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Pilot Zones for Sustainability
Green finance projects sprout up to fuel industrial upgrading By Deng Yaqing
By Deng Yaqing | NO. 26 JUNE 29, 2017
Two staff members from Hengfeng Bank (second left and second right) visit a company devoted to green technologies to learn about their financing demand, in Beijing on August 19, 2015 (XINHUA)

Melting ice caps, biological extinction, and a deteriorating ecological environment—the dangers of global warming are looming over the horizon.

In response, at an executive meeting of the State Council on June 14, Chinese policymakers decided to set up pilot zones for green finance in Guangdong, Guizhou, Jiangxi and Zhejiang provinces as well as Xinjiang Uygur Autonomous Region. The decision was made in order to gain experience in boosting the new financial pattern that could later on be replicated and adopted throughout the country.

The meeting highlighted the role of finance in improving the environment and pointed out that energy efficiency is of great significance to economic restructuring as well as to fostering a shift in the country's development model and ecological habits. Moreover, it signifies that China has made concrete steps in carrying out promises made in the Paris Agreement.

Green finance provides linkage between the financial industry, protection of the environment and economic growth. According to international practice, green finance encompasses two main elements—financial products and services such as credit, securities and insurance that support enterprises engaged in environmental protection, and mechanisms and systems that seek to restrict greenhouse gas emissions by leveraging the power of financial markets and tools such as the carbon trading market and carbon-finance-related products and services.

In fact, green finance has already been taken as a national strategy in China. In October 2016, the State Council approved the Guidelines for Establishing the Green Financial System, which provides instructions and serves as a policy reference for the coordination of various financial factors.

At the 2017 China Investment and Financing Forum for Environmental Protection Industries, Cao Yushu, former Deputy Director of the Office of the Leading Group for Western Region Development of the State Council, noted that green finance not only serves investment and financing that are geared to tackle climate change, but also supports environmental improvement and multiplies the possibility of financial development.

A clerk from Industrial Bank Co. Ltd. introduces green finance products to clients at a local branch in Fuzhou, capital of Fujian Province, on May 6, 2015 (XINHUA)

Exemplary effect

Shi Yingzhe, a professor at the International Institute of Green Finance, Central University of Finance and Economics (CUFE), told Economic Information Daily that the government chose five different regions to establish pilot zones for green finance because it hopes local governments can actively implement the policy suggestions put forward in the guidelines.

Moreover, the guidelines take into consideration different local economic structures and characteristics in formulating specific measures and plans.

"The four provinces and one autonomous region are quite distinctive in industrial structures. These regions will accumulate a lot of experience in the development of green finance, which will be used for reference by other provinces that have similar industrial structures," said Wang Yao, Director of the Research Center for Climate and Energy Finance with the CUFE, in an interview with Economic Information Daily. Wang believes green finance models are replicable and will push forward the transformation and development of local economies.

In the past few years, there have been unremitting innovative attempts in green finance in the five chosen regions. Take Zhejiang for example. As early as 2014, the provincial government selected Quzhou City to carry out a comprehensive trial of green finance. By now, green credit, which takes into account the environmental credentials of companies, has reached 744.3 billion yuan ($108.95 billion) in Zhejiang, accounting for 9 percent of the province's total loans.

Lian Ping, chief economist with the Bank of Communications, held that choosing diversified regions as pilot zones is a good way to carry out targeted innovation policies. Besides that, among the five pilot zones, some are located in the western region—the destination of production capacity transferred from east China. The establishment of green finance pilot zones in these localities should avoid pollution from transportation or secondary sources.

But since the United States has decided to withdraw from the Paris Agreement, the development of green finance is confronted with many obstacles and difficulties.

"China's initiative to set up green finance pilot zones is significant in leading green development on a global scale. On the other hand, given the heavy task of environmental governance China now faces, efforts should be made to reform the traditional financial system and shake off the development concept used in the past to pursue sustainable green development," Zong Liang, chief researcher with Bank of China, told Economic Information Daily.

New tasks

Yan Kunpeng, a senior research fellow with the Industrial Bank, told National Business Daily that pro-green finance policies released by the Central Government have been on the rise in recent years, which means the environment for its development will become increasingly favorable.

Take green credit for example. By the end of 2015, green credit provided by the 21 major Chinese banks had reached 7.01 trillion yuan ($1.03 trillion), up 16.42 percent compared with the beginning of the year and accounting for 9.68 percent of their total loans, according to the China Banking Association.

"Though some of the tasks set by the State Council for the development of green finance have been tried before but failed, they point out the direction for the construction of green finance pilot zones," said Lian.

"Despite the accelerating development of green finance in China, the country's exploration in this field to date is quite limited. This time, diversified funds from small loans, financial leases, venture capital investment, private equity and insurance are encouraged to participate in green investment, which will greatly fuel the expansion of green finance," said Lian.

"It's not an unprecedented move for financial institutions to establish green finance departments. The government hopes to help foster awareness of carrying out green finance business and let more capital flow into this field," said Shi.

Five Major Tasks of Green Finance Pilot Zones

Supporting financial institutions to set up green finance departments, encouraging small loan, financial leasing, venture capital and private equity companies to participate in green finance, and welcoming foreign capital to participate in green investments;

Encouraging the development of green credit;

Rolling out pilot markets for trading water and energy rights;

Providing support on fiscal, tax, and land policies for green industries and projects;

Establishing a risk prevention mechanism for the healthy development of green finance.

(Source: State Council Executive Meeting on June 14)

Copyedited by Bryan Michael Galvan 

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