Greening China’s Financial Markets

The report argues that China can leverage green bonds to meet its 12th Five-Year Plan environmental goals and reform its financial system. It proposes a roadmap including the definition of eligible green investments, the use of covered bonds to increase transparency for local government debt, and the creation of a Foreign Direct Investment (FDI) window for green bonds. The authors suggest that government support through tax incentives, first-loss provisions, and the use of state-owned enterprises for demonstration programs is essential to kick-start the market and attract both domestic retail and international institutional investors.

• China's financial system is characterized by a heavy reliance on short-term debt and bank loans, with listed firms having one of the world's highest short-term debt ratios at 78 per cent, compared to 28 per cent for U.S. firms.
• The report identifies a significant opportunity to tap into China's domestic household savings, which are at 20 per cent of GDP, to create a retail bond market and reduce the growth of the shadow banking sector.
• To establish a credible green bond market, China needs clear, performance-based definitions of eligible green investments and a government-endorsed verification system to prevent issuers from interpreting 'green' to suit their own needs.
• The authors propose using 'dual recourse' covered bonds to introduce transparency to assets financed at regional government and bank levels, bridging the gap between government-backed bonds and revenue-backed securities.
• The report suggests opening a specific Foreign Direct Investment (FDI) window for green bonds within the Qualified Foreign Institutional Investor (QFII) program to attract long-term institutional investors like pension and insurance funds.
• Government support is deemed necessary to kick-start the market, specifically through interest rate support, tax incentives, and the use of state-owned enterprises to run 'demonstration programs' that create initial liquidity.
• The report recommends that the National Social Security Fund (NSSF) and other public funds be directed to allocate a percentage of their fixed income budgets to green bonds to drive domestic institutional demand.
• Securitization is identified as a critical tool for scaling green investments, suggesting the use of 'non-profit warehousing facilities' to aggregate small-scale loans, such as energy-efficiency loans, into benchmark-sized bonds.

APA

Kidney, S., & Oliver, P. (2014). Greening China’s Financial Markets. International Institute for Sustainable Development. https://www.iisd.org/system/files/publications/growing_green_bonds_en.pdf

Chicago

Kidney, Sean, and Padraig Oliver. Greening China’s Financial Markets. International Institute for Sustainable Development, 2014. https://www.iisd.org/system/files/publications/growing_green_bonds_en.pdf.

Wikipedia

{{cite report |last1=Kidney |first1=Sean |last2=Oliver |first2=Padraig |title=Greening China’s Financial Markets |publisher=International Institute for Sustainable Development |date=February 2014 |url=https://www.iisd.org/system/files/publications/growing_green_bonds_en.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{kidney2014greening, author = {Kidney, Sean and Oliver, Padraig}, title = {{Greening China’s Financial Markets}}, institution = {International Institute for Sustainable Development}, year = {2014}, month = feb, url = {https://www.iisd.org/system/files/publications/growing_green_bonds_en.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }