Abstract

Seven decades of achievement; severe stresses; a global agenda; urgency of action

Since the mid-1940s the world has seen unprecedented advance on key dimensions of income, life expectancy and education. These achievements are to be celebrated, but they should not obscure, severe structural and environmental issues that put these achievements under serious threat. Further progress on growth, development, poverty reduction, and inequality now require global and local environmental challenges to be tackled at the same time. These objectives are interwoven and complementary (Fankhauser and Stern, 2016). If we fail on one we fail on the other. This understanding has been a driving force behind the new global agenda agreed in 2015 and 2016, with the Addis Ababa Action Agenda on Finance for Development in July 2015, the Sustainable Development Goals at the UN in September 2015, the climate agreement in Paris, December 2015 and its coming into force in November 2016, which now (March 2017) more than 130 countries have ratified. Sustainable infrastructure lies at the heart of this agenda. It will drive both growth and the low-carbon transition, whilst being essential for almost all of the SDGs (covering poverty and inequality, environment, health, gender, cities, forests and oceans…).

The scale and urgency of the challenge should not be underestimated. The world economy and its infrastructure will likely double over the next two decades and if that doubling looks like replication of past growth models the chances of avoiding dangerous climate change and having well-functioning cities and ecosystems will likely be remote. Change has to occur rapidly and across all sectors, including the design and organisation of cities, the structure of energy systems, increasing energy productivity and how we manage land and oceans. Delay is deeply dangerous. The window of opportunity for making the right choices is uncomfortably narrow because investment, particularly in infrastructure, can lock-in capital, technology and patterns of pollution and emissions for decades. The prize is strong and sustainable growth, cities where we can move and breathe, ecosystems that are robust and supportive, and societies that are more inclusive and cohesive (see NCE, 2014 and 2016, and Bhattacharya et al, 2015 and 2016).

Looking forward and looking back, lessons from China

Economic advance in China over the last four decades has been truly remarkable. But China is now seeing major stresses both in the local environment through pollution of air, water and land, as well as globally. China is now much the largest GHG emitter in the world (WRI, 2015).

At the same time, China is moving to a different phase of growth and change: with rising productivity and wages taking it to a Lewis-turning point (Green and Stern, 2016), the slowing of “catch-up” as China’s productivity continues to move closer to rich countries, and with the structure of production moving more strongly towards the service sector. For these reasons China’s growth rate, conventionally measured via GDP, will slow. However at the same time its pattern of development can be steered in a much more attractive and sustainable direction, whilst maintaining a robust growth rate. That is indeed China’s ambition.

In so doing it is already demonstrating global leadership. This will likely become still stronger. Supporting investment in sustainable infrastructure at home is at the core both of its own transition and development and its contribution to the world. The strong commitment to climate and environmental action can be seen through their inclusion as fundamental principles in the 13th Five-Year-Plan and in the continued policy statements of China’s government, including at COP 22 on climate in Marrakech in November, and President Xi Jinping’s landmark speech at Davos in January 2017.

Managing this transition in China will require twin strategies. First, clear direction and intervention to scale back investments in polluting industrial sectors (‘brown industry’). Second, the ramp-up of its low-carbon (‘green’) industry, including decarbonisation of its power network through targeted investment in sustainable infrastructure and support for private sector investment. China’s advances on these twin directions include; a central role in the 13th Five-Year Plan, with substantial resources, for managing movement out of coal and other areas, the largest investments in domestic renewable energy in the world (IEA, 2016), and leadership in the manufacture of renewable energy components for wind, solar and lithium-ion battery technologies (Buckley, 2017). 

Looking forward, through new technologies and better design, including of cities, China can use its investments to reduce congestion and waste whilst also reducing pollution, greenhouse gas emissions, and other environmental impacts from production and consumption.

At the global level the lessons that China has learnt through its rapid growth in recent decades are extremely valuable. Communicating and sharing these to fellow developing countries will help them avoid the severe environmental stresses that China has seen and to take advantage of new technologies and methods. China’s growing influence in existing multilateral institutions, and its actions to foster new development banks, provide a key opportunity both to share experience and to show what is possible.

The lessons are not just for developing countries. Developed countries face urgent tasks of: (i) replacing old, polluting and inefficient capital with new, clean and efficient capital; (ii) ensuring new investment is smart and at the frontiers of technology, and (iii) pushing out that frontier. With its almost four decades of rapid growth and investment, China is facing and tackling these problems. For all countries low-carbon growth is the growth story of the future via sustainable infrastructure demand in the shorter run, via innovation and creativity in the medium run, and because high-carbon growth in the longer run is simply not feasible because of the brutally hostile environment it would create.

Fostering sustainable infrastructure across the world

Over the last few years, China’s investment in infrastructure has been at the rate of about 12% of GDP; for developed countries 3% and for other developing countries 5 – 6%. Thus China has been investing more in infrastructure than all developed countries put together and more than all other developing countries put together (see Bhattacharya et al, 2016). China builds and finances more infrastructure in other developing countries than all multilateral development banks (MDBs) and OECD countries combined. Its own example, its active financing role, the creation of new development banks, the One Belt One Road (OBOR) programme and the G20, together provide the opportunity to foster sustainable infrastructure and low-carbon development across the world.

The delivery of sustainable infrastructure requires two key elements. First, a clear, stable and credible policy direction for its investors. Second, harnessing development finance and private capital to finance the transition at city, provincial, national and global levels. Such finance must help investors get through the difficult early stages and will require a range of instruments (Bhattacharya et al, 2015 and 2016).

China in particular has extensive experience of providing a sound and stable enabling framework for investments through its clear direction and policy, effectively harnessing public-private sector partnerships. MDBs can and should play a central role on the finance side by bringing risk reduction and risk management, coming from both its presence as a respected and long-term partner and the combination of instruments it can bring. The help in getting through the early stages effectively can produce assets that are very attractive to long-term institutional investors. Good development banking is profitable. And such banks help with policy too. The new banks, where China’s participation is strong, including the Asian Infrastructure Investment Bank (AIIB), New Development Bank (NDB) and other vehicles such as the Silk Road Fund, can offer real leadership and increasing scale. And China can play a crucial role in guiding existing MDBs to deliver on and scale up investment in sustainable infrastructure. These existing banks must rapidly ramp up their role in financing sustainable infrastructure if the necessary pace and scale of the economic transformation are to be achieved.

China’s global leadership

China’s experience in showing how infrastructure can lead growth and investment is of outstanding importance, both in its achievements and its stresses. That experience has much to teach the world, both developing and developed countries.

China has shown the world how to use examples from within by trying out policies in a few places before going nationwide. Recently Chongqing has grown faster than the rest of China through strong investment in infrastructure combined with the effective management of dislocation in its move away from old technologies, and together with strong investment in new sectors and modern technologies (Rithmire, 2013).

China saves and invests more than the EU and USA combined. China has the entrepreneurial capacity and financial strength to become the largest capital exporter in the world. It has been building and financing infrastructure across the world at a scale that is unmatched. It has created new multilateral development banks with great potential to lead the transformation of the world’s infrastructure. It has the potential to mobilise large sums of capital for a new global growth model both within China and around the world. And it has shown its leadership in 2016 in the G20, especially around green finance.
It is more than capital, investment and finance, however. China has joined, adhered to, benefited from and become an advocate for the WTO and is a champion of international trade and openness. And China has begun to lead the world on climate not only through its own actions at home but also in playing a key role in creating, bringing into force and carrying forward the Paris agreement. Its actions in November 2014 in announcing in Beijing its Paris targets alongside the USA, and in announcing the ratification of the agreement at its G20 in 2016, again alongside the USA, were vital in creating and maintaining momentum and commitment across the world.

President Xi Jinping’s speech in Davos on 17th January 2017, where he set out a vision of an integrated, open and collaborative world, marked the beginning of a new era. On that Tuesday, China’s leadership role on the world’s stage, which for long had been real, became explicit and recognised.