A report from the People’s Bank of China (PBOC), released on 3 February 2023 reveals that China’s green finance, mainly dominated by green credit and green bonds, continues to experience rapid growth. In 2022, green loans, representing the largest share of the country’s green finance, continued to expand – outstanding green loans in yuan and foreign currencies amounted to CNY22.03 trillion (US$3.27 trillion), up 38.5 percent year-on-year – reaching a growth rate of 5.5 percentage points higher than 2021, and 28.1 percentage points faster than the average growth rate of all types of loans. In a similar fashion, China’s green bonds have also expanded rapidly, surpassing the United States to become the world’s top issuer of green bonds in 2022 – China’s green bonds, largely issued by financial corporates (representing 58 percent of the entire total), amounted to US$76.25 billion in 2022, up from US$68.1 billion in 2021.

In fact, China’s burgeoning green finance, a strong indication of the country’s commitment to reach peak carbon emissions before 2030 and attain carbon neutrality by 2060, concurrently, positions the Asian giant on a sustainable development pathway. With the transition to net zero, requiring massive amount of green financing – about CNY 140 trillion (US$22 trillion), across electricity, steel, mobility, and construction and real estate for the 2020-2060 period, China’s rapidly developing green financial system and markets is crucial to closing the country’s US$6.7 trillion green finance gap (US$170 billion per year) over the next four decades.

At present, China’s green finance instruments, largely dominated by green credit and green bonds have increased the level of financial flow to green transportation, renewable energy projects, recycling facilities and water treatment plants – shifting investments from natural resource intensive industries to resource efficient business models – ultimately, green financing has been indispensable to efforts dedicated to accelerate green transformation, contributing significantly to the substantial drop in environmental pollution and enhancing biodiversity conservation, driving high-quality socio-economic development – fostering remarkable progress towards a low-carbon economy and sustainable future.

For example, in 2021 PBOC, the country’s central bank launched the Carbon Emission Reduction Facility (CERF) to provide loans based on market preferential rates to firms engaged in clean energy, energy conservation and environmental protection, and low-carbon technologies – offering funds to financial institutions at preferential interest rate of 1.75 percent with reasonable maturities – presently, the PBOC has granted more than RMB 300 billion of credit under the CERF, enhancing the lending capacity of commercial banks to issue more than RMB 510 billion carbon emission reduction loans, which has helped in reducing China’s emissions by over 100 million tons of carbon dioxide equivalent in 2022 – further decreasing air pollution, promoting healthy ecosystems and protecting biodiversity, including the well-being of people in China. According to the Energy Policy Institute at the University of Chicago from 2013 to 2020 particulate pollution in China dropped by 39.6 percent, adding about 2 years onto the average life expectancy. To put this into perspective, it took several decades and recessions for Europe and the United States to accomplish the same level of pollution reduction China achieved in 7 years – a remarkable progress, which most likely would not have seen the light of day without accelerated green finance.

Over the past few years, China’s rapidly developing green financial system has increasingly enhanced access to finance for projects that typically prioritize sustainable and inclusive socio-economic growth – promoting domestic green innovation and accelerating progress towards green transformation, across various industries – especially in the energy sector, the epicentre of greenhouse gas emissions. In the energy sector, which contributes nearly 90 percent of China’s total greenhouse gas emissions, the rise in financial flows to green industries, which supports research and development (R&D) and drives domestic green innovation has advanced green transportation, and boosted the production of renewables and low-carbon technologies, contributing significantly to the country’s rapidly growing renewable energy output – in fact, China’s expanding green finance is increasingly shifting investments away from the fossil energy industry to renewable energy projects, a move that has yielded incredible results, over the years. By the end of 2022 China’s newly installed renewable energy capacity reached 140 million kW, as the country’s total installed renewable energy capacity exceeded 1.2 billion kW – extending its lead as by far, the world’s largest producer of renewable energy – while newly installed wind power and solar power capacity surpassed 120 million kW, a record high, by the end of 2023, China expects total capacities for wind power, solar power and hydropower to reach 430 million kW, 490 million kW and 423 million kW, respectively – a projected clean energy expansion that is strongly supported by green finance.

Similarly, in the transport sector, which is also a major source of greenhouse gas emissions, China’s expanding green finance has increased financial flow for green transportation projects (upgrading infrastructure and boosting production of electric vehicles), contributing greatly to decarbonising transport. In 2022 the production of new energy vehicles (NEV) in China reached 7.06 million units, representing 96.9 percent year-on-year, increasing the market share of NEVs in China’s automobile market to 25.6 percent, representing an uptick of 12.1 percentage points from 2021– also, by the end of 2022 China, home to the world’s largest installed electric vehicle chargers had added 2.59 million units, bringing the total to 5.21 million charging points, up from 1.14 million in 2021. By advancing green transport and accelerating decarbonisation of major carbon-intensive industries, across key sectors, including energy, agriculture, manufacturing and construction and real estate, among others, China’s rapidly expanding green finance, whose full potential could be unlocked by attracting more international investors is the linchpin to realising carbon emission peak by 2030 and carbon neutralization by 2060 – as the country’s green finance promotes high-quality social and economic development, reduces environmental pollution and enhances energy efficiency, all of which are crucial to sustainable development.