China’s green bond debut is chance to capitalise on US retreat
Issuance of green bonds by China’s government and companies since 2015 has totalled more than US$540 billion and is second only to the US
CHINA’S impending listing of an inaugural sovereign green bond in London will test appetite among international investors to shift climate bets to the world’s top polluter.
The yuan-denominated bond, scheduled to debut before the end of the year, is aimed at showcasing the nation’s green leadership credentials as the US retreats under President Donald Trump. It’s also intended to bolster demand after Chinese issuance fell to a second annual decline in 2024.
“It’s positive that China wants to give a new impetus to the green finance market,” said Ramnath Iyer, research lead for sustainable finance in Asia at the Institute for Energy Economics and Financial Analysis. Supporting the green bond market can also help “burnish its credentials even more”, he said.
Governments and companies globally issued about US$708 billion worth of green bonds in 2024, 8 per cent higher than a year earlier, according to data compiled by Bloomberg Intelligence. Europe continues to dominate the market, though Asia could become a source of new growth – particularly with activity in the US likely to remain muted, AXA Investment Managers said last month.
Under Trump’s second administration, the US has signalled its intent to withdraw again from the Paris Agreement on emissions reductions, has revoked international climate funding and is exploring legal options to cancel loans issued under a US$400 billion programme for clean energy technologies. In Europe, the green agenda is also facing pushback amid complaints about over-regulation and economic challenges.
“China is the last saviour of the green transition,” Alicia Garcia Herrero, chief economist for Asia-Pacific at Natixis, said during a briefing this month in Hong Kong. Green bonds could be “another layer of the argument, and there’s a lot of demand in Europe”, she said.
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While carbon emissions are likely to peak in China ahead of its 2030 target, helped by the installation of record volumes of renewable energy, the nation’s climate progress remains uneven. Emissions probably expanded last year amid surging electricity demand, which helped push coal and natural gas production to records.
Issuance of green bonds by China’s government and companies since 2015 has totalled more than US$540 billion and is second only to the US, the Bloomberg Intelligence data show. However, those sales have been mainly onshore or in Hong Kong, and overseas investors account for only 1 per cent of China’s green bond market.
China has so far not provided details on the planned bond sales in London, including the timing and proposed size. The issuance should be at least US$3 billion, said Kuan Weng Pang, a portfolio manager at Azimut Investment Management in Singapore.
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Asia’s largest economy has taken steps to attract more foreign capital by better aligning its standards with the European Union and the International Capital Market Association. In talks last month, Chinese and UK officials pledged to cooperate on products including dual-currency sustainability-related debt and biodiversity bonds.
Investors in Europe – the largest sustainable debt market – will closely scrutinise China’s planned use of proceeds to ensure compatibility with the region’s stringent green rules. Some ethical funds may also be reluctant to invest in China due to social and governance concerns.
The energy and transport sectors have been the most common recipients of funds generated by China’s offshore green bond listings, the Climate Bonds Initiative said in a report published last year.
Proceeds from some securities issued by local governments have also been directed towards energy-efficient buildings, water and wastewater utility services, flood management and resilience, said Nneka Chike-Obi, head of Asia-Pacific ESG ratings and research at Sustainable Fitch.
The London bond listing will allow China “to get a lot of feedback from international investors” during roadshows, and provides an opportunity to deliver assurances about its green plans, Chike-Obi said. “It can also help to provide another layer of credibility in the international market as far as how committed as a government you are to your other decarbonisation programmes,” she said.
Climate-focused investors that have not so far purchased green bonds from Chinese issuers are likely to at least examine the sovereign bond. That includes Bertrand Rocher, co-head of fixed income at Paris-headquartered Mirova.
“We would love to be in a position to fund the Chinese economy. For the time being, we think the conditions are not met,” Rocher said. “Maybe this green bond will be a first step in the right direction, so we will look at it with a lot of attention.” Mirova manages 7.2 billion euros (S$10 billion) in fixed income.
To be attractive to international investors, China’s green bond would likely need to yield at least 20 to 30 basis points above the benchmark rate, Azimut’s Pang said. China’s offshore 10-year benchmark is trading near a 1.6 per cent yield. BLOOMBERG
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