China’s dominance in the supply chains of the "new three" green technologies - electric vehicles, lithium-ion batteries, and solar panels - places its economy at the centre of the global green transition. Since 2015, the Chinese Communist Party (CCP) has significantly ramped up its involvement in green finance to drive sustainable development. This article examines the CCP’s strategies, achievements, challenges, and the outlook for its green finance policy.
Green finance has been instrumental in helping China pursue its ambitious "30/60" climate goal: reaching peak carbon emissions by 2030 and achieving net zero by 2060. The scale of this challenge is enormous; the World Bank estimated in 2022 that China would require an additional $14–$17 trillion in financing to meet these objectives. To address this, the CCP has deployed a range of green financial instruments, including bonds, equity funds, loans, insurance products, and carbon market trading schemes. These efforts have positioned China as the world’s largest green loan market, surpassing $4.5 trillion, and the leader in green bond issuance for two consecutive years. Stricter reporting requirements have also improved the quality of these bonds.
The central government has complemented these efforts with innovations such as green finance pilot zones. In 2017, eight cities were designated as testing grounds for diverse green finance strategies tailored to their unique economic conditions. While the outcomes have been mixed due to gaps in expertise, the city of Huzhou has emerged as a frontrunner. Located near Shanghai, Huzhou has pioneered loans to support rural solar power adoption and household energy efficiency improvements in the countryside. It also offers insurance products that facilitate access to green financing for local businesses while protecting crops from worsening weather. Notably, Huzhou introduced a "transition finance roadmap" and enacted legislation to promote green finance in 2021. The city also launched China’s first green finance information management system in 2019, integrating data flows and decision-making across 35 local banks. Inspired by Huzhou's success, major cities such as Shanghai, Shenzhen, and Beijing are seeking to join the programme and establish themselves as hubs for green finance.
Despite these advances, significant challenges remain. Like many initiatives attempting to align finance with environmental goals, greenwashing has been a persistent issue. Studies have highlighted instances where incentives for green financing are undermined by continued support for "brown" assets. For example, in 2023, the People’s Bank of China allocated $27.41 billion in special re-lending for clean coal projects - a 147% increase from 2022. Furthermore, while cities like Huzhou have introduced local standards, China still lacks a unified national transition finance catalogue and comprehensive information disclosure mechanisms. These gaps erode investor confidence and hinder the growth of green investment.
Nevertheless, the progress in green finance standards and the promising outcomes from pilot zones like Huzhou signal a positive trajectory. Academic studies suggest that green financing can significantly enhance the financial performance of eco-friendly firms in China, reinforcing the importance of these initiatives. Overall, while challenges persist, China's green finance policy can be broadly regarded as a success, with the potential for further improvement in the years to come.
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