China’s recent policy reforms reveal China’s ambitious plan to green its financial system and finance sustainable infrastructure. This paper reviews this ambitious green finance package, highlights remaining uncertainties, and provides recommendations for success.
China’s new policy reforms reveal a clear commitment to a greener economy, including investment in sustainable infrastructure and greener financial systems. The ambition of its green finance package, which addresses multiple finance channels, calls for more use of market mechanisms, and includes targets and tighter standards, sets China up to be a leader in this space. Moreover, it has broad support across the Chinese central government, Central Bank, and government ministries.
Despite the broad support for these ambitious goals, barriers and uncertainties still exist. China has defined a vision, but must now develop detailed implementation. It remains to be seen how the market will respond and whether these reforms will scale green investment at the rate needed.
This report suggests several considerations that will encourage green finance at the scale required to meet China’s sustainable infrastructure goals. The authors find that China must build the demand for green investment through penalties and market mechanisms, develop a comprehensive tracking system to assess efficacy of interventions, ensure that financing models meet the specific requirements for sustainable infrastructure, and build quality green infrastructure that displaces older, less-efficient infrastructure.