Mainland China green bond sales to rise on high demand, international alignment

Mainland China could accelerate the issuance of green bonds to meet growing demand from local investors. Continuing efforts to align with international standards may also help boost issuance.

The world's second-largest economy sold $18.71 billion of green bonds aligned with global standards in the April-to-June period, a 30.5% decline from the same quarter a year ago, according to data from Climate Bonds Initiative (CBI). However, the issuance of so-called nonaligned green bonds jumped 43.7% to $16.30 billion, bringing total sales to $35.01 billion, according to CBI.

Mainland "China is an idiosyncratic market in Asia because it has its own well-developed internal framework for green bond issuance and also because it has a large base of investors who are aligned to those standards," said Alan Siow, co-portfolio manager at investment firm Ninety One Hong Kong. "This means that, uniquely in Asia for the moment, [mainland] China has both the sufficient demand and supply for green bond issuance to support a meaningfully sized market."

Major player

Mainland China is seeking to grow its green bonds markets and has emerged as a major global green bonds issuer. The country is active in both the internationally aligned and nonaligned green bond markets. In the second quarter, mainland China's sales of internationally aligned green bonds was second only to Germany's $24.13 billion, CBI data showed. After a dip in the first quarter, mainland China's green bond issuance rebounded even as the central bank maintained a policy easing bias to support the economy.

Mainland "China's green bond policies not only serve the national strategy of green and low-carbon development, but also aim to enhance international cooperation in this area," said John Hai, head of global debt finance at CITIC CLSA. "To achieve such goals a more internationally aligned green regime is necessary," Hai said, noting that the 2021 Green Bond Endorsed Projects Catalogue that sets the nation's rules for green bond approval and registration is broadly aligned with the world's mainstream taxonomy of green assets.

"We believe that [mainland] China's green bond standard will continue to evolve and become better aligned with international standards," Hai added.

Regional blip

Green bond issuance stayed modest in Asia-Pacific, CBI data showed. In the second quarter, the region issued $30.82 billion in green bonds, a 28.6% decline year over year.

"Countries like Japan and India have a long-standing commitment to green development, which creates continued need for green financing," Hai said, estimating active issuance to resume in both markets over time.

Green bond issuance in Asia-Pacific has improved after a decline in the second half of 2022, according to the data.

Ninety One Hong Kong's Siow also expects green bond issuance in the region to recover, "assuming that continued progress is made in the harmonization of global green bond issuance requirements and goals."