3 ways China can improve climate-resilient infrastructure investment

China currently emits more greenhouse gases than any other country. As a result, discussions about climate action in China tend to focus on the country’s need to rapidly reduce emissions — and whether it is doing so fast enough.

However, as recent climate disasters show and new WRI research confirms, China must also ramp up efforts and investment to adapt its infrastructure to climate impacts, in order to thrive in a warming world and avoid huge economic losses.

It would also reap multiple benefits. Existing studies suggest that early investment in climate adaptation can generate important dividends, including avoided losses, and social, environmental and economic benefits. It is estimated that investing $1.8 trillion in climate adaptation globally could generate $7.1 trillion of net benefits between 2020-2030.

Climate Disasters are Intensifying Across China

Like many other countries this year, China has experienced several extreme weather events and climate disasters. Coastal areas have been attacked by strong storm surges, including a binary typhoon — a rare phenomenon where two cyclones interact. And in July, an unprecedented heavy rainstorm battered Zhengzhou, the capital of Henan province, causing the deaths of 300 people. This severe storm destroyed 52,800 houses and caused damage on 1.4 million mu(93,066 hectares) of cropland, wiping out thousands of hectares of crop production. The direct economic loss from this disaster alone is around RMB 53.2 billion ($8 billion).

Climate change has greatly aggravated the frequency and intensity of these disasters which are now impacting millions of people in China — and leading to massive economic losses. Between 2008 and 2018, China experienced an accumulated agricultural yield loss of about RMB 994.5 billion ($152.9 billion), around 55% of the global total. Drought is the greatest contributor to yield loss in China, and by 2030, seasonal droughts will lead to an estimated 8% reduction in China's three major staple food crops (rice, wheat and corn). These patterns are predicted to continue in the future.

The Time for Accelerating Climate Adaptation Action is Now

In the face of this grim situation, China must accelerate investment in climate adaptation to build resilience to climate change and reduce any associated damage. While continuous efforts are essential to mitigate climate change, reducing greenhouse gas emissions alone will not be enough.

Climate adaptation actions involve a wide range of areas crucial to human well-being — such as food production, water resources, and disaster risk management. It is imperative to enhance climate resilience in infrastructure to help protect human life and help avoid economic losses from the effects of climate change. Such infrastructure projects could include expending water-saving irrigation facilities to cope with drought, and using natural infrastructure to protect coastal areas from sea-level rise or improve natural drainage system against storms.

China is well positioned to contribute to the global climate adaptation effort by accelerating investment in climate-resilient infrastructure across the country. This will not only improve the capacity of the country’s infrastructure to adapt to climate change, but also stimulate the development of such infrastructure around the world, for example through the implementation of the Belt and Road Initiative.

WRI China’s new report, the first of its kind in the country, calculates the expected costs and benefits associated with infrastructure investment and explores potential financing instruments and mechanisms that could help leverage finance for future climate-resilient infrastructure projects.

To address the main challenges facing climate-resilient infrastructure investment, the Chinese government must take three concrete actions:

1) Improve Understanding of Risks

There is a systematic misunderstanding of the differences in climate hazards faced by different types of infrastructures across regions, and a lack of complete databases and methodological frameworks for assessing the relevant climate risks.

To address this, Chinese policymakers, researchers, and other relevant stakeholders must work together in the following areas:

• Identify specific climate risks faced by different critical infrastructure systems and integrate climate adaptation into the concept design and implementation of urban and rural planning.
• Develop technical standards to guide the development of climate-resilient infrastructure across China.
• Strengthen the monitoring and early-warning systems of climate risks and improve the mechanisms to accelerate climate adaptation.
• Educate the public about climate risks and improve their ability to cope with them.  

2) Quantify the Economic Value of Climate-resilient Infrastructure

China needs to develop standard economic valuation frameworks that will allow better accounting for the benefits of climate-resilient infrastructure projects — which in turn can help make the economic case for increasing finance.

Findings from the new WRI report suggest that every RMB 1 invested in climate-resilient infrastructure can generate 2-20 times that amount over 30 years (see graphic below) — either through the ability to generate economic gains, or through avoided economic losses.

Take the example of Shenzhen, a coastal megacity in southeastern China, where sea dikes can be strengthened by restoring nearby mangroves to better cope with storm surges and reduce losses from tidal damage. This also brings environmental benefits by protecting biodiversity and boosting carbon sequestration and additional oxygen release. The improved ecosystem health in coastal areas will also provide new opportunities for the low-carbon transition of the local economy, such as tourism, and create new economic industries and jobs, in turn generating high economic and environmental benefits. 

Overall, it is strategically and economically important to scale up these examples of climate-resilient infrastructure to the whole country.

3) Close the Funding Gap Through Innovative Financing Mechanisms

The report estimates that climate-resilient infrastructure faces an annual funding gap of nearly RMB 500 billion ($77 billion) in the next five years (as shown in the graphic below). In contrast, there are limited innovative financial instruments to leverage private capital and meet the increased financing needs of climate-resilient infrastructure in China — which is still largely funded by public finance.

China is not the only country facing finance constraints. Globally, public funding accounts for 79% of the climate finance flowing to climate adaptation. Therefore, private capital investment needs to increase urgently to help alleviate the financial difficulties encountered in the construction of climate-resilient infrastructure.

Building on the experience of other countries in creating new financing instruments, financial institutions in China could explore potential innovative financing mechanisms to meet the needs of climate-resilient infrastructure projects. For example, local governments could collaborate with development banks and commercial banks to issue Resilience Bonds and Resilient Impact Bonds to attract private capital. These could then be used to provide loans for qualified climate-resilient infrastructure projects. In the meantime, a performance evaluation mechanism should be established to monitor fund operations. Alternatively, a trust fund could be created that blends finance from both public and private capital.

Despite the Challenges, a Unique Window of Opportunity

As well as the solutions suggested above, China urgently needs to develop a dedicated inter-ministerial coordination mechanism to accelerate the uptake of, and investment in, climate adaptation measures at all levels. This mechanism could also play a role in facilitating international collaboration and building capacity on climate-resilient infrastructure.

More resilient and low-carbon development like climate-resilient infrastructure will be actively promoted by China to meet President Xi’s “dual carbon” goals of peaking emissions before 2030 and becoming carbon neutral by 2060. This is a unique window of opportunity: China starts to implement its post-COVID-19 economic recovery plan in 2021, which is also the first year of the 14^th Five-Year-Plan that sets the construction of new infrastructure as a development priority for high-quality growth. This will be one of the important driving forces to China’s economic development in the future and provide new opportunities for the investment of climate-resilient infrastructure at the same time.

If China truly wants to ensure future economic prosperity, now is the time for the country to accelerate climate-resilient infrastructure development — before the window of opportunity closes.