China scales up green finance system

An official with the People’s Bank of China announced on June 26 that the central bank is drafting a directive concerning the issue of green finance bonds on the interbank market.

“The directive will be announced soon,” said Lu Lei, head of research at the bank, during a high-level forum on green finance and green economic development at the 2015 Eco Forum Global Annual Conference. The conference concluded on June 28 in Guiyang, capital of southwestern China’s Guizhou Province.

The central bank’s research bureau is also taking steps to make corporate credit bonds greener, according to Lu.

These efforts aim to encourage social capital to shift away from high-polluting and high-energy-consuming industries toward energy-efficient, environmentally friendly and green industries.

Lu noted, “The central bank is drawing up a plan for China’s financial reform and development between 2016 and 2020, and the development of green finance is high on the agenda.”

China has witnessed rapid development over the past 30 years to become the world’s second-largest economy, but at a steep environmental cost.

To combat environmental woes, China has made great efforts to transform its economic growth pattern into a more sustainable, green and low-carbon model.

Lu said that a large amount of investment is needed for environmental protection and restoration, and fiscal inputs alone are far from enough to satisfy such needs.

Against this backdrop, a systematic green financial system – a series of market-based institutional arrangements – should be established to stimulate green investment through a full array of financial products and services, including green loans, bonds, stocks, private equity, insurance and carbon emissions trading.

“China has made certain progress in the theoretical study and practice of green finance, but there is still a long way to go in this area, ranging from the design of a policy framework and the propagation of the concept of green finance to fostering innovative green financial products,” said Lu.

China has so far developed guidelines and a statistical reporting system for green lending thanks to the government’s work on green credit. Seven regions throughout the country have also launched pilot carbon emissions trading programs, according to a report by the Green Finance Task Force, which was co-sponsored by the central bank’s research bureau and the United Nations Environment Programme’s Inquiry into the Design of a Sustainable Financial System.

These new systems allow financial institutions to consider the environmental impact of investment projects and the environmental protection records of businesses prior to granting loans.

Chen You’an, chairman of China Galaxy Securities, said that green finance enjoys strong prospects in China.

“China’s green industry will call for an annual investment of about 2.9 trillion yuan (US$0.47 trillion) between 2015 and 2020,” Chen asserted, explaining that “only 10 to 15 percent of the total sum will come from the government, and the rest should be channeled from the social sector.”

Green finance, which is key to eco-environmental protection and the development of a green economy, has become a global trend.

A series of sub-forums on different aspects of green finance was held during the forum. The sessions focused on topics such as international precedents and China’s practices in green finance, innovative development and risk in mobile finance, green funding and fundraising for green industries.

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