Investment bankers helped polluters make ‘too much money’, says ex-PBOC chief economist
The financial systems are designed to allocate resources to the wrong sectors and activities
[HONG KONG] When Dr Ma Jun was hosting a conference in Beijing more than a decade ago in 2013, he noticed that many in the audience were coughing incessantly.
At one point, the coughing got so violent that it drowned out his own voice. He realised this was caused by the smog enveloping the eastern part of China, where the air pollution index was several times higher than levels recommended by the World Health Organization.
“So it was a big, big shock to even myself at least, because I was reflecting on what we did in the financial system, especially investment banking. What we did in the past decades was to mobilise financial resources to support the polluting industries, and we channelled so much money which made them make a lot of money,” said Dr Ma, who then went on to become the chief economist at the research bureau of the People’s Bank of China (PBOC) between 2014 and 2017.
Many of these heavy emitters, which included companies in the steel, cement, petrochemical, oil and gas and coal sectors, were among the most profitable companies and made “too much money” back then, said Dr Ma, who was speaking to journalists on Tuesday (Oct 29), at a conference organised by Hong Kong public policy think tank Civic Exchange. Investment bankers who structured such transactions, in turn, became very profitable themselves.
Realising that the way financial systems were designed was problematic as it allocated resources into the wrong sectors and activities, he set out to develop a national green finance policy framework at China’s central bank.
A decade on, China has become the world’s largest green lending market.
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With the green finance ecosystem maturing, Dr Ma said there is now a need to move on to transition finance, which once again, involves channelling capital to these heavy emitters but for the purpose of decarbonising their businesses.
This would involve establishing transition taxonomies for all major economies, not just China. From there, there is also a need to develop more transition finance products, which are still very nascent in the market.
Despite the progress the world’s second-largest economy has made on this front, China is still the world’s largest emitter of greenhouse gas, overtaking the US in 2006. Its per capita emissions, however, is lower than the US and other developed markets.
Given geopolitical tensions between both countries, China – and sometimes other fast-growing emerging economies – has often been vilified in climate change debates despite its progress.
Among the latest moves in these escalating tensions was the US hiking tariffs on electric vehicles imported from China to 100 per cent, and proposing to ban China-made automotive hardware and software.
In order to navigate these geopolitical complexities, both parties are trying to carve out focus areas within climate finance they can collaborate on, with Dr Ma recently leading a Chinese delegation consisting of business, industry, academic and think tank representatives, to have a dialogue with its US counterparts.
“The idea was proposed that, if so many things cannot be collaborated on – for example, artificial intelligence, biotech... can we focus on climate change? If they think within the climate space, (and they cannot collaborate on) electric vehicles... for whatever reason, then we can focus on other parts of green,” he said.
What the representatives managed to land on was the circular economy – a non-politicised and less sensitive area of climate change where both parties can collaborate. This includes food waste management and plastic recycling.
However, the white list containing acceptable areas of collaboration – which is being worked on – has turned out to be “narrower” than initially hoped, noted Dr Ma.
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