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Authors: Delpha Ho Denise Jong Gregory Wang Katherine Yang Michael J. Fosh Peter Zaman

China’s climate change objectives under the Paris Agreement will require it to invest a massive amount of capital into growing its domestic renewable energy generation, as well as invest in other emissions-reducing efforts. The government of China has adopted a green financing initiative that includes regulating its green bond market.

Green bond guidelines have been issued by the various regulators of the domestic (CNY) bond markets to encourage capital raising. These bond guidelines have led to RMB 34 billion of issuance in the first quarter of 2016 alone, with a required target of RMB 300 billion annually.

Although recent developments have made access to the CNY interbank bond markets easier for foreign investors (e.g. investment managers of pension funds and insurance funds), it is important to understand that there are important differences between international and Chinese green bonds.

Introduction Under the Paris Agreement, China has committed to reduce its carbon dioxide emissions per unit of gross domestic product by 60-65 per cent by 2030 from its 2005 levels, and to increase the share of its non-fossil fuels in primary consumption to around 20 per cent. This will necessitate a massive investment into renewable and nuclear energy and away from coal-fired power generation. According to China's Financial Research Institute at the State Council's Research Center, this investment translates into RMB 2.9 trillion (US$460 billion) worth of investment annually in the next five years. The government also wants 70 per cent of that investment to come from the private sector. It is expected that potentially RMB 300 billion of this could be annually financed by green bonds.

The purpose of this paper is to guide investors on some of the issues relating to investments in green bonds in China. This paper should be read as complementary to our other paper on the global green bond markets.

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