financing in China.

Tip of the spear

In order to make sense of such oddities (double moral standard with Russia; lack of reciprocity with China), it stands to reason that the bank’s business model be taken into consideration.

To operate, indeed, the EIB needs to borrow massively on the capital markets (€70 billion in 2020), and while it is hard to pin down how much of its bonds Chinese investors actually purchase in various currencies, Beijing, it turns out, is a major buyer.

So what are the ramifications? Knowing that, when the Iranian nuclear deal fell apart in 2018, and as Brussels pledged, in a salvage attempt, to keep engaged with Teheran, the bank freaked out, citing concerns over putting financial flows from the US in jeopardy; and given that, moreover, at a time of renewed Chinese efforts to lure more foreign investments, the EIB is seen acting as the tip of the spear, using its credibility to spur confidence among Western investors.

This is clear from the fact that, since 2017, the bank’s leadership has been pushing hard for the standardization of “green bonds” between the Union and China, with the stated objective to lift up a major barrier to cross-border debt investment, as Beijing is counting on $290 billion a year in “green funding”.

A move which, taken out of context, may look mundane and of limited scope, but could have far-reaching consequences, as China is slowly opening up its financial sector — lifting restrictions on foreign ownership of securities, insurance and fund management —, in what could trigger a tectonic shift on planet finance.

For Blackrock, the world’s largest asset manager, here comes the opportunity of the century.

Though caution remains the watchword, for now — as foreign investors seem content with, for instance, a mere fraction of country’s insurance and banking assets (5.8% and 1.6%, as of May 2019) — how long, past the probing period, before a game-changing influx of Western capital to China?

Last year already, overseas holdings of Chinese stocks rose by 62% to 3.4 trillion yuan ($520 billion) from 2019, bond purchases by 47% to 3.3 trillion yuan, and foreign investors bought another net $53.5 billion worth of Chinese debt in January and February (source: Bloomberg).