Here’s your weekly update on green finance in China from the International Institute of Green Finance in Beijing with a first, Viet-Indo-Pak, green bonds, blue bonds, and municipal bonds. 21th of June 2019. |
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一, a first; the Jiangxi issuance |
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It’s a weekly recurring headline: Chinese county/city/province/company issues first green bond. This week it features Ganjiang New Area in the province of Jiangxi and is particularly informative in understanding the green bond raison d'etre on behalf of the government. Here goes: Ganjiang New Area issued its first special bond on June 18. The bond is a 30 year, triple-A, 1.25 billion RMB green bond, structured in three phases with the first phase being 300 million RMB. The second and third phase will be paid out in 2020 and 2021. The funds will be used for the construction of water treatment facilities. Xiong Ping, deputy director of Ganjiang New Area Finance Bureau, gave a these reasons for the issuance: - Reduced cost of government financing - Interested investors - Long maturity on municipal bonds - Macro policy backing for issuance - Tax incentives - Realization of green projects 绿色金融: 江西省赣江新区发行全国首单绿色市政专项债 |
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二, analysis: bridging the public private gap |
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In this analysis, Yan Yi and Duan Danchen of the IIGF, looks at a recent speech by Wang Zuowei, Director of CITIC Securities Investment Banking, in trying to map out how the future of securities and sustainability will be shaped. The focus is on debt financing and private compliance. ”For a long time, China's financial system has been dominated by indirect financing led by banks. To change the problem of high debt and high leverage, we need to solve the financial systems term- and capital structure mismatch. The most important thing is to change the financing structure dominated by indirect financing and establish a strong capital market and improve the allocation efficiency of factors through direct financing." In their summary, the authors focus on the numbers presented by mr. Wang, related to the speed at which the bureaucracy should work in order to meet the financing needs of the market, however, not all is well in the market itself: “Since 2018, the investment and financing dilemmas of the industry has been exposed by its own development and the macroeconomic and financial trends. The industry is built on high debt levels, financing difficulties, and existing investment and financing model that cannot succinctly match the development needs of the environmental protection industry. General Secretary Xi, in the 13th collective study of the 19th Central Political Bureau, proposed that the financial supply side reform actively support the green development system, and provide guidance for future investments in the environmental protection industry.” IIGF research note: 科创板支持环保行业发展实务观点与研究分析 |
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Going forward we will add a Green Finance BRI story to the mix for your weekly newsletter. DR. Christoph Nedopil Wang of the IIGF will supply news and analysis for the segment. You can find his writing at www.green-bri.org |
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Greenovation Hub, a think tank, has alongside the National Resources Defence Council, released a report on the energy needs of Vietnam, Indonesia, and Pakistan. The report focused on how the BRI might help to fulfil those needs and how they can align with the Paris Agreement’s Nationally Determined Contributions (NDC). The energy demands of all three countries are increasing and supply is said to come from a mix of sources, however dominated by coal. Under an alternative, more optimal policy mix, aptly named the Enhanced Action Scenario, large parts of these coal investments could be reduced or made less damaging. The path to the enhanced scenario is fairly straightforward: More renewable energy and better coal utilization, but more fundamentally, overall better grid utilization, i.e. cut the slack, will go a long way. The report gives the following summarization of the three countries: Vietnam New electricity demand and carbon emissions could be reduced by improving efficiency. With an improvement to the renewable energy power generation technology and a reduction in investment cost, renewable energy power generation can replace coal power and become the main form of power generation. Indonesia Due to a lower technological level of Indonesian coal power, the adoption of high-efficiency, low-emission technology and better managed operations could help to reduce the demand for new coal-fired power installations and slow down the growth in carbon emissions in its power industry. Renewable energy sources could improve the power supply capacity of its independent power grid and solve the problem of power shortage. Pakistan In the face of increasing power demand, huge power supply gap and backward grid infrastructure, improving power generation efficiency, stopping the construction of new coal-fired power plants and developing renewable energy are the main areas in building Pakistan’s low-carbon transformation. Developing renewable energy, especially small-scale renewable energy, could not merely solve the problem of power shortage, but also promote the diversification of its power supply, reduce dependence on imported energy and improve national energy security. Whole report: 一带一路”电力投资应助力《巴黎协定》目标的实现 |
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The green nomenclature runs into trouble when you try to expand the preservation scope to the oceans. That’s why Blue Finance is a thing (even though the ocean isn’t technically blue, but maybe everything on land isn’t technically green either). Blue Finance is basically the wet cousin of its famous green buddy. “Blue finance, in particular blue bonds, have huge potential to help surmount the oceanic challenges. Blue bonds are an innovative ocean financing instrument whereby funds raised are earmarked exclusively for projects deemed ocean-friendly. The Republic of Seychelles last year, launched the world’s first sovereign blue bond raising a total of $15 million to advance the small island state’s blue economy. The World Bank helped design the bond and vice president and treasurer Arunma Oteh said the blue bond was “yet another example of the powerful role of capital markets in connecting investors to projects that support better stewardship of the planet”.” |
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For Chinese rail, It’s taken a little less than a decade to go from choo choo to cowabunga, and now, the next phase is beginning. On Tuesday the Chinese Railway Corporation announced a name change: Enter China State Railway Group (China Railway will suffice for the English speaking world). A CRC restructuring is relevant because CRC has accrued mountains and mountains of debt (5.27 trillion RMB) with the rail expansion and a restructuring of that will bring changes to the domestic green bond market. Caixin reports that the company might be looking to list their profitable Shanghai-Beijing line to finance further expansion out west. Caixin: Debt saddled China Railway restructures in line with state sector reform pust CR: 中国国家铁路集团有限公司在京挂牌成立 |
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The “golden age” of China-UK cooperation is going strong and last week the high-level brass of Vice Premier and Finance Minister, Hu Chunhua and Philip Hammon, met up in London to reiterate how: “we are willing to strengthen strategic economic cooperation, promote bilateral trade and investment, deepen financial cooperation, work together to achieve the sustainable development goals of the United Nations, actively promote equality and pluralism, and build a society of universal benefit and prosperity.” China needs finance expertise, Britain wants a friend: Britain has joined the Asian Investment Bank, established a RMB clearing house in London, issued Chinese sovereign debt (as a first), the Bank of England has issued panda bonds, and there are on going cooperation in the field of renewables and nuclear. Point 44, 45, and 46 of the summary is dedicated to green finance and reiterates the cooperative elements of the past, such as the Sino-British Green Financial Centre, UK PACT China Green Financial Cooperation Project, Global Green Finance Leadership Program, Sino-British Green Finance Working Group, the Belt and Road Initiative Green Investment Principle, and the Green Finance Cooperation Network. 产融政策云: 第十次中英经济财金对话绿色金融再引关注 |
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Related to the above: UK to launch groundbreaking China stock market link “Chancellor Philip Hammond is due to launch the London-Shanghai Stock Connect on Monday. With the launch, firms will be able to sell shares through dual listings on the Shanghai and London Stock Exchanges.” The link has been four years in the making and follows from the above news item – e.g. China looking for finance expertise and UK for global partners. The UK China link will allow companies to list on both exchanges using a depositary receipt: “These certificates [depositary receipts] - which represent an ownership of ordinary shares of a company - allow foreigners to buy a stake in a company of another country without the risks associated in investing in a foreign stock directly, such as differences in currency and accounting practices.” Of the 1500 listed companies in Shanghai, 260 will be eligible to list in London as well. The link got linked on Monday and it is now possible for investors in London to in the above mentioned mechanisms through Huatai. The chaser: “China is expected to have more than $17 trillion ($13.5 trillion) in assets under management (AUM) by 2030, having had $2.8 trillion AUM in 2016.” BBC: UK to launch groundbreaking China stock market link |
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There were to labeled green bonds issued in the market last week, while 11, mainly provincial level, non labelled green bonds were issued. You can find the overview here: 盘点绿色债务 6.10-6.16 |
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This is the sixteenth issue of our Green Finance in China newsletter. The idea is to bring the latest in news, research, and opinion related to green finance in China to anyone interested. Please send tips and criticisms our way. You can also have a look at greenfinanceinchina.com where we'll host earlier editions, blog posts, and more. If you've been signed up to our newsletter by mistake please unsubscribe at the bottom of the email. |
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