Key Takeaways:
1. China plays a unique role as both a developing nation and a major climate finance contributor, balancing responsibilities.
2. China resists mandatory climate finance contributions, advocating for increased commitments from developed countries.
3. China faces vast domestic climate funding gaps, exploring blended financing to meet carbon neutrality goals.
As the world gathers for COP29 in Baku, Azerbaijan, the question of climate finance takes center stage. With the stakes higher than ever, the UN estimates that developing countries need an astronomical $6 trillion to meet their climate goals by 2030. Amid these pressing needs, attention is turning to a new paradigm for funding: the New Collective Quantified Goal (NCQG) on climate finance. This framework aims to build on the 2009 COP15 commitment by developed countries to provide $100 billion annually to poorer nations. This target was only met in 2022, two years late, and not without skepticism.
Amid this backdrop, an intriguing narrative unfolds: could China assume a greater role in reshaping global climate finance?
China in the Global Spotlight
At COP29, some developed nations, including Switzerland and Canada, have proposed expanding the contributor base for climate finance. Emerging economies such as China, South Korea, and the UAE—not part of the original $100 billion commitment—are increasingly viewed as capable of stepping up. All eyes are on China, a country straddling the line between its status as a developing nation and its role as the world’s second-largest economy.
China’s actions in recent years suggest it may already be stepping into this role. Since launching the Belt and Road Initiative (BRI) in 2013, China has contributed over $30 billion to global climate finance, according to think tanks. The World Resources Institute ranks China alongside the UK as the fifth-largest provider of climate finance, after Japan, Germany, the US, and France.
At COP29, Chinese Vice Premier Ding Xuexiang highlighted that China has mobilized 177 billion yuan (around $24.5 billion) in project funding for developing countries since 2016. However, the omission of this figure from Chinese state media reports the following day raised eyebrows, fueling speculation that Beijing is carefully managing its narrative on global responsibility.
China’s Climate Finance Contributions: A Snapshot
China’s financial contributions to climate initiatives predominantly benefit developing countries in Asia and Africa, focusing heavily on energy and infrastructure. According to the Center for Global Development (CGD), China has provided an average of $3.8 billion annually in climate finance since 2013, with:
50% invested in energy projects, including solar (39%), hydro (25%), and wind (16%).
Significant funds are allocated to transport, such as urban rail and metro systems.
Minimal investments in agriculture, forestry, and fisheries (1%).
Most of this funding comes in loans, with grants comprising just 3%, compared to 39% from developed countries.
“China’s contributions, while significant, are not as concessional as those from developed nations,” explains Beata Cichocka, a researcher at CGD. “Only about $6 billion of its bilateral financing can be considered ‘grant-equivalent’ support.”
Challenges in the NCQG Negotiations
China’s position in the NCQG negotiations is nuanced. While it supports the framework in principle, it aligns with the Group of 77 (G77) in pressing developed nations to increase their commitments. China resists calls to expand the contributor base, arguing that its status as a developing country exempts it from obligatory contributions.
However, China’s approach mirrors its stance on the Loss and Damage Fund agreed upon at COP27. Rather than mandated payments, China prefers voluntary contributions, emphasizing South-South Cooperation, where it has signed 53 agreements with other developing countries and provided training to over 10,000 individuals from 120 nations.
This dual identity—being both a recipient and provider of international climate finance—offers China a unique perspective. “China’s role could bridge the gap between developed and developing nations, fostering more equitable dialogues,” notes Cichocka.
A Broader Perspective: Beyond Zero-Sum Thinking
The NCQG negotiations risk devolving into a zero-sum game, particularly given China-US tensions over who should contribute and how much. Experts argue for a broader framing that highlights the growing responsibilities of all emerging economies—not just China.
China’s trajectory suggests a cautious but deliberate shift toward leadership in climate finance. While it emphasizes its status as a developing nation, its investments and initiatives signal a willingness to engage more deeply with global goals. The challenge lies in balancing expectations and responsibilities while navigating the complex dynamics of international politics.
The Inflation Problem: Is $100 Billion Enough?
When the $100 billion annual commitment was introduced at COP15 in 2009, it represented a substantial pledge. Today, however, inflation has eroded its value significantly. Teng Fei, deputy director at Tsinghua University’s Institute of Energy, Environment, and Economy, highlights this disparity:
“Considering inflation over the past 15 years, $100 billion in 2024 is equivalent to only $70 billion in 2009,” Teng explains. To restore its purchasing power, he estimates that developed countries would need to contribute $170 billion annually by 2030 and $200 billion by 2035.
This gap underscores a critical issue: without inflation adjustments, what was once a meaningful target risks becoming a symbolic gesture, undermining the ambitious climate actions required to mitigate global warming.
Reforming the NCQG Framework
Beyond adjusting funding targets, experts emphasize the need to reform the NCQG framework itself. Liu Shuang, director of the World Resources Institute’s China Finance Program, advocates for a multilayered funding mechanism tailored to the diverse needs of developing nations.
“A robust framework should address the unique circumstances of each country and sector,” Liu explains. This means going beyond loans—whether concessional or commercial—to include grants and innovative funding structures.
Such reforms could ensure the NCQG is not merely a financial mechanism but a holistic approach to equitably addressing climate challenges worldwide.
Global Challenges: Transparency and Coordination
A recurring issue in climate finance is the lack of clear mechanisms for reporting, regulation, and coordination. This is a global problem, but it’s particularly pronounced in China. Despite its growing role in climate finance, the country does not yet have a unified system to track and disclose its contributions.
“It’s not about unwillingness,” Liu clarifies. “The challenge lies in coordinating funds from various channels, as no single government department is authorized to oversee this process.”
Globally, the situation is similarly complex. Within the UN system alone, overlapping climate funds—such as the Global Environment Facility, Climate Investment Funds, and Green Climate Fund—operate with minimal coordination, leading to inefficiencies. Developed nations, with their more established reporting systems, provide a model for improvement. For instance, the US coordinates its climate finance reporting through the Special Presidential Envoy for Climate Change, working across multiple agencies.
Liu suggests that China could benefit from a similar structure:
“A cross-government reporting mechanism, led by the Ministry of Ecology and Environment, could streamline data collection and improve climate finance management.”
China’s Domestic Challenges: A $36 Trillion Problem
While China plays a growing role in international climate finance, it faces immense domestic funding challenges. According to its updated Nationally Determined Contribution (NDC) targets, China needs approximately $2.7 trillion between 2021 and 2030 to meet its climate goals—and a staggering $36 trillion by 2060 to achieve carbon neutrality. Major funding needs are concentrated in sectors like energy, transportation, and construction.
Despite this, financial aid from developed countries to China has dwindled. Longtime donors such as Japan and Germany have reduced concessional loans, and multilateral development banks are also scaling back their support. This leaves China heavily reliant on its resources, which are insufficient to bridge the gap.
The Case for Blended Financing
With limited public funds, experts advocate for blended financing mechanisms to attract private-sector investment. Shao Danqing, a researcher at Peking University’s Macro and Green Finance Lab, highlights the importance of concessional or catalytic funding:
“Public funds should take on more risks or accept lower returns to make climate projects attractive to private investors. If returns on such projects could reach 8%, private capital would be highly motivated to participate.”
China is already laying the groundwork for such mechanisms. The People’s Bank of China is developing a national transition finance standard, which will help identify low-carbon projects—such as transitioning coal-powered plants—that qualify for financial support.
Balancing Global and Domestic Goals
China’s role in global climate finance is twofold: supporting other developing countries while addressing its own climate goals. Through initiatives like the Green Belt and Road Initiative and South-South Cooperation, China has provided training, resources, and funding to over 120 countries. Domestically, it must expand blended financing and refine its green finance standards to include “transformation” activities that help decarbonize carbon-intensive sectors.
“As the largest developing country, China’s path to carbon neutrality is a crucial piece of the global climate puzzle,” Shao emphasizes.
The Path Forward: Fairness and Innovation
As NCQG negotiations continue, the question of funding targets and mechanisms will test the global community’s commitment to climate action. For the NCQG to succeed, it must address inflation-adjusted targets, establish transparent reporting systems, and leverage innovative financing tools like blended mechanisms.
China’s role is pivotal—not just as a provider but as a model for balancing global responsibility with domestic priorities. If it can achieve this balance, China’s climate leadership will not only benefit its citizens but also set a precedent for the world to follow.