CLIMATE FINANCE FORUM

FIRST HIGH-LEVEL MEETING OF CHINA GREEN FINANCE AND INVESTMENT

DIALOGUE

SUNDAY 12TH APRIL, 2015 AT CUFE 604 ACADEMY HALL

Introduction
On 12 April, Third Generation Environmentalism (E3G) and the Research Centre for Climate
and Energy Finance (RCCEF) of the Central University of Finance and Economy (CUFE) jointly
organized a meeting the Climate Finance Forum for the China Green Investment and
Finance Dialogue. The Dialogue aims to bring together policy-makers, representatives from the
banking sector, researchers, commercial investors and civil society to discuss key issues
relating to Chinas green and low carbon financing and investment.
The Climate Finance Forum was the first high-level meeting of the Dialogue. The purpose was
to promote a more integrated and coherent approach to advancing Chinas green finance
agenda through identifying and creating synergies with the objectives for promoting a low
carbon investment pathway in line with Chinas 2030 emissions goal, and those relating to
wider economic reform especially within the financial and power sectors. RCCEF also launched
their annual climate finance report for 2014 at the meeting.
The meeting started with the presentation and speeches by core partners and co-chairs of the
Dialogue. Dr Amal-Lee Amin from E3G explained the rationale and importance of the Dialogue
as a platform for identifying synergies across differing policy agendas and for jointly
developing solutions that could be taken forward by appropriate government and related
agencies. She also briefly described the current focus of European finance and power sector
reforms (Capital Markets Union and Energy Union), where similar structural and financial
challenges are being confronted with regards to how to mobilise new sources of capital for
investment in low carbon infrastructure and ways in which to increase access to affordable
finance for SMEs and greening of the supply-chain. Given the similar challenges there could be
valuable opportunity for China and the EU to share lessons and possible solutions towards
addressing these finance and investment challenges.

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Opening Remarks of the Co-Chairs

Co-chair Dr Ma Jun from the Peoples Bank of China (PBoC) set out the favourable policy and
political environment in China at the moment for the development of green finance. He also
outlined some specific steps required to build up Chinas green finance ecosystem, notably for:

Capacity and institutional building (including specialist and dedicated green

investment institutions);

More policy incentives and support to reduce the cost of green finance (including
subsidised interest rates, tax-incentives for green bonds and guarantees);

Infrastructure/institutions for green finance (including green stock rating and carbon
trading market);

As well as an appropriate legal framework (including mandatory green insurance,

lenders liability and mandatory data disclosure).

Co-chair Jiao Xiaoping from China CDM Fund welcomed the Dialogue and its potential for
identifying and promoting synergies between differing yet related policy agendas. He
emphasised the need for green financing and investment for Chinas urbanisation process.
Investment in green and low carbon infrastructure would add 20% more to the cost of
urbanisation, amounting to 50 trillion yuan by 2020. Due to this huge financing demand and as
part of the Chinese governments drive to promote private sector participation, public-private
partnerships (PPP) and other market-based mechanisms will be crucial in delivering Chinas
urbanisation target. Since 2014, local governments have initiated more than 4 trillion yuan
worth of PPP projects. He emphasised that the PPP agenda encompasses the broad range of
public policy, regulatory and finance incentives for mobilising private sector investment in a
range of sectors.
Co-chair Mr Li Junfeng from the National Centre of Climate Change Strategy Research
highlighted the need for more investment in green energy, and the importance of continuous
dialogue between the different key stakeholders i.e. the financial sector, regulatory bodies,
new energy companies, consultation companies and research institutes. He advocated the
need to treat new energy investment as infrastructure investment that warrants more
favourable financing terms, to adopt standards of advanced economies as well as to use green
finance to further internationalise Chinese companies.

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2014 Climate Finance Report by RCCEF

Liu Qian from RCCEF presented the 2014 Chinas Climate Finance Report: How China Could
Push the Transformation. This was CUFEs fourth annual report on climate finance. It pointed
out the world was witnessing an ever widening gap in achieving the investment goal for low
carbon development and adaptation. In China, the absolute scale of public funding for climate
change has increased dramatically although proportionately climate investment has not
improved much against the backdrop of great increases in Chinas public finance. In addition,
multiple innovative financing models have started to appear in the field, including crowdfunding, financial leasing, and ITFIN (internet financing). Experts comments on the Report
emphasized the importance of an effective and coherent environmental protection policy that
will stimulate green investment. In addition, the cost as well as efficiency of green finance will
also determine the pace of its development. An expert also asked about the transferability of
international experience in green and climate finance and emphasized domestic solutions to
Chinas green financing problems.
Both the above sessions were open to the media. In the following closed sessions, experts and
panelists gave their opinion on the current development and predictions for Chinas green
finance.

Session I Green bonds in China (hosted by co-chair Ma Jun)

In the first session, speakers from the PBoC, Industrial Bank of China and China Merchants
Bank gave an overview of green bonds in China. Key points of discussion highlighted that there
is currently an increased focus on and understanding of green bonds in China. In April this
year, the Chinese government issued a policy document encouraging eco-enterprises to issue
special bonds through simplifying audit procedures, relaxing corporations asset-liability ratio,
and so on. Green bonds are expected to play an important role in stimulating green
investment within China. However, there is an urgent need to work out the details for
implementation, including the definition and nature of green bonds, as well as transparency
and accountability.
The prominent role of Chinese banks in Chinas capital markets was also highlighted as
potentially the main issuers of bonds and standard setters. Questions about actual
operationalisation of green bonds were also raised, including third party certification,
profitability of green sectors and restrictions on foreign currency flows that will impede the

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issuance of green bonds in the international markets. In addition, it was pointed out
securitisation of green credit assets has already taken place, although it still faces critical
challenges a lot of green credit assets involved infrastructure that has a long credit period
and low pricing, which may not suit the appetite of current bonds market.

Session II Public-Private Partnerships (PPP) (hosted by cochair Jiao Xiaoping)

In the PPP session, speakers from the Ministry of Finance, Beijing ICS Law Firm, Dayue
Consulting and Golden State Environment Corporation discussed the most recent
development of PPP in China. It was indicated that 2015 presents a new dawn for PPPs in
China due to the issuance of government policy and guidelines for promoting the use of PPPs
across China. PPPs are now deemed as an extremely important tool for financing Chinas
urbanisation and infrastructure development in order to close the potentially large financing
gap. The PPP agenda aims to address constraints of local government budgets and facilitate
the drive for increasing private sector participation in the market. However, it is also clear that
there is still a big gap between policy objectives and effective implementation on the ground.
Firstly, there is no one agreed definition of PPP, let alone a clear picture of current PPP
projects. Estimates of the number of PPP projects in China by attending experts ranged from a
few thousands to none. This indicated that more comprehensive details are needed to
promote effective PPPs moving forward and across the whole economy (not just in a few niche
sectors). In addition, speakers pointed out that well-designed projects and more diverse
financing sources are needed. A speaker pointed out the potential role of the seven to eight
thousands local government investment vehicles (or platform companies), which had been
made redundant by policy issued last year aiming at controlling local governments debt, in
PPP projects. Ultimately, the development of PPPs in China will depend heavily on how the
government addresses the three interconnected issues: whether and how policies incentivise
the creation of viable PPP models, the fiscal situation of the local government and their ability
to leverage additional debt, as well as the new normal of Chinese economy i.e. a slower
growth. The new normal is important for understanding Chinas economic transition and its
future trajectory of growth.

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Session III New energy investment (hosted by co-chair Li

Junfeng)
In the third session, speakers from China Datang Corporation Renewable Energy Co. Ltd, North
China Electric Power University and GDF Suez discussed new energy financing in China. In
China, new energy aka non-conventional energy refers to energy sources that are still
being developed or yet to be widely diffused including solar, wind, ocean, geothermal, nuclear
fusion and so on.
All speakers had indicated that although there is already a lot of investment in new energy in
China, it is far from sufficient to meet existing or future levels of energy infrastructure
investment. In particular, speakers questioned the conflicting nature of the on-going largescale investments in fossil fuel powered generation which is in direct competition with new
energy investment. Instead, speakers maintained that Chinas new energy target should be
about how much fossil fuel capacity is replaced rather than how much total capacity of new
energy is increased.
It was agreed that private sector investment in new energy would be boosted by a more
stringent policy on environmental protection and energy sector reform, as well as the
importance for innovative use of a more diverse set of financing instruments that can help
manage risks. Lastly, speakers raised the need to break the monopoly of state-owned
enterprises (SOEs) through structural reform of the power sector and for introducing more
market-based price signals.

Conclusion
Overall, it was agreed that the initial focus of the Dialogue should be for integrating thinking
and identifying synergies and practical approaches to achieve these by:

Capturing emerging thinking and new initiatives for accelerating the uptake of
instruments and other measures for developing Chinas green financial market. The
Dialogue will consider issues identified by other relevant fora, notably the PBoCs
Green Finance Committee;

Building understanding of how public private partnerships (PPPs) can work to scale up
the investment required for Chinas low carbon transition to 2030. This will include

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identifying and providing recommendations on the policy and regulatory framework

and incentives required to mobilise private sector investment in low carbon
infrastructure as well as for increasing SMEs access to green finance;

Identifying the financing pathway for implementation of Chinas intended nationally

determined contribution (iNDC) and emissions peaking goal. This will draw on issues
related to the above, and also consider transitional issues in moving from a reliance
on coal to cleaner and more energy efficient options. Recommendations for Chinas
next 5 year plan as well as issues that may be important for subsequent periods of
economic and financial reform will be identified.

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