Out of the Window? Green Monetary Policy in China

May 14, 2021Published by LSE Grantham Institute

This paper examines the use by Chinese monetary and financial authorities of ‘window guidance’, a tool designed to encourage financial institutions to expand credit to sustainable activities and curb lending to heavy-polluting industries.

The paper concludes that the Chinese experience suggests that directed lending through window guidance can be a useful instrument to help align the financial system with climate and other sustainability goals. But it adds that such policies need to be fitted to the specific context in which they are used.

When window guidance is used, the authors suggest, it should be linked to clear success criteria, with monitoring of achievement. They contend that green window guidance should be embedded in a broader framework of green finance policies, as well as climate and environmental policies.

The authors state that this paper is, to the best of their knowledge, the first to examine the role of window guidance in greening bank lending in China.

This page was last updated October 22, 2021

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