The Chinese government strongly promotes “green finance,” which the People’s Bank of China (“PBoC”) defines as “financial services provided for economic activities that are supportive of environmental improvement, climate change mitigation and more efficient resource utilization.” In September 2016, PBoC promulgated Guidelines for Establishing the Green Financial System—the first time any nation’s central bank had issued such guidelines. As host of the G20 in 2016, the Chinese government launched a Green Finance Study Group and included the topic of green finance in G20 communiques for the first time. A 2017 report found that China “arguably has been the most proactive country in the world in pursuing a coordinated and comprehensive approach to greening its financial system.”
China’s green finance policies promote investment in a wide range of assets, including renewable energy projects, water treatment plants, recycling facilities and mass transit. In 2018, China’s green finance policies helped mobilize hundreds of billions of RMB (tens of billions of dollars) for qualifying projects.
PBoC’s Green Bond Endorsed Project Catalogue includes “clean utilization of coal” as an eligible project category. During the first half of 2019, according to one report, Chinese financial institutions provided more than $1 billion to coal projects that qualified as green financing under Chinese standards. International standards for green bond investments do not include coal projects among the eligible categories.
This chapter discusses China’s green finance policies and their climate impacts.
The capital required for pollution control and climate mitigation in China is enormous. PBoC estimates the need at RMB 2–4 trillion (roughly $310–$620 billion) per year. To help mobilize that capital, PBoC issued its Guidelines for Establishing the Green Financial System in 2016. In its opening paragraphs, the guidelines state,
The establishment of the green financial system requires the internalization of environmental externalities by appropriate incentives and restraints with the support of policies, laws and regulations in the financial, fiscal and environmental areas. It also requires more innovations by financial institutions and financial markets in developing new financial instruments and services, to address the problems of maturity mismatch, asymmetric information and lack of analytical tools for green investment.
The Guidelines call for policies and actions in seven areas:
- green bonds,
- green lending,
- green development funds,
- green insurance,
- markets for pollution control rights,
- local government initiatives, and
- international cooperation.
Many Chinese provincial and local governments have issued green finance guidance documents. At least five pilot green finance zones have been set up, where financial institutions receive a variety of incentives to fund clean and low-carbon industries. In 2018, Chinese local government entities issued at least US$5.9 billion of green bonds.
At the Second Belt and Road Forum in April 2019, Green Investment Principles for the Belt and Road Initiative were endorsed by 28 financial institutions, including China Development Bank, China International Capital Corporation, China Construction Bank and the Agricultural Development Bank of China.
Perhaps the greatest amount of green finance activity in China has been in the area of green bonds. In 2018, Chinese green bond issuances were roughly RMB 283 billion (approximately $43 billion). This was an increase of roughly 12% over 2017 and the second highest total of any country, behind only the United States.
In 2018, roughly 28% of China’s green bond proceeds went to solar, wind and other clean energy projects. Roughly 33% went to low-carbon transport, including for urban mass transit. Roughly 26% of China’s green bond proceeds went to projects that did not meet international green bond standards, including for retrofits of coal power plants.
Policies concerning green bonds are set forth in PBoC’s Guidelines for Establishing the Green Financial System (September 2016), NDRC’s Guidelines for Issuing Green Bonds (December 2015) and the China Securities Regulatory Commission’s Guidelines for Supporting Green Bond Development (March 2017). These documents call for guarantees, credit enhancement mechanisms, disclosure requirements and third-party verification. They call on provincial and local governments, as well as rating agencies, to participate actively in establishing a green bond market.
Commercial banks issued roughly 60% of Chinese green bonds in 2018. Nonfinancial corporations issued roughly 18%. Government policy banks issued roughly 3%.
Green credit is an important part of China’s green finance landscape. (The volume of bank lending in China far exceeds bond issuances.) In 2018, the balance of green loans in China increased roughly 16% to reach more than RMB 8 trillion (roughly US$1.1 trillion). This included roughly RMB 3.8 trillion (roughly $US500 billion) for transportation and RMB 2 trillion (roughly US$300 billion) for renewables. Green loans were roughly 5.6% of all loans outstanding.
PBoC’s Guidelines call for “vigorously develop[ing]” green credit with tools such as central bank relending, guarantee mechanisms and securitization.
China Development Bank’s website states that “CDB is one of the earliest advocates of green credit practice in China, which aims to support environmental protection and energy conservation through its designated loans and investments.”
Relationship to Climate Goals
Climate mitigation is a priority within China’s green finance policies. PBoC’s Guidelines for Establishing the Green Financial System and other green finance policy documents specifically highlight the importance of climate mitigation and low-carbon development. In 2018, China’s green finance policies helped channel tens of billions of dollars into renewable energy and low-carbon transport projects.
China’s policies with respect to the use of green bond proceeds for coal-fired power plants have created controversy. Those policies allow green bond proceeds to be used for coal-fired power plants in some circumstances, such as when larger, more efficient coal-fired power plants replace smaller, less efficient ones. Some see this as consistent with climate mitigation goals, since carbon emissions are reduced in the short term. Others see this as inconsistent with climate mitigation goals, since larger coal-fired power plants tend to lock in carbon emissions for the medium and long term, and cheaper, less-polluting alternatives may be available.
Work is underway to harmonize Chinese and international green bonds standards. (Leading international standards prohibit the use of green bond proceeds for coal-fired power plants in all circumstances.)
Meeting the climate goals set forth in the Paris Agreement will require trillions of dollars of capital over several decades. China’s green finance polices are intended, in part, to help meet that need. Those policies are relatively new and will continue to evolve in the years ahead. How they do so will could play an important role in the world’s response to climate change.
 People’s Bank of China, Guidelines for Establishing the Green Financial System (September 2, 2016) at 1(1). PBoC is China’s central bank.
 Sean Gilbert and Lihuan Zhou, The Knowns and Unknowns of China’s Green Finance, Global Commission on the Economy and Climate (March 2017) at p.1.
 Weihui Dai, Sean Kidney and Beate Sonerud, Roadmap for China: Green Bond Guidelines for the Next Stage of Market Growth, Climate Bonds Initiative (April 2016) at p.8; Zhang Mo, “Unified Standards Accelerate the Formulation of China Green Financial Policy System,” Xinhuanet (May 20, 2019).
 David Stanway, “China provides $1 billion in 'green' finance to coal projects in first half of the year,” Reuters (August 19, 2019); International Capital Markets Association, Green Bond Principles (June 2018 update) (accessed August 25, 2019); Climate Bonds Initiative, Climate Bonds Standards v.2.1 at p.15; Weihui Dai, Sean Kidney and Beate Sonerud, Roadmap for China: Green Bond Guidelines for the Next Stage of Market Growth, Climate Bonds Initiative (April 2016) at pp.8, 23.
 People’s Bank of China, Guidelines for Establishing the Green Financial System (September 2, 2016).
 China Green Bond Market 2018, Climate Bonds Initiative and China Central Depository & Clearing Company (February 2019) at p.7; Reuters, “China launches five ‘green finance’ pilot zones,” Reuters (June 26, 2017); Study of China’s Local Government Policy Instruments for Green Bonds, SynTao Green Finance and Climate Bonds Initiative (April 2017) at pp.7–8
 “Green Belt and Road principles receive industry backing,” People’s Daily (April 26, 2019); “Green Belt and Road principles receive industry backing,” City of London (April 24, 2019). See Chapter 20 of this Guide.
 China Green Bond Market 2018, Climate Bonds Initiative and China Central Depository & Clearing Company (February 2019) at p.3. See also “In the past year, 36 financial institutions issued a total of 147.7 billion green financial bonds,” Xinhua Finance (June 21, 2019) (with slightly different figures).
 China Green Bond Market 2018, Climate Bonds Initiative and China Central Depository & Clearing Company (February 2019) at p.9.
 See generally Ma Jun, “Improve the Environmental Information Disclosure System,” China Finance Journal (March 17, 2016).
 China Green Bond Market 2018, Climate Bonds Initiative and China Central Depository & Clearing Company (February 2019) at p.6.
 Zhang Mo, “Unified Standards Accelerate the Formulation of China Green Financial Policy System,” Xinhuanet (May 20, 2019); Financial Institution Loan Investment Report (2018); Sean Gilbert and Lihuan Zhou, The Knowns and Unknowns of China’s Green Finance, Global Commission on the Economy and Climate (March 2017); PBoC, 2018 Financial Statistics Report (total outstanding loans at the end of 2018 were RMB 141.75 trillion—roughly US$20 trillion).
 People’s Bank of China, Guidelines for Establishing the Green Financial System (September 2, 2016).
 China Development Bank NEWS, “Power plant just part of bank’s ‘green credit’s plan” (July 26, 2016).
 China Green Bond Market 2018, Climate Bonds Initiative and China Central Depository & Clearing Company (February 2019) at pp.3, 9.
 In December 2018, a 500 MW solar project in Qinghai became the first in China to sell electricity for less than the benchmark price for electricity from coal. “Two solar power bases launched in northwestern China,” Xinhua (December 29, 2018).
 European Investment Bank—Green Finance Committee of China Society for Finance and Banking, “The need for a common language in Green Finance” (November 11, 2017); Yao Wang and Mathias Lund Larsen, “International investors eye China’s green bonds,” China Dialogue (February 7, 2018); FTSE, “How far and how fast can China build its green bond market?” (February 9, 2018).