The People’s Bank of China (PBoC) said on Monday it will guide financial institutions to step up lending to green sectors as part of its response to declining growth rates in the country.
Although it did not stipulate exactly which incentives it would deploy, the bank is known to use a range of tools including targeted refinancing operations and interest subsidies for green loan-supported projects. Its overall approach is outlined in a set of guidelines for establishing a green financial system issued by the PBoC and a number of other government agencies.
“While taking steps to launch and use the tools in support of carbon emissions reduction, the PBoC will guide financial institutions to extend more support to sci-tech innovations, small and medium businesses, green development, and the manufacturing sector,” says the most recently published monetary policy report.
The PBoC and China Banking Regulatory Commission (CBRC) are unusual among G20 central banks and supervisors in the extent of their willingness to influence banks’ credit allocation in support of the green transition. A paper published earlier this year by the Grantham Institute at the London School of Economics noted China’s use of a green window guidance policy from 2006 onwards incorporating target-setting for bank lending based on sustainable objectives.
Earlier this month, PBoC governor Yi Gang used an address at the Cop26 summit to announce a new carbon emission reduction facility, offering low interest loans to financial institutions that help firms cut carbon emissions. The facility was launched a few days later.
In a sign of the conflicting pressures facing the Chinese authorities, the CBRC recently ordered banks to maintain lending towards coal power plants, earning China a downgrade from first to third place in the latest Green Central Banking Scorecard published by Positive Money and Green Central Banking. Last week, the State Council also announced that ‘clean coal’ output will be supported via 200 billion yuan in additional financing.
The monetary policy report says the PBoC held a symposium with China’s 24 largest banks on adjusting their credit structures in order to increase support for green and low-carbon industries.
China’s financial system has some characteristics that set it apart from other developed economies. Its economy is much more dependent on bank lending than market-based finance, and all of its major banks are state-owned. Nevertheless, its willingness to pursue innovative climate-friendly policies has been closely watched by green finance advocates elsewhere.
This page was last updated November 26, 2021
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