High time for green finance in China



By Hannah Routh

This article was originally published on PWC and is republished with permission.

 

China came top of the Low Carbon Economy Index for the first time this year with a 6.4% fall in carbon intensity. This is welcome environmental good news for China, but can they sustain this performance in future years? It’s clear that in order to do that, they can no longer rely on high levels of GDP growth. Where GDP growth averaged 10% a year since the turn of the millennium, it has fallen from 9.3% in 2011 to 6.7% in the past year. PwC’s ‘World in 2050’ forecasts this to slow further to an average of 4.6%per year between now and 2050.

 

Green-finance-graphic Nov 16 Linkedin

 

So if China is to remain top of the chart, serious emissions reductions are the way to go, and China’s 13th Five Year Plan (FYP) 2016-2020 sets out to achieve exactly that. Latest estimates from the Chinese government are that RMB 3-4 trillion (US$440-590 billion) of green finance is needed each year of the 13th FYP, with 40% going to clean energy and transport, 40% environmental protection and 20% energy efficiency.

 

The Chinese government took the opportunity whilst chairing the G20 for the first time in September this year to spell out how they plan to green their financial system, and to encourage other countries to do the same. Immediately prior to the G20 meeting, the People’s Bank of China (PBoC), along with six other government agencies (three ministries and three regulators), jointly issued the ‘Guidelines for Establishing the Green Financial System’ to set out a roadmap for implementation. The G20 Green Finance Study Group (GFSG) was co-chaired by the People’s Bank of China (PBoC) and the Bank of England (BoE) and their green finance options* were officially welcomed by world leaders in the G20 communique of 4-5 Sept 2016. The B20 echoed green finance support and provided a series of recommendations to help businesses engage. Activity is rife on the ground too: China has issued US$ 26.7 billion of green bonds from January to mid-October 2016, compared to US$ 61.6 billion globally for the same period.

 

The opportunity is huge as China looks for international finance and expertise to displace brown growth with green growth. Capital markets, insurance providers and asset managers need to spot the longer term risks to traditional assets from low-carbon policies – such as the national emissions trading scheme due next year – and gear up for unprecedented growth in the less familiar green finance arena.

 

It’s too early to tell if China’s chart-topping position this year is driven by low carbon policy, but the scene is set for more strong performances.

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