Accounting for nearly one-third of carbon emissions worldwide, China has all the potential to make or break a global solution for climate change. Will it do enough to propel green finance into mainstream legitimacy in the region?
As the world’s second-largest economy accounting for 30 percent of all carbon emissions, any serious pursuit of climate change to cool the planet will yield limited results without China, which has openly committed to achieving peak emissions by 2030 and carbon neutrally by 2060.
According to a recent report by Goldman Sachs, there is «no global solution without China» but it notes that this will be no easy feat given its «natural endowment of coal, [its] economic structure of being an industrial powerhouse and its current stage of economic development».
But will Beijing do enough to propel green finance into widespread legitimacy in the region or will this be yet another failed attempt to adjoin higher values with the financial mainstream?
Parallel Priorities
One of the top concerns highlighted by the Goldman report is the need for Beijing to balance the achievement of its climate change goals with other policy goals, such as doubling income by 2035.
Carbon emissions reduced too quickly could risk derailing such policy goals while a reduction that is too slow could result in too high a peak.
In this regard, onlookers are already expressing disappointment as China’s recently released 14th Five Year Plan did not include GDP targets for the 2021-2025 period, providing limited visibility on the absolute increase in emissions.
More Acceleration Needed
Even without accounting for the potential peak, environmental analysts were less than impressed with China’s latest target of an 18 percent reduction in carbon intensity – the same rate as the 13th Five Year Plan. It also set a goal to diversify its energy mix of non-fossil fuels from around 15 percent now to 20 percent.
«China could and should do more than that, and the signal (it is sending out) should be that we need to accelerate our decarbonization,» according to a «Strait Times» report citing Greenpeace East Asia climate analyst Li Shou.
«It's not as positive as I expected to see,» added World Resources Institute China’s Liu Daizong, who underlined disappointment in the lack of specific carbon emission targets for regions within the country.
Market Reform
In addition to carbon emissions, China will also need to commit to market reforms in order to successfully push green finance.
This is another difficult hurdle as Beijing has not historically been flexible in changing its regulatory environment for international compatibility. For example, Chinese regulators expressed last year that they were «very sincere» in resolving listing issues but came short of fully meeting disclosure requirements due to claims of national security risk.
«[I]f reporting and disclosure standards are to be effective, they have to be universally recognized and applied across the board,» said Securities and Futures Commission chief Ashley Alder earlier this year, singling out China as a critical factor. «it needs to be more of a science and less of an art.»
Investor Confidence
Finally, China may face a tall order when attempting to attract green investors by appealing to softer factors like confidence and trust.
It is undergoing major trust issues with a 14-country survey last year by Pew Research Center claiming that the dominant majority in each nation viewed China in a negative light. A median of 78 percent said that they have no confidence President Xi Jinping will do the right thing in international affairs.
The view is not much better when excluding the general public. In another survey of 118 institutional investors co-produced by Matthews Asia and Greenwich Associates, 67 percent of respondents said that a «basic lack of trust in the government» was the top worry when investing in China.
Still Early
Despite the concerns, it is still early days for China which currently has economic momentum on its side as it takes advantage of its relative head start from a post-pandemic rebound. According to UBS Asset Management, the country already has a plethora of related initiatives underway covering renewable energy, electric cars, anti-flooding city developments and more.
«[This signals] a major cultural and economic shift in China as it gets serious about climate change and moves decisively on a series of ground-breaking initiatives»,» it said in a report last year.
In 2020, green bond issuance posted a record-high of $269.5 billion with China ranked as the fourth-largest issuer at $17.2 billion, according to U.K. non-profit organization Climate Bonds Initiative. U.S. led the rankings with $51.1 billion in green bond issuances.
