Carbon neutrality push promises robust growth for China's green bond market

BEIJING -- China's green bond market is likely to expand in 2022 and for years to come as the country is spurring investment into its pursuit of peaking carbon emissions and reaching carbon neutrality, analysts and industry insiders say.

Explosive issuance growth in January has ushered in the potential for a good year for green bonds. A total of 56 bonds worth 88.06 billion yuan ($13.83 billion) were issued -- nearly 13 times the value issued in the same month last year, according to data from financial information provider Wind.

Of the total, green credit bonds issued by non-government entities hit 55.46 billion yuan, increasing from 4.53 billion yuan in January 2021.

Green bonds, prominent green financing tools, are now star assets in China's bond market, said Fan Wei from Shenwan Hongyuan Securities.

Investors appreciate the potential contribution of green bonds to China's peaking of carbon emissions by 2030 and achieving carbon neutrality by 2060, as they are designed to raise money for environmental or climate projects, including carbon-reduction technologies, said Ding Xiaofeng, an analyst with China Fortune Securities.

Green bonds usually have lower interests rates than other bonds of the same maturity and rating, and can help companies save financing costs, Ding said.

Launched in 2015, China's green bond market is becoming increasingly brisk and orderly thanks to supportive policies.

Last April, the country released a new version of its catalog of projects eligible for financing through green bonds to align with global standards regarding green bond usage. A series of detailed regulations followed in September to nurture credit rating institutions for green bonds.

More categories of green bonds emerged last year for investors. The Shanghai Stock Exchange rolled out regulatory guidelines for two new types of bonds designed to help companies raise money for projects related to carbon neutrality and sustainable marine development.

For a few years to come, China's green bond market is likely to expand as a result of these policies, and issuers will be more diverse, analysts say.

Industry data shows that state-owned enterprises were the biggest issuer of the green bonds issued last year, and industry insiders expect a greater presence of private firms as international cooperation progresses in the green financing arena.

Chinese authorities pledged to encourage financial institutions and non-financial firms to issue more green bonds in a document on promoting green consumption unveiled in late January.

Currently, the share of green bonds in China's greater bond market is relatively small, indicating the potential for future growth, Ding said.

China issued 802.76 billion yuan worth of green loans last year, according to Wind data, and the total bond issuance in the same year was 61.9 trillion yuan.

Green financing, including green bonds, will feature more prominently on China's path to carbon neutrality, analysts say.

Studies have shown that achieving this goal would require an investment between 150 trillion yuan to 300 trillion yuan, averaging 3.75 trillion yuan to 7.5 trillion yuan per year. This is where green financing can contribute.

China's green finance saw a robust expansion last year, with outstanding green loans up 33 percent year on year to 15.9 trillion yuan. Outstanding green bonds neared 1 trillion yuan in late October 2021, official data shows.

The quality of China's green financing assets is sound, with the percentage of non-performing green loans lower than the average non-performing loan ratio of commercial banks and no default on green bonds as of last October, according to Chen Yulu, vice governor of the People's Bank of China.