Green Finance in China Weekly 

The path towards a sustainable financial system is long and winding, but it follows the money, and so do we. Here's your weekly update on the in and outs of green finance in China with an opinion on risk weighting, a bond issuance, and a new taxes. Enjoy.  

一, make green credit less risky (blog)

Risk weighting of assets is key to expanding green finance in the heavily leveraged Chinese financial system. Ma Jun, Chairman of the Green Finance Committee, has written a blog post on the topic:

 

“...if the risk weight for green loans is reduced from the current 100% to 50%, it can reduce the financing costs by about 50 basis points for all green projects funded by green loans in China.”

 

He writes. And Dr. Ma might has a point:

 

 “…[the] non-performing loan ratio (NPL) of green loans was only 0.37%, far lower than the NPL ratio of 1.74% for the entire loan portfolio at 21 major banks”

 

And: “A recent study from Moody’s show that the 10-year cumulative default rate for green infrastructure loans is 5.7%, lower than that of 8.5% for non-green infrastructure loans.”

 

Ma Jun suggests that lowering the risk weighting of green assets is justified due to the lower NPL-ratio.

 

Also Ma: More and better data is still needed on national and international level

 

Link: China Should Lower Risk Weights for Green Assets 

 

As Ma Jun points out, China is the one of only a few large countries to establish a green loan statistic system. This research paper from July looks at non-performing loans on the basis of said data: The Impact of Green Lending on Credit Risk in China (Download link)

二, developer to issue $2 bn green bond in Hong Kong, a first (news)

Hong Kong listed New World China Land is issuing its first green bond.

 

Proceeds from the 5-year bond will go towards two development projects in the Greater Bay Area in Guangzhou.


Company press release: New World China Land Limited Announces to Issue Its First Green Bond To Fund Two Certified Environmental Projects in the Greater Bay Area 

 

Also: In September the Hong Kong Green Finance Association was inaugurated: http://www.hkgreenfinance.org/#en

三, green bond issuance, 3rd quarter status (data)

Data from the China Securities Industry Association showed the sector issued green bonds worth 19.448 bn RMB in the first three quarters of the year. More than half of that came from the third quarter, where a total of 13.642 bn RMB of green bonds were issued. However, third quarter year on year issuance fell by 25%.

 

Link (中文): 券商前三季度发行194亿元绿色债券 是上一季度7倍多 

 

CITIC construction is the largest issuer three years running.

四, tax collection, a first (news) 

14.9 bn RMB is the proceed from a new environmental tax collected since April.

 

The Ministry of Finance has issued budget numbers for October and this included the newly levied Environmental Protection Tax. The tax was signed into law in January of this year where it replaced the 1979 Pollutant Discharge Fee. The tax is levied on businesses emitting water, air, and noise pollution as well as solid wastes.

 

Authorities estimate that the tax will bring in around 50 bn RMB annually when fully implemented. Enforcing the tax will be another matter, more on that in the forthcoming issues.

 

Link (中文): 财政部:10月全国财政预算收入15727亿 同比下降3.1% 

 

Background: China’s Environmental Protection Tax

五, green finance on the new silk road (forum)

In the 2017 progress report from the International Institute of Green Finance (the 2018 issue is set to be published within a few weeks) Director Wang Yao wrote about the prospects of including green finance in the Belt and Road Initiative. Every political project in China has a BRI angle these days, and green finance is no exception. A lot of energy infrastructure is planned within the framework of the BRI, and as some of the financing will come from private investors, green finance products ought to be at the perfect vehicle to connect the political project and with lending markets. 

 

In London a meeting on that topic convened. The information in this article is scarce, but keep an eye out for the acronym connection that is GF + BRI.   

 

Via Xinhua: Forum held in London to discuss Belt and Road, green finance

六, other things of interest

“China also clearly knows that tackling climate change can be a big money maker that also cleans up unhealthy air, and there remains ample room for many other countries to profit and benefit from the clean energy revolution that China is capitalizing on,”

Book: Will China Save the Planet?

+ audio

+ article

 

"As predicted, we find that green municipal bonds are issued at a premium to otherwise similar ordinary bonds. We also confirm that green bonds, particularly small or essentially riskless ones, are more closely held than ordinary bonds."

Research: The Pricing and Ownership of U.S. Green Bonds

 

 

"China will be the leader in green finance in 10 years, with a caveat..."
Audio: What Climate Change Mean for the Global Economy

 

 Former US treasury secretary Henry Paulson talks with the New Yorker about the similarities between the last financial crisis and the current climate crisis and his embrace of a carbon tax

Audio: The Financial Crash and the Climate Crisis

A message from the publisher: 

This is the first edition of our newsletter about green finance in China. The idea is to bring the latest in news, research, and opinion related to green finance in China to anyone interested. 

We'll probably change the format, content and delivery setup as we look for the correct newsletter recipe - tips on how to get there is welcome. We hope you enjoy reading along. 

 

The newsletter is published by the International Institute of Green Finance, a think tank in Beijing. 

Written by the International Institute of Green Finance, Beijing

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