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China's Exceptional Commitment to Green Finance

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By Mark Halle, September 4, 2016

One characteristic of China that has aroused envy in outside observers is its ability to change course quickly and resolutely. New directions appear to come from nowhere and, in no time at all, they dominate the scene. In fact, these changes are generally the third stage in a process that I have seen repeatedly.

First China, like many countries, tends to resist addressing an emerging issue, denying its relevance and even, in some cases, seeing it as an underhanded move to deny China its right to develop and compete on a level playing field. The second stage begins at the point when China agrees that the issue is genuine and relevant to China.  At that point they put considerable resources behind understanding the issue thoroughly. Research centres, think tanks and experts are harnessed to the task of working out what is and what isn’t in China’s interest. When it is ready, China tends to move quickly, resolutely and strategically. Absent only a few years before from the debate, Chinese policy-making often comes to dominate the scene in a short period of time.

When, over twenty years ago, IISD began work with China on the link between trade and sustainable development policy, Chinese officials tended to see environmental measures as part of a plot to keep Chinese goods out of Western markets—a form of “green” protectionism rushed into place to replace the tariff barriers that had slowly been dismantled. Once it was clear that this was, at best, a vast oversimplification, the Chinese policy research community swung into action with the aim to understand the issue thoroughly and in all its aspects. By the time they acceded to the World Trade Organization in 2001, they had a level of sophistication on the issue that was the envy of many established WTO members.

No issue, however, has proceeded through those three stages as quickly and as thoroughly as the subject of green finance. When in 2013 IISD and its Chinese partners began to look at how finance sector reform might speed the transition to green development, we anticipated that interest would gradually, over a period of years, overcome resistance and that innovations might begin emerging from China in the coming decade. What happened instead was akin to putting a match to dry straw. A presentation of preliminary findings in July 2014 led to the establishment of a Green Finance Task Force, led by Dr. Ma Jun of the People’s Bank of China. This Task Force, supported by IISD and the UNEP Inquiry into the Design of a Sustainable Financial System (a worldwide initiative) concluded its work in April 2015 and established a permanent Green Finance Committee. In October 2015, China announced that green finance would be a priority in its Presidency, this year, of the G20. A G20 Green Finance Study Group reported to the G20 summit in Hangzhou this week and is likely to continue working under the German presidency in 2017.

More important, immediately prior to the Hangzhou summit, Chinese President Xi Jinping announced a comprehensive set of guidelines for putting in place a green finance system for China. With such top-level official sanction, the entire nation is now scrambling to green every facet of the financial system, both on China’s domestic front and in its international undertakings—very prominently including the new multilateral funds for infrastructure development such as the Asian Infrastructure Investment Bank. 

Green bonds offer a good example. The IISD team identified these early on as a promising source of capital for green investment priorities. China set about drafting its own set of green bond guidelines, finally published in the latter half of 2015. These resulted in a first domestic Chinese green bond before year’s end. Less than a year later, China has overtaken the rest of the world, issuing more green bonds this year than any single other country. This has resulted in global green bond issuance exceeding, in July, the total from 2015. There is no reason to believe that this growth rate will slow any time soon.

China is, today, the unquestioned world leader in green finance, and it is using its example to inspire and impress other countries worldwide. And all of this has taken place in a remarkably short period of time. The seed IISD sowed just over three years ago has grown into a robust tree, its branches covering an increasing range of finance sector players and approaches. With the financial world coming into alignment with China’s green development needs, the country’s transition to green development, and through that to its vision of Eco-Civilization is well under-way. The consequences will be felt all over the world. It is, in many ways, the most significant positive development in the field of sustainable development since the turn of the Millennium, and IISD is proud to have been present at the creation.