Analysts are projecting a sharp rise in green bonds issued by Chinese companies in 2022, boosted by new rules that encourage the country’s banks to hold them.
The issuance of Chinese green debt could grow by at least 80% this year after firms raised $94.77bn in 2021, a researcher at Acuity Knowledge Partners told S&P Global.
The People’s Bank of China (PBoC) last year began including banks’ green bond holdings in its quarterly assessment of their overall performance in green finance. It also accepts green bonds as collateral against its lending to banks.
Chinese banks make up a significant proportion of investors in onshore green bonds, accounting for over half the overall total according to a 2020 report. The PBoC’s moves may have increased their exposure still further.
Although the Chinese green bond market is now nominally the second largest in the world – behind only the US – it still includes a significant percentage of products that do not meet international standards. About two-thirds of Chinese green bonds issued in 2021 were classified as not being in alignment with criteria set by the Climate Bonds Initiative, a much higher rate than in Europe and the US.
While international standards require issuers to allocate almost all of the proceeds to certified green projects, the Chinese standards allow up to 50% to be used for other purposes. Experts have warned this disparity could be an increasing barrier to Chinese companies seeking to raise finance from overseas.
China and the EU are cooperating on a project which aims to make it easier to compare their respective sustainable finance standards, and the Chinese authorities have said that they want to move towards greater alignment in the future.
President Xi Jinping has set a target for China to reach peak emissions by 2030 and to become carbon neutral by 2060. Investment bank China International Capital Corporation has estimated that in order to meet these goals the country will need $21tn of debt financing over the next 40 years.
Experts have warned that unless China boosts its green credentials to attract more overseas investment , its domestic finance sector may become overly relied-upon to finance the transition – an issue that other high-emitting countries like Russia are also grappling with.
The PBoC has been assigned a key role in spearheading the country’s drive towards net-zero emissions. As well as supporting the growth of China’s green bond market, it is using a range of tools to support green lending including targeted refinancing operations and interest subsidies for green loan-supported projects.
This page was last updated February 1, 2022
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