Demand for 'green funds' increasing in China

By Xin Zhiming

CHANGCHUN - Demand for financing to China's new energy industry, emission reduction and environmental protection could amount to 8 trillion yuan ($1.2 trillion) in the coming decade, said a senior provincial official on Tuesday.

China could also devise favorable policies, including the issuance of yuan-denominated "green bonds", to meet demands, Gao Cailin, director general of the Office of Financial Affairs of Jilin Province, told China Daily.

By 2020, financing demand from new energy industry could total 2 trillion yuan. In addition, emission reduction, resource recycling and environmental protection are predicted to exceed 600 billion yuan per year, Gao said.

"The soaring demand would create huge space for development of 'green finance'," he said.

Green finance, or G-finance, refers to credit aimed to support those low-carbon green sectors, such as new energy. Major economies have jumped onto the bandwagon of low-carbon development as traditional way of production has become unsustainable. The United States, European Union, Japan and South Korea, for example, have committed to earmarking funding for growth of the green economy.

China has launched new policies, including lending guidelines, to support new energy efficient industries.

In September 2009, credit granted by major Chinese commercial banks to energy-consuming sectors such as steel and electrolytic aluminum increased by 13 percent and 19 percent year-on-year respectively, while that for the flat glass sector dropped 45 percent year-on-year. In the same period, banks increased its lending activity by an average of 31 percent.

"The world economies, however, have so far resorted to fiscal means to push green development," said Gao. "A financial framework aimed to support green development is yet to be established," he said.

Gao suggested that China could issue special yuan-denominated bonds that are specifically aimed to support the green sectors. It could be government, financial or corporate bonds that are issued through market mechanism.

"Mid- and long-term (green) bonds, which feature stable returns, are suitable for green economy development and green-oriented upgrading of traditional industries," he said.