Financing the Decarbonisation of China’s Steel Sector

The report examines how transition finance is being leveraged to decarbonise China's steel industry, focusing on the impact of the first subnational regulatory framework introduced in Hebei Province in December 2023. It finds that the market responded quickly to these guidelines, with steel transition loans in Hebei exceeding CNY20bn (USD2.8bn) by the end of 2024. The document estimates that the sector requires at least USD18bn in capex over the next five years to invest in electric arc furnaces (EAF), direct reduced iron (DRI) shaft furnaces, and electrolysers. While large state-owned enterprises lead in transition planning, smaller firms face greater financing gaps. The report recommends that the People's Bank of China introduce further incentives, such as interest subsidies, and that steel companies secure offtake contracts to improve the bankability of green steel projects.

• The introduction of the Hebei Province Guidelines for Transition Finance in the Iron and Steel Industry in December 2023 acted as a catalyst for capital flows, leading to over CNY20bn (USD2.8bn) in steel transition loans in Hebei by the end of 2024 and the issuance of 12 steel-related labelled bonds totalling USD3bn by Chinese issuers.
• China's steel sector requires an estimated USD18bn in capital expenditure over the next five years to align with net-zero pathways. This investment is primarily directed toward H2-DRI-EAF development (41%), hydrogen electrolysis (41%), and the transition from BF-BOF to scrap-based EAF (14%).
• The Chinese steel industry is heavily reliant on the carbon-intensive blast furnace (BF) process, which accounts for over 90% of production. National targets aim to increase the share of electric arc furnace (EAF) production to 15% by 2025 and 20% by 2030.
• Analysis of the top ten Chinese steel producers shows that 70% have established carbon emission targets aligned with national 2030 and 2060 goals and have initiated decarbonisation measures. However, group-level GHG emissions data for scopes 1, 2, and 3 remains generally unavailable in corporate reports.
• Financial institutions remain cautious and tend to provide financing primarily to industry leaders like Baowu, HBIS, and Ansteel. Smaller companies face a larger financing gap and are more sensitive to the pricing advantages of transition finance, though they struggle with declining capacity and rising carbon costs.
• Green steel production currently faces a price premium of 5% to 40% over conventional methods, driven by the high cost of inputs like scrap and green hydrogen. This premium discourages investment and makes green steel less competitive without downstream demand or offtake agreements.

APA

Xu, X., Xie, W., Jin, P., Jin, Z., Muldoon, C., Zuo, B., Jackson, A., & Huleatt, L. (2025). Financing the Decarbonisation of China’s Steel Sector. Climate Bonds Initiative. https://www.climatebonds.net/files/documents/publications/CBI-Financing-the-Decarbonisation-of-China%E2%80%99s-Steel-Sector_EN.pdf

Chicago

Xu, Xiaoyun, Wenhong Xie, Patrick Jin, Zixi Jin, Clodagh Muldoon, Bonnie Zuo, Alastair Jackson, and Lauren Huleatt. Financing the Decarbonisation of China’s Steel Sector. Climate Bonds Initiative, 2025. https://www.climatebonds.net/files/documents/publications/CBI-Financing-the-Decarbonisation-of-China%E2%80%99s-Steel-Sector_EN.pdf.

Wikipedia

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BibTeX

@techreport{xu2025financing, author = {Xu, Xiaoyun and Xie, Wenhong and Jin, Patrick and Jin, Zixi and Muldoon, Clodagh and Zuo, Bonnie and Jackson, Alastair and Huleatt, Lauren}, title = {{Financing the Decarbonisation of China’s Steel Sector}}, institution = {Climate Bonds Initiative}, year = {2025}, month = may, url = {https://www.climatebonds.net/files/documents/publications/CBI-Financing-the-Decarbonisation-of-China%E2%80%99s-Steel-Sector_EN.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }