A new AidData report demonstrates that Beijing has become a major source of financing for projects around the globe that involve the specific minerals—copper, cobalt, nickel, lithium, and rare earth elements (REEs)—needed to facilitate a clean energy transition and achieve the global goal of net zero emissions by 2050. According to a first-of-its-kind dataset that AidData assembled to systematically track Chinese official sector financial commitments for extracting and processing these minerals in 165 low-income countries and middle-income countries, Beijing has extended $56.9 billion of aid and credit for “transition mineral” operations in the developing world over a twenty-two year period (2000-2021).
AidData’s findings show that Beijing has become a pace-setter in the sector, expanding its control over key segments of the global supply chain for transition minerals and forcing its competitors to rethink how they can increase their market share. A team of researchers—led by Brooke Escobar, Interim Director of AidData’s Chinese Development Finance Program—has discovered that China prioritizes upstream extraction activities rather than midstream processing activities. 92% of its transition mineral financing portfolio supports upstream extraction operations, but only 8% supports midstream processing activities.
According to Escobar, “China effectively uses the power of the purse to secure raw materials abroad that it lacks in sufficient quantities at home, while maintaining its dominant positions in the processing and downstream product development segments of the global supply chain for transition minerals.”
To date, Chinese state-owned lenders and donors have channelled 93 loans and 1 grant to a core group of 19 resource-rich countries, all of which participate in the Belt and Road Initiative (BRI). The bulk of the money has been used to help Chinese companies secure control of transition mineral extraction sites: 83% of Beijing’s official sector lending for copper, cobalt, nickel, lithium, and REE operations in developing countries is earmarked for mining operations that are partially or wholly owned by Chinese companies.
The minerals covered in the AidData report are characterized by the International Energy Agency (IEA) as “focus” transition minerals because they are key inputs for renewable energy technologies, such as solar photovoltaics and lithium-ion batteries. “Making the clean energy transition a reality will require large-scale investments in new technologies,” said Escobar. “But Beijing’s rivals have struggled to provide their own companies with comparable levels of support to allow them to be competitive. For the world’s major powers, these minerals are also a national security issue because they are critical inputs into advanced manufacturing and defense technologies.”
Other key findings from the report:
- Beijing’s policy banks—the Export-Import Bank of China and China Development Bank—initially dominated the financing of overseas transition mineral operations, but they have now been overtaken by China’s state-owned commercial banks, such as Industrial and Commercial Bank of China, Bank of China, and China CITIC Bank. A large network of 26 official sector creditors from China has come together to bankroll transition mineral projects in the developing world.
- In contrast to its broader overseas lending portfolio, Beijing rarely uses loans that qualify as public or publicly-guaranteed (PPG) debt to bankroll transition mineral operations in the Global South. It has prioritized limited recourse project finance transactions rather than full recourse sovereign debt transactions: approximately 81% of China’s transition mineral lending portfolio in developing countries qualifies as non-PPG debt and roughly the same percentage of the portfolio supports project companies—including special purpose vehicles (SPVs) with a single shareholder and joint ventures (JVs) with multiple shareholders—without host government repayment guarantees. JVs and SPVs are crucial to Beijing’s strategy because they own and operate transition mineral assets.
- China has selectively directed credit to those copper, cobalt, lithium, nickel, and REE operations where Chinese firms have recently acquired or already possess ownership stakes, ensuring long-term access to the mineral outputs produced by these sites.
- Funding new mine acquisitions is a key component of Beijing’s bid to secure its transition mineral supply chain. The sector’s capital-intensive nature sets a very high “price of admission,” but China has helped its firms overcome this barrier to entry through an aggressive acquisition lending program.
- Once a foothold is established (through the acquisition of an ownership stake or otherwise), Chinese state-owned creditors typically provide a series of consecutive loans for the development and expansion of mines and working capital to sustain the operations at those mines. They act as “relationship bankers” that provide borrowers with long-term financing packages to support transition mineral operations from cradle to grave. Beijing has channelled 66% of its official sector lending commitments to 14 high-value operations in 8 countries: the Toromocho, Las Bambas, and Marcona mines in Peru; the Tenke Fungurume, Kamoa-Kakula, Sicomines, Kolwezi, and Kinsenda mines in the DRC; the Bor mine in Serbia; the Aktogay mine in Kazakhstan; the Phu Kham mine in Laos; the Mirador mine in Ecuador; the Bisha mine in Eritrea; and the Ramu mine in Papua New Guinea.
- Beijing has also prioritized the provision of subsidized credit—i.e., loans that are priced below market rates. For decades, OECD countries have “tied their own hands,” voluntarily abiding by a set of international rules that limit the provision of subsidized credit to domestic companies with overseas operations. However, AidData's analysis demonstrates that Beijing uses concessional lending instruments to help its firms gain a competitive edge over Western firms in the overseas transition mineral sector.
AidData’s report notes that China is home to 35% of global REE mineral reserves and it accounts for 70% of global extraction and 87% of global processing of REE minerals.
“China has become a dominant player in the global transition minerals sector, employing a strategic and multifaceted approach to secure resources critical for the green energy transition,” said Sheng Zhang, an AidData Research Analyst and an author of the report. “REE minerals may be the canary in the coal mine: China has established a near-monopoly on the entire supply chain, giving it incredible power to direct—or withhold—these resources to other countries.”
“Chinese firms benefit from a seamless financing pipeline for the acquisition, development, and operational stages of transition mineral projects. China’s provision of subsidized credit to its own SOEs has created an uneven playing field,” added Katherine Walsh, a Senior Program Manager at AidData and an author of the report. “If the export credit agencies and development finance institutions of G7 countries want their national firms to gain market share, they will need to provide more competitive and flexible financial arrangements and offer consistent support over the full life-cycle of these projects.”
