Government authorities and developers alike in China are actively looking for alternatives to traditional loans to fund a massive transformation to clean energies. According to Xu Nan from the Research Centre for Climate and Energy Finance at the Central University of Finance and Economics in Beijing, there is no better time than now to introduce green bonds based on the willingness of policymakers to promote development at a much lower environmental cost than has previously been the case.
Green bonds can be used to finance low carbon transport and renewable energy projects and other technologies that can be used in the fight against global warming. In 2014, green bonds worth more than $36 billion were issued around the world, which was more than three times that of bonds issued in 2013. None of these bonds were issued in China.
China has the potential to be a green bond leader
Given China’s insatiable hunger for solar and wind power (total expenditure on renewable energy in 2014 was nearly $90 billion or one in every three dollars spent on clean energy in the world), the potential size of the bond market is massive. Wai-Shin Chan from HSBC Holdings stated that issuing green bonds sent a very strong signal that you are diverting your capital towards low carbon and green activities. According to Wai-Shin, not only does such a signal reach the Government and lets them know you want to be part of a greener future, you may also increase your chances of winning future public projects.
China and India are expected to be very prominent drivers of bonds in the future given ambitious renewable energy growth targets, according to Moody’s Investors Service. Banks in China have so far been the primary source of funding for green projects, with lending from 21 banks including China CITIC Bank Corp, Industrial and Commercial Bank of China Ltd exceeding $949 billion to December 2014 (10% of the total monies provided by those banks).
In July this year, Xinjiang Goldwing Science and Technology Company tested the market and issued $300 million worth of three year bonds. In October, the Agricultural Bank of China sold 600 million yuan worth of two year bonds. The sale was oversubscribed by more than eight times, with orders worth 4.9 billion yuan being received. Small and medium sized enterprises in China are desperate to secure less expensive and simpler financing, according to Xu Nan. The Financial Research Institute from the State Council Development Research Centre forecasts that the green industry in China will need nearly three trillion yuan of investment between now and 2020. Domestic and international capital funds are expected to provide two thirds of that amount, according to the Institute.
According to Deborah Lehr from the Paulson Institute, China has the potential to be a green bond leader as a result of its aspiration to be a G20 leader in green financing. The regulations for green municipal and corporate bonds are expected by December this year-only a matter of week after than conclusion of the United Nations Climate Change Conference in Paris. It is hoped that these bonds will facilitate both the acquisition and deployment of clean green technologies. The People’s Bank of China is currently devising green bond guidelines, and the Green Finance Committee has drafted a definition of green bonds and categories.
Given what I have observed from my work in China, I would not be surprised at all if it becomes the leader in green financing that it aspires to be. There is a definite sense of and appreciation for the enormity of the task ahead; however I must admit to being excited by the optimism of the Chinese people and their new perspective of what a cleaner greener future will look like.
With the Paris United Nations Climate Change Conference almost in sight now, the gravity of such an announcement should not be ignored. China’s trading partners (of which Australia is of course a major one) should take particular note given the scale of the opportunities that this announcement can realise in terms of technologies and services, and particularly those that represent world’s best practice. Innovation will of course have a major say in terms of which technologies and services are applied and the extent to which they are applied, and from what I’ve observed and the conversations I’ve had, innovation is extremely highly prized.
It is indeed possible that the pace of change in China with respect to green finance and development will be unprecedented and China’s actions (and those of India in coming years) could revolutionise the way green investment is viewed and undertaken around the world. I count myself extremely fortunate to be working in a field of endeavour that is receiving such significant international attention at this particular point in history.