China Report: Problems and Difficulties in the Development of China’s Green Finance

Country Paper

Authors: Wang Gang   

Published By: UNEP Inquiry    Development Research Centre of the State Council (DRC)    International Institute for Sustainable Development   

Date: Oct 2015

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China Report: Problems and Difficulties in the Development of China’s Green Finance

In recent years, financial market policy-makers and regulators in China have shown leadership in advancing their roles in creating a green financial system. However, the impacts to date have been constrained by countervailing forces. In particular, the performance criteria on which local government officials are assessed still prioritizes economic growth over environmental compliance. The positive externalities of green projects and negative externalities of pollution are still not yet fully monetized to provide an incentive for green investment, while weak implementation of environmental regulations provides perverse incentives for investing in polluting enterprises.

Green finance can help to counteract these pressures, but it suffers from an incomplete policy and legal system, with legislation still at the stage of guideline policies and declaratory documents that lack a system of accountability for violations or failure to implement. They offer only general policy principles instead of specific implementation rules. While it is clear that there are many problems and limitations in the current development of green finance in China, the foundations have been laid, and there is significant room for advancement.

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