Green bond issuance in China is expected to accelerate in 2024 after the country emerged as the top global market for sales in the fourth quarter of 2023.

Sales of internationally aligned green bonds in China totaled $21.83 billion in the final three months of 2023, up 131% quarter over quarter, according to Climate Bonds Initiative data. With sales of $12.87 billion during the period, the US was pushed into the second spot, while Germany took third place with sales totaling $7.14 billion.

Ambitious domestic green policies and easing financial conditions both at home and abroad are likely to support further expansion of the market in China over the coming months.

"The issuance momentum could maintain as China needs to support its economy in a green manner, amid an anticipated easing of overseas financial conditions towards the latter part of 2024," said John Hai, head of global debt finance at CITIC CLSA.

Major player

The acceleration in globally recognized issuance in China, which has more than doubled since 2019, has been supported by ambitious climate policies. China expects carbon dioxide emissions to peak by 2030 and aims to become carbon neutral by 2060 with a fully established green, low-carbon and circular economy, according to the State Council, the top administrative body. As one of the world's most populous countries, China is currently the biggest emitter of greenhouse gases by volumes, according to the World Resources Institute.

"Looking through the noise of macro conditions, we expect countries which are further off the net-zero finish line [such as] China to see increasing green bond volumes in the coming quarters compared to other major economies," Andrew Chew, director of sustainable finance at ING APAC said in comments emailed to S&P Global Market Intelligence.

In November 2023, the US and China, the world's biggest economies agreed to support the global effort to triple renewable energy capacity by 2030. Both aim to replace fossil fuels in electricity generation and achieve substantial reductions in power sector emissions, according to a release from the Ministry of Ecology and Environment of China.

The agreement "is a mammoth task requiring commensurate financing, especially so given China's leading position in the solar and wind power manufacturing supply chains," Chew said. "A significant part of this required financing will come from the green bond market, and hence I see green bond issuances in China improving in 2024."

While sales of internationally aligned green bonds in China surged in 2023, there was a degree of volatility in issuances across the year due to factors including uncertainty in the real estate sector. Both investors and issuers monitored troubles unfolding for developers, including the winding-up of China Evergrande Group, once one of the top homebuilders in the country by sales.

"The fourth quarter of 2023 saw a bit of respite in the financial uncertainty surrounding China's top real estate developer, resulting in windows of benign market conditions for bond issuers, including green issuers, to tap into," Chew said. Pent-up supply from the previous quarter also contributed to the quarter-over-quarter jump, he added.