Discussion on the Future Direction of China's Eco-friendly Financial Strategies

China, a major player in the global economy, is increasingly becoming a crucial source of investments backed by its vast resources. However, access to these investments remains critical, as China's investment landscape can be complex.

Since the introduction of the 2012 Green Credit Guidelines, a gap in green financing abroad has been evident. While these guidelines were strong domestically, they were not applied abroad, leaving a significant opportunity untapped.

One of the main obstacles for Chinese green finance expansion abroad is the recognition of the Green Credit Guidelines (CGT) by the EU. The CGT, which references many EU-specific laws, is difficult for outsiders to comply with fully, making it nearly impossible for the CGT to be used consistently across jurisdictions.

Direct investment in China is also complicated by capital controls, making overseas sovereign bonds a valuable alternative. In this context, it's worth noting that around 40 sovereign green bond programmes exist globally.

China has been making strides in expanding the composition of projects listed in its Green Finance Taxonomy. The taxonomy now includes broader categories such as energy conservation, carbon reduction, environmental protection, resource recycling, low-carbon energy transition, ecological restoration, and green infrastructure upgrades. New additions like passenger rail, climate resilience, and methane abatement emphasize support for low-carbon transport, climate adaptation, and hard-to-abate sectors, reflecting China's policy ambition to channel finances effectively toward these areas.

Until recently, very little Chinese sovereign debt has been available internationally, and none in the green segment. However, this is changing. In a significant move, China issued USD 800 million in London, which was seven times oversubscribed, indicating a growing global interest in Chinese green investments.

China's updated climate action plan, known as the Nationally Determined Contribution (NDC), is expected to be stronger and more ambitious. President Xi's recent speech signals a broader ambition, including covering all greenhouse gas emissions across every economic sector.

Despite these positive steps, Chinese banks have faced criticism for financing high-emission projects overseas. To address this issue, China, along with the EU and Singapore, launched the Multi-Jurisdiction Common Ground Taxonomy (CGT) in 2024. This initiative aims to help banks operate consistently across jurisdictions by offering a common framework for green finance criteria.

Large institutional investors, such as pension funds, sovereign wealth funds, and big insurance companies, need diversified portfolios that reflect the structure of the global economy. As China continues to expand its green finance initiatives, these investors stand to benefit from the opportunity to invest in a more sustainable future.