No more coal abroad! Unpacking the drivers of China's green shift in overseas energy finance

Abstract

Over the last decade, China's development finance for coal-fired power plants has been seen as a major barrier to clean energy transition in developing countries. In September 2021, Chinese President Xi Jinping announced that China would stop supporting new coal projects abroad. This pledge was made beyond the expectation of many observers as it seems to deviate from China's long-standing approach of non-interference in its overseas development programme. What explains this striking policy shift? Drawing upon the literature on two-level games and the political economy of China's overseas investment, we developed a novel analytical framework, which argues that China's new policy is the combined outcome of three mechanisms: issue linkages in intergovernmental bargaining, lobbying of transnational alliances, and influence of domestic interest groups seeking policy change. We used elite interviews, policy documents, and media reports to show the processes through which the changing market and political environments since 2017 led China's leadership to make the commitment to phase out overseas coal finance in 2021. Our study contributes to the burgeoning literature on China's influence on global energy transition by unpacking the complex policy-making processes of Chinese overseas investments and identifying different forces shaping the emerging sustainability governance system for China's global engagement.

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