China continues with its monetary easing policy, which makes for an ideal debt-issuing environment. Source: owngarden/Moment via Getty Images

Green bond sales in China are expected to rise as the world's second-biggest economy diverges from the rest of the world, continuing to ease monetary conditions to spur economic growth.

China bucked the global trend and sold $37.64 billion of green bonds in the first quarter of 2022, compared with $25.18 billion in the same period of last year, according to data from Climate Bonds Initiative, a U.K.-based green debt tracker. That contrasts with the global sales of green bonds, which fell 34.63% year over year to $83.8 billion in the first quarter.

"The substantial monetary policy divergence between China and the U.S. is helping China avoid the current global bond market rout as central banks across the globe raise interest rates to stem inflation," said Anish Ailawadi, senior director and head of investment banking at research and analytics firm Acuity Knowledge Partners.

The People's Bank of China cut reserve requirements for banks and reduced its loan prime rate twice this year, seeking to support the economy and meet the government's aim of 5.5% GDP growth in 2022. Most global central banks, including the U.S. Federal Reserve, have made sharp corrections to their monetary policy settings as inflationary pressures mount.

Strong demand

Investor demand continues to be strong for green finance instruments, with oversubscription to green bonds being fairly common, said John Ploeg, co-head of environmental, social and governance research at PGIM Fixed Income. That would support issuance through this year.

"This growth is likely to be a result of the number of initiatives by the Chinese government to boost the green finance market as it aims to transition to a low carbon economy and meet its 2030 emission reduction targets as well as its carbon neutrality target before 2060," Ploeg said.

Green bonds may also get a boost from the Chinese government's efforts to prop up economic growth. Among stimulus measures announced in late April was an increase in public infrastructure spending, which includes green energy, said Rajiv Biswas, Asia-Pacific chief economist at S&P Global Market Intelligence.

China's issuance of bonds that do not align with international standards, as defined by Climate Bonds Initiative, also continues to grow. A total of $16.28 billion in green bonds that align with the local definition were sold in the first quarter, compared with $7.70 billion in the same period last year.

The current investors in China's green bonds are mostly domestic. However, the government's efforts to collaborate with the EU may make the Chinese green bond market more accessible to international investors in the future, said Joep Huntjens, head of Asian fixed-income at NN Investment Partners.

Ranina Sanglap contributed to this article.