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Dhaka Thursday,  Jul 27, 2017

ADB Approves Loan to Help PRC Improve Air Quality in Beijing

EB Desk

The Asian Development Bank (ADB) has approved €458 million ($499.6 million) for a financing platform to support green and pollution-reduction projects in the greater Beijing-Tianjin-Hebei (BTH) region, which faces the worst air pollution in the People’s Republic of China (PRC). This follows a first loan of $300 million approved last year for regulatory reform in Hebei Province.

“Poor air quality is a serious health risk and economic burden in a region that accounts for nearly one third of the PRC’s gross domestic product and its total population,” said Lin Lu, an ADB Energy Specialist. “The green financing platform (GFP) — the first of its kind for the region — will mobilize domestic financing for long-term, coordinated efforts across many different sectors, including energy, transport, urban, and agriculture, to bring about air quality improvements in the greater BTH.”

ADB’s first policy-based loan to combat the air pollution issues in the PRC was approved for BTH in December 2015 and successfully implemented in 2016. For the GFP — the second part of the multilending support — the region has been expanded to include not only the capital city of Beijing, the municipality of Tianjin, and the province of Hebei, but also the provinces of Henan, Shandong, Shanxi, Liaoning and Inner Mongolia Autonomous Region.

Particulate matter in the air contributes to about 1 million premature deaths annually in the PRC. The cost of this to the economy is about 7.5% of GDP. More than 90% of the cities in this region do not meet the national or World Health Organization standards for air quality and some are among the most polluted cities in the world.

The PRC government has made recent progress in addressing poor air quality, with new ambient air quality standards and a nationwide action plan, but challenges remain. The region has heavy reliance on coal, and is home to a high concentration of pollution-intensive industries as well as a huge number of polluting vehicles.

In addition, agricultural activities such as biomass burning and rural energy consumption account for 15% of the region’s dangerous particulate emissions. Small- and medium-sized enterprises (SMEs), which account for about 60% of industrial pollution, lack the experience to tackle pollution as well as access to commercial credit to switch to cleaner processes.

Since addressing the complex challenge of air quality improvement in this vast region requires a long-term, coordinated, and multisector approach, the Government of the PRC has agreed with ADB on a multiyear lending program of about $500 million per year during 2016-2020. The ADB assistance over that period will focus on strengthening policies and the regulatory framework, developing financing approaches to unlock investment in areas in need, and leapfrogging technologies in key sectors.

The project is expected to leverage €3.6 billion equivalent in domestic commercial financing. With credit enhancement measures, the project will overcome critical barriers and result in easy access to commercial credit for SMEs. A financial intermediary will help the platform to partner with domestic financial institutions and commercial banks to build their capacity and generate future interest in similar investments. The financial intermediary will bear credit, interest, and exchange risks and will price individual transactions based on market-principles. This will ensure long-term sustainability of the platform and possible future expansion.

The state-owned China National Investment and Guaranty Corporation (I&G) was selected by the government to set up the platform and will act as the financial intermediary as well as the executing and implementing agency. The State Development & Investment Corporation, the controlling state-owned enterprise of I&G, will provide the credit enhancements.

ADB, based in Manila, is dedicated to reducing poverty in Asia and the Pacific through inclusive economic growth, environmentally sustainable growth, and regional integration. Established in 1966, ADB in December 2016 marks 50 years of development partnership in the region. It is owned by 67 members—48 from the region. In 2015, ADB assistance totaled $27.2 billion, including cofinancing of $10.7 billion.

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