Green finance sees vast growth opportunities in China
China's green finance business is a market still in its infancy, but it will see vast growth opportunities in the coming decade as regulators are committed to achieving a greener economic transformation, analysts said.
Chinese President Xi Jinping's pledge to achieve carbon neutrality by 2060 will likely be a significant boost to green finance's development, as well as increasing awareness of how environmental issues could impact the economy, said May Yan, head of China Banking Research at UBS, in a recent report.
And green loans and green bonds, two major forms of financing, are expected to evolve into a 62-trillion-yuan (US$9.17 trillion) and 8-trillion-yuan market in 2031, Yan said.
According to the National Development and Reform Commission, China has a 2.5 trillion yuan-plus funding gap for green projects each year. Therefore, accelerating green development within China's financial system is likely essential to achieving the decarbonisation targets, UBS said.
Green loans currently account for the largest share of green finance, with the total balance reaching 15.9 trillion yuan at the end of 2021. The majority of green loans went to green infrastructure upgrades and clean-energy projects, the study found.
Yan believes that green finance could be a key revenue engine for banks in the next 10 years by contributing 15 percent of the banking system's total revenue in 2031.
Specifically, the green bonds business is projected to generate two revenue streams for lenders – bond underwriting fees and net investment income.
Green finance centers around six green industries: energy-saving and environmental protection, cleaner production, clean energy, eco-environment, green upgrades of infrastructure, and green services.
But the green bonds sector is still small in scale, merely accounting for 0.8 percent of the country's total bond balance – 1.1 trillion yuan at the end of last year.
Other green finance products, like ESG (environmental, social and governance) funds and green insurance, may also grow rapidly due to the considerable unmet credit demand from green projects, the report noted.