China has unveiled an ambitious plan that aims to raise $230 billion through green bonds for environmental projects over the next five years. If successful, with an average of $46 billion a year, it would raise as much as the rest of the world combined.
The move will have major implications for the world environment industry as green bonds are meant for new and existing green infrastructure projects. Some experts and European businesses are worried about the new Chinese attempt at green financing, VOA reported.
“China is clearly crowning the market this year,” said Ulrik Ross, global head of public sector and sustainable financing for HSBC, at a recent event in London. “Why should they be ahead? We have had all the opportunities in Europe and the western world to be ahead but we’re not, and that’s just reality. We need to wake up and start to take action.”
The past few years has seen a plethora of trade disputes as China-made environmental equipment, including solar panels, flooded into western markets.
“Chinese green technology and energy equipment manufacturers are already very competitive globally, dominating the global market for photovoltaics with many European competitors being crowded out of the market,” said Jost Wuebbeke, Head of Economy and Technology Program at the Berlin based Mercator Institute for China Studies.
What has amazed industry watchers is the jump in Beijing’s efforts after Chinese President Xi Jinping attended the climate change conference in Paris last December.
The People’s Bank of China, the country’s central bank, recently announced a quota system for banks and financial institutions to float green bonds worth 300 billion yuan (over $45 billion) in 2016. This is in sharp contrast to the performance of the western world last year.
US companies floated $10.5 billion worth of green bonds in all of 2015 while Europe issued $18.4 billion, according to the Climate Bonds Initiative.
Within weeks of the PBOC directive, Chinese banks and companies collected $4.6 billion by selling green debt paper. They included the Shanghai Pudong Development Bank and the China Industrial Bank, which issued three-year bond paper at an annual interest rate of 2.95%.
Chinese companies would be able to raise $46 billion annually through the green instrument until 2020, said Xu Nan, a senior policy analyst at the Research Center for Climate and Energy Finance under the Central University of Finance and Economics.
An important question is who will buy China’s green bonds, and why. There are signs that a sizable part of the bonds will be sold to municipal governments and state-owned enterprises, who often feel duty bound to support governmental plans. But a part of it will also be sold in the western world, which has a growing market for socially responsible investments.
