Mathias Lund Larsen

How China’s green finance slowdown threatens global climate ambitions

Growth in China’s green financing, even for its much-touted green bonds, appears to be stalling, as environmental priorities take a back seat in a year when the economy has struggled to recover from the Covid-19 pandemic

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A wind power base in Ulanqab, in China’s Inner Mongolia autonomous region, in August 2018. China has pledged to increase the share of non-fossil fuels in its primary energy consumption to 25 per cent by 2030. Photo: Xinhua

Mathias Lund Larsen

Published: 3:30am, 22 Feb 2021Updated: 3:58am, 22 Feb 2021

Contrary to China’s grand climate ambitions, the work to bring its financial system in line is slowing down. The decentralised financial system in China has, at times, been leading the effort on climate change. Yet, as political ambitions have caught up with the financial sector, progress has stalled, and last year’s numbers are out of tune with President Xi Jinping’s goal of reaching carbon neutrality by 2060.

Past estimates from the People’s Bank of China’s chief economist, Ma Jun, said China needed US$600 billion a year for its overall green economic transition. More recent numbers from Tsinghua University, after the 2060 carbon neutrality goal was announced, put the required financing at US$650 billion-US$900 billion a year from today to 2050. At the current pace, the Chinese financial system is now way off that target.

According to the PBOC itself, the green proportion of bank loans, which makes up more than 80 per cent of green financing in China, has only grown from 8.8 per cent in 2013 to 10.8 per cent by 2020, only slightly faster than overall credit growth. Even as total bank credit continues to grow at above 10 per cent a year, the green proportion must increase simultaneously.

Green bonds are being lauded as the big success story of Chinese green finance, but the market has only grown slowly, even decreasing in 2020. With the latest fall, China’s annual domestic issuance stands at US$30.5 billion in 2020 compared to US$30.8 billion in the launch year of 2016. Growing slower than the bond market itself, green bonds only make up 0.5 per cent of the Chinese bond market.

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Sustainability: Green bonds to help drive China's push towards carbon neutrality

The expected launch of a massive national green fund has failed to materialise; the National Green Development Fund was launched last summer but has a meagre US$12.6 billion at disposal.