China has seen booming growth of green finance, backed by policies and regulations, as the country accelerates its green transition and economic restructuring to achieve high-quality and sustainable development.
The People’s Bank of China launched a carbon emissions reduction facility in November to offer low-interest loans to financial institutions that help firms cut emissions. Using the new monetary policy instrument, the central bank will provide 60 percent of loan principal made by financial institutions for carbon emissions reductions at a one-year lending rate of 1.75 percent.
The PBOC has issued the first batch of funds worth 85.5 billion yuan ($13.42 billion) via the facility in support of financial institutions’ issuances of carbon emissions reduction loans totaling 142.5 billion yuan. It is estimated that the loans will help 2,817 companies cut carbon emissions by about 28.76 million metric tons, said Sun Guofeng, head of the monetary policy department at the PBOC, at a news conference on Dec 30.
The central bank released a new set of assessment measures last year for financial institutions’ performance in developing and promoting green finance. It will further improve the practice of assessing financial institutions’ green finance performance through substantial efforts, such as exploring the establishment of open, transparent, authoritative and unified institutions for green finance data statistics, enlarging the scope of green financial products included in the evaluation system and enriching usage scenarios for such products, said Wang Xin, director-general of the research bureau of the PBOC.
As China’s financial system relies mainly on indirect finance, green loans－the most important green finance instrument－still account for 90 percent of green financial products in total. By the end of the third quarter, the outstanding balance of China’s green loans reached nearly 15 trillion yuan, Wang said.
Last year, the central bank established clearer standards for green finance, offered more comprehensive incentives and launched more monetary policy instruments, he added.
The PBOC released the Green Bond Endorsed Projects Catalogue (2021 Edition) in April, together with the National Development and Reform Commission and the China Securities Regulatory Commission, signifying the unification of domestic standards for green bonds.
Updating previous guidelines, the new document adopts more scientific and precise definitions on green projects. Carbon-intensive projects such as cleaner use of coal and other fossil fuels are no longer supported, said Moody’s Analytics, a provider of financial intelligence and analytical tools.
By aligning with international standards, the catalogue will boost the confidence of international investors in Chinese green bonds and increase their willingness to buy such bonds, said SynTao Green Finance, a consultancy providing services in green finance and responsible investment in China.
The new guidelines encourage green bond issuances in the country. As of the end of the third quarter, the outstanding balance of domestic green bonds was 1.02 trillion yuan, up 24.7 percent year-on-year. The growth rate was 5.8 percentage points higher than that by the end of the previous quarter, said Wang with the PBOC.
Building a system of green finance standards is a crucial link in a top-level design for green finance and an important foundation to achieve leapfrog development in this area, said Liu Jin, president of Bank of China Ltd.
“With continuous expansion of green finance globally, the unification of standards for green loans and green bonds is imminent. My suggestion is that China should create domestically unified standards for green loans and green bonds that are geared to international standards, clear and executable. Based on the above situation, China should further establish standards for other green financial instruments to guide green finance heading in the right direction and to help increase regulatory efficiency of all countries,” Liu said.
The ongoing global green transition requires huge funding. Therefore, financial institutions must set a more progressive target for green lending to provide strong support to the industries focusing on energy conservation and environmental protection, clean energy, cleaner production and green upgrading of infrastructure, he said.
