ABSTRACT
This chapter examines the growth and development of green finance in China from the perspective of public policy theory. China has quickly become the world's largest green finance market, with about CN ¥11 trillion (some US $1.8 trillion) outstanding in green credit and CN ¥1 trillion (US $190 billion) in green bonds, second only to the United States. This aligns well with its 12th (2011–2013), 13th (2016–2020), and 14th (2021–2025) Five-Year Plans, and their promotion of green and low-carbon development, including China's international commitments to addressing climate change. We find that in contrast to the bottom-up approach to green finance found in developed economies, with its focus on market innovation through private sector investment and financing, the approach taken in China is very much top-down, with an emphasis first on the formulation of public policy and then rapid implementation through a state-controlled and bank-concentrated financial system. Some challenges remain. First, the emphasis on banks through public policy has resulted in the green bonds market being less developed than it might otherwise have been. Second, definitional inconsistencies in public policy in what precisely constitutes a green bond in China have increased the risk of “greenwashing”, or exaggerated environment-friendly claims, and acted against the international green finance capital flows China needs to meet its climate change commitments.
