[BEIJING] China will launch its first carbon-dedicated trust fund next month, as part of its attempts to lure a wider range of investors into fledging CO₂ markets.
The trust fund, which has reached a total of 50 million yuan (S$11.28 million) in its first 18-month phase, has been set up by CMB Sinolink Investment, a subsidiary of China Merchants Bank, partnered by officially registered trust company JIC Trust.
Ji Cheng, managing director of CMB Sinolink, said it planned to grow the fund to 300 million yuan with the term extended to five years, as China's existing pilot CO₂ trading markets are scheduled to begin integrating with a new nationwide exchange.
"We've seen the markets are growing mature, supported by intensive policy releases to rein in emitting companies," said Mr Ji. "The opportunities are ripe for financial institutes to participate."
The company plans to raise 300 million yuan this year, positioning itself ahead of the launch of the national market, which regulator the National Development and Reform Commission expects to be worth up to 400 billion yuan.
"We are targeting secondary trading in both permits and offset credits, and project development in the primary market," said fund manager Pang Binfeng.
To reach annual returns of 9.5 per cent, the fund will carry out arbitrage in cross-regional, cross-product and calendar spreads, said Zhang Xuhang, a CMB investment consultant.
More than 2,000 companies are now obliged to participate in seven separate regional CO₂ markets in Beijing, Tianjin, Shanghai, Guangdong, Shenzhen, Hubei and Chongqing.
Permits issued by one exchange cannot be used elsewhere for compliance purposes, but they are allowed to buy offset credits to meet 5 per cent to 10 per cent of their obligations.