GREEN PRIORITY: Storeowners in the Yiwu marketplace of small commodities in Zhejiang Province offer customers a wide selection of green and eco-friendly commodities, such as energy-efficient light bulbs and bamboo housewares, during the World Expo in Shanghai (ZHANG JIANCHENG)

China is no exception. It is undergoing a crucial economic transformation, cutting its reliance on energy-intense industries and switching to energy-efficient industries with high value added. This will create a new growth engine and ensure the sustainable development for the Chinese economy, said Deng. Enormous demands for low-carbon products will be generated during the transformation, which in turn will promote production process reengineering, and help change people's lifestyles and upgrade services and products.

Carbon finance will develop mainly in four areas: low-carbon industries, low-carbon energies, low-carbon technologies and carbon trading, said Deng.

Low-carbon industries include upgraded traditional industries, such as iron and steel and construction, and emerging industries, such as those involving smart grids, and carbon capturing and storing.

Countries worldwide have come to embrace the importance of clean energy as reserves of traditional fossil energies, such as coal, petroleum and natural gas, diminish.

Investments in clean energies worldwide reached $115 billion and are predicted to reach $450 billion by 2012 and exceed $600 billion by 2020.

In the future, low-carbon technologies will be developed to serve both traditional sectors and emerging industries. The carbon trading market is expected to exceed the global oil market, with a value of $3.5 trillion by 2020.

Green credit is currently the major form of carbon finance for domestic commercial banks, in the absence of a mature carbon trading system and platform in China, said Lian Ping, chief economist of the Bank of Communications.

While following the principle of green credit, banks increase credit for the development of new energy and emission-reduction technologies, but cut credit to energy-intense industries and industries with overcapacities.

Lian suggested commercial banks develop services and products to promote low-carbon production and low-carbon lifestyles, such as green car loans and green mortgages for individuals.

"Through carbon financing, commercial banks can help promote these green technologies and assist with their evolution," Lian said.

Indicators of Economic Uncertainty

Inflation: China's consumer price index, a gauge of inflation, rose 1.5 percent in January and 2.8 percent in April year on year, close to the full-year target of 3 percent.

Liquidity: China unleashed a record-high 10 trillion yuan ($1.4 trillion) in new loans in 2009, increasing nearly 200 percent from the previous year. New loans will increase at a comparatively high rate this year, which is expected to be lower than last year's. Excess liquidity will fuel inflation in the economy and pose a threat to financial stability.

Property market bubble: Housing prices have risen steeply, making the desire of many Chinese to own an apartment an unreachable dream. While housing prices are usually 2 to 5.5 times the average income of urban residents in developed countries, and a rational ratio for developing countries is 3 to 6 times, housing prices in China stand at more than 15 times the average income of urban residents. The prices even exceeded 50 times that of urban incomes in Shanghai and Beijing.

Local governments' debts: New loans to local governments stood at 3.05 trillion yuan ($446.5 billion) last year, accounting for 34.5 percent of all new loans. The year-end loan balance rose to 7.38 trillion yuan ($1.08 trillion) at local government finance platforms, up 70.4 percent year on year, accounting for 20.4 percent of the country's total loan balance in 2009. Economists have expressed worries that more than $1 trillion of local governments' debts could put a dent in China's back-on-track economic growth.