China's climate change objectives under the Paris
Agreement will require it to invest a massive amount of capital
into growing its domestic renewable energy generation, as well as
invest in other emissions-reducing efforts. The government of China
has adopted a green financing initiative that includes regulating
its green bond market.
Green bond guidelines have been issued by the various regulators
of the domestic (CNY) bond markets to encourage capital raising.
These bond guidelines have led to RMB 34 billion of issuance in the
first quarter of 2016 alone, with a required target of RMB 300
Although recent developments have made access to the CNY
interbank bond markets easier for foreign investors (e.g.
investment managers of pension funds and insurance funds), it is
important to understand that there are important differences
between international and Chinese green bonds.
Under the Paris Agreement, China has committed to reduce its
carbon dioxide emissions per unit of gross domestic product by
60-65 per cent by 2030 from its 2005 levels, and to increase the
share of its non-fossil fuels in primary consumption to around 20
per cent. This will necessitate a massive investment into renewable
and nuclear energy and away from coal-fired power generation.
According to China's Financial Research Institute at the State
Council's Research Center, this investment translates into RMB
2.9 trillion (US$460 billion) worth of investment annually in the
next five years. The government also wants 70 per cent of that
investment to come from the private sector. It is expected that
potentially RMB 300 billion of this could be annually financed by
The purpose of this paper is to guide investors on some of the
issues relating to investments in green bonds in China. This paper
should be read as complementary to our other
paper on the global green bond markets.
Read the full Briefing by downloading the .PDF
The article suggests ways for buyers and sellers with Take-or-Pay contracts, to protect themselves in a dynamic market,.
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