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C O R P O R A T I O N

TOM LATOURRETTE, TODD C. HELMUS, IRINA A. CHINDEA

China’s Role

in the Global

Development of

Critical Resources

Case Studies in Coal Power, Electricity Transmission,

and Seabed Mining

Research Report

For more information on this publication, visit www.rand.org/t/RRA2096-1.

About RAND

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iii

About This Report

China’s extensive and expanding foreign investment and financing activities over the past

approximately 20 years have garnered substantial attention and raised several concerns. The

purpose of this report is to explore Chinese investment and financing activities in energy

infrastructure and critical minerals.

RAND National Security Research Division

This research was sponsored by the U.S. Department of State’s Global Engagement Center

and conducted within the International Security and Defense Policy Center of the RAND

National Security Research Division (NSRD). NSRD conducts research and analysis for the

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www.rand.org/nsrd/isdp or contact the director (contact information is provided on the

webpage).

Acknowledgments

We gratefully acknowledge Lev Navarre Chao for his assistance with the literature review

and for reviewing and analyzing the coal power plant database; we also thank Samantha Perez

Davila and Isabelle Winston for their support with setting up and conducting the interviews for

the Latin America chapter. We greatly appreciate the guidance, support, and facilitation of

connections from the Global Engagement Center team. We are grateful to all the interview

participants for taking the time to share their experiences and insights related to Chinese foreign

investments and financing in critical resources.

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CORPORATIONTOMLATOURRETTE,TODDC.HELMUS,IRINAA.CHINDEAChina’sRoleintheGlobalDevelopmentofCriticalResourcesCaseStudiesinCoalPower,ElectricityTransmission,andSeabedMiningResearchReportFormoreinformationonthispublication,visitwww.rand.org/t/RRA2096-1.AboutRANDTheRANDCorporationisaresearchorganizationthatdevelopssolutionstopublicpolicychallengestohelpmakecommunitiesthroughouttheworldsaferandmoresecure,healthierandmoreprosperous.RANDisnonprofit,nonpartisan,andcommittedtothepublicinterest.TolearnmoreaboutRAND,visitwww.rand.org.ResearchIntegrityOurmissiontohelpimprovepolicyanddecisionmakingthroughresearchandanalysisisenabledthroughourcorevaluesofqualityandobjectivityandourunwaveringcommitmenttothehighestlevelofintegrityandethicalbehavior.Tohelpensureourresearchandanalysisarerigorous,objective,andnonpartisan,wesubjectourresearchpublicationstoarobustandexactingquality-assuranceprocess;avoidboththeappearanceandrealityoffinancialandotherconflictsofinterestthroughstafftraining,projectscreening,andapolicyofmandatorydisclosure;andpursuetransparencyinourresearchengagementsthroughourcommitmenttotheopenpublicationofourresearchfindingsandrecommendations,disclosureofthesourceoffundingofpublishedresearch,andpoliciestoensureintellectualindependence.Formoreinformation,visitwww.rand.org/about/research-integrity.RAND’spublicationsdonotnecessarilyreflecttheopinionsofitsresearchclientsandsponsors.PublishedbytheRANDCorporation,SantaMonica,Calif.©2022RANDCorporationisaregisteredtrademark..LimitedPrintandElectronicDistributionRightsThispublicationandtrademark(s)containedhereinareprotectedbylaw.ThisrepresentationofRANDintellectualpropertyisprovidedfornoncommercialuseonly.Unauthorizedpostingofthispublicationonlineisprohibited;linkingdirectlytoitswebpageonrand.orgisencouraged.PermissionisrequiredfromRANDtoreproduce,orreuseinanotherform,anyofitsresearchproductsforcommercialpurposes.Forinformationonreprintandreusepermissions,pleasevisitwww.rand.org/pubs/permissions.iiiAboutThisReportChina’sextensiveandexpandingforeigninvestmentandfinancingactivitiesoverthepastapproximately20yearshavegarneredsubstantialattentionandraisedseveralconcerns.ThepurposeofthisreportistoexploreChineseinvestmentandfinancingactivitiesinenergyinfrastructureandcriticalminerals.RANDNationalSecurityResearchDivisionThisresearchwassponsoredbytheU.S.DepartmentofState’sGlobalEngagementCenterandconductedwithintheInternationalSecurityandDefensePolicyCenteroftheRANDNationalSecurityResearchDivision(NSRD).NSRDconductsresearchandanalysisfortheOfficeoftheSecretaryofDefense,theU.S.IntelligenceCommunity,theU.S.StateDepartment,alliedforeigngovernments,andfoundations.FormoreinformationontheRANDInternationalSecurityandDefensePolicyCenter,seewww.rand.org/nsrd/isdporcontactthedirector(contactinformationisprovidedonthewebpage).AcknowledgmentsWegratefullyacknowledgeLevNavarreChaoforhisassistancewiththeliteraturereviewandforreviewingandanalyzingthecoalpowerplantdatabase;wealsothankSamanthaPerezDavilaandIsabelleWinstonfortheirsupportwithsettingupandconductingtheinterviewsfortheLatinAmericachapter.Wegreatlyappreciatetheguidance,support,andfacilitationofconnectionsfromtheGlobalEngagementCenterteam.WearegratefultoalltheinterviewparticipantsfortakingthetimetosharetheirexperiencesandinsightsrelatedtoChineseforeigninvestmentsandfinancingincriticalresources.ivContentsAboutThisReport..........................................................................................................................iiiFiguresandTables.........................................................................................................................viSummary.......................................................................................................................................viiAbbreviations.................................................................................................................................xiChapter1.Introduction...................................................................................................................1BackgroundandMotivation.....................................................................................................................1ResearchApproach...................................................................................................................................2OrganizationofThisReport.....................................................................................................................3Chapter2.ChineseSupportforOverseasCoalPowerPlants........................................................4Introduction..............................................................................................................................................4ADownturninCoalPowerDevelopment................................................................................................6ChineseRegulatoryAgenciesReduceSupportforOverseasCoal..........................................................7WhatIstheImpactofPresidentXi’sPolicyStatement?..........................................................................8SouthAfrica..............................................................................................................................................9Indonesia.................................................................................................................................................12Pakistan...................................................................................................................................................15Summary.................................................................................................................................................18Chapter3.ElectricityTransmissionandDistributioninLatinAmerica......................................19OverviewofGEIandGEIDCO..............................................................................................................21GEIandGEIDCOinLatinAmerica......................................................................................................24Brazil......................................................................................................................................................27Chile........................................................................................................................................................29Peru.........................................................................................................................................................32Argentina................................................................................................................................................34Mexico....................................................................................................................................................36Summary.................................................................................................................................................38Chapter4.SeabedMining.............................................................................................................40ContextforSeabedMining.....................................................................................................................41ChineseGovernmentPositionsandStatementsAboutSeabedMining.................................................45ChineseDeepandDistantOceanExplorationTechnologyandActivity..............................................46ChineseSeabedMiningActivity............................................................................................................48PotentialAreasofConcernRegardingChinaandSeabedMining........................................................51Summary.................................................................................................................................................54Chapter5.Recommendations.......................................................................................................57ChineseSupportforOverseasCoalPowerPlants..................................................................................57ElectricityTransmissionandDistributioninLatinAmerica..................................................................59SeabedMining........................................................................................................................................61vAppendixA.AdvantagesandDisadvantagesofaGloballyIntegratedGridBasedonUHVTransmissionLines.................................................................................................................63AppendixB.ChineseAttemptstoProjectInfluenceintheInformationalDomaininLatinAmerica...................................................................................................................................65References.....................................................................................................................................71viFiguresandTablesFiguresFigure2.1.TotalOperatingPowerfromChineseSupportedCoal-FiredPowerPlants,2022.......5Figure2.2.ChangesinStatusforChinese-SupportedCoal-FiredPowerPlants,2022..................9Figure2.3.ChineseSupportforSouthAfricanCoalPower.........................................................10Figure2.4.PotentialImpactoftheNDRCGuidelinesonChineseSupportforSouthAfricanCoal-PoweredEnergy...........................................................................................................11Figure2.5.ChineseSupportforIndonesianCoalPower..............................................................12Figure2.6.PotentialImpactoftheNDRCGuidelinesonChineseSupportforIndonesianCoal-PoweredEnergy....................................................................................................................14Figure2.7.ChineseSupportforPakistaniCoalPower................................................................15Figure2.8.PotentialImpactoftheNDRCGuidelinesonChineseSupportforPakistaniCoal-PoweredEnergy....................................................................................................................17Figure3.1.Diagramofthe9H-9VGridsPlannedby2070forGEIBackboneFramework........23TablesTable1.1.CaseStudyTopicsandCountries..................................................................................2Table1.2.InterviewStatistics.........................................................................................................3Table3.1.SummaryofTopChineseInvestmentsandFinancinginPowerTransmissionandDistributioninLatinAmericaandtheCaribbeanfrom2010toJanuary2022....................20Table4.1.ISAExplorationContracts...........................................................................................43Table4.2.ISAExplorationContractsSponsoredbyChina.........................................................44Table4.3.CookIslandsSeabedMineralsAuthorityExplorationLicenses.................................45viiSummaryChina’sextensiveandexpandingforeigninvestmentandfinancingactivitiesoverthepasttwodecadeshavegarneredsubstantialattentionandraisedseveralconcerns.Suchconcernsarediverseandinclude•payinginsufficientattentiontointernalpolitics,globalrelations,environmentalregulationsandcontrols,andhumanrights,workersafety,andhealthrecordsofhostnations•engaginginunfaircontractingpractices•usingoverseasinvestmentsandfinancingtoattainaccessandinfluenceinstrategiclocations•usingdisinformationtoinfluencemarkets.Forthisreport,weexaminedChineseforeigninvestmentsandfinancingincriticalresourcesandenergyinfrastructureforevidenceofthesetypesofbehaviors.Weusedacase-studyapproachinwhichweexaminedinvestmentsandfinancingincoalpowerplantsinIndonesia,Pakistan,andSouthAfrica;electricitytransmissionanddistributioninfrastructureassociatedwiththeglobalenergyinterconnection(GEI)initiativeinBrazil,Chile,Argentina,Peru,andMexico;andseabedminingglobally.Thesecasestudytopicsandtheregionsoffocuswereselectedatthebehestofthesponsor.Ourresearchdidnotturnupmanyclearexamplesofthebehaviorsnotedabovebutdididentifysomeothertopicsofconcernthathaveimportantimplicationsforhostnations.ChineseSupportforOverseasCoalPowerPlantsBymostmeasures,Chinaappearstobemovingawayfromitshistoricalsupportforthedevelopmentofoverseascoal-firedpowerplants.Still,questionspersistregardingwhetherChinaintendstofullyadheretothepronouncementbyPresidentXiJinpingandtheestablishedBeltandRoadInitiativeguidelines,whichcategoricallyassertthatChinawillnotbuildnewcoalplantsabroad.SinceXi’sannouncementinSeptember2021,ChinahasinitiatedtwonewcoalplantssupportingindustrialparksinIndonesia.Further,sincethetimeofXi’sspeech,severalplantshavemovedforwardinthedevelopmentprocess,anditremainsunclearexactlyhowChinawillfollowthroughonitspromulgatedguidelinesforplantsintheveryearlystagesofdevelopment.Underastrictinterpretation,suchplantsshouldbecanceled,thoughitislikelythatsomewillmoveforward.OurresearchledtoseveralrecommendationsfornationsthathavebuiltorareconsideringbuildingChinese-financedcoalpowerplants.First,itwillbecriticalforindustrialparksinIndonesiaandelsewheretoreplaceexistingorplannedcoalplantswithrenewableenergysources.TheinternationalcommunitywillneedtoviiiholdChinaaccountableinfollowingthroughonitspromisestonotbuildnewcoalplantsabroad,anditwillbecriticaltopersuadehostcountries,suchasIndonesia,thatfurtherdevelopmentofcoalforsuchparkswillunderminetheirnet-zerocommitments.Second,theinternationalcommunityshouldseekgreaterclarityfromChinaonplansforcontinuingtosupportcoalplantswithfinancingandpermitsthathavenotyetbegunconstruction.AlthoughtheChineseNationalDevelopmentandReformCommissionguidelinesunambiguouslycallonChinesefirmsto“completelystopnewoverseascoalpowerprojects,”itseemsthatsuchfirmsarecontinuingtomoveforwardonatleastaselectionofpermittedandfinancedprojects,whichtheCenterforResearchonEnergyandCleanAirconsiderstofallwithinagrayarea.TheinternationalcommunityshouldconsequentlyengageChineseauthoritiestogaingreaterclarityonChina’sintentionforsuchplants.Third,theinternationalcommunityshouldhelphostcountriestransitionfromcoal.Theinternationalcommunity(particularly,China,withitsdominanceinsolarpanelandwindturbinemanufacturing)shouldofferdirectfinancialandconstructionsupportforthedevelopmentofsolarandwindenergies.Diplomaticengagementsandcapacity-buildinginitiativesshouldalsobeundertakentohelpcountries,suchasIndonesia,addresssignificantbureaucraticimpedimentstorenewableenergy.InitiativessuchastheJustEnergyTransitionPartnershipinSouthAfrica,inwhichtheUnitedStates,Germany,theUnitedKingdom,andtheEuropeanUnionwillcontribute$8.5billiontohelpSouthAfricaretirecoalplantsearly,supportcoal-dependentregions,andturningtorenewableenergymayalsobecriticalinhelpingsuchcountriesasIndonesiaandPakistanmoveawayfromcoal.ElectricityTransmissionandDistributioninLatinAmericaTheGEIcasestudydocumentedrelativelyfewconcernsassociatedwithChineseownershiporcontroloverpowertransmissionanddistributioncompaniesinBrazil,Chile,Peru,andArgentina.1MostoftheconcernsraisedbythoseinterviewedforthisprojectaddressedthenontransparentmeansinwhichsuchprojectsarefinancedandthefactthatChinesestate-ownedenterprises(SOEs)haveacompetitiveadvantageoverprivatecompetitorsfromothercountriesintermsofaccesstofinanceundernonmarketconditions.Inourreviewofopen-sourcedataandintheinterviewsconductedforthiscasestudy,wedidnotuncoveranymajorepisodesinvolvingChinesegovernmentpressureorattemptsatprojectinginfluencethatwerespecificallytiedtoChineseinvestmentsorfinancinginpowertransmissionandgeneration.InthefiveLatinAmericancountrieswefocusedonforthisreport,ChinesecompaniesdidnotappeartoengageinpredatorylendingpracticessimilartothosethathavebeenassociatedwithChinesefirmsoperatinginAfricanandSoutheastAsiancountries.ChineseinvestmentsandfinancinginBrazil’s,Chile’s,andPeru’spowertransmissionanddistributionsectorsconsisted1InMexico,therearenoChineseinvestmentsinpowertransmissionanddistribution.ixofChineseSOEsbuyinglocalcompanies,withArgentinaconsideringfinancingoptionsfromChinesebankstoexpandthepowertransmissionlinesintheBuenosAiresarea.InMexico,Chinesecompaniesestablishednewandacquiredexistingcompaniesinpowergeneration.NeitherthegovernmentinBeijingnortheChineseSOEsandprivatecompaniesonthegrounddrawanexplicitconnectionbetweenGEIimplementationandtheinvestmentsandfinancingtheyconductinthesefiveLatinAmericancountries.Inlinewiththeseobservationsforthiscasestudy,weofferthefollowingrecommendationsforcountriesinLatinAmerica,aswellasforthoseinotherregionsoftheworldthatconsiderChineseinvestmentandfinancingoptionsinthepowersector.First,itisimportantforsuchcountriestodevelopregulatoryframeworksfortheintegrationofrenewableenergyintotheoverallpowergrid.Second,thesecountriesshoulddevelopregulatoryframeworkstoaddresstechnologicalandinformationalcomponentsofsmartgrids.Third,thereisaneedformore-transparentpublictenders.Havingatransparentpublictendersystemthatmeetsinternationalbestpracticesandrespectslocallawsmayadvancethefree-marketenvironmentandencouragecompetitionamongforeigninvestors.Thereisalsoaneedtoimplementscreeningmechanismsforforeigninvestmentsandfinancing.Localgovernmentsshouldbeabletoreviewthefinancingtermsandconditionsofforeigninvestmentandfinancingactivities,includingaskingforeigninvestorstodisclosethesourceoftheircapital,andscreenforoffersthatshowapreferenceforincludingalocalcomponent(laborandmaterials)andforlocallawsgoverningthefinalcontract.Aspartofsuchefforts,itwillbecriticalforthesecountriestonurturethedevelopmentofaprofessionalandreputablepubliccontractingofficercorpsinhopesthatsuchprofessionalscanbeprotectedagainstpoliticalpressures.Likewise,itwillbeimportanttodiversifyinvestmentandfinancingpartnersbecauseoverrelianceoninvestorsfromonecountryincreasestheeconomicandpoliticalvulnerabilityofthehostcountrytoforeignpressures.SeabedMiningChinahasquicklyadvanceditstechnologyfordeep-seaexplorationanddidsowithlittleoutsidecollaboration.Someobserversemphasizethedualcivilian-militaryuseaspectsofsuchcapabilitiesandwarnthatChina’sinvolvementinseabedminingexplorationservesasameanstolegitimizevariousformsofdeep-anddistant-seaactivityandcoverforpursuingmilitaryobjectives.However,wefoundnoevidencetosupportthenotionthatChina’sseabedminingprogramisintendedascoverformilitarypurposes.Giventhepotentialrisks,however,weurgecontinuedmonitoringof(1)Chineseseabedminingexplorationtechnologydevelopmentanduseand(2)Chineseshipactivityforsignsofanomalousactivity.Chinahasshownapropensitytoinfringeonterritorythatbelongstoothernations,whichraisesconcernsforthesecurityofseabedminingcontractareas.Itwillhencebecriticaltodevelopandimplementmethodstomonitorcontractors’seabedminingactivity.Itmaybexnecessary,forexample,forauthoritiestorequireoperatorstoannounceanddescribeseabedminingexplorationcruisesinadvanceandinsistthatallshipsparticipatinginseabedminingactivitiesalwaysusetheirautomatedidentificationsystembeacons.Itmayalsobenecessarytousesea-basedpatrolsandinspectionregimestoverifyoperators’ships’locationsandactivities.Overthepastfewdecades,Chinahascometodominatetheglobalmarketfortheprocessingofseveralcriticalminerals.Giventhestart-upcostsofdevelopingmineralprocessingfacilities,China’slargeprocessingcapacityputsitatanadvantageinsecuringprocessingcontractsfromcommercialseabedminingoperators.Non-ChineseoperatorsrecognizethatpartneringwithChinaforsuchmineralprocessingwillsignificantlyundercutprofits.Consequently,nationsthatsponsorseabedminingactivitiesintheirexclusiveeconomiczonesandhomenationsofminingoperatorsshouldcreateincentivestodeveloptheirdomesticprocessingcapabilities.Examplesofsuchincentivesincludefinancingfortheconstructionofprocessingfacilitiesandrevisingenvironmentalrequirementsforthepermittingofsuchprocessingfacilities.xiAbbreviationsAISautomaticidentificationsystemBRIBeltandRoadInitiativeCCZClarion-ClippertonZoneCOMRAChinaOceanMineralResourceResearchandDevelopmentAssociationCOVID-19coronavirusdisease2019CPECChina-PakistanEconomicCorridorCREACenterforResearchonEnergyandCleanAirEEZexclusiveeconomiczoneGCPTGlobalCoalPlantTrackerGEIGlobalEnergyInterconnectionGEIDCOGlobalEnergyInterconnectionDevelopmentandCooperationOrganizationISAInternationalSeabedAuthorityMEEMinistryofEcologyandEnvironmentMOFCOMMinistryofCommerceMoUmemorandumofunderstandingNDRCNationalDevelopmentandReformCommissionSGCCStateGridCorporationofChinaSMEsubject-matterexpertSOEstate-ownedenterpriseUHVultra-highvoltageUNUnitedNationsUNCLOSUnitedNationsConventionontheLawoftheSeaxii1Chapter1.IntroductionBackgroundandMotivationChina’sexplosiveeconomicgrowthoverthepasttwodecadeshasbeenaccompaniedbyextensiveforeigninvestmentandfinancing.AccordingtotheChinaGlobalInvestmentTracker(AmericanEnterpriseInstituteandHeritageFoundation,2021),thetotalofChina’sforeigninvestmentandconstructionfrom2005to2021is$2.2trillion.Untilabout2017,Chineseforeigninvestmentandfinancinghadbeengrowingsteadilyand,in2022,beganincreasingagain.Thisforeigninvestmentandfinancingisdrivenbyacombinationofdemandforresources(Chinahastheworld’slargestpopulationandhasbeenthebiggestenergyconsumersince2009;U.S.EnergyInformationAdministration,undated),desiretoemployChineseunderutilizedindustrialcapacityandworkers,anddeliberatepolicydecisionstoexpandChina’sglobaltradeandinfluence.Thetwomostimportantsuchpoliciesarethe1999GoOutPolicy,ortheGoingGlobalStrategy,andthe2013OneBelt,OneRoad,orBeltandRoadInitiative(BRI;ChatzkyandMcBride,2020;Page,2018).China’sforeigninvestmentsandfinancinghaveraisedconcernsamongWesternnationsformultiplereasons(LewandRoughead,2021;Sutter,Schwarzenberg,andSutherland,2021).OneisChinabeingrelativelylessdiscriminatingabouttheinternalpolitics,globalrelations,environmentalregulationsandcontrols,andhumanrights,workersafety,andhealthrecordsofthecountriesitinvestsin.Anotherisclaimsofunfaircontractingpractices:ManyChinesefirmsthatbidonforeigninvestmentandfinancingopportunitiesarestate-ownedenterprisesthathavethebackingofthecentralgovernmentandcanraisecapitalmorecheaplyandoffercontracttermsthataremorecompetitivethannon–government-backedfirmsfromothercountries.StillotherconcernscenteronthebeliefthatmanyChineseinvestmentsandfinancingaredrivenlessbydirecteconomicreturnsthanbyattainingaccessandinfluencetowieldstrategic“softpower”or,inatleastonecase,establishmilitaryfootholds.And,recently,evidenceofChinausingdisinformationcampaignstoinfluenceglobalcriticalresourcemarketshasemerged(Mandiant,2022).TheobjectiveofourresearchwastocharacterizeChineseforeigninvestmentsandfinancingincriticalresourcesandenergyinfrastructure,emphasizingtheextenttowhichChineseinvestorsengagedinanyofthepracticesdescribedabove,andtodeveloprecommendationstobuildcapacityamonghostnationstodiversifytheirsourcesofinvestmentandfinancinginordertominimizethepotentialnegativeimpactsofanoverrelianceonChineseinvestmentsandfinancing.Ourresearchdidnotturnupmanyclearexamplesofsuchbehaviors,butwedididentifysomeothertopicsofconcernthathaveimportantimplicationsforhostnations.2ResearchApproachOuranalysisinvolvedacasestudyapproachinwhichweexaminedChineseforeigninvestmentsandfinancinginthreesubsectors.Thesubsectorsweexaminedarecoal-firedpowerplants,electricitytransmissionanddistributioninfrastructureassociatedwiththeGlobalEnergyInterconnection(GEI)initiative,andseabedmining.Thesecasestudytopicsandtheregionsoffocuswereselectedatthebehestofthesponsor,theU.S.DepartmentofState’sGlobalEngagementCenter.TheGEIandseabedminingcasestudieswereselectedasrelativelyunderstudiedexamplesofChineseinvestmentandfinancingactivities,whereasthecoalcasestudywasselectedbecauseChinaannouncedin2021thatitwouldstopsupportingoverseaspowerplantsabroad,raisingquestionsaboutChina’sintentiontofollowthrough.ThecasestudytopicsandcountriesarelistedinTable1.1.Table1.1.CaseStudyTopicsandCountriesInvestmentSubsectorCountriesCoalpowerplantsIndonesia,Pakistan,SouthAfricaElectricitytransmissionanddistributioninfrastructureBrazil,Chile,Peru,Argentina,MexicoSeabedminingGlobalWeusedamultimethodapproachthatconsistedofareviewofrelevantliterature,ananalysisofavailabledatabasesonChineseforeigninvestments,andin-depthinterviewswithrepresentativesfromavarietyoftypesofstakeholderorganizations.Interviewparticipantswereidentifiedthroughvariousmeans,includingreferralsfromStateDepartmentstaff,identificationfromtheliterature,andreferralsfrominterviewparticipants.Giventhesensitivetopicoftheanalysis,allinterviewswereconductedonanot-for-attributionbasistoencouragecandidresponses.Consequently,wereportinterviewstatisticsatanaggregatedlevelamongsixstakeholderorganizationtypes(Table1.2).3Table1.2.InterviewStatisticsOrganizationTypeCoalPowerElectricityInfrastructureSeabedMiningTotalIntergovernmental516U.S.government64212Othergovernment11Industry369Experta56718Watchdog/press426Total15181952aExpert=thinktank,academic,consultant,tradegroup,non-watchdog/pressnongovernmentalorganization.Aspartofourapproachtoselectinterviewparticipants,wedeliberatelyaimedtoincludetheChineseperspective.Asaresult,wereachedouttoChineseexpertsandstakeholders(includingseveralGlobalEnergyInterconnectionDevelopmentandCooperationOrganization[GEIDCO]officialsandChineseinvestorsintheenergysectorinLatinAmericaforChapter3),buttheydidnotrespondtoourrequestsforinterview.OrganizationofThisReportChapters2–4presentourcasestudies.InChapter2,wepresentareviewofChineseforeigninvestmentandfinancingincoalpowerplantsandhowthosehavechangedsinceChinaannouncedamoratoriumonsuchinvestmentandfinancing.InChapter3,wepresentanoverviewoftheGEIinitiativeoverallandatthelocallevelinBrazil,Chile,Argentina,Peru,andMexico,followedbythemainChineseinvestmentsandfinancinginthepowersectorinthesecountriesandconcernsassociatedwiththem.InChapter4,weexamineChina’sdeep-anddistant-seaexplorationandseabedminingactivitiesandtheconcernsthattheseactivitieshaveraised.InChapter5,weprovideourconclusionsandrecommendations.4Chapter2.ChineseSupportforOverseasCoalPowerPlantsIntroductionOnSeptember21,2021,ChineseleaderXiJinping,speakingbeforetheUnitedNations(UN)GeneralAssembly,promisedthatChinawouldnolongerbuildnewcoalplantsabroad.Xinotedspecifically,“Chinawillstepupsupportforotherdevelopingcountriesindevelopinggreenandlow-carbonenergy,andwillnotbuildnewcoal-firedpowerprojectsabroad”(Volcovici,Brunnstrom,andNichols,2021).Thispronouncement,reportedlyhailedinChinesestate-fundedmedia(CarbonBrief,2021),settheclimateworldabuzzbecauseChinahadservedastheworld’sforemostfinancialbackerandbuilderofcoalplantsabroad.Atthetimeofthiswriting,Chinahashelpedbuild382coal-firedpowerplants,withatotalof124,196MW(or124GW)ofpower(seeFigure2.1).Oftheseplants,231(representing56,956MWofpower)weredevelopedwithsubcriticaltechnology,whichprovidetheleastamountofpowerpercoalexpenditureandproducethehighestCO2emissionswhencomparedwithsupercriticalorultra-supercriticalplants(InternationalEnergyAgency,2020).5Figure2.1.TotalOperatingPowerfromChineseSupportedCoal-FiredPowerPlants,2022SOURCE:CenterforResearchonEnergyandCleanAir(CREA)ChinaMasterListdataset,whichisbasedontheGlobalEnergyMonitorGlobalCoalPlantTracker(GCPT)dataset(GlobalEnergyMonitor,undated).TheGCPTcatalogseveryoperatingcoal-firedgeneratingunit,everynewunitproposedsince2010,andeveryunitretiredsince2000.NOTE:Countrieswith300MWofChina-assistedcoalpowerorlessarenotshownandincludeBosniaandHerzegovina,Guatemala,Kyrgyzstan,Zambia,Nigeria,Chile,Brunei,Kazakhstan,Uzbekistan,Madagascar,Myanmar,Poland,andMongolia.Asmajorpolicypronouncementsoftengo,manydetailsoftheChinesepolicyshiftwereabsentfromXi’sspeech,withmanyanalystsspeculatingastothemeaningofthekeywordsofthespeech:“willnotbuildnewcoal-firedpowerprojectsabroad.”First,doesthephrase“willnotbuild”includefinancingcoal-firedpowerprojectsaswellasconstruction?Does“new”onlyincludeplantsthatthatwerenotannouncedasofXi’sspeech,ordoesitincludeplantsthatwereannouncedbutareawaitingfinancingorpermits(Baxter,2021)?Atthetimeofthepronouncement,ananalysisoftheGlobalEnergyMonitor’sGlobalCoalProjectFinanceTrackerbyTomBaxteridentified44coal-firedpowerplantsacross20countriesthathadnotyetenteredconstructionnorsecuredfinancialloans.2Theseplantsrepresented42.2GWofcapacity(Baxter,2021).2AsexplainedinBaxter,2021,Intheiranalysisreleasedthisweek,GEM[GlobalEnergyMonitor]estimatedthatthecancellationofall44plantswouldseecumulativelifetimesavingsofoverUSD130billion,USD50billionofwhichwouldcomefromconstructioncostsandoverUSD80billionfromfuelandoperationalcostsoverthelifetimeoftheplants.TheyarguethattheUSD130billionsavedshouldberedirectedintorenewableenergyinvestments.Lastly,GEMestimatedthatcancellationoftheplantswouldreduceglobalcoaldemandby30milliontonnesperyear.Overtheplants’lifetimethatwouldequal1,100milliontonnes,whichwouldpreventanestimated8,000milliontonnesofcarbondioxidebeingemittedintotheearth’satmosphere.That’sgreatnewsfortheclimate,butawfulnewsforcoalminers.0100002000030000400005000060000IndiaIndonesiaVietnamSouthAfricaTurkeyPakistanGermanyPhilippinesMalaysiaLaosBangladeshBrazilAustraliaUAESriLankaBotswanaCambodiaTajikistanMoroccoMegawatts6Inthiscasestudy,weseektofurtherexplorethisissueandexaminehowandtowhatextentChinaplanstofollowthroughwithXi’sSeptember21pledge.WeexaminethehistoryofChinesesupportforcoal-firedpowerplantsandthepotentialfutureramificationsinthreecountries:Indonesia,Pakistan,andSouthAfrica.ThecasestudyprimarilydrawsonareviewoftheliteratureandonanalysesoftheGlobalEnergyMonitorGCPTdatasetandavariationofthisdatasetdevelopedbyCREA.Wealsointerviewed15expertsonChinesesupportforoverseascoal-firedpowerplants.Theseinterviewshelpedprovidedirectionforanalysis,though(withafewexceptions)wesupplantedcitationsoftheinterviewswithcitationsofpublisheddocuments.ADownturninCoalPowerDevelopmentEvenbeforeXi’sannouncement,amovementwasafootinChinatolimitsupportforoverseascoal-poweredenergy.In2021,althoughthreeoverseaspowerplantswereannouncedbytheChinesegovernmentbeforeXi’sspeech,nonewoverseascoalprojectsreceivedBRIfinancingorinvestment(NedopilWang,2022).Andin2020,ChinadidnotmakeanynewannouncementforChinese-financedcoalprojects(NedopilWang,2021).Inaddition,manyofthecoal-firedpowerplantsbackedbyChinahadbeensubjecttocancelationsanddelays.EnergyanalystChristophNedopilWangnotesthatfrom2014to2020,therewereabout$160billionofChinese-backedcoal-firedpowerplantsbeingplannedorannouncedoutsideChina;ofthose,however,morethan$65billionwereshelved,mothballed,orcanceled,withotherprojectsseeingdelaysinconstruction(NedopilWang,2021).Inaddition,from2017to2021,4.5timesasmuchcoal-poweredenergycapacitywasshelvedorcanceledthanwasenteredintoconstruction(Suarez,2021).Ontopofthesereversals,2020wasthefirstyearthatsawamajorityofChina’senergyinvestmentsandfinancingturntorenewablesectorsofsolar,wind,andhydro(NedopilWang,2021).Thesechangingtrendshavebeenattributedtoavarietyofcauses.AccordingtoNedopilWang,2021,solarpowercosts,forexample,havedroppedby80percentintenyears,whilefinancingcostforcoalhasincreasedby38percent.Inaddition,thegrowthofcarbonpricinginitiativeshasmadecoalfinancingevenlesscompetitive,andelectricityfromnewcoal-firedpowerstationsis500percentmoreexpensivethanthatfromnewsolar-poweredplants(NedopilWang,2021).NedopilWang,2021,notesthat“Institutionsengagedincoal-relatedassetsseethemselvesincreasinglyexposedtostrandedassetrisks:itsimplybecomescheapertoproduceelectricitywithalternativesourcesandlesscompetitivetoproduceitwithcoal”andthat,inmanycases,itis“cheapertomothballexistingcoal-firedpowerplantsandinvestinnewsolarandwindenergy,ratherthanburningmorecoaland—withit—cash”(NedopilWang,2021,p.14).7ChineseRegulatoryAgenciesReduceSupportforOverseasCoalChineseregulatoryauthoritieshavealsosteadilymovedawayfromsupportingtheoverseasdevelopmentofcoal-firedenergy.OnJuly16,2021,theChineseMinistryofCommerce(MOFCOM)andtheMinistryofEcologyandEnvironment(MEE)issuedthe“GreenDevelopmentGuidelinesforForeignInvestmentandCooperation.”BothMOFCOMandtheMEEreportedlyplaycentralrolesinoverseeingChineseoverseasprojects,withtheMOFCOMservingtoregulateChineseprojectsoverseasandtheMEEprovidingasupportiveroletopolicydevelopment.3Theguidelinesstipulate,“Wemuststaycommittedtothenewdevelopmentconcept,strivingforthestrongawarenessofgreendevelopment,efficientuseofresources,strictprotectionoftheenvironmentandeffectivecontrolofcarbonemissions”(MinistryofCommerceandMinistryofEcologyandEnvironmentofthePeople’sRepublicofChina,2021).4TheguidelinesspecificallyencourageChinesebusinessesto“embedthe‘greendevelopmentconcept’throughouttheentireprocessofforeigndirectinvestmentandcooperation”(NedopilWangandTang,2021).Italso“encourage[s]companiestoadoptinternationalorChinesestandardsininvestingactivitieswherelocallawsandregulationsarenon-existentortoolenient”(MinistryofCommerceandMinistryofEcologyandEnvironmentofthePeople’sRepublicofChina,2021).ThisindicatesamovementawayfromChinesesupportforbuildinghigh-pollutingsubcriticalpowerplants,whicharepermittedinmanyoftheoverseascountriesthatChinasupportsbut,notably,arenotpermittedinChina,whichhasmuchstricterenvironmentalstandards.Sixmonthslater(inJanuary2022),MOFCOMandtheMEEissuedanothersetofrecommendations,namedthe“GuidelinesforEcologicalandEnvironmentalProtectionofForeignInvestmentCooperationandConstructionProjects”(MinistryofEcologyandEnvironmentofthePeople’sRepublicofChina,2022).TheseguidelinesfurtherpushedChinesecompaniestoforgooverseassubcriticalcoalpower,notingthat“wherelocalregulationsareinsufficient,companiesareencouragedtoapplyinternationalorChineseenvironmentalrulesandstandards”(NedopilWang,DeBoer,andDanting,2022).5OnMarch28,2022,theChineseNationalDevelopmentandReformCommission(NDRC),aneconomicplanningagencyintheChinesegovernment,issuedapolicythatofferedthe“firstrealclarity”regardinghowtheChinesewouldimplementXi’s2021pledge(BostonUniversityGlobalDevelopmentPolicyCenter,2022).Thepolicy,titled“OpinionsontheJointImplementationof3TheMEE’sstatedmissionisto“improveenvironmentalqualityandbuildabeautifulChinawhichenjoysblueskies,greenlandandcleanwater”(MinistryofEcologyandEnvironmentofthePeople’sRepublicofChina,undated).ItprovideswhatNedopilWangandTang,2021,describesas“conceptsandknowledge.”4Incharacterizing“green”energy,thedocumentspecificallyrefersto“cleanenergysuchassolar,wind,nuclearandbiomassenergy,”aswellas“low-carbon,secureandefficientenergymix.”5Thesepreviousguidelineswereentitled“Guidelinesforenvironmentalprotectioninforeigninvestmentandcooperation,”issuedbytheministriesofcommerceandofecologyandenvironment.8GreenDevelopmentintheBeltandRoadInitiative,”wasreleasedbyjointstatementfromtheNDRCandtheChineseMinistryofForeignAffairs,MEE,andMOFCOMongreeningtheBRI.ThepolicyreinforcesXi’sSeptember2021statement,emphasizingagoalto“completelystopnewoverseascoalpowerprojects”(ChinaEnergyNews,2022).Italsoencouragesrelevantenterprisestostrengthenthecleanandefficientutilizationofcoal,adoptadvancedtechnologiessuchasefficientdesulfurization,denitrification,dustremoval,andcarbondioxidecapture,utilizationandstorage,andupgradeenergy-savingandenvironmentalprotectionfacilities.(ChinaEnergyNews,2022)Thepolicyalsooffersabroadandexpansivegoalofsupportingoverseasgreenenergyinfrastructureanddevelopment.Highlightingtheimportanceofthisnewpolicystatement,KevinGallagher,directoroftheBostonUniversityGlobalDevelopmentPolicyCenter,notedthatthepolicycame“fromthehighestlevelsandismainstreamedacrossalltheleadingChineseagenciesengagedinoverseaseconomicactivity”(BostonUniversityGlobalDevelopmentPolicyCenter,2022).IsabellaSuarezatCREAobservedthattheNDRCGuidelinesshouldsignaltheendofnewoverseascoal,andbringhostcountriesanddeveloperstothetabletorenegotiate.Itmarksanotherstrongsignalthatthetidehasfullyturnedoncoal,andthatthelossesthatcouldbeassociatedwithfurtherdevelopmentsarelikelytooutweightheshorttermgains.(Suarez,2022)6WhatIstheImpactofPresidentXi’sPolicyStatement?TounderstandtheimpactofXi’sSeptember2021announcement,weanalyzedtheGlobalEnergyMonitor’sGCPT,whichtracksthedevelopmentofindividualcoalplantsandisupdatedbiannuallyinJanuaryandJuly.ThisdatasetallowsustoassesschangesinthestatusofdevelopingplantsfromthetimeXimadehisSeptemberstatement.FindingsfromthisdatasethavebeenreportedbyIsabellaSuarezandCREA(Suarez,2022).Figure2.2liststhechangeinstatussinceXi’sstatementforcoalplantsthathavenotreachedfulloperation.Notetherearefivephasesthatplantsundergointhedevelopmentprocess.Theseareannounced,pre-permitted,permitted,construction,andoperational.FurtherattestingtoChina’smovementawayfromsupportforoverseascoal,morethan16,110MWofplannedcoal-firedpower(fromatotalof40plants)hadbeenshelved,canceled,ordecommissioned.MostofthisplannedpowerwasdeductedfromtheplannedinventoriesofVietnam,India,andIndonesia.Inaddition,3,739MWofpowerfrom17plantstransitionedfromtheconstructionphaseto6Thepolicyprovides“theimpetusforChineseandhostcountryfinancialinstitutionsanddeveloperstoreexaminethe86GW(81plants)ofChinese-backedoverseascoalthatarecurrentlyintheconstructionandpre-constructionpipeline”(Suarez,2022).9operation.ThisisnotsurprisingbecauseitisacceptedamongmanyanalystsinterviewedforthisstudythatChina’spledgewouldnotshutterplantsintheconstructionphase.However,severalotherplantshavecontinuedtomoveforwardinthedevelopmentphasedespiteXi’spledge.Forexample,7,200MWofpower(15plants)enteredthepre-permitphase,and5,590MWofpower(13plants)enteredtheconstructionphase.Thevastmajorityofthenewlypre-permittedpowerhailedfromBangladesh,whilethevastmajorityofthenewin-constructionpowerhailedfromBangladeshandIndonesia.Mostsignificantly,ChinahasinitiatedtwonewprojectssinceXi’sannouncement.BothoftheseprojectsaretakingplaceinIndonesia.Figure2.2.ChangesinStatusforChinese-SupportedCoal-FiredPowerPlants,2022SOURCE:CREAChinaMasterListdataset,whichisbasedontheGlobalEnergyMonitorGCPTdataset.TheGCPTcatalogseveryoperatingcoal-firedgeneratingunit,everynewunitproposedsince2010,andeveryunitretiredsince2000.SouthAfricaChinahashelpeddevelopmorethan7,100MWofsupercriticalcoal-firedpowerinSouthAfrica,withanother2,380MWcurrentlyunderconstructionand3,000MWlistedinthepre-permitphase,thoughthispre-permitprojectappearsallbutcertaintobecanceled(Figure2.3).020004000600080001000012000BangladeshDjiboutiIndiaIndonesiaIranIvoryCoastKenyaLaosMongoliaMozambiqueSouthAfricaSriLankaTanzaniaTurkeyUkraineVietnamZimbabweNewlyshelvedNewprojectNewlypre-permittedNewlypermittedNewConstructionNewlyOperating10Figure2.3.ChineseSupportforSouthAfricanCoalPowerSOURCE:CREAChinaMasterListdataset,whichisbasedontheGlobalEnergyMonitorGCPTdataset.TheGCPTcatalogseveryoperatingcoal-firedgeneratingunit,everynewunitproposedsince2010,andeveryunitretiredsince2000.SouthAfricaranksseventhintheworldintermsofdomesticconsumptionofcoal.AlthoughscholarshipaddressingthereasonsforthehighcoalconsumptionratesinSouthAfricaislimited,itslargedomesticcoalreserveslikelyplayamajorfactor.SouthAfricahastheeighthlargestcoalreservesintheworld,with35billiontonsofcoalreserves,asof2016(Worldometer,undated).ClosetiesbetweenthecoalindustryandSouthAfricanpoliticalelites,aswellastheinfluenceofdomesticunions,havehelpedlimitcoalphaseouts(Williams,2020;Yaowen,2021).SouthAfricahasbeendescribedastheworld’s14thlargestcarbonpolluter,drawingmorethan80percentofitselectricalpowerfromcoal(Yaowen,2021).InaregionofSouthAfricacalledHighveld,wheremanyofthecountry’scoalplantsarelocated,estimatessuggestthatthepollutantssulfurdioxideandnitrogendioxidearetentimeshigherthanwhatisconsideredsafebytheWorldHealthOrganization(AndrewGray,2019).Thepollutionreportedlycauseshundredsofprematuredeathsayear(Williams,2020).Althoughthecountryhassignificantwindandsolarreserves,renewablesaccountedforonly16.1percentofitsenergydevelopmentin2020.OnemajorinternationalinitiativemayplayacriticalroleinhelpingSouthAfricakickthecoalhabit.InNovember2021,theUnitedStates,Germany,theUnitedKingdom,andtheEuropeanUnionannouncedtheJustEnergyTransitionPartnership,whichwouldcontribute$8.5billionoverthenextthreetofiveyearstohelpSouthAfricareachthegoalsoftheParisAgreement.TheplanwouldhelpSouthAfricaretirecoalplantsearly,supportcoal-dependentregions,andturntorenewableenergy(Plumer,2021;Yaowen,2021).010002000300040005000600070008000AnnouncedPre-PermitPermittedConstructionOperatingMothballedCancelled,Shelved,or…MegawattsSouthAfrica11ImpactofXi’sStatementandNDRCGuidelinesforSouthAfricaFigure2.4summarizesthepotentialimpactoftheNDRCguidelinesonChinesesupportforSouthAfricancoal-poweredenergy,ascodedbyCREAanalysts.Nearly2,400MWofpowerisunderconstructioninSouthAfricaatKusilePowerStations4,5,and6.ItisunlikelythatChinawillbreakitscontractandceaseproduction.However,theNDRCguidelinesgiveChinesefirmstheopportunitytowithdrawfromprojectsifsufficientreasonexists,andtheguidelinescouldspurupgradestotheplants.TheCREAdatasetalsosuggeststhat3,000MWofpowerattheMusina-Makhadopowerstationshouldbestopped,accordingtotheNCRCguidelines,andChinaappearstobedoingso.TheMusina-MakhadopowerstationwasintendedtoservetheMusina-MakhadoSpecialEconomicZone,whichoperatesvariousheavyindustries(Bega,2021).OnNovember9,2021,Chinaindicatedthatitwouldwithdrawfundingforthenewplant.TheChineseambassador,inalettertoSouthAfricanleadership,directlyreferencedXi’sannouncementofnonewoverseascoalprojectsattheUNGeneralAssemblyinannouncingChina’sdecisiontowithdrawfundingfromtheplant.TheambassadoralsostatedthatChinawould“vigorouslysupportAfricancountries,includingSouthAfrica,indevelopinggreenandlow-carbonenergy”(Bega,2021).InlateFebruary2022,theplantwasgrantedpermitsnecessaryforittobeginconstruction,butitremainspresumedcanceledandpotentiallywillbereplacedbysolarpowerplants(Cronje,2022;GlobalEnergyMonitor,2022;Sguazzin,2022).Figure2.4.PotentialImpactoftheNDRCGuidelinesonChineseSupportforSouthAfricanCoal-PoweredEnergySOURCE:CREAChinaMasterListdataset,whichisbasedontheGlobalEnergyMonitorGCPTdataset.NOTE:Thex-axiscategoriesaredrawnfromCREAanalysisandarebasedonCREA’SinterpretationofChinesepolicy.ThesedataarebasedonananalysisofthestatusofChinese-supportedpowerplantsinJanuary2022.0500100015002000250030003500Construction,proceedcautiouslyGreyareaShouldbestoppedMegawattsSouthAfrica12IndonesiaChinahashelpeddevelop21,657MW(with97powerplants)ofcoal-firedpowerinIndonesia,ofwhich12,376MWisofthehigh-pollutingsubcriticaltechnology.Another29powerplantsoffering8,760MWofpowerareunderconstruction,31plants(5,520MW)areinthepre-permitphase,andanothertwo(1,320MW)areinthepermittedstage.Morethan12,500MWhavebeencanceled(Figure2.5).Indonesiaranksastheeighthlargestcarbonemitterandhasnearly39billiontonsofcoalreserves(NangoyandSurroyo,2021).Lessthan12percentofIndonesia’spowergenerationcomesfromrenewableresources.TheNationalElectricityGeneralPlancallsforIndonesiatoreach23percentpowergenerationfromrenewablesby2025,thoughthenumberislessthan12percentnow.AccordingtoIndonesia’sten-yearenergyplan,renewableswillaccountforhalfoftotalpowercapacity,andcoalwillbereducedto34percent(Tam,Faroi,andBatih,2021).Figure2.5.ChineseSupportforIndonesianCoalPowerSOURCE:CREAChinaMasterListdataset,whichisbasedontheGlobalEnergyMonitorGCPTdataset.TheGCPTcatalogseveryoperatingcoal-firedgeneratingunit,everynewunitproposedsince2010,andeveryunitretiredsince2000.Numerousfactorscontributetothisdependenceoncoal.LikeSouthAfrica,Indonesiahashighreservesofcoal,estimatedat30billiontons.Andthecountryhaspoliciesthatfavorcoaloverotherformsofenergy.7Onepolicy,forexample,requiresthatcoalminersprovideone-7Overall,thesehighdomesticreservesofcoalhavehelpedprotecttheIndonesianenergymarketfromhighinternationalpricesofenergycommodities,suchasliquifiednaturalgasandcoal.However,highpricesforoil,broughtaboutpartlybytheRussianwarinUkraineandtheresultantinternationalsanctions,havehurtIndonesia(MadeRadityaMargentaandYusgiantoro,2022).0500010000150002000025000AnnouncedPre-PermitPermittedConstructionOperatingMothballedCancelled,Shelved,or…MegawattsIndonesia13fourthoftheirannualproductiontothestateutilityprovider,PLN,atbelowmarketrates(NedopilWang,Yue,andVolz,2022).Indonesiafurtherrequiresthat40percentofthematerialsandservicesforsolarprojectsbemadeorproducedinIndonesia.Italsocapsthepurchasepriceforrenewableenergyat85percentoftheaveragecostofoverallenergygeneration(whichincludescoal);hence,asGallagheretal.,2021,AppendixC,p.4,notes,itwill“neverbepossibleforrenewablestocompeteonalevelplayingfieldintheIndonesianelectricitymarket.”Chinaisseenastheidealproviderofloansandexpertise.China’sBRIhascreatedwillingChineseinvestors(Tritto,2021),andChinahasbeenwillingtoprovidethelow-costsubcriticaltechnologythatisallowableunderIndonesia’slaxenvironmentalstandards.ChinaisalsowillingtoprovideIndonesiawithwhatIndonesiaasksfor.AsoneIndonesiangovernmentofficialsaidtoGallagheretal.,“Ifweaskforcoal,they[China]willselluscoal.Ifweaskforsolar,theywillsellussolar”(Gallagheretal.,2021,p.4).AsimilarobservationhasbeenmadeforPakistanaswell(seebelow)andsuggeststhatChinesesupportforcoalisdrivenbyhostcountrydemandratherthanbeingpushedbyChina.Thedevelopmentofcoal-poweredenergyinIndonesiahascreatedseveralchallenges.Coalpowergenerationcontributesto35percentofIndonesia’s1,262gigatonsofCO2emissionsannually(NangoyandSurroyo,2021).Therapidexpansionofcoalpower,particularlyinJava,hascreatedexcesspowercapacity(HamdiandAdhiguna,2021a),andtheloansaccruedtodevelopthisenergyresourcehavebeendescribedasa“financialstraightjacket”(HamdiandAdhiguna,2021b).ImpactofXi’sStatementandNDRCGuidelinesforIndonesiaFigure2.6summarizesthepotentialimpactoftheNDRCguidelinesonChinesesupportforIndonesiancoal-poweredenergy.Xi’sannouncementthatChinawillstopbuildingnewcoalplantsabroad,togetherwiththenewNDRCguidelines,provideanewopportunityforIndonesiatolimitfurtherexpansionofcoal-poweredenergyandturntocheaperrenewableenergy.CREAhasobservedthatthisshouldresultinthescrappingof600plannedmegawattsofpowerfortwonewplantsassociatedwiththeJambipowerstationthatareintheearlystagesofplanningandhaveneitherthefinancingnorthenecessarypermits(Suarez,2022).Thereareanother8,610MWofpowerthatareinconstruction.Asnoted,Chinaisunlikelytobreakcontractonthesein-constructionplants,thoughNDRCguidelinesgiveChinesefirmstheopportunitytowithdrawfromprojectsifsufficientreasonexists,andtheguidelinescouldspurupgradestotheplants.Suchguidelines,ifenacted,couldplayasignificantroleinrevisingorpotentiallyscrapping11(1,930MW)subcriticalcoalpowerplantscurrentlyunderconstruction.Thereareanother9,850MWofpowerthathavereceivedtheappropriatepermitsandfinancingbuthavenotenteredconstruction.CREAreferstosuchprojectsasrepresentinga“gray”categorybecauseitisunclearwhetherChinawillconsidertheseprojectstobe“new.”Nearly8,000MWofpowerinthiscategoryrepresentcaptivecoalplantsthataretiedto14industrialdevelopments(Suarez,2022).Overall,thecloudedstatusoftheseprojectsshouldprovideanopportunityfortheinternationalcommunitytoseekclarityfromtheChinesegovernmentandtourgethatsuchprojectsdonotgoforward.Figure2.6.PotentialImpactoftheNDRCGuidelinesonChineseSupportforIndonesianCoal-PoweredEnergySOURCE:CREAChinaMasterListdataset,whichisbasedontheGlobalEnergyMonitorGCPTdataset.NOTE:Thex-axiscategoriesaredrawnfromCREAanalysisandarebasedonCREA’SinterpretationofChinesepolicy.ThesedataarebasedonananalysisofthestatusofChinese-supportedpowerplantsinJanuary2022.TwoNewChinese-SupportedCoalPlantsinIndonesiaCritically,itappearsthatChinaissupportingtwonewprojectsforwhichnopublicrecordexistedasofthetimeofXi’sSeptemberUNspeech.AsIsabellaSuareznotes,theseprojects“riskcrossingtheredline”ofXi’spledgetonotbuildnewcoalplantsoverseas(Suarez,2022).OnFebruary14,2022,TianjinElectricPowerConstructionsignedanagreementtobuilda1,520MWpowerplantonIndonesia’sObiislandthatwouldsupportanindustrialsitefocusedonlateritenickeloreprocessing.Initsanalysis,CREAnotedthatspecificinformationonthecallfortendersorthesubmissionofthebidwasunavailablebutthatittypicallytakesonlyonetotwomonthsfromthetimeofthesubmissiontotheselectionoftenders.ThiswouldsuggestthatEnergyChina’sbidwas“submittedandacceptedwellafterXi’sannouncement”(Suarez,2022).Inaddition,ChinaEnergyprocuredatenderforasteelandnickelprocessingsiteatMorawaliIndustrialParkinDecember2021.Thisproject,locatedattheSulawesiLaportaPowerPlant,wouldservethreeplantunitsthateachprovide380MWofpower.Theprojectwaslimitedtoanengineeringandequipmentprocurement,thoughCREAreportingsuggeststhatfullengineering,procurementandcontractingfirminvolvementmaynotbefaroff.020004000600080001000012000Construction,proceedcautiouslyGreyareaShouldbestoppedMegawattsIndonesia15OneanalysisbyChinaDialoguecontributorIanMorsenotesthatthreemajornickelindustrialparks—Obiisland,Morowali,andWedaBay—seekatotalof14coalpowerplantswith71turbinesandwilldoublethenickel-supportingcoalpowerinthecountry.Suchprojectsareoftenhailedasenvironmental,giventheroleofnickelandaluminuminsupportingproductionoflithium-ionbatteriesandsolarpanels,respectively.Thefinancingforsuchprojectsoftenlacktransparencybecausetheproducedelectricityremainsoffthepublicelectricalgrid(Morse,2022).Further,althoughcoalpowerisapreferredenergysourceforindustrialplantsbecauseofitsabilitytoprovideconsistent24-hour-per-daypower,thepotentialdoesexisttodrawinsteadonamixofsolarandhydropowerenergy(Morse,2022).PakistanInPakistan,Chinahassupportedatotalof4,600MWofcoalpowercapacityfromeightpowerplants,withanother7,200MWofpowerfrom14plantsinsomeformofdevelopment.Morethan8,200MWofChinese-supportedcoalpowerfrom18plantshavebeencanceled,shelved,orpostponed.Only600MWofthein-capacitycoalpowercomefromsubcriticaltechnology,withthevastmajoritycomingfromsupercriticaltechnology(Figure2.7).Figure2.7.ChineseSupportforPakistaniCoalPowerSOURCE:CREAChinaMasterListdataset,whichisbasedontheGlobalEnergyMonitorGCPTdataset.TheGCPTcatalogseveryoperatingcoal-firedgeneratingunit,everynewunitproposedsince2010,andeveryunitretiredsince2000.Pakistancoalpowerhasitsrootsinthe2013nationalelection.By2013,Pakistanwassufferingfromanationwideenergycrisis(Kazmi,2013),andNawazSharifandhisPakistanMuslimLeague–Nawazpartywonthatyear’snationalelectionwithacampaignheavilygroundedonpromisestodeliverbadlyneededelectricalpowertothegeneralpopulace(Pakistan0100020003000400050006000700080009000AnnouncedPre-PermitPermittedConstructionOperatingMothballedCancelled,Shelved,or…MegawattsPakistan16MuslimLeagueCentralSecretariat,2013).Coalwasconsideredanidealwaytodeliveronthesecampaignpromises.Pakistanholdsthe16thlargestrepositoryofcoalintheworldandwasevenheraldedasanenergysourceofchoicebytheU.S.AgencyforInternationalDevelopment,whichhelpeddiscoverthecoaldeposits(AdvancedEngineeringAssociatesInternational,2010;Weynand,2007).WhenChina’sBRIreachedPakistanthroughtheChina-PakistanEconomicCorridor(CPEC)initiative,coal-poweredenergywasatthetopoftheSharifadministration’swishlist.Chinaofferedfunding,engineeringknow-how,labor,andongoingtechnicalsupport,andcoalprovidedawaytoquicklydeliveronSharif’scampaignpromises(BhandaryandGallagher,2022).8OnechallengeconfrontingPakistan’suseofcoalisthequalityofthecoalitself.FeasibilitystudiesforthefirstCPEC-supportedcoalpowerplantshowedthatthecoalreservesfortheplanned1,320-MWsupercriticalplantweretoopollutedwithsulfurandlime.ThishasrequiredPakistantoimportcoalfromIndonesia,SouthAfrica,orAustraliaandtodevelopnewplansforsubcriticalpowerplantsthatcanmakeuseofthelignitecoal(PortQasimElectricPowerCompany,2014).Asof2020,windandsolarcontributedtoonly4percentofPakistan’stotalenergycapacity.InitialCPECsupportforrenewableenergyhassufferedsomechallenges,suchasdesertsandscoatingthesolarpanelsofa400-MWplantinBahawalpur,Pakistan.However,feasibilitystudiesconductedbytheWorldBanksuggestthatPakistaniaccesstosunandwindmakethecountryripeforexpandedrenewableenergy(Reuters,2016;WorldBank,2020a).Thereportconcludedthatsolarandwindpowershouldmakeup30percentofPakistan’spowersupplyby2030andthatdoingsocouldsavePakistan$5billionoverthenext20years(WorldBank,2020b).ThePakistanirelianceonChinese-supportedcoalhasproducedseveralchallenges.First,Chineselenders,inanefforttomitigatethefinancialriskoftheloans,includedspecialtermsthatincreasedcost(BhandaryandGallagher,2022).AsofApril2021,Pakistan’sdebttoChinahasballoonedto$24.7billion,withthedebtaccountingformorethanone-quarterofitsoveralldebtload(Younus,2021).Thegrowingcoal-relateddebthasbeendescribedasan“economicdisaster”(Nicholas,2022),andPakistanhasaskedChinafordebtrelief(Rana,2021).Inaddition,coalaccountsfor19percentofPakistan’scarbonemissions,whichisachallengebecausePakistanhasbeenrankedasthefifthmostaffectedcountrybyclimatechange(Butt,Myllyvirta,andDahiya,2021).Amidthesefactors,Pakistanisexperiencinganenergycrisis.PartlyinfluencedbythewarinUkraine,pricesforimportedoil,coal,andliquifiednaturalgashaverisensignificantly.Thesepricehikes,combinedwithcurrencylows(comparedtothedollar)andrisingdebthaveresultedinasignificantgapbetweenenergysuppliesanddemand,withdailypoweroutagesinurbanareaslastfourtosixhours(Rana,2022;Shahzad,2022).Suchacrisis,ifitcontinues,may8Interviewwithacademicexpert,March31,2022.17incentivizePakistantocontinuedevelopmentofsubcriticalcoalpowerplantsthatcanfeedoffPakistan’sabundantresourceoflignitecoal.ImpactofXi’sStatementandNDRCGuidelinesforPakistanFigure2.8characterizesthestandingofPakistan’sin-developmentcoalplants.Sixplantunitsrepresenting3,300MWofcoalareunderconstructionandwilllikelybecompleted,thoughnewNDRCguidelinesleaveopenthepossibilitythatChinacantakestepstoimprovetheemissionsqualityoftheseplants.Another1,290MWofpowerfromfourpowerstationsisinthegrayareacategory.Theseplants,thoughnotyetunderconstruction,havetheappropriatepermitsandfinancingandcouldpresumablygoforward.Finally,2,640MWofpowerfromfourplantsshouldbestopped.TheseprojectsareintheearlyphasesofdevelopmentandappeartomeettheNDRCcriteriaforChinatoceasedevelopment.TheseincludetwoplantsassociatedwiththeKetiBandarpowerstationandtwoplantsassociatedwiththeTharBlockVIpowerstation.Figure2.8.PotentialImpactoftheNDRCGuidelinesonChineseSupportforPakistaniCoal-PoweredEnergySOURCE:CREAChinaMasterListdataset,whichisbasedontheGlobalEnergyMonitorGCPTdataset.NOTE:Thex-axiscategoriesaredrawnfromCREAanalysisandarebasedonCREA’SinterpretationofChinesepolicy.ThesedataarebasedonananalysisofthestatusofChinese-supportedpowerplantsinJanuary2022.NinemonthsbeforeXiannouncedthewithdrawalofChinesesupportfornewcoalpowerplants,PakistaniPrimeMinisterImranKhanmadehisownnonewcoalpledge.SpeakingbeforetheClimateAmbitionSummit2020,Khanstated,“Wehavedecidedwewillnothaveanymorepowerbasedoncoal”(Gul,2020).0500100015002000250030003500Construction,proceedcautiouslyGreyareaShouldbestoppedMegawattsPakistan18TwopowerplantsareworthwatchingtodeterminetheseriousnessofthePakistaniandChinesepledges.Thefirstisthe300-MWsubcriticalGwadarpowerplantsituatedonapeninsulaoftheGwadarPortinPakistan’sBalochistanprovince.Theproject,whichwouldrelyonimportedcoal,hasreachedthepermitphase,thoughithasreportedlynotachievedfinancialclosure(Pei-HuaYu,2021).ThesecondistwounitsoftheTharBlockVIpowerstation,whichisaplannedsupercritical1,320-MWcoalpowerplantinSindhProvinceandwhichwillaccompanyanother1,320-MWTharBlock1,whichisunderconstruction(Gul,2020).TharBlockVIisinthepre-permitphaseandislabeledas“shouldbestopped”byCREA.Itappears,however,thattheGwadarplantmaymoveforward:ImranKhantraveledtoChinainFebruary2022,anditisreportedthathereceivedassurancesfromtheChinesegovernmentthattheplantwouldcontinue(Rana,2021).ContinueddevelopmentoftheplantanditsimportedcoalalsoreportedlygoesagainstPakistan’sNationalElectricityPolicyplan,whichhassignaledanintenttoshiftPakistan’senergypowersupplytomoredomesticresources(Nicholas,2022).TherearealsosuggestionsthattheTharBlockVIstationwillmoveforward,thoughthereislimitedreportingtoconfirmthis(Nicholas,2022).SummaryOverall,Chinaappearstohavecontinuedtoreduceitssupportforoverseascoal-firedpowerplants.Inadditiontoitscessationoffinancingnewcoalprojectsin2020andthehighrateofprojectcancelationsfrom2017to2021,over16,000MWofplannedcoal-firedpowerwereshelved,canceled,ordecommissionedinthemonthsfollowingXi’sSeptember2021announcement.China’snewNDRCguidelinesreleasedinspring2022providedfurtherevidencethatChinaintendstoceasesupportfornewoverseascoalpower,improveandupgradeexistingplants,andshifttoagreaterrelianceonrenewableenergy.Suchpoliciesappeartobeinlinewiththebasiceconomicsofcoal-poweredenergy,whichhasnotbeenabletocompetewiththedroppingpricesofrenewableenergy.Still,areasofconcernremain.First,evenafterXi’sSeptemberstatement,Chinesefirmsinitiatedsupportfortwonewcoal-firedpowerplantsinsupportofindustrialplantsinIndonesia.SucheffortsappeartodirectlyviolateevenliberalinterpretationsofChina’spledgetonotbuildnewoverseascoalplants.Second,sinceXi’sspeech,severalplantshavemovedforwardinthedevelopmentprocess,withnearly2,000MWofworldwidepowermovingintothepre-permitphaseandnearly3,000MWmovingintotheconstructionphase.ItisalsoremainsunclearexactlyhowChinawillfollowthroughonitspromulgatedguidelines.Forexample,datafromCREAidentified11,140MWofpowerinIndonesia,Pakistan,andSouthAfricathathavepermitsandfinancingbuthavenotyetbegunconstruction.Underastrictinterpretation,suchplantsshouldalsobecanceled,thoughitislikelythatsomewillmoveforward.19Chapter3.ElectricityTransmissionandDistributioninLatinAmericaFrom2010to2020,thenumberofChinesehigh-levelvisitstocountriesinLatinAmericamorethandoubledwhencomparedwiththepreviousdecade,risingfrom105to229.9Chineseeconomicpresenceintheregionalsodeepened,withChinabecomingthenumberoneforeigninvestorinBrazilandthemainforeigntradepartnerforBrazil,Peru,andChile,replacingtheUnitedStates(Cariello,2021).10TheincreasedChinesediplomaticandeconomicpresenceintheregionoverthepastdecadehasraisedconcernsregardingChina’sattemptstogaininfluenceintheregionacrossallfourdomainsofnationalpower:informational,military,diplomatic,andeconomic.Inthiscasestudy,weexaminewhereChineseenterpriseshaveapresenceinLatinAmericaandtheCaribbeaninpowertransmissionanddistributioncompaniesthatarerelevanttotheGEIinitiativethatBeijingproposedin2015tointerconnectindependentnationalgridsintoaglobalwebofpowertransmissionsystems(Cornell,2019;Delina,2021,p.1).WealsoexaminehowChinesecompanies(particularly,state-ownedenterprises[SOEs])haveestablishedtheirpresenceintherespectivecountries’energysectors(e.g.,acquisitionofcompanies,neworgreenfieldinvestments,andloans)andidentifyanyconcernsassociatedwiththepresenceofChinesecompaniesandhowtheymightsupporttheimplementationofGEIinLatinAmericaandtheCaribbean.Weconductedareviewofopen-sourcedocumentsrelatedtoGEI,GEIDCO,andChinesecompaniesthathaveapresencethroughinvestmentsorloansinpowertransmissionanddistributioninLatinAmericaandtheCaribbean.Duringthismappingexercise,weidentifiedBrazil,Chile,Peru,andArgentinaasthecountrieswhereChinesecompaniesmadeandpledgedsomeofthelargestinvestmentsandfinancinginpowertransmissionanddistribution,asshowninTable3.1.9Fordetails,seeTable2.1inChindeaetal.,forthcoming.10ForBrazil,see“ChinaConfirmsItsPositionastheMainTradePartnerofBrazil,”2021;forPeru,seeMcDonnellandLeón,2021;andforChile,seeMagnet,2021.20Table3.1.SummaryofTopChineseInvestmentsandFinancinginPowerTransmissionandDistributioninLatinAmericaandtheCaribbeanfrom2010toJanuary2022InvestmentBrazilChilePeruArgentinaPowertransmission$4.7bln$1.3bln-$1.1blnaPowerdistribution-$2.2bln--Combinedpowertransmissionanddistribution-$3bln--Combinedpowergeneration,transmission,anddistributionb12.2bln-$3.6bln-Totalvalue$16.9bln$6.5bln$3.6bln$1.1blnaSOURCES:ForBrazilpowertransmission,seePlenaTransmissoraacquisitionfor$1.72billion(GlobalTimes,2010);XinguRioTransmissoradeEnergia,asubsidiaryofChinesestate-ownedStateGridCorporationofChina,constructionofBeloMonteIIfor$2.14billion(NSEnergyBusiness,undated);andthepurchaseof14transmissionlinesfromtheSpanishgroupActividadesdeConstruccionyServiciosfor$945million(BatistaBarbosa,2020,p.27).ForBrazilcombinedpowergeneration,transmission,anddistribution,seeCPFLacquisitioninBatistaBarbosa,2020,p.7.ForChile,seeEllis,2021a:ChinaSouthernPowerGridpurchaseofTranselecfor$1.3billionforpowertransmission,StateGridpurchaseofChilquintaEnergiafor$2.23billionforpowerdistribution,andStateGridpurchaseofCompañíaGeneraldeElectricidadfor$3billionforcombinedpowertransmissionanddistribution.ForPeru,ChinaYangtzePowerInternationalpurchaseofLuzdelSurfor$3.59billionforcombinedpowergeneration,transmission,anddistribution(SempraEnergy,2020).ForArgentina,seeBNamericas,2022.aUnderdiscussionasofJanuary2022.bAcquisitionincludedapowergenerationcomponent.Furthermore,arecentanalysisidentifiedBrazil,Chile,Peru,andArgentinaasthelocusofstrategiccompetitionamongtheUnitedStates,China,andRussiainLatinAmerica(Chindeaetal.,forthcoming).11Asaresult,wefocusedouranalysisonthesefourcountriesandMexico,whichweaddedbecauseoftherelevanceoftheMexicanpowergridtotheinterconnectionofNorthAmericanandCentralAmericanpowergridsinthecontextofGEI(LeiandQiankun,2020).Moreover,inthecontextofdevelopingGEI,MexicotogetherwithNorthernChileisoneoftheplannedlarge-scalesolargenerationbases,withanestimatedgenerationcapacityof250GWby2050(GEIDCO,2020,p.5;IndiaSmartGridForum,undated,p.3);in2020,BeijingstoodupanationalcommitteeinMexicotoadvanceGEIimplementation(GEIDCO,undatedb;NationalInstituteofElectricityandCleanEnergies,2021).AlthoughwefocusouranalysisonthesefivecountrieswhereChineseinvestmentsandfinancinginpowertransmissionanddistributionareconcentrated,thefivecountriesdonotrepresentindependentcasestudies.Thischapterrepresentsaself-standingcasestudythatoursponsorselectedbasedonitsinterest.AlthoughChinesepresenceintheenergysectorinLatinAmericaincludespowergenerationaswell,wefocusedprimarilyonpowertransmissionanddistributionatoursponsor’srequest.12However,becauseoftheimportanceofrenewableenergy11Fordetails,seeTable2.1inChindeaetal.,forthcoming.12TheexceptionistheinclusionofapowergenerationcomponentassociatedwiththeStateGridCorporationofChina’sacquisitionofBrazilianCPFL,forwhichitisdifficulttountanglethevalueofindividualgeneration,transmission,anddistributioncomponentsinthecontextoftheacquisition.21forGEIimplementation,weincludedsomereferencestorenewablepowergenerationprojectsforwhichChineseSOEsandprivatecompanieshaveownership.Inthischapter,weintroduceGEIandGEIDCOandthendiscussGEIDCO’spresenceinLatinAmericaandinBrazil,Chile,Peru,Argentina,andMexicoinparticular,includingadescriptionofChinesecompanies’presenceinpowertransmissionanddistributionandtheconcernsassociatedwithChineseinvestmentsandfinancingintheenergysector.Inthelastsection,wepresentourconclusionsandrecommendationsforareasofopportunityforcapacity-buildinginitiativesthattheU.S.StateDepartmentcanimplementincountriesinLatinAmericathateitherhavehostedorareconsideringhostingChineseinvestmentsandfinancingintheenergysectorandbeyond.AlthoughourfindingsandrecommendationsarerootedinresearchfocusedonChineseSOEinvestmentsandfinancingintheenergysectorinfivekeyLatinAmericancountries,theyarelikelytoprovideusefullessonsandinsightsforothercountriesintheregionandacrosstheworldthathaveorareconsideringChineseSOEinvestmentsandfinancing,especiallyinthepowersector.OverviewofGEIandGEIDCOBeijingannouncedtheGEIinitiativeinSeptember2015,followedbytheestablishmentofGEIDCOinMarch2016.GEIDCOisaninternationalorganizationwhosemainmissionistopromoteGEI(Cheng,2018,p.15;Yang,2019,p.8).GEIwasincorporatedintoChina’sBRI(Downie,2020,p.14;Delina,2021,p.2),anditisconsideredtobeaveryambitiousChineseinitiative“tobringcurrentlyfragmentednationalgridsintoaregional-to-globalwebs[sic]ofinterconnectedelectricitytransmissionsystemsoverthenextfivedecades”andtofacilitate“aglobalenergytransitionfromfossilfuelstoalargelysustainableenergysystem”(Delina,2021,p.1).GEI’svisionisthatelectricity“canbegenerated,transmittedandconsumedanywhereintheworld;forexample,solarenergycanbegeneratedintheSaharaDesertandcontributetotheenergymixinEurope,Asia,SouthAmericaorevenAustralasia”(Aubertin,2018,p.34).BeijinganchoredGEIandthestandingupofGEIDCOintosomeofthemajorchallengesthattheworldfacestoday,“suchasresourceconstraints,environmentalpollution,climatechange,populationwithoutelectricityaccess,healthandpoverty,”with“themassiveconsumptionofandexcessivedependenceonfossilenergy”beingidentifiedastherootcausebehindthesechallenges(Bo,2019,p.2).Inthiscontext,GEIaimstobringtogetherthreekeyelements:asmartgrid,anultra-highvoltage(UHV)grid,andcleanenergy.Themainfunctionofthesmartgridistointegrate“modernsmarttechnologieswithrespecttoadvancedtransmission,smartcontrol,newenergyintegrationandnewenergystorage”andtocarryout“theintelligentallocationofpowerresources”(Bo,2019,p.6;Yang,2019,p.7).ItisconsideredtorepresentthefoundationofGEI(Bo,2019,p.6).UHVpowertransmission,whichisconsideredtobe“aspecialtyofChineseutilities”(Downie,2020,p.7),representsthe“backboneframework”andisconsideredtobekey22toGEI(Bo,2019,p.7).Last,cleanenergyislabeledasaGEIpriority,withGEIenvisionedtobe“amajortransmissionstrategyinthefutureforwindpowerintheArctic,solarpowerintheequatorialregion,andcentralizedanddistributedcleanpowergeneratedfromacrossdifferentcountries,continents”(Bo,2019,p.8).AccordingtovariousGEIDCOpresentations,becausesolarandwindpowerareintermittentandunevenlydistributedgeographically,theycanbebetterexploitedbyintegratingthemintoalarge-scale,globallyinterconnectedpowergrid(Cheng,2018,p.10;GEIDCO,2020,p.3).Inaddition,becausekeyrenewableenergyresourcesareoftenfarawayfromloadcenters(e.g.,hydroresourcesinPatagoniaandtheAmazonbasinarefarawayfromthedenselypopulatedareasofChileandBrazil)andbecauseincreasingthelinevoltagereduceslossesacrosslongdistances,UHVsystemsthatdelivercurrentat800kV–1,100kVarehighlysoughtafterandhavebeenincreasinglydeployedinrecentyears(Downie,2020,p.12;InternationalEnergyAgency,2016,p.6;Junetal.,2020,p.2).Forthesereasons,GEIproposeswind,solar,andhydropowergenerationwithtransmissionacrosslongdistancesbywayofUHVlinesinterconnectedinagridspanningtheentireglobe(Bo,2019,p.11).Beijing’svisionregardingtheimplementationofGEIisalongtermandverycostlyone.Estimatedtoexceed$50trillion,GEIimplementationisdividedintothreestagesspanningthreedecades:promoting,by2035,domesticandintracontinentalinterconnection;by2050,intercontinentalinterconnection;andby2070,globalinterconnection(Bo,2019,pp.21–22;GEIDCOandResearchCenterforSustainableDevelopment,undated,p.6;Yang,2019,pp.13–14).By2070,allpowergridsofallcountriesintheworldwouldbeintegrated,formingthebackbonegridforGEI(seeFigure3.1),whichwillhaveninehorizontalandninevertical(or“9H-9V”)maingridsthatintegrate“largescalecleanenergybasesandloadcenterstoachieveglobalallocationofcleanenergyresourceacrossdifferenttimezonesandseasons”(GEIDCO,2020,p.9)andthatdrawonthedifferencesincleanresourceavailabilityandelectricitypricesofdifferentregionsoftheworld(GEIDCOandResearchCenterforSustainableDevelopment,undated,p.2).23Figure3.1.Diagramofthe9H-9VGridsPlannedby2070forGEIBackboneFrameworkSOURCE:GEIDCOandResearchCenterforSustainableDevelopment,undated,p.6.SomeofthebenefitsassociatedwithGEIincludecostefficienciesfortheconsumercausedbyeconomiesofscale;13resolutionofissuestraditionallyassociatedwithrenewablesources,suchasvolatility,intermittency,temporarypowershortages,andsurpluspoweroffering(Cheng,2018,p.13);economicgrowth;andpromotionofcleanenergy,reducingglobalwarming.SomeofthedownsidesofGEIincludeadecreaseinenergyself-sufficiencyandanincreaseindependencyandriskofdisruptionsforcountriesthatrelyonelectricityimportedfromunstableregionsoftheworld(Aubertin,2018,p.36).EspeciallyinlightoftheRusso-UkrainianWar,thereareincreasingreservationsaboutbecomingdependentonpowergenerationfromothercountries,whichposesproblemsforcross-borderinterconnectivity.AlthoughBeijing’sGEIvisionisattractiveandhasobviousadvantages,itbecomeslessattractivewhenconsideringitsimplementation,andsomeenergysectorexpertsperceiveitastoorisky.14MoredetailsoftheadvantagesanddisadvantagesofhavingagloballyintegratedgridbasedonUHVtransmissionlinesareprovidedinAppendixA.AlthoughChina’seffortstopromoteGEIhavebeenveryactive,GEIimplementationhasbeenmoremodestthanwhatChina’spromotionaleffortsmightsuggest.Morepoliticalcoordinationacrossvariousregionsoftheworldisneededtoadvanceplansforregionalandglobalinterconnection.Suchcoordinationwouldrequireasignificantchangeingovernments’,utilitycompanies’,andciviliansocieties’viewofthecross-bordertradeinelectricityto“ameans13InterviewwithU.S.governmentofficial,February25,2022.14Interviewwithenergysectorexperts,May6,2022.24ofimprovingenergysecuritybyexpandingsourcesofsupplyratherthanathreattotheircontroloverakeypieceofnationalinfrastructure”(Downie,2020,p.30).AdditionalchallengesthatChinaislikelytofaceinthecontextofGEIimplementationarerelatedtoindividualcountries’comfortwith(1)allowingChinatoinvestinbuildingUHVpowertransmissionlinesandbringtheexpertiseand(2)howthebiddingprocessesarestructured.ChineseSOEsthathavetheirgovernment’sbackingareabletoaccesscapitalatnonmarketrates(whichareveryloworzero)andarelikelytofeellesspressurethanprivatecompaniesdotomakeaprofit(Sanchez-Badin,Ratton,andMorosini,2021,p.124).ThisgovernmentbackingallowsChineseSOEstomakebidsatlowerpricesthanthoseofotherinternationalcompetitors,whichaccesscapitalatmarketratesandareaccountabletoshareholderswhoexpectaprofit;ultimately,ChineseSOEsendupcontrollinglargepartsofsomecountries’energysectors.InthecaseoflargeChineseSOEsthatareconsideredtobe“nationalchampions”andtoobigtofail(e.g.,StateGridCorporationofChina[SGCC],Huawei,Alibaba),thegovernmentinBeijingismorelikelytointerveneontheirbehalfwithloansandotherformsoffinancialsupportwhenneeded.Inthisway,thebiddingprocessoftenendsupskewedinfavorofChinesegovernment–backedSOEs,withsomeofthecoreprinciplesoffreemarketcompetitioneludingsomebiddingprocesses.15Also,whenChineseSOEsoutbidrepeatedlyotherinternationalcompetitors,theyarelikelytoendupestablishingadefactomonopolyinsomecountries’economicsectors,furthererodingtheprinciplesoffreemarketcompetitionandnarrowingthepoolofforeigninvestorsintherespectivecountries.16GEIandGEIDCOinLatinAmericaGEIDCOsignedseveralmemorandaofunderstanding(MoUs)andcooperationagreementswithUNagencies(e.g.,theUNEconomicCommissionforLatinAmericaandtheCaribbean),otherinternationalandregionalorganizations(e.g.,theLatinAmericanEnergyOrganization,alsoknownasOLADE),governments(e.g.,BrazilandChile),andcorporateentities,includingmajorutilityproviders,suchasBrazil’smainutilitycompany,Electrobras(Bo,2019,p.20;Delina,2021,p.2).AccordingtooneofthepresentationsmadetointroduceGEIandGEIDCO,ElectrobrasandtheChineseSOESGCCareamongthefoundingmembersofGEIDCO(Yang,2019,p.8).SGCCis“thelargestutilitycompanyintheworld”andis“aleadingplayerinenergyinterconnectionpromotionandinternationalcooperation,”withthelargestnetworkofUHVlinesintheworld(Cheng,2018,p.1;Yang,2019,p.19).Accordingtothedocumentsandliteraturewereviewedandtheinterviewsweconductedintheregionwithsubject-matterexperts(SMEs)intheenergysector,Chineseownershiporpresenceinpowergeneration,transmission,anddistributioninLatinAmericancountriesis15InterviewwithU.S.governmentofficial,April20,2022.16Forabriefoverviewonhowmonopolieserodefreemarketcompetition,seeAmadeo,2021.25rarelydirectlyassociatedwithGEIorGEIDCO.AlthoughChineseownershipandinvolvementinpowergeneration,transmission,anddistributioncompaniescanadvanceBeijing’sGEIagendainLatinAmerica,theconnectionbetweenthetwoisrarely,ifever,madeexplicitinthecontextofthepublicstatementsthatGEIDCOandChineseofficialsandinvestorsmake.17TheoverallimpressionamongmanyoftheSMEswithwhomwespokeforthisstudyisthatfewlocalexpertsandindustryprofessionalsintheenergysectorinLatinAmericaareawareofGEIandGEIDCO’sexistenceandactivitiesandthatnoovertconnectionisbeingmadewithChineseinvestmentsandfinancinginpowergeneration,transmission,anddistribution.InLatinAmerica,similartootherregionsoftheworldwhereithasapresence,GEIDCOhasaregionalcommitteethatoverseesseveralcountry-basedcommittees(GEIDCO,undatedb).18TheregionalcommitteeislocatedinSantiago,Chile,andthenationalcommitteesareinArgentina,Brazil,andMexico(GEIDCO,undateda;GEIDCO,undatedb).19AccordingtotheinterviewsweconductedandtheinformationavailableinEnglishonGEIDCO’swebsite,thenationalcommitteespromotetechnicalcooperationandtheexchangeofknowledgeandexpertiseamong“leadingorganizations,enterprises,universities,andresearchinstitutionsofenergyandpowersector”(GEDICO,undatedb),withGEIDCOproducingmanytechnicalstudiesaboutinterconnectivitybutnotactuallyplayingadirectroleinimplementingthoseprojects.Overall,GEIDCOseemstobenothingmorethanahigh-leveldialogueplatform,withtheimplementationonthegroundlefttosuchcompaniesasSGCCandotherChineseSOEs.ManyoftheChineseSOEsinLatinAmericaengagewiththerespectivecountriesindependentlyofGEIDCO;althoughGEIDCOis,attimes,perceivedaspotentiallypavingthewayforChineseSOEs,thisisnotalwaysthecase.20OneoftheSMEsweinterviewedraisedtheconcernthatGEIDCOwasnotjustinterestedinsharinginformationbutactuallywasmoreinterestedinaccessingtechnologicalinformationfromthevariousactorsithasassociatedwithinLatinAmericaandotherregionsoftheworld,usingsuchinformationtoChina’sbenefit.21Accordingtotheinterviewsweconducted,evenifChineseinvestmentsandfinancingintheregionwerenotdirectlyconnectedtoGEIandGEIDCO,GEIDCOwasactiveinLatinAmericafromitsinceptionin2016untilaround2020,whenitsengagementwiththeregionseemedtostall.22Thereasonsbehindtheslowdowninengagementareunclear,buttheycouldberelatedtotheoutbreakofthecoronavirusdisease2019(COVID-19)pandemic;achangeinChinese17InterviewwithBrazilenergysectorexpert,April13,2022;interviewwithU.S.governmentofficial,March1,2022;andinterviewwithU.S.governmentofficial,February25,2022.18InterviewAwithLatinAmericaenergysectorSME,March4,2022.19InterviewwithU.S.governmentofficials,March18,2022.20Interviewwithenergysectorexperts,May6,2022;andinterviewwithregionalenergysectorSME,March8,2022.21InterviewwithregionalenergysectorSME,March8,2022.22InterviewAwithenergysectorexpert,March4,2022;andinterviewwithenergysectorexperts,May6,2022.26prioritiesvis-à-visinvestmentsandfinancinginLatinAmerica(especiallyinthecontextofdomesticpushbackagainstforeigninvestmentsandloansatatimewhensomeregionsofChinaarestillunderdeveloped;Soutar,2022);23potentiallackofattractiveinvestmentopportunitiesinpowertransmissionanddistributionbeyondthosecompaniesthathavealreadycomeunderChinesecontrol;andpotentialpushbackfromsomecountriesintheregion.SomeofthechallengesthatBeijingislikelytofaceintheimplementationofGEIinLatinAmericaconcern•theextremelyambitiousgoalsandthehighleveloffinancialinvestmentneeded•thefactthattheinterconnectionoftheSouthAmericangridtotheglobaloneisprojectedtohappenthroughitsconnectiontotheCentralandNorthAmericangrids24•ataregionallevel,thefactthatpoliticaldivisionsandlong-standinglocalrivalriesamongcountries(e.g.,Chile,Peru,andArgentina)areunlikelytoallowforasmoothtransitiontoaninterconnectedregionalgrid25•thestrongdeterminationofcountriesintheregiontodefendtheirnationalsovereigntyandtoremainindependent.AlthoughthereisvalueincreatinganinterconnectedgridataregionallevelthatallowscountriessuchasChiletoexporttheexcessrenewableenergytocountriessuchasArgentina,26andtherehavebeensomeattemptsinSouthAmericaforbilateralandregionalelectricgridinterconnectionefforts,suchasSIESUR(LaIntegraciónEnergéticaRegionalDelConoSur;YepezandMalagón,2018),theyhavebeenprettymodestandareadvancingslowly.27Sofar,onlySIEPAC(CentralAmericanElectricalInterconnectionSystem),whichconnectstheelectricgridsofsixCentralAmericancountries,hasbeensuccessfullyimplementedandextendedtoconnectitsCentralAmericanparticipantstoMexicotothenorthandColombiatothesouth.28TheCommissionforRegionalEnergyIntegrationbasedinUruguayisanongovernmentalorganizationalthatworksinfavorofenergysectorinterconnectionattheregionallevelandpromotestechnicalcooperationamongmemberstates(ComisióndeIntegraciónEnergéticaRegional,undated),alongsimilarlinestoGEIDCO.Inrecentyears,theCommissionforRegionalEnergyIntegrationhasstartedtoperceiveGEIDCOasarivalthatisinterferinginits23Interviewwithenergysectorexperts,May6,2022;andinterviewwithexpertonChinesefinancingactivitiesinLatinAmerica,June6,2022.24InterviewwithChileforeignandeconomicpolicySME,May9,2022.25InterviewwithU.S.governmentofficial,March1,2022;andinterviewwithU.S.governmentofficial,February25,2022.26InterviewwithregionalenergysectorSME,March8,2022.27InterviewAwithLatinAmericaenergysectorSME,March4,2022.28AccordingtotheInternationalEnergyAgency,SIEPACisasupranationalinitiativedevelopedbysixCentralAmericannations(Panama,CostaRica,Honduras,Nicaragua,ElSalvadorandGuatemala)thatresultedinthedevelopmentofaregionalelectricitymarket(MER)andtheconstructionofnearly1800kmoftransmissioninfrastructuretoincreasetransfercapacityatallbordersintheregion.(InternationalEnergyAgency,2016,p.16)27areaofoperations.29AccordingtoLatinAmericaenergysectorexperts,politicalresistancefrommanyofthecountriesthatGEIDCOisinterestedinengagingwithrepresentsakeyproblemfortheadvancementoftheorganization.30SomeconcernsrelatedtoGEI,GEIDCO,andthepresenceofChineseSOEsandprivatecompaniesinLatinAmericathatsomeintervieweesexpressedarerelatedtothefactthat,iftheGEIinitiativeweretoproceed,itwouldprovideaneconomicopportunityforChinesebusinesses,mostlikelyattheexpenseoflocalones.AccordingtooneSME,GEIisperceivedtorepresentaneconomicstrategyforChinatopositionitscompaniesthatwouldbuildtheinfrastructureunderlyingGEIwithChineseequipment;31foranotherSME,GEIisagrandiloquentidea,withChinaaimingtoprojectinfluenceatthegloballevelthroughitsenergycompanies.32However,oneexpertwhofocusesonChina’senergysectorobservedthatChineseSOEsandenergysectorcompaniesactlessmonolithicallyandinamannerlessorchestratedbythegovernmentinBeijingthanwhatisgenerallybelievedintheWest.AccordingtothisSME,thereismuchmorefragmentationandlesscoordinationbetweentheaimsofthegovernmentinBeijingandwhattheChineseSOEsaredoingonthegroundinLatinAmericaandotherregionsoftheworld,withBeijing’spoliticalleverageusuallybeingoverestimated.33BrazilGEIandGEIDCOinBrazilBrazilisoneofthethreecountriesinLatinAmericawhereGEIDCOhasanationalcommittee,anditwasoneoftheorganization’sfirstassociates(GEIDCO,undatedb).GEIDCOandBrazil’sMinistryofMinesandEnergyhavesignedanMoU,butthereisverylittleinformationavailableaboutthemostrecentGEIDCOactivitiesinBrazil.Itisunclear,forexample,whatconcreteprogressGEIDCOhasmadetowardreachingtheGEIgoalstatedinitsglobalpowerflowmap,accordingtowhichPeru,Chile,Bolivia,andArgentinaareexpectedtodeliver50GWtoBrazilby2050(GEIDCO,2020,p.8).Also,inthecontextofGEI,theAmazonbasinisoneoftheareasBeijingidentifiedasthemainlocationforlarge-scalehydropowerbasegeneration(GEIDCO,2020,p.7).Similartoexpertsintheotherfourcountriesinthiscasestudy,SMEsinBrazil’senergysectorhadlittleawarenessofGEIDCO’sactivitiesinthecountryortheregion.34Accordingto29InterviewwithenergysectorSMEinLatinAmerica,March8,2022;andinterviewwithBrazilianenergysectorexpert,April13,2022.30Interviewwithenergysectorexperts,May6,2022.31InterviewAwithLatinAmericaenergysectorSME,March4,2022.32InterviewBwithLatinAmericaenergysectorSME,March4,2022.33Interviewwithenergysectorexperts,May6,2022.34InterviewwithBrazilianenergysectorexpert,April13,2022.28oneSME,althoughElectrobras,amajorBrazilianelectricutilitiescompany,hasbeenparticipatinginworkinggroupswithGEIDCO,theBraziliangovernmenthaschosennottobedirectlyinvolvedwithGEIDCO;inrecentyears,interactionsweremostlygovernedbySGCCratherthanbyGEIDCO.35ChinesePresenceintheEnergySectorinBrazilInBrazil,ChineseSOEsarepresentinallthreeareasofthepowersector:generation,transmission,anddistribution(BatistaBarbosa,2020).Chinagainedapresenceinpowertransmissionanddistributionthroughgreenfieldinvestmentsandacquisitions.36Inpowertransmission,SGCCacquiredSpanishPlenaTransmissorain2010for$1.7billion.In2012,SGCCalsoacquiredelectricitytransmissionassets(14lines)inthecompanyActividadesdeConstruccionyServiciosfor$945million(BatistaBarbosa,2020,p.27).InFebruary2014,aconsortiumledbySGCCwasawardedthecontracttobuilda$2.14billion±800-kVUHVtransmissionlinethatlinkstheBeloMontehydroelectricpowerstationinthenorthofthecountrytothesoutheastregion(Branford,2016;NSEnergyBusiness,undated;Rapoza,2014),wherethemajorconsumptioncentersare(BNamericas,2014;GEIDCOandResearchCenterforSustainableDevelopment,undated,p.3).Theprojecthastwobipoles:BipoleI,orBeloMontePowerTransmitter,whichwascommissionedinDecember2017,andBipoleII,orXinguRioTransmissoradeEnergia(XinguRiverTransmitterofEnergy),wascompletedinMarch–April2019(NSEnergyBusiness,undated).ThistransmissionprojectusedChinesedeveloperstobuildbothbipoles(Downie,2020,p.12;Yang,2019,pp.21–22).In2016,SGCCinitiallyacquireda23percentcontrollingstakeinCPFLEnergiafor$1.8billion,whichhasassetsinpowertransmissionanddistribution,aswellasinpowergeneration(Teixeira,2016).SGCCextendedtootherCPFLstakeholderstheoptiontoselltheirshares,andSGCCultimatelytookcontrolin2017ofsome94.75percentofCPFLfor$12.2billion(BatistaBarbosa,2020,p.7;Sanchez-Badin,Ratton,andMorosini,2021,p.109).China’spresenceinpowergenerationinBrazilismainlyfocusedonrenewables,withhydro,wind,andsolarrepresentingsome91percentofChinesecompanies’installedcapacityinBrazil.37ConcernsAssociatedwithChineseInvestmentsandFinancinginBrazilSofar,thelocalconcernsassociatedwithChineseSOEs’investmentsandfinancinginBrazil’spowertransmissionanddistributionhavebeenminimal,mainlybecausethecountry’spowersectorisheavilyregulated,especiallywhencomparingitwithotheremergingmarkets.35InterviewwithU.S.governmentofficials,March15,2022.36Greenfieldinvestmentsrefertonewprojects,whereasbrownfieldinvestmentsaremadethroughmergersandacquisitions(BatistaBarbosa,2020,pp.5,8,11).37InterviewwithBrazilianenergysectorexpert,April13,2022;andBatistaBarbosa,2020,p.14.29Brazilhasanactivefederalelectricityregulator,theBrazilianEnergyRegulatoryAgency(orAgênciaNacionaldeEnergiaElétrica),thatoverseespowergeneration,transmission,anddistribution(BNamericas,2021;OrganisationforEconomicCo-operationandDevelopment,2021).Forpowergenerationandtransmission,theregulationsfocusmainlyonqualityandlessoneconomicaspects,whicharelimitedtoregulatingaspectsthatoccuratthebeginningoftheconcession,suchastheprocurementandtendersduringwhichtheinvestorsareselected.38AccordingtooneoftheconversationswehadwithSMEsinBrazil’senergysector,thestrongregulatorysystemandthediversificationoftheelectricitymarketdonotseemtoposeariskofmarketcontrolorofChinaleveragingitspresenceinpowertransmissiontoachieveotherforeignpolicygoals(Sanchez-Badin,Ratton,andMorosini,2021,pp.125–126).39Oneaspectthatsurfacedduringourinterviewsconcernedthefactthat,attimes,ChinasignalsaverystronginterestinBrazil’seconomyandenergysectorandthatsomeoftheannouncementsmadeaboutfutureinvestmentsandfinancingdonotalwaysmaterializeordonotmeasureuptotheactuallevelofinvestmentsmade.Forinstance,theBrazil-ChinaFundwasannouncedwithgreatfanfarein2015.ItsaimwastofinanceinfrastructuredevelopmentinBrazil,butithasbeeninactiveanddoesnotseemtobeanactualinvestmentfund(Maia,2021).AccordingtooneoftheSMEsweinterviewed,thisisanexampleofChinatalkingbigandnotdeliveringmuch,aswellasanexampleofChina’sattemptstoprojectsoftpowerandpublicdiplomacybasedonclaimsofChinahavingachievedmorethanwhatitactuallyhas.40Thereis,however,theperceptioninBrazilthatChinacouldwithholdsupportordiscontinuetradetiesiftheBraziliangovernmentorotherBrazilianactorscriticizeChina,withBrazilnotrealizingthatithasmuchmoreleverageintheoveralltraderelationshipwithChinathanitthinks.Accordingtooneinterviewee,thereisamisperceptioninBrazilthatBrazilneedsChinamorethanChinaneedsBrazil,wheninrealitytheoppositeistrue.41ChileGEIandGEIDCOinChileChilehasatremendousamountofrenewableenergyavailablebuthasmodesttransmissioncapacity,makingthecountryagoodcandidateforimplementationofaGEI-likevision.TheChileanMinistryofEnergyandGEIDCOhaveasignedMoU,butthedocumentisnotpublic(Bo,2019,p.20).Asintheothercountriesexaminedinthischapter,therewaslittleawarenessamongChileanenergysectorSMEsregardingGEIDCO’sactivities.MostChineseinvestment38InterviewwithBrazilenergysectorexpert,April13,2022.39InterviewwithBrazilenergysectorexpert,April13,2022.40InterviewwithU.S.governmentofficials,March15,2022.41InterviewwithU.S.governmentofficials,March15,2022.30andfinancingactivitiesinChile’spowertransmissionanddistributionsectorsoccurthroughSGCCandarenotdirectlyconnectedtoGEIDCO.Accordingtooneinterviewee,manyofthestatementsGEIDCOputforwardinChileandtheregionareonlyaspirationalandforwindow-dressingpurposes,withverylittlecomingoutofthem.42ChinesePresenceintheEnergySectorinChileInChile’senergysector,Chinesecompanieshavegainedastrongerpresenceinthepastfivetosevenyears,43asthefollowinginvestmentsshow.In2016,ChineseStatePowerInvestmentCorporationpurchased$1billioninpowergenerationassetsinChilefromPacificHydro(Danning,2017;Heine,2021).In2018,ChinaSouthernPowerGridpurchased27.7percentofChile’slargestpowertransmissioncompany,Transelec,forsome$1.3billion(Ellis,2021a).In2020,SGCCpurchasedthethirdlargestpowerdistributioncompanyinChile,ChilquintaEnergía,for$2.23billion(Ellis,2021a;Nikolewski,2020),andSGCCpurchasedCompañiaGeneraldeElectricidad,whichdoesbothpowertransmissionanddistribution,for$3billioninDecember2020.Inthisway,ChineseSOEsgainedcontrolof57percentofChile’spowerdistributionsector(Ellis,2021a).ChinaalsohasastrongpresenceinChile’srenewableenergysector,especiallyinsolarandwind,withChinesefirmsproposingprojectsandChinesegovernmentbanksofferingfinancingoptionsfortherespectiveprojects(Koop,2016).44Forinstance,ChinaThreeGorgespurchasedtheenergycompanyAtiaiaEnergíain2019andgainedcontroloverseveralrenewableenergyprojects,includinga90-MWhydropowerdamproposedintheBioBioregion(Ellis,2021a).Forthecompaniesweidentifiedinthissection,ChineseSOEsgainedapresenceinpowergeneration,transmission,anddistributionthroughpublictendersandmergersandacquisitiontransactions.45ConcernsAssociatedwithChineseInvestmentsandFinancinginChileOurreviewofopen-sourcedataandtheinterviewsweconducted,whichincludedChileanSMEswhowereworriedaboutChinesepresenceandactivitiesinthecountry,turnedoutfewconcernsinrelationtoChineseinvestmentsandfinancinginpowertransmissionanddistributionorinrelationtopowergeneration,similartoBrazilandtheothercountriesexaminedinthischapter.46TransparencyandstronginstitutionsandregulatoryframeworksinChilearethemainreasonswhyChile’senergysectorhasexperiencedlimitedproblemsassociatedwiththe42InterviewwithU.S.governmentofficial,March1,2022.43InterviewwithChileenergysectorSME,April21,2022.44InterviewwithU.S.governmentofficial,March1,2022.45InterviewwithU.S.governmentofficial,March1,2022.46Environmentalandcorruptionconcernsarepresentintheminingsector,whichisoutsideofthescopeofthisreport(interviewwithChileforeignandeconomicpolicySME,May9,2022;andinterviewwithChileenergysectorSME,April21,2022).31presenceofandinvestmentsbyChineseSOEs(Ellis,2021a).47OneoftheconcernsvoicedbyformerChileanofficialswasverysimilartowhatweheardfromotherintervieweesinothercountriesregardingthefactthatChineseSOEsthatoperateinChilereceiveloansfromChinesegovernmentbanksand,becauseofthenonmarketconditionsforfinancing,48canmakemore-attractivebidsthanWesterninvestorscan.49Byrepeatedlywiningtendersbecauseoflowerbiddingprices,ChineseSOEsendupcontrollingahighershareofthelocalassetsinsomecriticalsectors(LewandRoughead,2021;Sutter,Schwarzenberg,andSutherland,2021),whichdefactoconcentratescontroloverChile’scriticalinfrastructureinthehandsoftheChinesegovernment,increasesBeijing’seconomicleverage,andobstructsfreemarketcompetition.50Forinstance,ChineseSOEscurrentlyhavecontroloveralmost60percentofChile’senergysector,creatingadefactomonopolyforthegovernmentinBeijing(Ellis,2021b;Ellis,2021c).AconcentrationofChinesegovernmentcontroloverlocalcriticalinfrastructureassetscouldgrantBeijing(1)moreleewayintermsofsettingthepriceanddeterminingthequalityoftheservicesprovidedand(2)theabilitytoestablishbarrierstoentrytokeepnewcompaniesout,hencerestrictingcompetitionandthewayinwhichthefreemarketoperateswhileadvancingBeijing’spoliticalandeconomicgoalsattheexpenseofthehostcountry(LewandRoughead,2021;Sutter,Schwarzenberg,andSutherland,2021).Chile,bylaw,hasafragmentedenergysector.Undertheexistinglegalframework,powergeneration,transmission,anddistributioncompaniesweredeliberatelyestablishedasseparateentitiestoavoidthecreationofaconglomeratewithamonopolyoverthepowersector.51However,theChileanPublicProsecutor’sOffice,whichreviewedtheacquisitiondealsbyChineseSOEsforanypotentialinterferenceswiththe“promotion,defenceandprotectionoffreecompetition,”deemedthedealsacceptablebecausetheChinesecompaniesinvolvedinpower47InterviewwithChileenergysectorSME,April21,2022.48Accordingtoseveralofourinterviewees,includinganexpertinChinesefinancinginLatinAmerica(June6,2022),theChinesegovernmentprovidesloanstoChineseSOEsthroughChinesepolicybanksatinterestratesthatallegedlyarebelowmarketratesanddifferentfromtheratesforforeignlending,whichtendtobeclosetooratmarketrate(seeMorris,Parks,andGardner,2020;andSutter,SchwarzenbergandSutherland,2021).AccordingtoourinterviewwithanexpertinChinesefinancinginLatinAmerica(June6,2022),theactualrateatwhichChinesepolicybankslendtoSOEsisunknownandisspeculatedtobearound1percent,withhardevidencebeingdifficulttocomebybecauseofalackofofficialtransparency.49InterviewwithU.S.governmentofficial,March1,2022;andinterviewwithChileforeignandeconomicpolicySME,May9,2022.50ChineseSOEshavethesupportoftheChinesegovernmentinwaysthattheforeignprivatecompaniestheycompetewithinLatinAmerica(andinothermarkets)donot.Itislikelythat,withoutsubsidizedloansorcapitalinjectionsfromtheChinesegovernment,manyChineseSOEswouldnotbeascompetitiveastheyareinvariousmarkets,includinginLatinAmerica;thebackingtheyreceivefromtheChinesegovernmentgivestheSOEsanunfairadvantageintermsofpricevis-à-visforeignprivatecompanies,whichrelyentirelyontheirownforcesandthequalityoftheirproductorservicewithoutreceivinganygovernmentbacking.SeeLewandRoughead,2021;andSutter,SchwarzenbergandSutherland,2021.51InterviewwithU.S.governmentofficial,March1,2022.OntheevolutionofChile’selectricitymarket,seeSerra,2022.32generation,transmission,anddistributiontechnicallyaredifferententitiesinvolvedindifferentareasofthepowersector(Guzmán,2021).52ThistechnicalityseemstooverlookthefactthattheChinesegovernmentisthemainentitybehindtheSOEsinquestion.However,thecommonChinesegovernmentownershipofallSOEsthatinvestedinChile’senergysectorrepresentsanissuethatshouldnotbeneglected,andconcernsinthisregardhavepromptedChileanlegislatorstointroduceabillthatlimitsforeigninvestmentsincriticalinfrastructuresectors(Urdinez,2021,p.12).53Insomecases,suchastendersforsolarparks,theoffersChinamakescomeattachedwithloans.ThefactthatChineseinvestorsprovidefinancingoptionsmakestheiroffersmoreattractivethanthosereceivedfromGermanorSouthKoreancompaniesthatarebiddingontheprojectbutthatdonotofferfinancingoptions.54ConcernsoverChineseviolationofenvironmentalregulationsarealsopresent.Forinstance,localpopulationshavebeenverycriticalofChina’sThreeGorgescompanybuildingahydroelectricdamintheBioBioregionofChile.Thedamthreatenstheexistenceoflocalanimalspeciesthatinhabittheriver(Durante,2021;Ellis,2021a).Also,becauseofenvironmentalconcernsandpopularresistancerelatedtodamagetothelocalhabitatandpopulationdisplacementcausedbythefloodingoftheBakerandPascuarivers,theHidroaysenprojectwashaltedin2014(Hance,2014).ThiswasaprojectplannedforSouthernChileandChinaNationalWaterResources.TheHydropowerCorporationwasexpectedtocontributetobuildingfivehydroelectricplantsontheBakerandPascuariversinPatagonia,andSGCCwastobuildthetransmissionlines(Ellis,2021a;GlobalTransmissionReport,2012).However,accordingtooneSME,mostChinesecompaniesinvestinginChileseemtoplaybytheruleswhenheldtoastrictstandardanddemandedtodoso,withlocalgovernmentsactivelycontrollingandmonitoringtheirinvestmentandfinancingactivitiesandnotprovidingopportunitiesforChinesecompaniestomisbehave.55PeruGEIandGEIDCOinPeruAsopposedtoArgentina,Brazil,andChile,thereisnoGEIDCOnationalcommitteeinPeru.TheSMEswespokewithinPeru’senergysectordidnotwitnessGEIDCObeingveryactivein52InterviewwithChileforeignandeconomicpolicySME,May9,2022.53InterviewwithU.S.governmentofficial,March1,2022.54InterviewwithChileforeignandeconomicpolicySME,May9,2022.55InterviewwithChileforeignandeconomicpolicySME,May9,2022.33thecountrybeyondtheorganization’ssuccessfulrecruitmentofsomeindustryactorstobecomeGEIDCOassociates.56ChinesePresenceintheEnergySectorinPeruIn2020,YangtzePowerInternational,asubsidiaryofChinaThreeGorgesCorporation,purchasedfromtheU.S.companySempraEnergiaashareinLuzdelSurfor$3.59billion(Nikolewski,2020).ThistransactionprovidedChinawithaccesstopowergeneration,distribution,andtransmissioninfrastructure.OthermajorChineseinvestmentsandfinancinginPerutookplaceinpowergeneration.In2019,OdebrechtdivestedfromChagllahydroelectricplant,whichwastransferredtoChinaThreeGorgesCorporationfor$1.4billion;in2017,ChinaDevelopmentBankdecidedtoinjectsome$365millioninPeru’sSanGabanIIIproject,whichisajointventurebetweenChinaThreeGorgesandEnergiasdePortugal(Harris,2017).MostChinesecompaniesinPeruhaveacquiredcontrolovercompaniesinpowertransmissionanddistributionthroughmergersandacquisitions,whereasgreenfieldinvestmentsandloansseemtoprevailwhenitcomestopowergeneration.ConcernsAssociatedwithChineseInvestmentsandFinancinginPeruInourreviewofopen-sourcedocumentsandtheinterviewsweconducted,weidentifiedrelativelyfewconcernsrelatedtoChineseSOEcontroloverPeruvianpowertransmissionanddistributionassets,similartothesituationinChile.57Theconcernsthatintervieweesvoicedaremoregeneralinnatureandarerelatedtothecountry’sperceivedeconomicdependenceonChina,whichisnowPeru’snumberonetradingpartner(McDonnellandLeón,2021;WorldIntegratedTradeSolution,undated),andhowthisdependencemighttranslateintopoliticalinfluenceandthepotentialcorruptionofgovernmentelites,iftherecentSinopharmandChineseconstructionscandalsareanyindication(Vera,2022).AccordingtoonePeruvianSMEweinterviewed,althoughdiversifyingforeigntradeandthesourceofforeigninvestmentsandfinancinginthecountryisanoption,doingsoisimpededbythelowcostoffinancingforChinesecompaniesthathavegovernmentbacking,whichmakesitincreasinglydifficultforlocalandotherwesterncompaniestocompeteinPeru.5856InterviewwithU.S.governmentofficials,March18,2022.57Moreconcernsarepresentintheminingsectorandinhydropowergeneration,whicharemorelabor-intensivesectorsandwheremoreenvironmentaldamageislikelytooccurthaninpowertransmissionanddistribution.ManyoftheChineseinvestmentsinminingareplaguedbysocialunrestbypopulationsevictedfromtheirland,suchasintheexploitationofcoppermines.However,accordingtoagroupofSMEswespokewith,thesocialissuesaffectingChineseinvestmentsinPeruarenotuniquetoChinaandaffectU.S.andCanadianconcessionsaswell.Intermsofenvironmentalprotections,ChineseinvestorsintheminingandhydropowersectorswerenotperceivedashavingasadvancedstandardsasotherWesterninvestors(interviewwithU.S.governmentofficial,April20,2022;andinterviewwithU.S.governmentofficials,March18,2022).Formoredetails,seeRochabrun,2022,andSanbornandChonn,2015.58InterviewwithPeruvianenergysectorexpert,April15,2022.34Furthermore,tofacilitateandspeeduptheaccesstofinanceforChinesecompaniesthatoperateinPeru,ChinahassetuptwobanksthroughwhichitfinancestheoperationsofChinesecompaniesinthecountry.ThishascreatedasmallecosystemthatincludestheIndustrialandCommercialBankofChinaPeruBankandBankofChina(Peru)(Andina,2014;Krmeljetal.,2022).ThetwobanksprovidefinancingletterstotheChinesecompaniesthatparticipateinpublictenders,and(accordingtoseveralinterviewees)thisprocessusuallyunfoldsmuchmorequicklyandincludesmore-favorabletermsthanwhattheothercompaniesworkingwithregularcommercialbanksareabletoprovide.DuringtheCOVID-19pandemic,localcompaniesstruggledevenmoretosecurebusinessloansfromregularcommercialbanks,whileChinesecompaniesinterestedinsecuringinfrastructureprojectsdidnotfacesuchhurdleswhenusingthetwoChinesebanksinthecountry.59ArgentinaGEIandGEIDCOinArgentinaGEIDCOstoodupanationalcommitteeinArgentina,butitisunclearwhatitsactivitiesinthecountryare.60InthecontextofimplementingGEI,SouthernArgentinaisoneoftheareasBeijingidentifiedasafuturelocationforestablishingalarge-scalewindpowergenerationbase(GEIDCO,2020,p.6).Also,accordingtoGEIDCOpresentationsonGEI,SouthernArgentinaisexpectedtohaveby2050some135GWofinstalledcapacityforwindpower(IndiaSmartGridForum,undated,p.3).MostoftheChineseprojectsonthepowergenerationsideinArgentinaseemtopointtowardChinadevelopingrenewableinfrastructureprojectsthatultimatelypositionChinatodesigntheinfrastructureneededtoexpandtransmissioncapacitysothatArgentinacanintegratetheadditionalrenewableenergythattheprojectsgenerate(Jáuregui,2021).Overall,Argentinaisindeepneedofpowertransmissionlines,anditseemsthatnoothercountryexceptforChinaisinterestedinaddressingthisneed,giventhefinancialriskinvolvedindoingbusinessinArgentina(Politi,2022).61Investmentsandfinancingintheenergysectorareusuallylong-term,andinvestorsrequireastablepoliticalandeconomicenvironmentfortheirimplementationandforareturnoninvestmenttobepossible.GivenArgentina’stroubledpoliticalandfinancialsituation,manyinvestors(withtheexceptionofChina)shyawayfrominvestinginthecountry,includinginitsenergysector.6259InterviewwithU.S.governmentofficials,March18,2022;andinterviewwithPeruvianenergysectorexpert,April15,2022.60InterviewBwithLatinAmericaenergysectorSME,March4,2022.61InterviewwithU.S.governmentofficial,February25,2022.62InterviewBwithLatinAmericaenergysectorSME,March4,2022;Gedan,Uribe-Kessler,andZhou,2021;andJones,2022.35ChinesePresenceintheEnergySectorinArgentinaCurrently,ChineseSOEsdonotownanyassetsinArgentina’spowertransmissionanddistributionsectors.63InJanuary2022,discussionsaboutanSGCCsubsidiary—ChinaElectricPowerEquipmentandTechnology(Devex,undated)—buildingamuch-neededextensionofthepowertransmissionlinefortheBuenosAiresareawereopened(Politi,2022).ThepowertransmissionprojectinvolvesSGCCandChinaElectricPowerEquipmentandTechnologyandisestimatedtocostsome$1.1billion(Newbery,2022).Inpowergeneration,ChinaandArgentinasignedinFebruary2022an$8billioncontractforChinaNationalNuclearCorporationtobuildanuclearplantintheprovinceofBuenosAires(“ChinaInks$8blnNuclearPowerPlantDealinArgentina,”2022;ChinaNationalNuclearCorporation,undated).Inbothcases,ChinaandArgentinaarediscussingfinancingoptionswiththeBankofChinaandtheIndustrialandCommercialBankofChina(ICBC).Inthecaseofthenuclearplantconstruction,thediscussionsareforICBCtofinance85percentoftheproject.Atthetimeofthiswriting,thetwopartieswereonlydiscussingfinancingoptions,andtherewasnoinformationinthepublicdomainaboutwhetheranyloanagreementwassigned(Raszewski,2022).64Sofar,Argentinahastakencommercialloans(notsovereigndebt)fromChinaforsomepowergenerationprojects(solar,wind,andhydropowerdams;KoopandPike,2019).65AsofJune2022,Chinawasfinancingthroughloansthebuildingoftwohydroelectricplants(theCondorCliffandLaBarrancosadamsproject)inSantaCruz,Patagonia.ChinaDevelopmentBankwassupposedtofinance85percentoftheproject,withthecontractincludingaso-calledcross-complianceclause,whichmeansthatthedam’sconstructionis“aprerequisitefortheadvanceofotherChinese-financedprojectsinthecountry”(Lara,2020).ConcernsAssociatedwithChineseInvestmentsandFinancinginArgentinaSomeoftheconcernsassociatedwithChina’sinvolvementinthepowersectorinArgentinaarerelatedtothefinancingaspectoftheseprojects,whichisfairlyopaque,andthefactthattherearenopublictendersannouncedinwhichothercompaniesandcountriesthatareinterestedcanparticipatebesidesChineseones.66Theimportanceofhavingopenandtransparentpublictendersforallinfrastructureprojectsandthepreferenceforcontractswithforeigninvestorstofollow63InterviewwithU.S.governmentofficial,February25,2022.64InterviewBwithLatinAmericaenergysectorSME,March4,2022;andinterviewwithU.S.governmentofficial,February25,2022.65InterviewwithU.S.governmentofficial,February25,2022;interviewwithLatinAmericaenergysectorSME,March3,2022;andRubioandJáuregui,2022.66InterviewwithU.S.governmentofficial,February25,2022;andinterviewBwithLatinAmericaenergysectorSME,March4,2022.36localArgentinelawscameupinseveraloftheconversationswehadwithSMEsinthecountry’senergysector.67TheSantaCruzdamsprojecthasbeenplaguedbyenvironmentalandeconomicconcerns,withoneArgentinaSMEreferringtotheprojectas“neitheracleannoraneconomicallysustainable”one(Lara,2020).TheinvestmentwashaltedasofJune2022becauseofchangesinthescopeofworkandreductionsinthepowergenerationcapacityofdams,whichautomaticallytriggeredthesuspensionclauseofthefinancingcontract(Harán,2021;LatinoaméricaSustentable,2022;LevaggiandBerg,2022).68Althoughtherearefewconcernsaboutdebt-trapbehaviorinLatinAmerica,andresearchshowsthatconcernsaboutChinesepredatorylendingpracticesarenotsupportedbyevidence(BrautigamandRithmire,2021;Soutar,2022),69thefinancialfragilitythatArgentinaexperiencesislikelytoincreaseChina’spoliticalleverageoverthecountryinthecaseofArgentinedefaultonChineseloansandresultinArgentinapotentiallysidingmoreoftenwithChinainregionalandinternationalfora.MexicoGEIandGEIDCOinMexicoIn2020,theGEIDCOnationalcommitteeinMexicowasstoodup(NationalInstituteofElectricityandCleanEnergies,2021).Itsactivitiesseemtobelimitedtoconductingwebinars,organizingworkshops,andproducingtechnicalreports.GEIDCOhasalsopartneredwithMexico’sNationalInstituteofElectricityandCleanEnergies(elInstitutoNacionaldeEnergíasyEnergíaLimpia;NationalInstituteofElectricityandCleanEnergies,undated).70GEIDCOwasperceivedasbecomingmoreactiveinMexicobetween2016and2020,71whentheorganizationconductedatechnicalstudyregardingtheinterconnectionoftheNorthAmericangrid(whichincludesCanada,Mexico,andtheUnitedStates)andevaluatedthebenefitsofsuchaninterconnectionfromaneconomicandenvironmentalperspective(GEIDCO,2019).GEIDCO’sactivitiesinMexicosloweddownduringthepandemicbuthaverecentlyrestarted,withtwowebeventsorganizedinAprilandMay2022(NationalInstituteofElectricityandCleanEnergies,2022).Also,itseemsthatthecurrentadministrationofAndrésManuelLópezObradorismorereluctanttoengagewithforeigncompaniesororganizationsthatare67InterviewwithU.S.governmentofficial,February25,2022;andinterviewBwithLatinAmericaenergysectorSME,March4,2022.68InterviewBwithLatinAmericaenergysectorSME,March4,2022;andinterviewwithLatinAmericaenergysectorSME,March3,2022.69InterviewwithU.S.governmentofficial,April20,2022.70InterviewwithMexicoenergysectorSME,April22,2022.71InterviewwithMexicoandLatinAmericaenergysectorSME,March7,2022.37activeintheenergysector,whichmightpartlyexplainsomeoftheslowdownGEIDCOregisteredinitsactivitiesinMexicoinrecentyears.72Furthermore,someplannedprojects,suchastheinterconnectionoftheElectricSystemofBajaCaliforniawiththeNationalInterconnectedSystem(BNamericas,undated;ProjectPipeline,undated)andthehigh-voltage,directcurrentOaxacatransmissionline(MexicoBusinessNews,2017)toexportrenewableenergy,werecanceled(Ramosetal.,2020,p.9).SuchcancelationsmighthaveledtoGEIDCOlosingsomeofitsinterestinMexico.73AccordingtoGEIDCO’sglobalpowerflowmap,NorthandSouthAmericaareexpectedtoexchange10GWwithMexicoby2050;therefore,thecountryrepresentsalinchpinintheglobalflowofpower(GEIDCO,2020,p.8).MostoftheenergysectorSMEsinMexicowespokewithwerefamiliarwithGEIDCO,but(similartointervieweesintheothercountries)theywerenotfamiliarwiththeexactactivitiesoftheorganizationingeneralnorthoseofthenationalcommitteeinMexico,specifically.ChinesePresenceintheEnergySectorinMexicoIngeneral,ChineseinvestmentsandfinancinginMexico’spowersectorhavebeenrathermodest.ChinadoesnothaveanyownershiporcontrolinanypowertransmissionanddistributioncompaniesinMexicobecausethesecompaniesareunderthecontroloftheMexicanstate-ownedutilityFederalElectricityCommission(ComisiónFederaldeElectricidad).MostChineseinvestmentsandfinancinginthepowersectorinMexicoareonthegenerationsideandfocusonprivaterenewableenergy,suchassolarandwind.InNovember2020,China’sStatePowerInvestmentCorporationacquiredMexico’slargestindependentrenewablescompany,ZumaEnergía(AssociationforPrivateCapitalInvestmentinLatinAmerica,2020).AnothermajorplayerinthisfieldisEnvision,aprivatelyownedChinesecompanythatpurchasedalocalMexicancompanyin2015(Envision,undated)—ViveEnergía74—anddevelopedawindfarmprojectintheYucatánPeninsula(Djunisic,2020;EnvisionEnergy,2020).EvenwhentheinvestorsinsolarandwindparksareMexican,mostoftheserenewableenergyparksoperatewithChineseequipment,suchassolarpanelsandwindmills.75Inadditiontothephysicalequipment,Chinaprovidesthesoftwareneededtooperatethesolarandwindparksandconnectthemtothegrid.76Theuseofsoftwareanddigitalizationintheoperationofsmartgridsbringstotheforetheimportanceofestablishingastrongregulatoryframeworkthatgovernsthecontrol,72InterviewwithMexicoenergysectorSME,March11,2022.73InterviewwithMexicoenergysectorSME,April22,2022.74InterviewwithMexicoenergysectorSME,April1,2022.75InterviewwithMexicoandLatinAmericaenergysectorSME,March7,2022;andinterviewwithMexicoenergysectorSME,April22,2022.76InterviewwithMexicoenergysectorSME,April1,2022.38functioning,andmaintenanceofsoftwareandotherdigitalcomponentsthatoperatecriticalinfrastructureassets.77ConcernsAssociatedwithChineseInvestmentsandFinancinginMexicoInthereviewofopen-sourcedocumentsandinterviewsweconductedwithSMEsinMexico’senergysector,veryfewconcernsrelatedtothepresenceofChinesecompaniesinthesectorcameup.RegardingthequalityofChinesetechnicalequipmentforMexicanwindfarms,oneoftheSMEswespokewithmentionedthattheassetssurpassedexpectationsandthattheywereofveryhighquality,inadditiontobeingmorecompetitivefromapriceperspectivethanU.S.orEuropeanproducts.78OneconcernassociatedwiththedevelopmentofChinesesolarandwindparkprojectsinMexicothatwasmentionedwasthattheMexicansidedidnotconsiderdevelopingalocalvaluechainanddidnotpushformorelocalcontentoutoffearthatproductioncostswouldincrease.However,theSMEsaidthatincludingmorelocallaborintheproductionchainwouldbenefitMexicointhelongtermandthatitwouldmeanaccesstoahighlyqualifiedtechnicalworkforce.79SummaryAccordingtoourreviewofopen-sourcedocumentsandtheinterviewsweconducted,relativelyfewconcernsemergedoverallinrelationtoChineseownershiporcontroloverpowertransmissionanddistributioncompaniesinBrazil,Chile,Peru,andArgentina.NeitherthegovernmentinBeijingnortheChineseSOEsandprivatecompaniesonthegrounddrawanexplicitconnectionbetweenGEIimplementationandtheinvestmentsandfinancingtheymakeinthefiveLatinAmericancountrieswefocusedon.TheconcernsthatarepresentaremostlyrelatedtothewayprojectsarefinancedandtheperceptionthatChineseSOEshaveacompetitiveadvantagethatprivatecompetitorsfromothercountriesdonothaveintermsofaccesstofinanceundernonmarketconditions.80NoneoftheconcernsweidentifiedinourreviewofopensourcedataortheinterviewsweconductedrevealedanykeyepisodespresentintheinformationaldomainrelatedtoChinesegovernmentpressureorattemptsatgainingorprojectinginfluencethatwerespecifictoChineseinvestmentsandfinancinginpowertransmissionandgeneration.However,wedidencounterexamplesofChinesegovernmentattemptstogainandprojectinfluencemorebroadlyintheinformationaldomaininBrazil,Chile,Peru,andArgentinaandto77InterviewwithBrazilenergysectorexpert,April13,2022.78InterviewwithMexicoenergysectorSME,April1,2022.79InterviewwithMexicoenergysectorSME,April22,2022.80ConcernsoverenvironmentaldamageandsocialunrestinrelationtoChineseinvestmentsinminingandtheconstructionofhydropowerdams,whicharemorelabor-intensivesectorsthanpowertransmissionanddistributionandwhicharemorelikelytohaveanegativeimpactontheenvironment,arealsopresent,withminingandpowergenerationbeingoutsidethescopeofthisreport.39shapelocalpoliticaldiscourseinamannerfavorabletoChina.Anon-exhaustivesummaryofsomekeyepisodesthatcameuptoourattentionispresentedinAppendixB.TheChineseinvestmentsinBrazil’s,Chile’s,andPeru’spowertransmissionanddistributionsectorshavebeenacquisitionsinvolvingChineseSOEsbuyinglocalcompanies.IfthepowertransmissiondealinArgentinagoesthrough,ArgentinawouldrepresentanexceptiontothispatternbecausetheChineseprojecttoexpandthepowertransmissionlinesintheBuenosAiresareacomeswithafinancingofferfromChinesepolicybanks.InouranalysisofChineseinvestmentsandfinancinginthetransmissionanddistributionsectorsinBrazil,Chile,andPeruandofpowergenerationinvestmentsandfinancinginArgentinaandMexico,wenoticedthatChinesecompanieswerelesslikelytobeassociatedwithscandalsrelatedtopredatorylendingpracticesandviolationsofenvironmentalandlaborlawsthaninAfricanandSoutheastAsiancountries.Althoughamorein-depthinvestigationofwhythisisthecaseinLatinAmerica(oratleastinthefivecountrieswefocusedoninthischapter)isoutsidethescopeofthisreportandwouldmeritfurtherinvestigation,thefiveLatinAmericancountriesweexaminedhaverelativelystrongregulatoryframeworks,whichmighthavepreventedtheoccurrenceofdeeperandmorenumerouseconomic,labor,social,andenvironmentalissuesthanthosethatoccurredinotherregionsoftheworldwhereChinamadeinfrastructureinvestments.ItisalsopossiblethatChinalearnedfromitsmistakesinotherpartsoftheworldand,giventhatChineseSOEscametoLatinAmericalaterandinitiallymadesomepoorinvestmentandfinancingdecisions,wasmorecautiousabouthowtofinancedealsandpaidmoreattentiontopoliticalstabilitythanitpreviouslydid(LewandRoughead,2021).40Chapter4.SeabedMiningAlthoughtherearemultipletypesofseabedmining,thiscasestudyexamineswhatisoftenreferredtoasdeepseabedmining,meaningminingresourcesinthedeepocean,orbelow200ormoremetersofwater(NOAAOceanExploration,undated).Theseresourcesincludepolymetallicnodules(sometimesreferredtoasmanganesenodules),polymetallicsulfides(orseafloormassivesulfides),andcobalt-richferromanganesecrusts.AllthreeresourcetypesaredistributedextensivelyacrosslargeportionsoftheEarth.Inthiscasestudy,wedonotconsidermoreshallow-waterminingforsuchresourcesasdiamonds,methanehydrates,ironsands,orphosphorites.Thiscasestudydiffersfromthepriortwocasestudiesintwoimportantways.First,nocommercialseabedmininghasyetbeenundertaken;allactivitythusfarhasbeenintheformoftechnologydevelopmentandexplorationinpreparationofcommercialmining.Thecommercialseabedminingmarketdoesnotyetexist,andmanyaspectsofhowitwillunfoldhaveyettobedetermined.So,thiscasestudyexaminesdeepseabedminingexplorationratherthancommercialmining.Becauseseabedmininghasyettoenterthecommercialstage,thefindingsofthiscasestudyarenotbasedontheoutcomesandimplicationsofformalbusinessdealingsbutratheronconcernsemergingfrompreliminary,sometimesambiguous,activitiesbeingundertakenthatareshapingtheemergingcommercialmarket.Second,themajorityofseabedminingexplorationisoccurringininternationalwatersundertheauthorityoftheInternationalSeabedAuthority(ISA),meaningthattherearefewopportunitiesforChinesecompaniestopartneronprojectsinothercountries.Rather,mostseabedminingprojectsareunilateraleffortsinwhichstate-sponsoredcompaniescontractwiththeISA.Asaresult,manyoftheconcernsrelatedtoChineseforeigninvestmentsdonotapplytoseabedmining.Inaddition,becauseseabedmininginvolvesfewbilateralinteractionsbetweencountries,itislessobvioustowhomrecommendationsarebestdirected.Becauseofthesedifferences,thiscasestudytakesamoredescriptiveapproach,inwhichwebrieflyreviewthehistoryofseabedmining,describeChina’sadvancesindeepanddistantseaexploration,describeChina’sactivitiesrelatedtoseabedmininginparticular,andpresentsomeofthekeyconcernsrelatedtoChina’sseabedminingeffortsthatemergedfromourinterviewsandtheliterature.WeconcludewithsomerecommendationstargetedtotheISAandtocountriesthatareorareconsideringopeningtheirseabedresourcestoexplorationandcommercialminingbyoutsideentities.41ContextforSeabedMiningThebriefhistoryofthediscoveryandearlyexplorationofseabedmineralresourcesinthissectionistakenfromLipton,Nimmo,andParianos,2016,andAMCConsultants,2021.Seafloormanganesenoduleswerediscovered,andtheirwidespreadoccurrenceacrosstheEarth’soceanswasrecognized,bytheHMSChallengeronitsaround-the-worldvoyagebetween1873and1876.Littleexplorationensueduntilthesenoduleswererecognizedtoberichinnickel,copper,cobalt,andmanganeseinthe1960s.DuringtheInternationalDecadeofOceanExploration(1970–1980),severalinternationalorganizationsandconsortiaconductedextensiveexplorationcampaigns,primarilyintheClarion-ClippertonZone(CCZ),aregionthatextendsfromMexicotosouthofHawaiibetweentheClarionandClippertonfracturezones.Avarietyofseabedminingtechnologiesweredevelopedandexperimentedwith,includingseabedminingvehiclesandair-poweredsystemstolifttheminednodulestosurfaceships,andseveralsuccessfultrialminingoperationswereconducted.Mostofthisactivityceasedinthemid-1980stoearly-1990s,primarilybecausecostswerenotcompetitivewithland-basedmining.Closelyassociatedwiththisexplorationactivity,theUNwasactivelydebatingquestionsofrightstonationalandinternationalwatersandapproachestogoverntheserights.Onestepinthisprocessincludeda1969moratoriumondeepseabedminingtolastuntiltheserightsandgoverningregimeshavebeenworkedout.ThesedebatesculminatedwiththeUNConventionontheLawoftheSea(UNCLOS)in1982,whichcameintoforcein1994.Asof2022,167countriesandtheEuropeanUnionareparties(theUnitedStatesisnotamongthem).Keyamongitsprovisionsarethedefinitionofanation’sexclusiveeconomiczone(EEZ),wherethatnationhasexclusiveaccesstoseabedmineralresources;thedefinitionoftheArea,referringtotheseabedinthehighseas(i.e.,outsideallEEZs);andtheestablishmentoftheISA,anintergovernmentalorganizationchargedwithregulatingtheexplorationandexploitationofseabedmineralresourcesintheArea.By2001,theISAdevelopedregulationsgoverningtheexplorationforseabedmineralresourcesandbeganissuingexplorationcontractstogovernment-sponsoredminingcontractors(seeTable4.1).Severalofthemembersofthevariousseabedminingconsortiafromthe1970sareamongthe“pioneerinvestors”withtheISA.TheISAhasyettodevelopregulationsfortheexploitationofseabedmineralresources,andhencethe1969moratoriumoncommercialminingintheAreaisstillinforce.Althoughthefirstphaseofseabedminingexplorationwounddownforreasonsofcost,effortstodecarbonizetheenergyandtransportationsystemsinresponsetoclimatechangehavespurredrenewedinterestinseabedmining.Polymetallicnodulescontainexceedinglyhighconcentrationsofnickel,cobalt,copper,andmanganese,whichareallcriticalelementsneededforbatteriesforelectricvehicles,energystoragesystemstosupportwindandsolarpowergeneration,andothertechnologiesassociatedwithdecarbonization.Demandfortheseelementsisprojectedtoincreasedramaticallyinthecomingdecades,raisingconcernsthatcurrentland-42basedsuppliesareinsufficienttomeetdemand.Forexample,InternationalEnergyAgency,2021,reportsthat,tomeettheParisAgreementgoals,demandamongcleanenergytechnologiesisexpectedtoincreasebyover40percentforcopper,60–70percentfornickelandcobalt,andnearly90percentforlithiuminthenext20yearsalone.CurrentSeabedExplorationContractsandLicensesSeabedminingcontractswiththeISArequireformalsponsorshipfromanISAmembercountry.AsofJune2022,theISAhasissued31explorationcontractsto22entities(Table4.1).TheUnitedStatesisnotamemberoftheISAandsocannotsponsorexplorationcontracts.Mostcontractsareforpolymetallicnodules.Themajorityofthesecontracts(17)areintheCCZ,withoneeachintheCentralIndianOceanBasinandWesternPacificOcean.ThesevenpolymetallicsulfidescontractsareontheSouthwestIndianRidge,CentralIndianRidge,andtheMid-AtlanticRidge,andthefivecobalt-richcrustscontractsareintheWesternPacificOcean,MagellanMountainsinthePacificOcean,andRioGrandeRiseintheSouthAtlanticOcean(ISA,undated).43Table4.1.ISAExplorationContractsContractHolderSponsorCountryPMNPMSCFCTotalInteroceanmetalJointOrganizationBulgaria,Cuba,CzechRepublic,Slovakia,Poland,Russia11JSCYuzhmorgeologiyaRussia11GovernmentoftheRepublicofKoreaRepublicofKorea1113ChinaOceanMineralResourcesResearchandDevelopmentAssociation(COMRA)China1113DeepOceanResourcesDevelopmentCo.Ltd.Japan11Institutfrançaisderecherchepourl’exploitationdelamerFrance112GovernmentofIndiaIndia112FederalInstituteforGeosciencesandNaturalResourcesGermany112NauruOceanResourcesInc./TheMetalsCompanyNauru11TongaOffshoreMiningLimited/TheMetalsCompanyTonga11GlobalSeaMineralResourcesNV/DEMEGroupBelgium11UKSeabedResourcesLtd./LockheedMartinUKUK22MarawaResearchandExplorationLtd./TheMetalsCompanyKiribati11OceanMineralSingaporePte.Ltd./KeppelGroupSingapore11CookIslandsInvestmentCorporation/DEMEGroupCookIslands11ChinaMinmetalsCorporationChina11BeijingPioneerHi-TechDevelopmentCorporationChina11MinistryofNaturalResourcesandEnvironmentoftheRussianFederationRussia112GovernmentofPolandPoland11JapanOil,GasandMetalsNationalCorporationJapan11CompanhiadePesquisadeRecursosMineraisS.A.Brazil11BlueMineralsJamaicaLtdJamaica11Total197531SOURCE:ISA,undated.NOTE:CFC=cobalt-richferromanganesecrusts;PMN=polymetallicnodules;PMS=polymetallicsulfides.ThreeentitiessponsoredbyChinahaveatotaloffivecontracts,themostofanysponsorcountry.Thesecontractsincludeallthreeresourcetypesandspanthreelocationsintwooceans(ISA,undated,Table4.2).ChinaMinmetalsisalargemultinationalmineralsandmetalsfirmandamajorChineseSOE(MMG,undated).COMRAisaresearchorganizationestablishedbytheformerStateOceanicAdministration(absorbedbytheMinistryofNaturalResourcesin2018)toadvanceandcoordinateChina’sseabedminingresearch(COMRA,2015;DenghuaZhang,2018).LittleinformationisavailableaboutBeijingPioneerHi-TechDevelopmentCorporation.AnISAwebpageindicatesthatitisanSOEaffiliatedwiththeMinistryofNaturalResources(ISA,2019).44Table4.2.ISAExplorationContractsSponsoredbyChinaResourceContractorLocationPolymetallicnodulesCOMRACCZPolymetallicnodulesChinaMinmetalsCorporationCCZPolymetallicnodulesBeijingPioneerHi-TechDevelopmentCorporationWesternPacificOceanPolymetallicsulfidesCOMRASouthwestIndianRidgeCobalt-richferromanganesecrustsCOMRAWesternPacificOceanSOURCE:ISA,undated.ISAexplorationcontractsallowcontractorsto(1)conductsurveysofgeological,oceanographic,andbiologicaldataandresourcesand(2)adaptandtesttechnology.Contractorsarerequiredtomonitorandassesstheenvironmentalimpactsoftheiractivitiesandcollectasuiteofspecificenvironmentalbaselinedata.ContractorsarerequiredtosubmitanannualreporttotheISAthatdetailstheirexplorationactivitiesandfindings,environmentalimpacts,andenvironmentalbaselinedata.ThecontractsallowtheISAtosenditsinspectorsonboardvesselsandinstallationsusedbytheContractortocarryoutactivitiesintheexplorationareato:(a)MonitortheContractor’scompliancewiththetermsandconditionsofthiscontractandtheRegulations;and(b)Monitortheeffectsofsuchactivitiesonthemarineenvironment.(ISA,undated)InadditiontoobtainingISAcontractstoconductseabedminingexplorationininternationalwaters,anycountrycanexploreormineorinviteotherstodosowithinitsEEZ.Themostwell-knownexampleofsuchactivityistheSolwara1projectinPapuaNewGuinea’sEEZ(seedescriptioninPage,2018).Solwara1wastheworld’sfirst,andsofaronly,commercialseabedminingoperationundertaken.PapuaNewGuineagrantedamininglicenseforseafloormassivesulfidestoaCanadiancompanyin2011.Afternumerousdelays,fundingranoutin2019,andtheprojectwasterminatedbeforeminingbegan.Atthetimetheprojectended,apurpose-builtshiphadbeenconstructedbyaChineseshipbuilder,production-scaleseabedminingandliftequipmenthadbeenbuiltanddeliveredtoPapuaNewGuinea,andaprocessingcontracthadbeenexecutedwithaChinesefirm.Accordingtomultipleinterviewparticipants,theminingequipmenthadjustbegunwet-testingintheportandhadneverbeenfullysubmerged.InanotherexampleofacountryopeningitsEEZforseabedmining,theCookIslandsissuedexplorationlicensestothreeentitiesinFebruary2021(Table4.3).OneofthethreelicenseesiseffectivelythesameorganizationthathastwoISAcontracts(DEMEsubsidiaryGlobalSeaMineralResources).AswiththeISAexplorationcontracts,theselicensesallowexplorationonly.45Table4.3.CookIslandsSeabedMineralsAuthorityExplorationLicensesLicenseHolderParentCompanyCIICSeabedResourcesLimitedDEMEGroup,BelgiumMoanaMineralsLimitedOceanMineralsLLC,USACICLimitedUSA-basedconsortiumSOURCE:CookIslandsSeabedMineralsAuthority,2022.SeveralothercountrieshaveinitiatedeffortstobeginopeningtheirEEZstoseabedminingexplorationbyinternaloroutsideentities.Theextentofactualexplorationactivityappearsminimal,andnonehavegoneasfarasPapuaNewGuineaingrantingrightsforcommercialmining.TheseincludeTonga,Fiji,SolomonIslands,Vanuatu,NewZealand,andNorway(Elbourne,2021;DeepSeaMiningCampaign,LondonMiningNetwork,andMiningWatchCanada,2019;WorldBank,2017).ChineseGovernmentPositionsandStatementsAboutSeabedMiningTheChinesegovernmenthasmadesomeclearpublicstatementsindicatingthepriorityofdeepanddistantseaexplorationingeneralandaboutharvestingseabedmineralresourcesspecifically.China’s13thand14thfive-yearplans(covering2016–2020and2021–2025,respectively)describeambitionstoincreasedeepspace,deepearth,anddeepseaexploration,whichhasbeenreferredtoasthe“three-deep”strategy(DongandGao,2018;Zhou,2016).Theseplansincludegoalstostrengthenthedevelopmentofstrategictechnologiesforthedeepsea,developdeep-seamobileandseafloorexperimentalplatforms,“strengthenthesurveyandevaluationofdeep-seastrategicresourcesandbiodiversity”(GovernmentofChina,2021,p.82),and“takeanactiveroleinformulatinginternationalrulesinareassuchastheinternet,thedeepsea,thepolarregions,andaerospace”(GovernmentofChina,2016).Similarly,theChineseMinistryofLandandResources’NationalPlanonMineralResources(2016–2020)statesthat“Chinawillactivelyparticipateininternationalsurveysondeepseaminingandacceleratetheexplorationanddevelopmentofoceanminerals”(DenghuaZhang,2018).PresidentXihasmadespecificstatementsaboutseabedmininginspeeches.Ina2013speechduringtheeighthcollectivestudyofthePoliticalBureauoftheCommunistPartyCentralCommittee,hestatedthatChinashould“promotetheconstructionofamaritimepowertocontinuouslyachievenewachievements,”“improvethedevelopmentcapacityofmarineresources,”andstrivetopromotethetransformationofmarinerightsprotectiontoaholisticapproach.Welovepeaceandadheretothepathofpeacefuldevelopment,butwemustnevergiveupourlegitimaterightsandinterests,letalonesacrificeourcountry’scoreinterests.(JuntaoandGang,2013)46Ina2016speechataNationalScienceandTechnologyInnovationConferenceattheChineseAcademyofSciences,Xistated,“Thedeepseacontainstreasuresthatarefarfrombeingrecognizedanddevelopedontheearth,buttoobtainthesetreasures,itisnecessarytomasterkeytechnologiesindeep-seaentry,deep-seaexploration,anddeep-seadevelopment”(Xi,2016).ThesepoliciesandstatementsclearlyindicateChina’sdesiretoincreasetechnologydevelopment,research,andexplorationassociatedwiththedeepanddistantsea.Asdescribedinsubsequentsections,Chinahasmadesubstantialprogressinregardtothisobjective.ChineseDeepandDistantOceanExplorationTechnologyandActivityUntilrecently,thestateofChinesedeepseaexplorationtechnologysubstantiallylaggedbehindthestateoftheart.Startinginearnestinabout2001,China“startedtoinvestintensivelyindeep-seainvestigationandinexplorationtechnology”(Yan,2019).Concertedeffortsoverthepast20yearshavebroughtChinaonparwiththemost-advancednations.Asrecentlyas2005,noChinesesubmersiblehadgonebelowabout600meters(Li,2019).In2002,COMRAbegandevelopmentoftheJiaolong,acrewedsubmersibledesignedtodescendto7,000meters(Li,2019).Itbeganseatrialsin2009andreachedamaximumdepthof7,062metersintheMarianaTrenchonJune27,2012(Li,2019).Afteralatersamplingexpedition,aresearcherwiththeStateOceanicAdministrationnoted,“Suchfindingswillserveasvaluablereferencestothedesignofdeepseamining”(SubseaWorldNews,2016).MuchofthetechnologyfortheJiaolongwaspurchasedabroad;in2009,developmentbeganonanewcrewedsubmersibleforwhich85percentofthetechnologywastobeindependentlydevelopedinChina(ChenYu,2021).AlthoughnotdesignedtogoasdeepastheJiaolong,theShenhaiYongshiincorporatedmore-advancedcapabilitiesandledtoimportantadvancementsinChinesesubmersibletechnology(ChenYu,2021).Ithasbeenactivesince2017(Zhen,2022).DevelopmentofChina’snewestcrewedsubmersible,theFendouzhe,beganin2016(“ChinaFocus:China’sMannedSubmersibleFendouzheReturnsAfterOceanExpedition,”2020).Designedtodescendtothedeepestpartoftheocean,ittoucheddownat10,909metersintheMarianaTrenchonNovember10,2020(ChenYu,2021).Insendingacrewtothedeepestpointoftheseabed,Chinajoinstheranksofaselectfewcountrieswithsuchacapabilityand“markedChina’sentryintothefirstechelonofdeep-seascientificresearch”(“ChinaFocus:China’sMannedSubmersibleFendouzheReturnsAfterOceanExpedition,”2020).Inacongratulatoryletter,PresidentXi“stressedthatthedevelopmentofmannedsubmersibleFendouzheanditsseatrialrepresentedChina’scomprehensivestrengthinthefieldofmarinehightechnology”(“ChinaFocus:China’sMannedSubmersibleFendouzheReturnsAfterOceanExpedition,”2020).Chinahasalsodevelopedandoperatesasuiteofautonomoussubmersiblescapableofexploringtheentireocean(Agarwala,2021;Minter,2021;Page,2018).China’srapiddevelopmentofworld-classdeepseaexplorationcapabilitiesisallthemoreremarkableinthatitwasaccomplishedlargelyindependently:“Fewcountrieswerewillingto47cooperatewithusbecausewewerenotonthesamelevel.ItwaslikeagapbetweenapupilandaPhD”(COMRA,2019).ThedevelopmenteffortshavebeendescribedbyDonWalsh,anAmericanexpertwhowaspartofthefirstcrewtodescendtheMarianaTrenchin1960,as“averydeliberateprogram...They’rebeingverycautious.Theyrespectwhattheydon’tknowandareworkinghardtolearn”(Broad,2010).In2021,thedeveloperoftheFendouzheannouncedthatthesubmersiblewasbeinghandedovertotheInstituteofDeep-SeaScienceandEngineeringattheChineseAcademyofSciencesandthattheFendouzheandShenhaiYongshiwouldbemadeavailableforusebyscientistsfromaroundtheworld(ChinaGlobalTelevisionNetwork,2021).Intheannouncement,arepresentativenotedthat“scientificresearchofthedeepoceanisaglobalhottopic,andinternationalcooperationwillenhancehumanity’sunderstandinginthefield.”Inconjunctionwiththerapidexpansionofitscrewedandautonomoussubmersiblecapability,Chinahasgreatlyincreaseditssurface-basedexplorationcapabilityandactivityoverthepast20years.Thenumberofnaval,coastguard,merchant,research,andfishingshipsthatChinaoperateshasincreaseddramaticallyinthepasttenyears(Agarwala,2021).Thenumberofgovernmentresearchvesselsoperatingoutsideitsnationaljurisdictionfarexceedsthatofanyothercountry(AsiaMaritimeTransparencyInitiative,2020).ResearchcruisesareincreasinglyventuringwellbeyondChinesejurisdictionalwaters,conductingawiderangeofmeteorological,oceanographic,andbathymetricmeasurementsandtechnologydemonstrations(Agarwala,2021;AsiaMaritimeTransparencyInitiative,2020;MartinsonandDutton,2018).AlthoughChina’stechnicalcapabilitiesfordeepanddistantseaexplorationareadvanced,itscapabilitiesfordeepseabedminingarelessso.ManyISAcontractorscantracetheiroriginstoearlyseabedminingexplorationconsortiainthe1970sandareaffiliatedwithmajoroceanengineeringcompaniesthataredevelopingtheprimarycomponentsofadeepseabedminingsystem(seafloorcollector,risersystem,customizedships).Chinaenteredtheseabedminingrealmlaterandhasrelativelylessadvancedseabedminingtechnology.Insummer2021,COMRAtestedawhole-systempilotnodulecollectionsystematdepthsofupto1,300metersintheSouthChinaSea,whichisshortofthe4,000–6,000metersatwhichseveralothercountrieshaveconductedtestingandwhichisrequiredforaccessingnodulesintheCCZ(KangandLiu,2021).In2015,however,theChinesefirmZhuzhouChinaSouthRail(nowCRRCGroup)boughtSoilMachineDynamics(“CSRCompletesSMDAcquisition,”2015),aUnitedKingdomcompanythatbuilttheseafloornodulecollectorfortheSolwara1projectinPapuaNewGuinea(SoilMachineDynamics,2016).Theonlyfull-sizedcollectoreverbuilt,itwasneverusedbecausetheprojectfailedbeforetestingwascompleted.WiththeownershipofSoilMachineDynamics,Chinaispresumablywell-positionedtodevelopcuttingedgeseabedminingtechnology.Oneindustryrepresentative,reflectingonChina’sabilitytoquicklyrampuptherateoftechnicaldevelopment,said,“ifwe’renotcareful,everyonewillneedtobuyChineseminingequipment.”Otherrepresentativesdisagreedwiththisassessment,however.48ChineseSeabedMiningActivityInvolvementwiththeISAChinawasamongthefirstcountriestoobtainaseabedminingexplorationcontractwiththeISA.China-sponsoredCOMRAbecameoneofseven“pioneerinvestors”inseabedexplorationundertheUNCLOSinMarch1991(Lipton,Nimmo,andParianos,2016).ThesepioneeragreementsbecameformalISAcontractsin2001(Lipton,Nimmo,andParianos,2016).AlthoughmostoftheISAcontractorsfromdevelopednations“havebeendescendedfrommajorexplorersintheregionthatpredatetheISA,”Chinaisarelativenewcomer,havingconductedveryfewmarinesurveyspriorto1991(Lipton,Nimmo,andParianos,2016).Sincethattime,however,Chinahasvigorouslypursuedaseabedminingprogramalongseveralfronts.ChinahassponsoredfiveISAexplorationcontracts,morethananyothercountry,throughthreecontractors:COMRA,ChinaMinmetalsCorporation,andBeijingPioneerHi-TechDevelopmentCorporation(ISA,undated).ThesecontractscoverallthreeresourcetypesregulatedbytheISAandarelocatedintheCCZ,theWesternPacific,andtheSouthwestIndianOcean(Table4.2).FiveintervieweesalsonotedthataChineseenterpriseappliedforanexplorationlicensefromtheCookIslandsSeabedMineralsAuthorityin2022butthatitsapplicationwasunsuccessful.China’srelationshipwiththeISAgoeswellbeyondsponsoringexplorationcontracts.AssummarizedinaspeechbyISASecretaryGeneralMichaelLodge,ChinaisamemberofGroupAoftheISACouncil(majorconsumers),andrepresentativesnominatedbyChinahavebeenlong-timemembersoftheLegalandTechnicalCommissionandtheFinanceCommittee(Lodge,2019).Inaddition,Chineserepresentativesareonstaffintheofficeoflegalaffairsandtheofficeofenvironmentalmanagementandmarineresources.Further,Chinaisactivelyinvolvedindraftingexploitation(i.e.,commercialmining)regulations.Finally,throughacombinationofassessedcontributions,contractfees,andvoluntarilycontributions,ChinaisnowthelargestcontributortotheISAbudget.In2020,ChinaalsolaunchedanISA-ChinaJointTrainingandResearchCentreinQingdao“tooffertrainingtoaspiringprofessionalsfromdevelopingcountriesindeep-searelatedscience”(COMRA,2020).LegislationIn2016,Chinapassedlegislationestablishingalegalregimeforseabedmining.TocomplywiththerequirementthatISAcontractorspassdomesticlegislationregulatingseabedminingactivities,ChinaadoptedtheLawontheExplorationandExploitationofResourcesintheDeepSeabedArea(Shen,2021).Althoughthisstepisnotparticularlynotableinthatseveralothercountrieshavepassedsimilarlegislation,itnonethelessdemonstratesChina’scommitmenttoestablishingaviableseabedminingprogram.49MineralProcessingActivityOneimportantaspectofseabedminingthathasreceivedrelativelylessattentionisthedownstreamprocessingofmaterialscollectedfromtheseabed.Asubstantialamountofthevalueofmineralresourcesisaddedintheprocessingstage,makingmineralprocessingthemostprofitablestageofthesupplychain.Chinahasformanyyearsdominatedtheworldintheprocessingofmanycriticalmineralores,includingnickel,cobalt,copper,andmanganese,thekeyelementsfoundinpolymetallicnodulesandcobalt-richferromanganesecrusts(InternationalEnergyAgency,2021).Althoughcommercialprocessingmethodsforpolymetallicnodulesandotherseabedmineralresourcesarestillbeingdeveloped,oneapproachbeingconsideredinvolvesthemodificationofrotarykiln-electricfurnacesmeltingapproachesusedfornickellaterites(AMCConsultants,2021).ExistingChinesenickelsmeltingcapacitymaythereforebeabletobeadaptedtoprocessseabedmineralresources.Alloftheseabedminingindustryrepresentativeswespokewith(fourcompaniesoperatingeightexplorationcontracts)confirmedthatChineseindustrieshadapproachedthemofferingtoestablishpartnershipagreementstoprocessseabedores,consistentwiththispotentialsynergy.Oneevensaid,“Idon’tknowofasingleseabedminingcontractorthathasn’tbeenapproachedbytheChinese.”Theexplanationforthisoutreachthattheyofferedisthat,giventheidiosyncrasiesofmineralpricesandoreavailability,China’sextensiveprocessingcapacityissometimesunderutilized,promptingChinatoseeknewsourcesofore.Thissituationfornickel,inparticular,hasbeenexacerbatedbyIndonesia’scyclicbanningofnickelexports.Indonesia,theworld’slargestproducerofnickeloreandtheprimarysupplierofnickelprocessingoperationsinChina(InternationalEnergyAgency,2021),bannedtheexportofnickelorein2014,liftedthebanin2017,thenimplementeditagainin2020(Huber,2021).AlthoughChinahaspartiallymitigatedtheunreliablesupplyofnickelorebyinvestinginnickelsmeltingoperationsinIndonesia(InternationalEnergyAgency,2021),industryandexpertrepresentativesnotedthatitnonethelesshasstrandedcapacityinChinaforwhichChinaseeksasupplysource(AMCConsultants,2021;interviewswithindustryandexpertrepresentatives).AlthoughexplorationcontractorshavebeenapproachedbyChinatopartner,therepresentativeswemetwithnotedthatthestateofprocessingtechnologyandcompanyplanningisstillintheearlystages,andnoagreementsareinplace.Allofthemarguedthat,becauseofthevalueaddedintheprocessingstage,itisimportanttomaintaincontroloftheprocessingoperationsandtoavoidoutsourcingthatstagetoChinaoranyothercountry.Atthesametime,giventhesubstantialcapitalexpendituresrequiredforestablishingaprocessingfacilityandtherelativelylowercostofprocessinginChina,itistemptingtopartnerwithChinesefirmstodefercapitalexpendituresandgeneraterevenuemorequickly.Asoneindustryrepresentativeputit,“Chinawantsapiece,andit’stempting,butweareresisting.”OnecompanyindicatedinaSecuritiesandExchangeCommissionfilingthatithasprovisionalplanstoworkwithChinesenickelsmeltersforasmall-scalecommercialstart-up50projectwhileitdevelopsapurpose-builtprocessplantofitsown(AMCConsultants,2021).Sincethatfiling,itannounceda“pre-feasibilitystudy”fordevelopinganoduleprocessingplantinIndiaforthisstart-upproject(TheMetalsCompany,2022).Althoughthecompanyhasnotstatedwhetherthisplant,ifconstructed,wouldreplaceanypartnershipwithChina,thefactthattheplant’scapacityof1.3milliontonsofnodulesperyearisequaltotheplannedthroughputforitsstart-upprojectsuggeststhatitwould.RepresentativesfromallothercompaniesweinterviewedindicatedthattheyhavenoplanstopartnerwithChina.TheonlyotherconnectiontoChineseprocessingthatweareawareofwasontheSolwara1project.TheminingcompanyfortheprojecthadenteredintoaformalagreementwithaChinesecompanytosellit1.1millionmetrictonsofseafloormassivesulfideoreforprocessing(NautilusMineralsInc.,2012).NotPressingforCommercialMiningAsdescribedabove,Chinahasinvestedsubstantialeffortandresourcesinrapidlydevelopingdeepseaexplorationandseabedminingcapabilities.IthasbeenaveryactiveparticipantintheISA;in2019,theISASecretaryGeneralspeculatedthatChinamightbethefirstcountrytobegincommercialseabedmining(“ChinaLeadstheRacetoExploitDeepSeaMinerals:U.N.Body,”2019).Inseemingcontrasttoitsresoluteefforttodevelopandimplementaseabedminingprogram,Chinahassubtlyconveyedadesiretoslowthedevelopmentofregulationsallowingtheinitiationofcommercialseabedminingactivity.In2016,China’spermanentrepresentativetotheISAemphasizedthatslumpingmetalsprices“meansthatthepossibilityofrealizingcommercialexploitationofdeep-searesourcesinthenearfutureisquitesmall”andthattheformulationofminingregulations“represent[s]acomplexanddifficultundertakingwhichcannotbeaccomplishedovernightoringreathaste”(COMRA,2016).Similarly,duringISACouncildeliberationsin2019aboutexpeditingthecompletionofminingregulations,China,whichhistoricallyalignedwiththepro-miningfactions,“uncharacteristically,didnotweighinonthedebate”(Woody,2019).OneobserverattheproceedingsnotedthatChinamaynotbeinahurrytominetheseabedgivenitsaccesstosignificantsourcesofterrestrialminerals.Chinesecompaniesowneightofthe14largestcobaltproducersintheDemocraticRepublicofCongo,whichisthesourceof68%oftheworld’ssupplyofthemineral.”(Woody,2019)Thatperspective,combinedwiththefactthatChinesecontractorsarestilltechnicallyunpreparedtobegincommercialmining,mayexplainChina’sunwillingnesstojointherankspushingforrapiddevelopmentofcommercialminingregulations.51PotentialAreasofConcernRegardingChinaandSeabedMiningSeabedMiningExplorationasSupportforMilitaryCapabilityDevelopmentSomeobservershavedrawnaconnectionbetweenChina’smaritimeexplorationactivitiesassociatedwithseabedmininganditsmilitarycapabilitiesandstrategicobjectives(e.g.,Agarwala,2021;AlexanderGray,2021;MartinsonandDutton,2018;Minter,2021;andVats,2020).Arecurringthemeinthesearticlesisthatdeepseabedminingexplorationhas“asignificantmilitarycomponent”(AlexanderGray,2021).ThereisgoodevidencethatdeepanddistantseaexplorationisofgreatinteresttotheChinesemilitary.Forexample,theChineseMinistryofNationalDefensehasidentifiedthedeepseaasanemergingdomainofrelevanceforcombatcapabilities(QianyiZhang,2018).Similarly,China’sNationalDefenseUniversityhighlightsthe“militarystruggleinthedeepsea”(MartinsonandDutton,2018).AndChina’sNationalSecurityLawwasrevisedin2015toincludeinternationalseabedareastothelistofassetsandinterestsforwhichsecuritymustbesafeguarded(ChinaLawTranslate,2015).Beyondthesestatedobjectives,certainactionsbyChineseresearchvesselshavebeeninterpretedasthreatening.InspiredbytheRussiansubmersibleMIRplantingaflagontheseabedundertheNorthPolein2007,thecrewoftheJiaolongplantedaChineseflagonthefloorofthedisputedSouthChinaSeain2010(“SubmarinePlantsFlagontheOceanFloor,”2010).Inaddition,whilemakingmultipledescentstoover7,000metersin2012,theJiaolongcrewspokefromthedepthsoftheMarianaTrenchtothecrewoftheShenzhou-9spacecraftonitswaytobecomethefirstcrewedspacecrafttodockwiththeorbitingTiangong-1spacelab(XinhuaNewsAgency,2012).MultipleinterviewparticipantsnotedthatChinahasconductedseveralresearchactivitiesinothercountries’EEZswithoutobtainingtherequiredpermissions,anobservationsupportedintheliterature(Agarwala,2021;AsiaMaritimeTransparencyInitiative,2020;MartinsonandDutton,2018).In2020,Chinadescribedandnamed(inChinese)55topographicfeaturesintheSouthChinaSea,mostinVietnam’sEEZ(Vats,2020).Inassociationwiththerapidtechnicaldevelopmentofdeepanddistantseaexplorationcapabilities,suchactshavebeencharacterizedbysomeobserversas“adeliberateattemptbyChinatoassertitssovereigntyovertheworld”and“militarymuscle-flexing”(Broad,2010;COMRA,2019;Lo,2018;Vats,2020).Althoughthemilitaryvalueofmaritimeexplorationisclear,therearefewobservationsthatdirectlyconnectChineseseabedminingexplorationwithmilitarycapabilitydevelopment.However,seabedminingexplorationisperhapsthelargestcomponentofChina’sdeepanddistantoceanmaritimeactivitiesand,becausemanyseabedminingexplorationactivitiesareofrelevancetomilitarycapabilitydevelopment,thetwoendeavorscannotbedefinitivelyseparated(MartinsonandDutton,2018).Thus,aclaimthatseabedminingexplorationisdeliberatelybeingundertakentosupportthemilitaryisdifficulttosupportordisprove.52OnewaythepotentialmilitaryassociationwithseabedminingexplorationemergesisinthelanguagethattheChinesegovernmenthasusedtodescribeit.TheStateOceanicAdministrationdescribedthepurposeofaseabedminingexplorationcruisetooneofitsISAcontractareasas“tosafeguardChina’smineralresourcerightsandinterestsininternationalseabedareas”(MartinsonandDutton,2018).China’srightstotheseexplorationareasareclearlyestablishedandundisputed,anditsphysicalpresencethereisnotrequiredtosafeguardthem(ISA,undated).Anotherconnectionbetweenseabedminingexplorationandmilitarygoalsisthedeliberatecooperationandinformation-sharingbetweencivilianandmilitarymaritimeresearchandexplorationactivities.Thisclosecivil-militaryintegrationdiffersmarkedlyfromothercountries’approachofclearlyseparatingthetwo(AsiaMaritimeTransparencyInitiative,2020;Chen,2017;MartinsonandDutton,2018;ZhiwenandNiu,2018).Lastly,evenwithoutanydirectmilitaryconnection,seabedminingexplorationprovidesanonthreateningcivilianjustificationforChinesecruisestransitingdistantswathsofocean.AsnotedbyAgarwala,2021,p.106,eventhough“themovementofChinaintheIndianOceanislegallylegitimateandcannotbestoppedoravoided,”suchactivityisnonethelesscauseforconcern.ChinaobtaininganISAcontractalongtheSouthwestIndianRidgemakesits“transitandpresenceintheIndianOceanlegitimate”(Agarwala,2021,p.104).OurinterviewsprovidedlittleadditionalinsightintothequestionofwhetherChineseseabedminingexplorationactivityismotivatedbymilitaryobjectives.SeabedminingcontractorsandexpertsuniformlyconveyedthattheywereunawareofanyassociationsbetweenChineseseabedminingactivityandmilitaryobjectivesorcapabilities.Asoneinterviewparticipantcommented,“Youdon’tneedanISAleasetoputasubmersibledowninthemiddleofaleaseblockanddriveitaroundandlookatthings.It’sstillthehighseas.”WhenpressedastowhyChina’sexplorationwasnonethelessviewedbysomeassuspicious,oneparticipantsaid,“IthinkalotofthathastodowiththelegacyoftheGlomarproject.Thereisthishistoryof,inthemiddleofthecoldwar,majorcovertopsdisguisedasdeep-seaminingexploration.”81ThreeChinesemilitarymaritimeexpertsweinterviewedaboutthispointsupportedmanyoftheargumentsmadeabove.Theyemphasizedthatalthoughthereislittledoubtthatsomeostensiblycivilianmaritimeactivity(primarilyinandaroundtheSouthChinaSea)doesdirectlysupportthemilitaryandthatdeepanddistantseaexplorationcapabilitiesareofvaluetothemilitary,theycouldnotseeanyjustificationforthepositionthatChina’sinterestinseabedminingexplorationwasmotivatedbydevelopingdeepanddistantseaexplorationcapabilitiesformilitarypurposes.NotRespectingSeabedMiningContractsandLicensesOneinterviewparticipantdescribedaratherremarkableincidentinvolvingaChineseresearchvesselandtheSolwara1project.In2015,whiletheSolwara1projectwasactively81TheGlomarproject,orProjectAzorian,wasacovertCentralIntelligenceAgencyoperationin1974torecoverasunkenSovietsubmarineunderthepretenseofseabedmining(Thulin,2019).53engagedinexplorationandprojectdevelopment,aChineseresearchshipenteredtheSolwara1licenseareaandcollectedalargenumberofsamplesfromtheseabedwithouteverhavinggainedpermissiontoworkinthePapuaNewGuineaEEZortakesamplesfromtheSolwara1licensearea.TheminingcompanyfortheSolwara1projectattemptedtocommunicatewithittonoavail,anditapparentlyhaditsautomaticidentificationsystem(AIS)transponderdisabled.TheissuewasescalatedtotheAustralianmilitary,whichassistsPapuaNewGuineainenforcingitsEEZrights,“andtheshipwasbasicallychasedoutofPapuaNewGuinea,”accordingtotheinterviewee.Theoccurrenceofthisincident,whichtheintervieweesaidis“notwidelyknown,”issupportedbyofficialdispatchesfromthePapuaNewGuineaMineralResourcesAuthoritydescribingtheincidentandseveralscientificpublicationsfromChineseacademicinstitutionsdescribingthesamplesandacknowledgingthelocationanddateofsamplecollectionandthenameoftheresearchvessel(Wangetal.,2017;Zengetal.,2020;Zhangetal.,2017).82Thisincidentdemonstratesthereisarealriskthatentitiescouldconductseabedsamplingactivitieswithouthavingbeengrantedrightstodoso,eveninareaswhereotherpartieshavebeengrantedsuchrights.Thisriskillustratestheimportanceoftheabilityofrights-grantingauthoritiestobeabletoenforcethoserights.ISAexplorationcontractsstatethattheISAhastherighttoinspectshipsandto“ensurethatnootherentityoperatesintheexplorationareaforadifferentcategoryofresourcesinamannerthatmightunreasonablyinterferewiththeoperationsoftheContractor”(ISA,undated).TheISAhastakenstepstodeconflictseabedminingexplorationandsubmarinecableindustryactivities(ISA,2018),butinterviewparticipantsconfirmedthatithasnotyetconductedanyinspections.MultipleinterviewparticipantsfeltthattheISAwouldnothavetheresourcesforinspectionandenforcementactivitiesuntilcommercialminingwasunderwayandtheISAbeganreceivingroyaltyrevenues.Twointerviewparticipantsnotedthatshipinspectionsareoflimitedvaluebecausetherearefewonboardactivitiesthatwouldconstituteacontractviolation.Inaddition,onenotedthat“it’sveryeasyforoperatorstohideviolationsoreventorejectaninspectionaltogetherbyclaimingthatit’snotsafetobringaboatonsideandboard.”Theseinterviewparticipantssaidthattheprimarywayanoperatorcouldviolateanexplorationcontractistoconductseabedsamplingorequipmenttestinginanotheroperator’scontractarea.Theyemphasizedtheimportanceoftrackingships’locations,routes,andsamplingactivities.Thechallenge,severalparticipantssaid,isthatgenerallyitisperfectlyallowabletotravelthroughandconductbathymetricandothernonmining-relatedresearchactivitiesinthewatersaboveotherISAcontractlocationsandtotransitothernations’EEZs.Anotherchallenge,accordingtointerviewparticipants,isthatChineseshipssometimesdeactivatetheirAIS,whichbroadcastsaship’sidentity,type,position,course,speed,andotherinformationandisrequiredforanynonmilitaryshipover300grosstons82ThevesselidentifiedinthesereportsistheKexueYihao,whichisownedbytheChineseAcademyofSciences(MartinsonandDutton,2018).54whenonaninternationalvoyage(InternationalMaritimeOrganization,undated).Thisclaimisconsistentwithrecentnewsreports(He,2021).DominatingMineralProcessingAsnotedabove,Chinadominatestheglobalprocessingmarketforseveralcriticalminerals,includingthosefoundinseabedminingresources.Thisdominancehasbeenaglobalstrategicconcernfordecadesandthesubjectofsubstantialanalysisandpolicyproposals(e.g.,InternationalEnergyAgency,2021;TheWhiteHouse,2021).AcentralaspectofthisconcernisthatdominatingthedownstreamprocessingandproductmanufacturingstagesofthecriticalmineralsupplychainnotonlyaffordsChinaaneconomicandtradeadvantage(byowningthestepsinwhichthemostvalueisadded)butalsoleavestherestoftheworldoverlydependentonasinglesourcetosupplymaterialsthatarecriticaltoanincreasinglylargeportionoftheglobaleconomy.Physicaldisruptions,traderestrictions,pricemanipulation,orpoliticalinstabilitycouldleavemanufacturersaroundtheworldwithoutaccesstocriticalcomponents(InternationalEnergyAgency,2021;TheWhiteHouse,2021).MiningoperationsobviouslyhaveachoiceaboutwhethertopartnerwithChinesefirmsformineralprocessing.However,acommoncharacteristicofopportunitiestopartnerwithChinesefirms,affirmedbyseveralinterviewparticipants,isthatChinesecompaniessupportedbythecentralgovernmentareabletodevelopprocessinginfrastructureatlowercostsandofferservicesatlowerpricesthanminingcompaniescanobtainelsewhere,makingthebusinesscaseforpartneringveryattractive.SummaryThefindingsfromouranalysiscanbeconsideredinthreeparts:thepotentiallinkagebetweenChina’sseabedminingprogramandstrategicmilitaryobjectives,thethreatofseabedmininginunauthorizedlocations,andbreakingthecycleofallowingChinatocontinuetodominatetheglobalmineralsprocessingmarket.Foreachpart,wesummarizethekeyfindingsandpresentrecommendationsforhelpingensurethatconcernsarealleviated.PotentialLinksBetweenSeabedMiningandMilitaryObjectivesRelativetomanyotherISAcontractorsthathavelinksbacktothemultinationalconsortiathatconductedextensiveexplorationinthe1970sand1980s,Chinaisanewcomertodeepseabedmining.However,explicitprioritizationandsubstantialinvestmentoverthepast20yearshavebroughtChinesedeep-seaexplorationcapabilitiesonparwiththestateoftheart.Itsseabedminingtechnologyissimilarlydevelopingquickly.BecauseChineseteamswerestartingfrombehindandhadfewcontactswithgroupsincountrieswithmore-advancedtechnology,China’sprogressoccurredlargelyindependently.55Thecombinationofattainingadvanceddeep-seaexplorationcapabilitysoquicklyanddoingsowithlittleoutsidecollaborationhasdrawnattention.Someobserversemphasizethedual-useaspectsofsuchcapabilitiesandwarnthatChina’sinvolvementinseabedminingexplorationservesasameanstolegitimizevariousformsofdeep-anddistant-seaactivityandcoverforpursuingmore-strategicmilitaryobjectives.ThispositionisatleastconsistentwithChina’sclearacknowledgementofthemilitarysignificanceofthedeep-seadomain.Atthesametime,China’sdemandforcriticalmineralsishigh;althoughitcurrentlymeetsthisdemandwithland-basedresources,demandisincreasingglobally,andsomebelievethatseabedminingwillberequiredtomeetfuturedemand.Inaddition,Chinaisvigorouslydevelopingtechnologyspecificallyforseabedmining,whichhasnomilitaryvalue.Finally,mostoftheseaactivityascribedtofurtheringmilitaryobjectivesislegitimateonitsownandthereforedoesnotrequireaseabedminingprogramtoactasacover.Giventhatmanydeep-anddistant-seaexplorationcapabilitieshavevalueforbothpurposesandthatChinahasbeentransparentabouthavingacleardesireforboth,itseemsmostplausiblethatChinais,infact,pursuingboth.TheChinesepracticeofintegratingresearchandcommercialactivitieswithmilitarypursuitsmeansitwillalwaysbedifficulttodefinitivelyascribetheactivitiesofanindividualshiporprogramtopurelycommercial,research,ormilitarypurposes.Butevenifacommercialprogram,suchasseabedmining,alsosupportsmilitaryobjectives,itisnotclearthatChinawouldbenefitfromhidingsuchbehavior.Therearefewrestrictionsonwhatisallowedinthehighseas,soChinaisfreetoopenlypursuemilitaryobjectives.WefindnoclearsupportfororevidenceagainstthepositionthatChina’sseabedminingprogramissomehowintendedasadiversionorcoverformilitarypurposes.SeabedMininginUnauthorizedLocationsChina’spropensitytoinfringeonterritorybelongingtoothernationsraisesconcernsforthesecurityofseabedminingcontractareas.China’sassertiveeffortstoexploreandcharacterizetheSouthChinaSeaandelsewherebeyonditsjurisdictionalwaterswithoutpermissionindicatesthatitiswillingtofloutinternationalagreementswhenitdoesnotagreewiththem.AlthoughthemotivationfortheSolwara1trespassingincidentisunknown,theincidentindicatesthatChina’swillingnesstoinfringeonterritoriesgrantedtoothersextendstoseabedminingaswell.Thisincident,alongwithChineseships’historyofdeactivatingtheirAISbeaconsandthevastphysicalexpanseoftheArea,raisesconcernsaboutthepossibilityofconductingseabedmininginunauthorizedlocations.ChinaandMineralProcessingChinahasoverthepastfewdecadescometodominatetheglobalmarketfortheprocessingofseveralcriticalminerals.Therelianceonasinglesourceofsupplyleavesusersvulnerabletosupplydisruptionsresultingfromnaturaldisasters,traderestrictions,politicalinstability,orotherfactors.Theimpactofthissupplyriskisexpectedtoincreaseinthecomingdecadesasthe56demandforcriticalmineralsincreaseswiththewidespreadadoptionofelectricvehiclesandenergystorageassociatedwithrenewableenergygeneration.Atthesametime,becausetheincreaseindemandwillrequirenewcapacity,itrepresentsanopportunitytoshiftthebalanceofprocessingcapacityawayfromChinaanddiversifyitamongothercountries.Amajorunknownregardingmineralprocessingforseabedminingisthatmostoperatorsarestillintheresearchanddevelopmentstagefordeterminingtheappropriateprocessingmethod.Seabedresourceshaveneverbeenprocessedatacommercialscale,andmanyunknownsremainregardingthebestapproach.Asaresult,operatorsareunableorunwillingtosharemuchaboutbusinessplansformineralprocessing.Ourresearchdidnotrevealanycurrentpartnershipsrelatedtomineralprocessing.OneformeroperatorhadstruckadealwithaChineseprocessingfirmseveralyearsago,buttheprojectwasterminatedbeforeminingbegan.AcurrentoperatorisconsideringpartneringwithChineseprocessorsforastart-upproject,thoughtheymayhaverevisedthatplantoworkinIndiainstead.Alltheoperatorswemetwith(includingtheoneconsideringpartneringwithChina)wereawareoftherisksofpartneringwithChinaformineralprocessingandexpressedadesiretoavoiddoingso.Thehighcapitaloutlayrequiredtodevelopprocessingcapacityin-house,however,createsseriouschallenges,particularlyforoperatorsnotbackedbylargemultinationalcorporations.Inaddition,environmentalprotectionrequirementsindevelopedcountriesmakeapprovalsmoredifficulttoobtainthanindevelopingcountries.57Chapter5.RecommendationsWeofferthefollowingrecommendationsforthecoalpowerplant,electricitytransmissionanddistributionassociatedwithGEI,andseabedminingcasestudies.Unlessexplicitlystatedotherwise,allrecommendationstargethostnations.ChineseSupportforOverseasCoalPowerPlantsPromoteRenewableEnergySourcesforIndustrialParksAsignificantissueinvolvesChina’sroleinsupportingcoalpoweratmineralprocessingcenters.Thereis8,000MWofcapturedcoal-relatedpowerunderdevelopmentinIndonesiaalone,andCREAnotesthatChinahasplanstobuild50specialeconomiczonesinAsiaandAfrica(Suarez,2022).Furtherdevelopmentofcoalpowerforsuchplantswouldcreateasignificantcarbonfootprint.Therefore,thereisacriticalneedtodevelopgreenerapproachestopoweringsuchfacilities.However,industrialparksrepresentacriticalchallengeforpromotingcleanenergy.Insuchparks,coalpowerisoftenapreferredenergysource,givenitsabilitytoprovideconsistent24-hour-per-daypowerincomparisontosolarandwind,forwhichenergyoutputvariesintermsofaccesstothesunandchangesinwindspeeds.Therefore,thechallengeforpromotingrenewableenergyatsuchparksistoidentifywaystogenerateconsistentratesofpower.Somereportssuggestthatitispossibletouseamixofsolar,wind,andhydroenergytosupportIndonesia’sprocessingcenters,thoughitisbeyondthescopeofthisreporttoassessthefeasibilityofsuchclaims(Morse,2022;Puspitarini,2021).Wenote,however,thatresearchanddevelopmentintosuchcapabilitiesisunderway.CanadaNickelCompanyInc.,forexample,hascreatedawhollyownedsubsidiary,NetZeroMetals,toconductresearchanddevelopmentofacarbon-neutralprocessingfacility(GreenCarCongress,2020).IntheUnitedStates,theworld’slargestsolar-poweredsteelmilliscurrentlyunderconstructioninColorado.Themillisslatedtoreceive90percentofitspowerfroma300-MW,750,000-panelsolarfarm(Kohler,2021).Ultimately,itwillbeimportanttofurtherinvestigatesuchopportunities,especiallyastheyrelatetoIndonesia’sindustrialparks,whichappeartohaveampledepositsofwindandsolarpower(Puspitarini,2021).SeekGreaterClarityfromChinaonPlansforCoalPlantswithFinancingandPermitsEarlypraiseofPresidentXiforhisUNannouncementwassoonsupplantedwithquestionsastotheexactmeaningandparametersofthecommitment.TheNDRCandotherguidelinesoffermoredetail,withanunambiguouscallto“completelystopnewoverseascoalpowerprojects.”58Butquestionspersistregardingwhetherthestrictestinterpretationofthisstatementmeansthatprojectswithfinancingandpermitswillbeshuttered.InPakistanandIndonesia(thoughnotinSouthAfrica),atotalof11,140MWofpowerfallintothisgrayzone.Someoftheseprojectsaremovingforwardinthedevelopmentphase,asevidencedbyassurancesfromBeijingthattheGwadarenergyplantinPakistancanmoveforward.ItmayseemthatChinawantstoproverbiallyhaveitscakeandeatittoo.ItwillthereforebecriticalforChinatooffermoreclarityonguidelinesanditsplansforthecoalpowerplantsinthiscategory.ThisshouldbeaconsistentfocusofdiplomaticengagementwithChina.HelpHostCountriesTransitionfromCoalBeyondtheserecommendations,itwillbeimportantfortheinternationalcommunitytoofferdirectassistancetosuchcountriesasIndonesiaandPakistaninmakingthetransitionfromcoaltorenewableenergy.Ashighlightedinthisreport,SouthAfrica,Pakistan,andIndonesiahavetheirownreasonsforpursuingcoal-firedenergy.Allthreehavelargereservesofcoal,andcoalofferedthesecountriesameanstorapidlyexpandenergyproduction.InfluentialcoalminingindustriesinIndonesiaandSouthAfricahavehelpedperpetuatearelianceoncoal,andestablishedIndonesianenergypolicieshavecementedaholdoncoal-poweredenergyandlimitedthedevelopmentofrenewableenergy.TheminingindustriesinIndonesiaandSouthAfricaalsoplayasignificantroleinthelocaleconomies.Chinashouldplayacriticalroleinhelpingwithsuchtransitions.Beyondterminatingitssupportforcoal-firedpower,ChinashouldplayaleadingroleinfollowingitsNDRCguidelinesandsupportingoverseasgreenenergyinfrastructureanddevelopment.Two-thirdsofallsolarpanelsaremadeinChina,andChinahasmanufacturedhalfoftheworld’swindturbines(ChinaClimateChange,undated;Reve,2021).Thisresidentexpertise,combinedwithanestablishedpolicyofpromotinggreenenergyabroad,shouldsetthestageforChinatoplayamorepositiveroleinpromotingtheadoptionofrenewableenergy.Chinashouldseizethismoment.Policychanges,particularlyforIndonesia,willalsobecritical.Asnoted,Indonesia’spoliciescreateanunfairadvantageforcoalwiththeprovisionofbelow-marketratesfordomesticcoalconsumption.Inaddition,Indonesiarequiresthat40percentofthematerialsandservicesforsolarprojectsbemadeorproducedinIndonesia.Theinternationalcommunityshouldusediplomaticengagements,capacity-buildingtraining,andothersucheffortstohelpIndonesiareviseitsdomesticpoliciesthathandcuffbroadexpansionofrenewableenergy.Diplomaticengagementwillbeonecriticaltool,butitmayalsobenecessarytopromotecapacity-buildingprogramsorengageinotherexchangesofexpertise.Finally,onepotentialsolutionisalreadyinplayinSouthAfricawiththe2021announcementoftheJustEnergyTransitionPartnership,inwhichtheUnitedStates,Germany,theUnitedKingdom,andtheEuropeanUnionwillcontribute$8.5billiontohelpSouthAfricaretirecoalplantsearly,supportcoal-dependentregions,andturntorenewableenergy.SuchinitiativesmayalsobecriticalforIndonesiaandPakistan,whichcanlikelyillaffordtoearlyretiretheirfleetof59coal-firedpowerplants.TheimportanceofsuchaninitiativeforIndonesiawasmentionedbyseveralinterviewparticipants,anditisatopicalreadydiscussedindiplomaticcircles.ElectricityTransmissionandDistributioninLatinAmericaGiventheimportancethatstronginstitutionsandregulatoryframeworksplay,wemakethefollowingrecommendationsforLatinAmericancountriesandothercountriesaroundtheworldthathavepursuedorareconsideringpursuinginvestmentsandfinancingfromChineseSOEsinpowertransmissionanddistribution,aswellasinthegenerationsector.DevelopRegulatoryFrameworksfortheIntegrationofRenewableEnergyWiththeproliferationofrenewableenergyresources,countriesthatareintegratinggreenenergyintotheirpowergridsneedtoconsiderdevelopinglegislationthatgovernstheunderlyingintegrationprocesses,includingregulationsofthepowersupplyanddemandacrossinternationalbordersandoverlong-distancepowertransmissionlines,howtorespondtopotentialblackouts,andhowtoapproachunstablepowersupplyanddemandwhenviolentconflictbreaksout.DevelopRegulatoryFrameworkstoAddressTechnologicalandInformationalComponentsofSmartGridsWiththeincreasingimportanceofsoftwareanddigitalizationintheoperationofsmartgridsandinenergyintegrationinitiatives,thereisalsoaneedforcountriestoestablisharegulatoryframeworkthataddressesthetechnologicalandinformationallayerthataccompaniesphysicalassetsandgovernsthecontrol,functioning,andmaintenanceofsoftwareandotherdigitalcomponentsthatoperatecriticalinfrastructureassets.HaveTransparentPublicTendersHavingatransparentpublictendersystemthatmeetsinternationalbestpracticesandrespectslocallawsislikelytofurtherafree-marketenvironmentandencouragecompetitionamongforeigninvestors,withforeigncompanieswinningonthefinancialandtechnicalmeritsoftheiroffer,includingthequalityofenvironmentalassessmentsconductedandrespecttowardlocallaborregulations.ImplementScreeningMechanismforForeignInvestmentsImplementingmechanismsthatallowlocalgovernmentstoreviewforeigninvestmentsinareasrelatedtothefinancingoftheinvestment,thepresenceofalocalcomponent,andthelaw60governingtheinvestmentcontractislikelytoprotectthecoreinterestsofthehostcountryandincreasethequalityofforeigninvestments.83ScreenforForeignGovernmentFinancialBackingLocalgovernmentshavetheauthoritywhendesigningthepublictenderprocesstoaskforeigncompaniesthatinvestinthehostcountrytodisclosethesourceoftheircapital,andtheycanrefusetoentertainbidsfromcompanieswhosecapitalisfinancedthroughnonmarketconditions,ifacceptingsuchbidswouldopenthehostcountrytoeconomicandpoliticalpressurefromforeigngovernmentsandbedetrimentaltothehostcountry’sinterests.AsdiscussedinChapter3,oneoverarchingconcernthatseveralintervieweessharedwasrelatedtotheperceptionthatChineseSOEsandstate-backedprivatecompaniesfromChinahaveaccesstocapitalatbelow-marketpricesandgainanunfaircompetitiveadvantageoverotherinternationalprivatecompetitorsthatdonothavethefullweightofagovernmentbehindthemandthataccesscapitalatmarketrates.SuchpracticesareperceivedasunfairandashinderingfreemarketcompetitionbyundercuttingotherforeigninvestorsandfacilitatingtheconcentrationofcontroloversignificantpercentagesofcriticalinfrastructuresectorsintothehandsofcompaniescontrolledbytheChinesegovernment,asinthecaseofthepowersectorinChile.ThisconcentrationofcontrolovercriticalinfrastructureassetsinBeijing’shandsincreasesthehostcountry’svulnerabilitytoeconomicandpoliticalpressure.Inthislight,thescreeningmechanisminplaceshouldconsidertheeconomicandpoliticalramificationsforthehostcountryifitweretoacceptbidsfromcompanieswhosecapitalisfinancedthroughnonmarketconditions.ScreenContractsforClausesRelatedtotheInclusionofaLocalComponentWithinthelimitsofWorldTradeOrganizationrulesandpolicies,hostgovernmentscanconsiderscreeningoffersforthepresenceofclausesrelatedtolocalcomponents,suchasthewinningcompanyemployingacertainpercentageoflocallabor,includinghavinglocalprofessionalsinleadershipandmanagementrolesnexttotheforeigninvestors.ScreenContractsforLocalLawGoverningtheContractHostgovernmentscanalsoscreenforoffersthatshowapreferenceforlocallawstogovernthefinalcontractandthirdcountryarbitrationofdisputes.Ensuringthatmost,ifnotall,legaldetailsareagreedinwritingatthetimewhenthefinalcontractisdrawnisespeciallyimportantinthecontextofChineseexecutivesandofficialsrotatingveryquicklyintheirleadershiproles,withverbalagreementsunlikelytocarryoverbetweenrotations.83AlthoughOrganisationforEconomicCo-operationandDevelopment(OECD)membercountries(suchasMexico)havemechanismstoscreenforeigninvestment,thisisnotthecaseformanynon-OECDcountriesinLatinAmerica.61HaveaProfessionalPublicContractingOfficerCorpsTosupportthedevelopmentofatransparentandfunctioninginvestmentscreeningmechanismandpublictendersystem,publiccontractingofficersshouldbeshieldedfrompoliticalpressure.Itisessentialforhostgovernmentstoensurethatpubliccontractingofficershaveastablecareerpathandarehighlyprofessional,reputable,andunlikelytosuccumbtoquestionableprofessionalpractices,suchascorruption.DiversifyInvestmentPartnersOverrelianceoninvestorsfromonesinglecountryincreasestheeconomicvulnerabilityofthehostcountryand,overtime,mightincreasethecountry’svulnerabilitytoforeignpoliticalpressures,astheexamplesofChinesediplomatsattemptingtoprojectinfluenceintheinformationdomaininAppendixBshow.Diversifyingforeigninvestorsfostersahealthycompetitionenvironment,allowinghostcountriestoattracthigherqualityinvestmentsinthelongrunasforeigninvestorsgainconfidencethatthecountryfollowsandrespectsfreemarketpractices.SeabedMiningContinuetoMonitorChineseSeabedMiningExplorationandTechnologyDevelopmentAlthoughconcernsthatChinamaybeusingitsseabedminingactivityasacoverordistractionformilitaryactivitiesaredifficultsupportordisprove,thefactthatChinahasusedresearchandcommercialactivitiesasacoverforulteriorpurposesinandarounddisputedterritoriessuggeststhatthiscouldbethecasewithseabedminingaswell.ItwillbeimportanttocontinuetomonitorChineseseabedminingexplorationtechnologydevelopmentanduseandChineseshipactivityforsignsofanomalousactivity.TheISAandotherseabedminingauthorities(authorities)canrequirecontractorsandlicensees(operators)toannounceanddescribeseabedminingexplorationcruisesinadvance.Authoritiescanalsorequireoperatorstoattestthatallactivityconductedinpursuitofseabedminingisentirelyresearchorcommercialinnatureandthatnomilitaryobjectivesarebeingpursued.ImplementMethodstoMonitorOperators’SeabedMiningActivityChinahasapropensitytoinfringeonterritorybelongingtoothernations,whichraisesconcernsforthesecurityofseabedminingcontractareas.Therefore,itwillbeimportanttoimplementmethodstomonitoroperators’seabedminingactivity.GiventhevastexpanseoftheAreaorevenofspecificcontractareas,itisinfeasibletopatrolsuchareaswithcrewedvessels.However,authoritiescantakestepstoincreasetheirsituationalawarenessofoperators’activities.Oneapproach,asrecommendedinthepriorsection,isforauthoritiestorequireoperatorstoannounceanddescribeseabedminingexplorationcruisesinadvance.Authorities62canalsoinsistthatallshipsparticipatinginseabedminingactivitiesalwaysusetheirAISbeacons.Usingtheseandotherdata(e.g.,historicalbehavior),authoritiescandeveloparisk-basedtargetingapproachtomonitorparticularlocationsandtimes.Suchmonitoringmaytaketheformofconductingpatrolswithcrewedvessels,placinginspectorsonoperators’ships,and,totheextenttechnicallyfeasible,deployingseasurfacedronestomonitoroperators’ships.Theobjectiveofsuchmonitoringwouldbetoverifyoperators’ships’locationsandactivities.Inadditiontoincreasedreal-timemonitoring,authoritiescanincreasethefrequencyofrequiredreportingbyoperatorstohelpbetterunderstandoperators’activitiesandmorequicklyidentifybehaviorthatviolatescontracttermsorotherwiseappearsirregular.CreateIncentivestoDevelopDomesticProcessingCapabilitiesNationssponsoringseabedminingactivitiesintheirEEZs,homenationsofminingoperators,andanynationwithaninterestindiversifyingtheglobalmineralsprocessingsupplychaincancreateincentivestodevelopdomesticprocessingcapabilitiesratherthanoutsourcingthemtoChina.Suchinterventionsincluderevisingenvironmentalrequirementsforpermittingprocessingfacilities;providinggrants,loans,andloanguaranteestohelpfinancetheconstructionofprocessingfacilities;incentivizingtheuseofdomesticallyproducedcriticalmaterialsandproducts;strengtheningwaystoenforcetheprohibitionofunfairtradepractices;andraisingpublicawarenessofthecontributionthatsuchprojectsplayinenergysectordecarbonization(e.g.,InternationalEnergyAgency,2021;TheWhiteHouse,2021).63AppendixA.AdvantagesandDisadvantagesofaGloballyIntegratedGridBasedonUHVTransmissionLinesByplacingUHVtransmissionlinesattheheartofGEI,theglobalexpansionofUHVtransmissionlinesallowsChinatheopportunitytobecomethetechnicalstandard-setterinthisfield.Inaddition,theactivepromotionofthegloballyintegratedUHVgridcouldbeseenasanattemptforChinatoprojectinternationallytheimageofacleanenergysupporterwhileadvancingthefinancialandtechnologicalinterestsofChinesecompaniesinvolvedincleanenergytransition(Downie,2020,p.27).84Forinstance,GEIallowsChinatopromoteitssolarandwindmanufacturingcompaniesinadditiontoUHVandunderseatransmissioncabledevelopers,withChinaaimingtoestablishitsSOEs(suchasSGCC)astheprimaryprovidersofUHVgridsacrosstheworld(Delina,2021,p.2;Downie,2020,p.12).85However,despitetheadvantagesthatUHVtransmissionlinesmighthaveatthedomesticlevel,UHV’sapplicabilitytogridintegrationisstillunderdebate,anditrepresentsanaspectthatGEIDCOanditssupportersarestilltryingtograpplewith(Downie,2020,p.27).NotonlyareUHVdevelopmentprojectsextremelycostly—hundredsofmillionsofdollars—buttheymightnotbetherighttechnicalsolutionincountriesandregionsoftheworldwherethelocalandregionaltransmissionnetworksarenotdevelopedsufficientlytoincorporatesuchmassiveprojects.Insuchinstances,severalsmallertransmissionlinesmightrepresentamoreappropriatesolution,especiallyfromanenergysecurityperspective,becauseitwouldavoidhavingasinglepointoffailure(e.g.,onemassivetransmissionline)thatcouldresultinawidespreadblackout.Also,countriesthatdonothavewell-developeddomesticgridsaremorelikelytostruggletomeet“thecomplexdemandsofcross-borderelectricitytrade”(Downie,2020,pp.26,30).Suchconsiderationsarelikelytobecomeevenmorecriticalinthecontextofcross-borderelectricitytradethantheywouldbeinanarrowerdomesticcontext.Furthermore,therealsoareconcernsrelatedtopotentialoverdependencyonasinglegrid.SomeofthechallengestoGEIimplementationconcerntheneedformultilateralpoliticalcooperationtobesuccessful“tocoordinatetheregulatoryarrangementsandthephysicalassetbuild-outsneeded”(Downie,2020,p.26).ReachingpoliticalconsensusandbuildingthetrustneededfortheimplementationofaglobalscaleinitiativesuchasGEIarelikelytobedifficult,givenlong-standingpoliticalrivalriesattheregionalandinternationallevels;todate,regionaleffortstostandupplatformsformultilateralelectricityexchangehaveanuneventrackrecord.Also,theeconomicvalueandtheefficienciesthatChinaestimatedcouldbeassociatedwith84InterviewwithU.S.governmentofficial,February25,2022.85InterviewwithU.S.governmentofficial,February25,2022.64installingUHVlinesataglobalscaleareunproven,withcurrentevidenceinthisareabeingrathermurky(Downie,2020,p.30).OtherconcernsassociatedwithUHVtransmissionlinesarebasedonChina’sexperiencesofarwithitsdomesticdeploymentofUHVlinesthatconnectrenewableenergysourcesthataremostlyavailableinthecenterandwesternpartofthecountrywiththedemandareas,whichareintheeast.Someoftheseconcernsarerelatedtoovercapacityresultingfrommoreenergybeinggeneratedthanwhattheinternalmarketcanbuy,thepotentialforcountry-wideblackouts,andrenewableenergycurtailment,86withoneintervieweementioningthatChinaishavingtroublegettingitsprovincestosharepowerdomestically,87whileanotherintervieweementionedChina’sneedtofindawaytoexport(andmonetize)someofitsdomesticovercapacity.88Attheregionallevel,whenseveralcountriesrelyonthesameUHVlineforpowertransmissionbuthavedifferentcapacitydemandandneeds,thereisaneedtoensurethateachnationalgridremainsflexibleandthatamulti-terminalUHVlinecanadequatelyserveeachcountry’sneeds,especiallyinthecontextofuncertaintimingforenergygenerationusingsolarandwind.Delina,2021,identifiesadditionalchallengesrelatedtoaChina’senergyintegrationwiththeAssociationofSoutheastAsianNations,whichcanbeextrapolatedtootherregionsoftheworld,suchas•thepresenceofweakandvariednationalenergyregulations•theabsenceofaregionalenergyschemeandstronginstitutionsthatsupportenergyinterconnection•thefactthatelectricityisconsideredbymanynationalgovernmentstobeavitalpoliticalassetwhosecontroltheyarehesitanttoentrusttoneighboringcountriesandtoChina•concernsrelatedtoimplementingChinese-ledlargehydropowergenerationinfrastructureprojectsthatareusuallyassociatedwithenvironmentalandsocialconcerns•concernsrelatedtocountries’abilitytotrustChina’sintentions(Delina,2021,pp.3–7).86Curtailmenthappenswhenwindorsolarenergyisnotdeliveredtoitsintendedreceiverbecausegridoperatorsoftenprefertomeetenergydemandbyfirstusingcoal-operatedplantslocatedincloseproximity,withtherenewableenergygeneratedbeinglost(Delina,2021,p.4).87InterviewwithU.S.governmentofficial,April20,2022.88Interviewwithenergysectorexperts,May6,2022.65AppendixB.ChineseAttemptstoProjectInfluenceintheInformationalDomaininLatinAmericaAsmentionedintheconcludingparagraphofChapter3,wedidnotencounteranykeyepisodesrelatedtoChinesegovernmentpressureorattemptsatgainingorprojectinginfluenceintheinformationaldomainthatwerespecifictoChineseinvestmentsandfinancinginpowertransmissionandgeneration.However,wedidencounterexamplesofChinesegovernmentattemptsto(1)gainandprojectinfluenceintheinformationaldomaininBrazil,Chile,Peru,andArgentinaand(2)shapelocalpoliticaldiscourseinamannerfavorabletoChina.InseveralofthefivecountriesweexploredintheLatinAmericacasestudy,wenoticedthatChinesegovernmentofficialsbecameveryactiveintheinformationaldomaininrecentyears,especiallysincetheoutbreakoftheCOVID-19pandemic.UnderXi’spresidency,Chinesediplomatshavebecomeveryactiveusersofsocialmediaplatforms(suchasTwitter),wheretheyhavetakenaconfrontationalandprovocativeapproachthatispartofthemoreassertiveChineseattitudeintheinternationalarenathathasbecomeknownas“wolfwarriordiplomacy”(BrandtandSchafer,2020;Phillips,2020).However,aswolfwarriordiplomacybackfired—assomeofthefollowingexamplesshow—Beijingbegantotonedowntheapproachstartingin2021(Jing,2021).InadditiontoChinesediplomatsengagingonsocialmediainprovocationsandovertcriticismofsomeforeignpolicystatementsorofdecisionsthatsomeLatinAmericangovernmentofficialsmade,Chinesegovernmentofficialshaveactedasanechochamberofanti-AmericanpropagandathatVenezuelangovernmentofficialsandnetworks(suchasTeleSur)andRussianmediaoutlets(suchasSputnikInternationalandRTEspañol)broadcast(BrandtandSchafer,2020).ChineseAttemptstoProjectInfluenceintheInformationalDomaininBrazilBrazilianconcernsaboutChinesebacklashwhenBrazilianactorscriticizeChinaarenotentirelyunfounded,andChineseattemptstointerfereandshapethedomesticpoliticaldiscourseinBrazilhavebecomeincreasinglyaggressiveinrecentyears(Youkee,2020).Brazil,similartoChileandothercountriesinLatinAmericaandacrosstheworld,haswitnessedinrecentyearsanaggressivebacklashintheinformationaldomainfromtheChineseambassadorandotherdiplomatsinthecountry,whohaveverballyattackedthosewhospokecriticallyofChinaorofthegovernmentinBeijing(Stuenkel,2020;ZhaiandTian,2020).InthecontextoftheoutbreakoftheCOVID-19pandemic,suchepisodesresurfacedwithincreasedfrequencyacrosstheworld,includinginBrazil.AccordingtoonestudyfocusedonBrazil,Ecuador,andGrenada,“wolfwarrior-typemessagingappearedmostfrequentlyinBrazil”(Myers,2021,p.9).66Forinstance,EduardoBolsonaro—oneofthesonsofBrazil’sPresidentJairBolsonaroandthen-chairofBrazil’sHouseforeignrelationscommittee—enteredinMarch2020intoasocialmediaspatwiththeChineseambassador,YangWanming,afterhepubliclyblamedtheauthoritariannatureofthegovernmentinBeijingfornottakingswiftactionagainstthenovelcoronavirus,leadingtoitsglobalspread(Boadle,2021;Fonseca,2020;Myers,2021,p.9;Phillips,2020).Inresponse,YangcalledtheBolsonarofamilya“hugepoison”forBrazilandaccusedEduardoBolsonaroofhavingcontracteda“mentalvirus”inthecontextofarecenttriphehadundertakentotheUnitedStates(Jaishankar,2020).WhenBrazilianForeignMinisterErnestoAraujopubliclycalledoutYang’sstatementsasunacceptable,theChineseEmbassy’sresponsecontinuedthepatternofaccusationsandverballyaggressivebehavioronsocialmedia,callingEduardoBolsonaro’sstatements“absurd,prejudiced...[and]irresponsible”(Fonseca,2020).Furthermore,inresponsetoEduardoBolsonaroreferringtothenovelcoronavirusas“theChinavirus,”theChineseConsultoRiodeJaneiro,LiYang,publishedawidelycirculatedop-edinamajorBraziliannewspaper,OGlobo,inwhichhereferredtoEduardoBolsonaroas“brainwashedbytheUnitedStates”andissuedaratherthreateningstatementthat“shouldanycountryinsistonbeingChina’senemy,wewillbeitsmostsophisticatedenemy!”(Stuenkel,2020).InMay2020,theChineseembassywasactiveinpublishingop-edsthataimedtoaddress“allegationsthatCOVID-19originatedinalabinWuhanandthatChinawasnottransparentwhenhandlingitsdomesticoutbreak”(Myers,2021,p.9).OtherpointsofcontentionbetweenEduardoBolsonaroandtheChineserepresentativesinBrazilconcernedtheCleanNetworkprogram,whosegoalsaretoprotectmembersfrominvasionofprivacyanddatabreaches,includingbysuchcountriesasChina.Inresponse,theChineseembassyinBrazilaccusedEduardoBolsonaroofsupportingaprogramthattargetsChinese5Gtechnology(CaramandDellaColetta,2020).Furthermore,theChineseEmbassyaccusedBrazilof“followingtheleadoftheUnitedStatesandslanderingChina”andissuedaveiledthreatthat“negativeconsequences”wouldlikelyfollowifBrazildoesnotgiveuprehearsingU.S.rhetoricagainstChina(CaramandDellaColetta,2020).ThesestatementsbytheChineseambassadordidnotcomeacrosswellwithmanyBrazilians,includingthosewhodonotsupportPresidentBolsonaro’sapproachtogovernance.InthecontextofthestatementsthattheChineseAmbassadortoBrazilmade,PresidentBolsonaroaskedBeijingtwicetorecallitsambassador,withtheChinesegovernmentdisregardingtherequestinbothinstances(Feliciano,2021).Moreover,thespatdividedtheBraziliangovernment,withsomepoliticianscriticizingPresidentBolsonaroandAraujoandaccusingthemofcreatingdamagetotheeconomicrelationshipwithChinaandwithChinaplayingvariousfactionsoftheBraziliangovernmentagainsteachother(Boadle,2021;Stuenkel,2020).Theseconcernsarenotentirelymisplaced,giventhatChinesediplomatshaveinrecentyearsnothesitatedtoinflicteconomicpainontheirdetractorsinadditiontobeingextremelycombativeonsocialmedia(Phillips,2020).67Despitethesehighlyvisibleconfrontationsintheinformationalarena,oneofthehigh-levelrepresentativesoftheChinesegovernmentinBrazil,QuYuhui,praisedBrazil’senvironmentalrecordinAugust2019,whenthecountrywasexperiencingtheapogeeofthefiresintheAmazon,withBrazilianenvironmentalnongovernmentalorganizationsbeinghighlycriticalofthegovernment’senvironmentalrecordatthetime(Stuenkel,2020).ChineseAttemptstoProjectInfluenceintheInformationalDomaininChileInrecentyears,theChineseambassadortoChileembracedaveryactiveandaggressivestanceinthemediainthecountry(Youkee,2020),89attractinglocalcriticismandbecomingoneofthemostcontroversialdiplomaticpersonalitiesinthecountry(AzócarandFernández,2020).ChileanofficialsandthepublicjustlynotedthediscrepancybetweentheveryactivestanceoftheChineseambassadorwhencomparedtothatofothercountries’ambassadorstoChile.90Forinstance,whenChileanlegislatorsvisitedsomeoftheleadersofthepro-democracymovementinHongKong,XuBu,theChineseambassadortoChile,publishedinSeptember2019anop-edinoneofthemajorlocalnewspapers,ElMercurio,attackingthemeetingbetweenthetwoChileancongressmenandtheHongKongactivistJoshuaWong.Intheop-ed,XuBuwarnedthetwolegislatorsabout“meet[ing]withtherightpeople”insteadof“socialthugs,”whichisBeijing’swayofreferringtothepro-democracyprotestersinHongKong(Hannig,2020).SimilartoChineseattacksonlocalgovernmentofficialsinBrazil,XuBu’scriticismwasnotwellreceived,andElMercuriopublishedaresponsearticlebytheattackedChileanlegislatorJaimeBellolio(AzócarandFernández,2020).Onemonthlater,inOctober2019,theChineseembassypurchasedeightpagesinElMercuriotocommemoratetheChineseRevolution’s70thanniversary,andthesecondlargestChileannewspaper,LaTercera,forgedapartnershipwithChinesestate-sponsoredmediawiththepurposeofdisseminatingChinesecultureinChileintheformofop-edsanddirectplacementofChinesenewscoverage(Hannig,2020).Newspapers’financialstrugglesrepresentoneofthereasonswhylocalnewspapersacceptpaidcontentfromChinesestatemedia(Ellis,2021a).AsaresultoftheChineseambassador’saggressivestanceandfurthermiscommunicationsbetweenXuBuandtheChileangovernmentthatresultedinapubliccontroversyrelatedtoChinesedeliveryofventilatorstoChile’sMinistryofHealth(theso-calledventilator-gate;AzócarandFernández,2020),XuBuwasforcedtostepdownearlyfromhisroleinOctober2020.Afterhisdeparture,thenewChineseambassadorinChileiskeepingaverylowprofileandmakesveryfewpublicstatements.9189InterviewwithChileenergysectorSME,April21,2022.90InterviewwithChileenergysectorSME,April21,2022.91InterviewwithChileforeignandeconomicpolicySME,May9,2022.68WhentheChina-basedinformationsecuritycompanyAisinosubmittedin2021abidtoparticipateinthetenderprocesstomakeChile’sbiometricidentificationcardsandpassports,complaintsfromtheothernationalandinternationalcompetitorswerefiledwiththeChileangovernmentaboutAisinonotmeetingsomeofthetechnicalandadministrativerequirementsfortheprocessspecifiedintheoriginalrequest(Burt,2021;Nash,2021).Aisinosubmittedthelowestbid,wonthetender,andwassupposedtoprovidethesoftwareandhardwareinvolvedinthefabricationofChileanidentificationcardsandpassports.However,inNovember2021,theChileangovernmentcanceledthepublictendercontractinlightofconcernsregardingdataprotectionandasaresultofAisinorefusingtoprovidebackgroundinformationthattheChileangovernmentaskedfor(Vérité,2021).Aisino’sbidshowedChina’sinterestingainingaccesstothebiometricinformationofcitizensofacountrythatisaverycloseU.S.partner,withChilebeingtheonlyLatinAmericancountrythatispartoftheVisaWaiverProgram.Interestingly,aFederalBureauofInvestigationreportfrom2020mentionedAisinoasbeingoneoftwoChinesecompaniesthatcreatedabackdoorintheChinesegovernment-mandatedtaxsoftwarehandingvalue-addedtax(VAT)paymentstotheChinesetaxauthoritythatallforeigncompaniesactiveinChinaarerequiredtoinstall(Cimpanu,2020;Nash,2021).ChineseAttemptstoProjectInfluenceintheInformationalDomaininPeruTheChineseambassadortoPeruisperceivedasveryactive,especiallysincethebeginningoftheCOVID-19pandemic,similartothecasesofBrazilandChile.However,whentheSinopharmscandalknownas“VacunaGate”(or“VaccineGate”inEnglish)brokeout,revealingthatthen-PresidentMartinVizcarraandseveralothergovernmentofficials,businessmen,andtheirfamilieswerevaccinatedinsecretaheadoftherestofthePeruvianpopulationusingsome3,200vaccine“courtesy”dosesthatcamefromChinaoutsideofthephaseIIItrialsthatwerestillongoing,92theChineseembassyinthecountryremainedfairlysilent,deniedanyimpropriety,rejectedtheterminologyused(“courtesyvaccinations”),anddidnotofferapublicexplanationorjustificationtothePeruvianpeopleregardingthisepisode(Cabraletal.,2021;“Covid-19:Peru’sEx-LeaderAccusedofJumpingVaccineQueueTestsPositive,”2021;McDonnellandLeón,2021;Sanchez-Perez,Rodriguez-OlivariandWoodward,2021).93TheVaccineGatescandalrevealedthatSinopharm’sconditionalsanitaryregistryinPeruwasawardedunder“irregularcircumstances,”andseriousethicalconcernswereraisedbySinopharmofferinguntested“courtesy”vaccinesoutsideoftheclinicaltrialsthatwerestillunfolding(Sanchez-Perez,92PresidentMartinVizcarrawasimpeachedinNovember2021andremovedfromofficeonseparateallegationsofcorruptionthatwereindependentoftheVaccineGateepisode.Formoredetails,see“Covid-19:Peru’sEx-LeaderAccusedofJumpingVaccineQueueTestsPositive,”2021.However,sixofthepastsevenPeruvianpresidents“haveeitherbeenforcedfromofficeamidallegationsofwrongdoingorfacedchargesuponcompletingtheirterms”(McDonnellandLeón,2021).93InterviewwithPeruenergysectorexpert,April15,2022.69Rodriguez-OlivariandWoodward,2021),potentiallyinanattemptbytheChinesegovernmenttocurryfavorwithPeruvianelitesandsecureadealforPerutopurchasesome38milliondosesfromSinopharm(Tegel,2021a;Tegel,2021b).Someoftheofficialswhoreceivedthe“courtesy”dosesoutsideoftheclinicaltrialwereindividualswhowereexpectedtobeinvolvedinawardingcontractsoncethevaccinewasapproved(Philip,2021).Similarscandalsregardingunder-the-tablevaccinationsoflocaleliteswithdosesimportedfromChinaoutsideofthosedeclaredforclinicaltrialsbrokeoutinMexicoandArgentina(Cabraletal.,2021;Tegel,2021b).InPeru,Sinopharmcameunderinvestigation“forpossiblebriberytosecureavaccinecontractwiththePeruviangovernmentthroughfreevaccinesamples”(Bernhard,2021).TheissueofsilenceregardingChineseactivitiesinPerucameupinourinterviews,withparticipantsmentioningthatrarelyareChinesepublicprojectsannouncedwithgrandfanfareorwidelypublicized,makingitdifficulttotrackalltheinvestmentsandfinancingthatarehappeninginthecountry.Also,whenpublicannouncementsaremade,theinformationprovidedinrelationtotheprojecttobedevelopedusuallyisminimal.94ThisbehaviorisstrikinglydifferentfromthatseeninBrazil,whereChineseofficialsaremoreinclinedtooverstatetheextentoftheirinvolvementinthecountry’seconomy.AlthoughthePeruviangovernmentisratherwelcomingofChineseinvestmentsandfinancingoverall(Ratigan,2021),mediaoutletsthatpreviouslyfavoredChinaendedupbeingcriticalofitinthecontextofrecentscandalsinvolvingChinaandcorruptionamonglocalelites.Also,theChineseembassyinPerudidnotmakeanymajorpublicannouncementorleadanycountercampaigntoexplainwhathappenedortrytolessentheimpact.95WhenitcomestoChinesepresenceintheinformationaldomaininPeru,therehavebeenconcernsthatstatemedia,suchasthePeruvianstatenewsagencyandthestate-controllednewspaperElPeruano,act“likestenographersoftheChineseembassy”(Smith,2021).SomereportingthatwasfavorabletowardChinamighthavebeentheresultoftheinfluencethatBeijingtriedtogaininPeruintheinformationaldomainthroughtheChineseembassyprovidingfinancingtomodernizenewsroomtechnologicalequipment(Smith,2021).Chinaalsopushedforcontent-exchangeagreementsfortelevision,withCGTN-produceddocumentariesaboutChinaairingduringprimetimeonPeru’sChannel7(Cook,2020).However,whenthestate-ownedXinhuatargetedPeruvianprivatenewsoutletsandofferedthemtorunitsmediacontentforfree,theoutletswereuncomfortablepublishingcontentfromaforeignstate-runnewsagency(Cook,2020).Furthermore,ChineseofficialsonsocialmediaplatformscriticizedPeruvianjournalistswhohadbeencriticalofChina(Smith,2021).94InterviewwithU.S.governmentofficials,March18,2022.95InterviewwithU.S.governmentofficials,March18,2022.70ChineseAttemptstoProjectInfluenceintheInformationalDomaininArgentinaIntheinformationaldomain,theformerChineseambassadortoArgentina,YangWanming,96wasalsoveryactiveandtriedtoinserttheofficialviewsofthegovernmentinBeijingintomainstreammedia.From2014to2017,themediapresenceoftheChineseambassadorinvolvedpublishing14op-eds,grantingteninterviewstoArgentinemediaoutlets,andcarryingouteightvisitstolocalnewsrooms.ArgentinaisalsooneofthecountrieswhereChinesestatemediapaidfortheinclusionofChinaWatch(anews-likeadvertisingsupplementfromthegovernment-ownedChinaDaily)intheprinteditionofsomeofthecountry’smajornewspapers.OthercountrieswhereChinaengagedinthispracticearePeru,theUnitedKingdom,andAustralia,inadditiontotheUnitedStates,withtheNewYorkTimes,WashingtonPost,andLosAngelesTimesbeingsomeofthenewspapersfeaturingpaidChinesestatemediacontent(Cook,2020).However,threeArgentineoutletsrefused“topublishaquestionablearticlethatvilifiedlocalFalunGongpractitionersasathreattopublichealthduringtheCOVID-19pandemic”(Cook,2021).InthecontextofitseffortstoexpandBeijing’sinfluenceintheinformationaldomain,CGTNcoproducedwithGrupoAmérica(anArgentinenetwork)somemini-documentariesonthetopicofSino-Argentinediplomaticrelations(Cook,2020).96In2019,YangwasappointedambassadortoBrazilandisthesameindividualwhowasinvolvedinthesocialmediaspatwithEduardoBolsonarodescribedintheBrazilsection(EmbassyofthePeople’sRepublicofChinaintheKingdomofThailand,2019).71ReferencesAdvancedEngineeringAssociatesInternational,QuarterlyReport:4thQuarter2009,Washington,D.C.:U.S.AgencyforInternationalDevelopment,January15,2010.AsofAugust30,2022:https://pdf.usaid.gov/pdf_docs/pdacw049.pdfAgarwala,Nitin,“AdvancesbyChinainDeepSeabedMiningandItsSecurityImplicationsforIndia,”AustralianJournalofMaritimeandOceanAffairs,Vol.13,No.2,April2021,pp.94–112.Amadeo,Kimberly,“WhatIsaMonopoly,”TheBalance,October23,2021.AsofJuly20,2022:https://www.thebalance.com/monopoly-4-reasons-it-s-bad-and-its-history-3305945AMCConsultants,TechnicalReportSummary:InitialAssessmentoftheNORIProperty,Clarion-ClippertonZone,DeepGreenMetalsInc.,AMCProject321012,March17,2021.AsofAugust30,2022:https://www.sec.gov/Archives/edgar/data/1798562/000121390021033645/fs42021a2ex96-1_sustainable.htmAmericanEnterpriseInstituteandHeritageFoundation,“ChinaGlobalInvestmentTracker,”2021.AsofAugust30,2022:https://www.aei.org/china-global-investment-tracker/Andina,“FirstChineseBankOpensinPeru,”February8,2014.AsofAugust30,2022:https://andina.pe/ingles/noticia-first-chinese-bank-opens-in-peru-493541.aspxAsiaMaritimeTransparencyInitiative,“ASurveyofMarineResearchVesselsIntheIndo-Pacific,”CenterforStrategicandInternationalStudies,April16,2020.AsofAugust30,2022:https://amti.csis.org/a-survey-of-marine-research-vessels-in-the-indo-pacific/AssociationforPrivateCapitalInvestmentinLatinAmerica,“ActisExitsMexicanRenewableEnergyCompanyZumaEnergíatoChina’sSPIC,”November19,2020.AsofAugust30,2022:https://lavca.org/2020/11/19/actis-exits-mexican-renewable-energy-company-zuma-energia-to-chinas-spic/Aubertin,Steve,“CompletingtheGloballyInterconnectedElectricityGrid,”TransformersMagazine,Vol.5,No.2,2018,pp.34–37.72Azócar,Vanessa,andEugeniaFernández,“LadiscretadespedidadeChiledelembajadorXuBu[ThediscreetfarewelltoChileofambassadorXuBu],”LaTercera,September22,2020.AsofAugust30,2022:https://www.latercera.com/la-tercera-pm/noticia/la-discreta-despedida-de-chile-del-embajador-xu-bu/MLBMCOFAQ5B2TLTQ4J2HE3NY4I/BatistaBarbosa,PedroHenrique,“NewKidsonTheBlock:China’sArrivalinBrazil’sElectricSector,”BostonUniversityGlobalDevelopmentPolicyCenter,GCIWorkingPaper012,December2020.AsofAugust30,2022:https://www.bu.edu/gdp/2021/01/25/new-kids-on-the-block-chinas-arrival-in-brazils-electric-sector/Baxter,Tom,“‘NoNewCoalPowerAbroad’:WhatHasXi’sAnnouncementChanged?”PandaPawDragonClaw,blog,October1,2021.AsofAugust30,2022:https://pandapawdragonclaw.blog/2021/10/01/no-new-coal-power-abroad-what-has-xis-announcement-changed/Bega,Sheree,“ChinaWon’tFundCoalPowerforMusina-MakhadoSpecialEconomicZone,AmbassadorConfirms,”MailandGuardian,November18,2021.AsofAugust30,2022:https://mg.co.za/environment/2021-11-18-china-wont-fund-coal-power-for-musina-makhado-special-economic-zone-ambassador-confirms/Bernhard,Isabel,“LatinAmericaBelievedinChineseVaccines.NowItMayHaveReasontoRethink,”TheDiplomat,April21,2021.Bhandary,RishikeshRam,andKellySimsGallagher,“WhatDrivesPakistan’sCoal-FiredPowerPlantConstructionBoom?UnderstandingtheChina-PakistanEconomicCorridor’sEnergyPortfolio,”WorldDevelopmentPerspectives,Vol.25,March2022.BNamericas,“InterconnectionofBajaCalifornia’sElectricSystemtotheNationalElectricGrid,”undated.———,“StateGrid,EletrobrastoBuildUS$2.1bnBeloMonteTransmissionLine,”February7,2014.———,“Aneel’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//bellschool.anu.edu.au/sites/default/files/publications/attachments/2018-05/ib2018_11_zhang.pdfZhang,Qianyi,“探索全域作战能力生成路径[Explorethepathforgeneratingall-domaincombatcapabilities],”ChinaMilitaryNetwork,September25,2018.AsofAugust30,2022:http://www.81.cn/jfjbmap/content/2018-09/25/content_216591.htmZhang,Xin,ZengfengDu,RongerZheng,ZhendongLuan,FujunQi,KaiCheng,BingWang,WangquanYe,XiaoruiLiu,ChaoLian,ChanganChen,JinjiaGuo,YingLi,andJunYan,“DevelopmentofaNewDeep-SeaHybridRamanInsertionProbeandItsApplicationtotheGeochemistryofHydrothermalVentandColdSeepFluids,”DeepSeaResearchPartI:OceanographicResearchPapers,Vol.123,May2017,pp.1–12.Zhen,Liu,“ChineseDeep-SeaSurveysLookforGeologicalHazardsinSouthChinaSea,”SouthChinaMorningPost,January4,2022.AsofAugust30,2022:https://www.scmp.com/news/china/diplomacy/article/3162117/chinese-deep-sea-surveys-look-geological-hazards-south-chinaZhiwenKangzheandNiuChenfeiMao,“别不信！从首艘国产航母到共享单车，都与这件事有关[Believeitornot!Fromthefirstdomesticaircraftcarriertosharedbicycles,itisallrelatedtothismatter],”ChinaMilitaryNetwork,March8,2018.AsofAugust30,2022:http://www.81.cn/jwsj/2018-03/08/content_7964600.htm96Zhou,Viola,“RushforResourcesDrivesChina’s‘Three-Deep’ScienceQuest,”SouthChinaMorningPost,October5,2016.AsofAugust30,2022:https://www.scmp.com/news/china/policies-politics/article/2025055/rush-resources-drives-chinas-three-deep-science-questRR-A2096-1China’sextensiveandexpandingforeigninvestmentandfinancingactivitiesoverthepasttwodecadeshavegarneredsubstantialattentionandraisedseveralconcerns.Suchconcernsarediverseandincludepayinginsufficientattentiontointernalpolitics,globalrelations,environmentalregulationsandcontrols,andhumanrights,workersafety,andhealthrecordsofhostnations;engaginginunfaircontractingpractices;usingoverseasinvestmentsandfinancingtoattainaccessandinfluenceinstrategiclocations;andusingdisinformationtoinfluencemarkets.Forthisreport,theauthorsexaminedChineseforeigninvestmentsandfinancingincriticalresourcesandenergyinfrastructureforevidenceofthesetypesofbehaviors.Theyusedacase-studyapproachinwhichtheyexaminedinvestmentsandfinancingincoalpowerplantsinIndonesia,Pakistan,andSouthAfrica;electricitytransmissionanddistributioninfrastructureassociatedwiththeglobalenergyinterconnectioninitiativeinBrazil,Chile,Argentina,Peru,andMexico;andseabedminingglobally.TheobjectiveoftheresearchwastocharacterizeChineseforeigninvestmentsandfinancingincriticalresourcesandenergyinfrastructure,emphasizingtheextenttowhichChineseinvestorsengagedinanyoftheseconcerningbehaviors,andtodeveloprecommendationstobuildcapacityamonghostnationstodiversifytheirsourcesofinvestmentandfinancinginordertominimizethepotentialnegativeimpactsofanoverrelianceonChineseinvestmentsandfinancing.Theresearchdidnotturnupmanyclearexamplesofsuchbehaviors,buttheauthorsidentifiedseveralothertopicsofconcernthathaveimportantimplicationsforhostnations.www.rand.orgNATIONALSECURITYRESEARCHDIVISION

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