GREENING CHINA’S BOND MARKET

The document argues that green bonds can help China meet its massive funding needs for a low-carbon economy while addressing systemic financial issues, such as over-reliance on short-term bank lending. It suggests that China can leverage its experience with Green Credit Guidelines to establish a robust market based on clear standards and independent verification. The report proposes a comprehensive action plan including public demonstration issuances, dual recourse structures for municipal bonds, green warehousing to aggregate small projects, and tax incentives. It emphasizes that these tools, combined with carbon pricing and the greening of development banks, could position China as a global leader in green capital markets.

• China faces immense funding requirements for its green transition, with the Development for Emerging New Industries requiring CNY 5 trillion (USD 817 billion) by 2020 and CNY 1.7 trillion (USD 275 billion) earmarked for air quality improvements over five years.
• The Chinese financial system is characterized by a high dependency on bank loans (132 per cent of GDP) and a precarious reliance on short-term debt, with listed firms holding 78 per cent of debt in tenors of one year or less.
• Green bonds can mitigate financial volatility in China by providing longer-term capital and allowing banks to refinance short-term loans into longer-dated instruments, which is critical since average bank loan durations are around three years while debt servicing may require over 10 years.
• Previous attempts to green the financial system, such as the Green Credit Guidelines, were hindered by a lack of common, operable definitions of 'green', as well as insufficient disclosure and enforcement mechanisms.
• The global labelled green bond market grew rapidly from USD 11 billion in 2013 to USD 36 billion in 2014, with a total of USD 100 billion in issuance expected for 2015.
• To establish a credible market, China should create a Green Bond Market Development Committee to adapt Green Credit definitions for the bond market and implement a verification system using government-approved third-party verifiers supervised by an independent non-profit entity.
• The report recommends 'demonstration programs' where state-owned enterprises (SOEs), local governments, and development banks issue green bonds to create initial liquidity and trading volume.
• Dual recourse bond structures are proposed for Chinese municipal bonds to improve transparency by giving investors recourse to both the issuing entity and a pool of underlying green assets.
• Because many green projects are too small for bond markets, the report suggests using warehousing entities to aggregate green loans from multiple banks into asset-backed securities.
• Proposed fiscal incentives to attract investors include tax-exempt bonds for non-government issuance, tax credits for bondholders, and direct subsidies for interest payments to issuers.
• China could expand its Qualified Foreign Institutional Investor (QFII) and Renmimbi QFII (RQFII) programs by opening a specific window for green bonds to attract long-term international institutional investors.

APA

KIDNEY, S., OLIVER, P., & SONERUD, B. (n.d.). GREENING CHINA’S BOND MARKET. International Institute for Sustainable Development. https://www.iisd.org/sites/default/files/publications/greening-chinas-financial-system-chapter-10.pdf

Chicago

KIDNEY, SEAN, PADRAIG OLIVER, and BEATE SONERUD. GREENING CHINA’S BOND MARKET. International Institute for Sustainable Development, n.d. https://www.iisd.org/sites/default/files/publications/greening-chinas-financial-system-chapter-10.pdf.

Wikipedia

{{cite report |last1=KIDNEY |first1=SEAN |last2=OLIVER |first2=PADRAIG |last3=SONERUD |first3=BEATE |title=GREENING CHINA’S BOND MARKET |publisher=International Institute for Sustainable Development |url=https://www.iisd.org/sites/default/files/publications/greening-chinas-financial-system-chapter-10.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{kidneyndgreening, author = {KIDNEY, SEAN and OLIVER, PADRAIG and SONERUD, BEATE}, title = {{GREENING CHINA’S BOND MARKET}}, institution = {International Institute for Sustainable Development}, url = {https://www.iisd.org/sites/default/files/publications/greening-chinas-financial-system-chapter-10.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }