One of the only major economies to grow in 2020, China is now looking ahead to transition its economy towards a path of peak CO2 emissions by 2030 and carbon neutrality by 2060. Reaching these targets will involve whole-economy transition, including a rapid scale-up of climate finance. CPI’s latest report gives an overview of the current sustainable investment landscape, as well as the challenges and opportunities for scaling climate finance in China.
Recent developments indicate that China is taking serious steps to meet its climate ambition, with finance playing a center role:
- the updated Green Bond Catalogue consultation draft released in May 2020 largely excluded “clean coal;”
- China’s first National Green Development Fund launched in July 2020, has already raised more than USD 12 billion in its first phase;
- the “Guidance for Promoting Climate Investment and Finance” issued in October 2020 emphasizes the need for government, regulators, and banks to better support investment and finance to combat climate change, referring for the first time to “climate finance,”（气候变化投融资）rather than the more broadly defined “green finance” (绿色金融);
- the “Green Development Guidance for BRI Projects Baseline Study Report,” supported by the Ministry of Ecology and Environment, seeks to hold investors accountable for carbon-intensive projects; and
- finally, the long-awaited national carbon market formally launched in December 2020, starting with the power sector.
The world’s attention is now focused on China’s upcoming 14th Five Year Plan (2021-2025). The government has already signaled the 14th Five Year Plan will establish the strategic direction for deep decarbonization across all sectors and determine China’s contribution towards a green global recovery, as well as the global target of limiting warming to 1.5 degrees Celsius.
These developments provide a strong foundation for China to rapidly scale up climate finance in the coming years, while restricting access to finance for fossil fuels. It also shows that China’s leaders are keen to promote the right levers for replacing high-speed growth with high-quality growth. Unlike China’s 2008 economic recovery, the post-pandemic stimulus plan is much better positioned to be sustainable: the plan features less carbon-intensive, “next-generation” projects such as 5G, artificial intelligence, high-tech manufacturing, EVs, and smart cities; and China has established a green financial system that is now robust enough to facilitate a green recovery while delivering improved financial performance.
Greening the financial system
China has championed green reform of its financial system since 2015. Most notable are its green credit and green bond policies, which have provided hundreds of billions in financing for green projects. Overall green finance in China reached an annual average of USD 320 billion in 2017/18, led by public actors such as central state-owned enterprises, policy banks, and other major state-owned banks.
China’s leadership on green finance has also yielded improved financial performance. Total green loans in China surpassed 10 trillion yuan (USD 1.4 trillion) in 2019, accounting for more than 10% of total commercial bank lending. Green loans have outperformed traditional loans, achieving a non-performing loan (NPL) ratio of 0.4%, compared with 1.8% for overall lending. Other research has shown that increasing the share of green loans in the total loan portfolio reduces a bank’s overall NPL ratio. As for green bonds, China remains the second largest market in the world, with over USD 180 billion in cumulative issuance since 2016. Globally, green bonds have outperformed non-green counterparts, even demonstrating resilience during the 2020 economic downturn.
China can lead and benefit from additional green financial reform. According to Ma Jun, Chairman of China’s Green Finance Committee, the risk weighting of green assets could be based on the performance of green credit portfolios. In parallel, the central bank can strengthen incentives for banks to increase their green loan and green bond activities through the macroprudential assessment (MPA) framework, which was adopted in 2016 to monitor risks to the financial system. Currently at trial stage, banks may attain higher MPA scores for undertaking green financing activities, which can then translate to monetary benefits. Now is an opportunity to accelerate the implementation of this framework to all banks nationwide. The central bank also allows green loans and green bonds to be accepted as collateral for their medium-term lending facility, which means that the top performing green banks have an advantage in accessing much needed liquidity.
Other opportunities to continue these efforts include strengthening green definitions in the Green Credit Guidelines, Green Industry Guiding Catalogue and Green Bond Eligible Project Catalogue, which outline a list of activities that qualify for green financing. Green credit policies may further tighten capital flows to climate-harmful activities (the current policy only asks banks to voluntarily limit financing for highly polluting, high resource-consuming, and overcapacity sectors, but does not impose an absolute cap). In addition, local governments may provide stronger monetary incentives for issuing green bonds in the form of tax exemptions, issuance subsidies, and technical assistance for reporting and verification.
Finally, as global investors and asset managers allocate larger shares of their portfolios to sustainable finance, continued reforms in the sector and higher quality green financial products in China will provide ample opportunity to attract more foreign capital. The injection of foreign capital is needed now more than ever to stimulate the economy, in the wake of the pandemic.
China’s recovery can set a global example
China has an opportunity to signal strengthened climate ambition in its 14th Five Year Plan, due in March 2021, by increasing its carbon intensity targets, non-fossil fuel share of energy targets, and by committing to a more stringent target for decreasing the share of coal in total energy consumption. Continued green financial reform and incentives for scaling climate finance will play a key role in meeting these targets. The current ‘green penetration’ of China’s financial system is only around 4% and has huge potential to grow as the capital market continues to evolve and actors become more familiar with green financial instruments.
New climate targets should be backed by targeted financial incentives and policy certainty. Subsidies played a key role in positioning China as the world’s biggest investor in renewable energy and the largest market for EVs. Although these subsidies were recently reduced to rein in excess capacity, stable policy and targeted incentives will be critical to maintaining employment growth in the clean energy industry. Of the 11 million renewables jobs globally in 2018, 39% were in China, and nearly two-thirds were in the solar industry. Other policies China may consider include clear guidelines and guaranteed subsidies for projects that meet climate goals, financial incentives for provinces to meet and outperform renewable energy targets, increased allowance of local government subsidies to support residential, distributed and poverty-alleviation related solar projects, and more stringent standards for new coal capacity. China’s stimulus could also stabilize cash flows for renewable energy operators by paying out the government’s subsidy backlog of nearly 120 billion yuan.
Countries should not delay climate action until the world economy recovers. This was true in 2008 and it is even more urgent today. China has a head start in leading recovery on a green trajectory and can set a high bar for climate action leading up to COP26. As China continues to move forward at a fast pace, the rest of the world should prepare to mark 2021 as a pivotal year for embedding ambitious climate action at the heart of the new economic blueprint for building back better, towards a more prosperous and resilient society.
作为2020年唯一实现经济增长的主要经济体，中国目前正在展望经济转型，力争在2030年前达到二氧化碳排放峰值，在2060年前实现碳中和。实现这些目标将涉及整体经济转型，包括迅速扩大气候融资规模。CPI的最新报告概述了当前可持续投资的前景，以及 中国扩大气候融资 所面临的挑战和机遇。
- 2020年5月， 新版《绿色债券目录》征求意见稿发布，基本上剔除了“清洁煤”；
- 2020年7月，中国启动了首个国家绿色发展基金， 第一阶段已筹集超过120亿美元的资金；
继续进行这些努力的其他机遇包括强化《绿色信贷指引》、《绿色产业指导目录》 和《绿色债券支持项目目录》中的绿色定义，其中列出了有资格进行绿色融资的活动清单。 绿色信贷政策可能会进一步收紧资本注入对气候有害活动（当前政策仅要求银行自愿限制高污染、高资源消耗和产能过剩行业的融资，但没有设定绝对上限）。此外，地方政府可以通过税收减免、发行补贴、报告和核查的技术援助等形式，为发行绿色债券提供更强有力的货币激励措施。