Saturday 22nd October 2016                 Change text size:

The Chinese Green Finance Revolution Is Set to Take the World by Storm

China by Renato Ganoza via Flickr

This century has witnessed the peak of human civilization, in terms of sheer progress in technology, industry and human capability. This peak, however, is accompanied by large scale depletion of environmental resources, pollution and harm to the environment. Hence, the need for green finance is larger than ever. Green finance has been defined as the practice of making financial investments into projects and initiatives for the upkeep and safeguarding of the environment.

From climate control and pollution control to biodiversity protection or sanitation, all investments into environment-friendly projects are considered green finance activities. Several countries and private agencies have taken proactive steps to enforce and enact green finance practices of late.

The New Directive from the People’s Bank of China

On the 26th of June, 2015, a representative of the People’s Bank of China announced that the bank has been considering green finance for a while. They are in the process of preparing a directive regarding green-finance bonds which will show up on the interbank market.

The PBC’s Head of Research, Lu Lei declared at the 2015 Eco Forum Global Annual Conference held at Guiyang on June 28 that this directive will be announced and implemented very soon. Lu also reveals that the research bureau of the Chinese central bank is also working towards making corporate credit bonds greener in nature.

The official statement says that The PBC is drawing up a comprehensive financial reform agenda to be implemented from 2016 to 2020. Green Finance development is an integral part of this agenda as well, so several changes can be expected in the near future.

Objectives of These Efforts

The measures implemented by the bank are attempts to shift the focus of social capital investment to energy-efficient green industries instead of energy consuming and high-polluting industries. Over the last three decades, China has undergone huge developments and grown into the second largest world economy, but this has taken a tremendous toll on its environment.

To counter its environmental issues, China has implemented and will continue to implement reforms to reshape its industrial model into a low-carbon and a sustainable one. These steps involve a large investment into restoration and environmental protection. Both human and financial backup will be required to bring about any major changes. A systematic arrangement of market-based institutions is to be established to promote and stimulate eco-friendly green investments through several services and products ranging from stocks, bonds and private equity to insurance, green loans and carbon emissions trading.

Steps Taken to Implement Green Finance

The Chinese government’s extensive work on loan credit has facilitated the development of a set of guidelines and also a statistical reporting and analysis system for green-lending. Seven regions have already launched carbon emissions trading programs, according to reports from the research bureau. Lu indicates that while China has made tremendous progress in formulating and testing green finance policies, the sector has a long way to go in terms of designing a framework and developing financial products and services, before it can come to fruition.

The creation of these systems provides an insight for financial institutions into the impact of any investment they make on the environment prior to the investment or loan itself, and hence allows smarter, regulated green spending. They can also check debt review websites to invest better in green finance.

The Last Word

The Chairman of China Galaxy Securities, Chen You’an says that the Chinese green industry will witness annual investments of 3 trillion Yuan (around US $0.47 trillion) from 2015 to 2020. As less as 10-15 per cent of this sum will be coming from the government, while the rest will be collected from the social and private finance sectors by implementing the new statutes.

Forums and conventions are being held regularly all over the world by private bodies as well as large unions like the United Nations. China has already taken large steps into the green finance industry which could revolutionize the world’s financial outlook and save the environment too. There is no doubt that this is the future of our world, and that the development of a greener economy will soon become the global standard.


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