Incentives for Enhancing Transition Finance in China’s Steel Sector

The report examines the financial and regulatory incentives needed to accelerate the decarbonisation of China's steel industry. It highlights a significant investment gap, noting that while pilot regions like Hebei have introduced sector-specific taxonomies and transition plan templates, national-level frameworks remain underdeveloped. The document argues that current incentives are insufficient for steelmakers due to high upfront costs and for financial institutions due to a lack of unified identification standards. It recommends expanding public subsidies, refining the capacity replacement policy to include carbon intensity criteria, and creating demand-side incentives for purchasers of low-carbon steel.

• China's steel sector requires substantial capital for decarbonisation, with an estimated USD 18bn (CNY 132.1bn) needed over the next five years, and potentially up to CNY 1tn (USD 138.9bn) over ten years for various transition technologies.
• Decarbonisation is currently not commercially viable for most Chinese steelmakers due to long payback periods, sluggish growth, and the inability to pass additional low-carbon production costs through the value chain.
• Hebei province has established a leading regional model for transition finance by issuing the Transition Finance Guidelines for the Iron and Steel Industry (2025 Edition), which includes 135 eligible technologies and a standardised transition plan template.
• There is a lack of public subsidies specifically targeting steel sector decarbonisation in China; existing general green subsidies are limited in scale and do not cover high-risk technologies like hydrogen-based direct reduced iron (DRI).
• The People's Bank of China's (PBoC) carbon-reduction supporting tool provides low-cost financing but is limited by a short term (one year, renewable twice) that does not align with the long payback periods of steel projects.
• China's national emissions trading scheme (ETS) was extended to include the steel sector in March 2025, though its current impact is limited by lenient allowance allocations.
• Chinese steel companies lag behind international peers in transparency, with none of the top ten Chinese steel companies publicly disclosing group-level greenhouse gas emissions data in annual or sustainability reports.
• Financial institutions in China show low enthusiasm for transition finance due to the absence of a unified national taxonomy and a lack of specialised expertise to evaluate complex steel decarbonisation technologies.
• Demand-side incentives for low-carbon steel are underdeveloped in China, lacking both financial incentives for purchasers and a transparent certification system to verify low-carbon attributes.

APA

Jin, Z., & Xie, W. (2025). Incentives for Enhancing Transition Finance in China’s Steel Sector. Climate Bonds Initiative. https://www.climatebonds.net/files/documents/publications/Climate-Bonds_Incentives-for-Enhancing-Transition-Finance-in-China%E2%80%99s-Steel-Sector_EN_Sept-2025_B.pdf

Chicago

Jin, Zixi, and Wenhong Xie. Incentives for Enhancing Transition Finance in China’s Steel Sector. Climate Bonds Initiative, 2025. https://www.climatebonds.net/files/documents/publications/Climate-Bonds_Incentives-for-Enhancing-Transition-Finance-in-China%E2%80%99s-Steel-Sector_EN_Sept-2025_B.pdf.

Wikipedia

{{cite report |last1=Jin |first1=Zixi |last2=Xie |first2=Wenhong |title=Incentives for Enhancing Transition Finance in China’s Steel Sector |publisher=Climate Bonds Initiative |date=September 2025 |url=https://www.climatebonds.net/files/documents/publications/Climate-Bonds_Incentives-for-Enhancing-Transition-Finance-in-China%E2%80%99s-Steel-Sector_EN_Sept-2025_B.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{jin2025incentives, author = {Jin, Zixi and Xie, Wenhong}, title = {{Incentives for Enhancing Transition Finance in China’s Steel Sector}}, institution = {Climate Bonds Initiative}, year = {2025}, month = sep, url = {https://www.climatebonds.net/files/documents/publications/Climate-Bonds_Incentives-for-Enhancing-Transition-Finance-in-China%E2%80%99s-Steel-Sector_EN_Sept-2025_B.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }