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May 9, 2017

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‘Mr Green Finance’ is a credit to cleaner environment initiative

MA Jun, chief economist at the People’s Bank of China, is sometimes called “Mr. Green Finance” because it’s his job to drive investment in clean energy and clean air.

The former Deutsche Bank econo­mist recently published a book entitled “The Economics of Air Pollution in China,” where he laid out 10 policy adjustments to green credit and green bonds.

Green credit, or loans to projects offering energy savings or emissions reductions, currently account for nearly 9 percent of outstanding loans in China, according to data compiled by the central bank.

Some players, like Industrial Bank of China, have re­cruited nearly 200 professionals with expertise in both environmental pro­tection and finance. However, the major­ity of other banks have been more hesi­tant to make such a large commitment on projects that are relatively long-term in profit and lower in returns.

“Usually, there are two types of con­cerns in that hesitation,” Ma said in a group interview at a forum in Kunshan last month. “One is the misbelief that lending to green projects is contradic­tory to risk controls and profitability; the other one is lack of confidence in their capability to select good green projects.”

The central bank, on the advice of “Mr. Green Finance,” is poised to include green credit into its risk moni­toring system and the assessment on banks’ performance.

“The central bank might entrust the banking association to give ‘green grades’ to banks,” Ma said. “To support that, the central bank can offer low-cost capital to commercial and other banks offering financing for green projects.”

The central bank is also encouraging banks to do environmental risk assess­ment on new loans, he added.

Industrial and Commercial Bank of China — world’s largest bank, with significant investments in coal, steel, cement and shipbuilding — conducted a stress test on investments in thermal coal and cement a year ago.

It found that policy changes related to pollution control and tougher envi­ronmental standards would likely have significant structural impact on both industries in coming years, thus justi­fying an adjustment in credit policy to those sectors.

“If other players in the industry would take a similar approach, we could form a national standard and thus assess the probability of default or credit loss ahead of lending,” Ma said. “It will also help develop priorities in bank loans and invest­ment in green firms.”

To support that initiative, the central bank will provide interest subsidies, set up nationwide green development funds and involve state-backed guarantee agencies to further lower the cost of green credit, he said.

In the future, green investment should also be opened to foreigners, Ma added, citing the example of allowing more over­seas institutions to buy green bonds from the mainland market. That will require consensus on what constitutes a green investment.

The central bank is working with the European Investment Bank to promote coordination on standards defining green finance.

“Hopefully that will provide more room to reduce the cost of green fi­nance,” Ma said. “If the bond connects between the mainland and Hong Kong scheduled by year’s end are imple­mented, more foreign investors could buy China’s green bonds at a relatively lower price.”

Acrucial step in all this will be attracting the interest of investors. Expecting market forces to do that without a push from the top isn’t likely to work, Ma said.

“China’s investors don’t favor green projects, but the government does,” he said. “In this case, government has to take the lead and be the promoter.”


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