MNI INTERVIEW:China Should Open C02 Trade To Global Investors

China should establish a "Carbon Connect" modelled on existing schemes for equities and bonds to allow foreign investors to trade in its domestic emissions market, a prominent policy advisor told MNI, in which he also predicted green bond issuance would grow by at least 20% annually over the next five years.

Overseas portfolio investors could be granted access to a potential Greater Bay Area carbon market, formed by including Hong Kong and Macao in the Guangzhou-based China Emissions Exchange, Ma Jun, Chairman of the Green Finance Committee of China Society for Finance Banking, said in an interview.

China, which is developing a roadmap to implement its carbon neutrality target and is set to launch a nation-wide carbon market by the end of June, already has seven regional carbon markets. The Guangzhou exchange, one of seven regional markets but host to over 60% of the total trading volume, is best suited for opening up to foreign investors, said Ma, a former member of the PBOC's monetary policy committee.

"A well functioning carbon market should be liquid, with participation of financial institutions, and ideally, open to international investors," he said.

GREEN BONDS

Green bond issuance is also set for sustained growth after a Covid blip, fed by the need to upgrade China's energy sector, and could more than double from 2020 levels to about CNY500 billion as of the end of 2021, said Ma. Sales have already got off to a roaring start in 2021, jumping 100% year-on-year in the first quarter, boosted by both base effect and by calls by President Xi Jinping for an effort to meet national emissions goals.

Issuance fell to about CNY210 billion last year, as the pandemic battered the economy and the PBOC responded with large-scale provision of cheap credit, including fiscally-subsidised green loans at a 200-basis-point discount versus market rates, he pointed out.

So far, all Chinese green bond issuance has been at ratings higher than AA, with no defaults in the category so far.

Ma, also co-chair of the G20 Sustainable Finance Working Group, was optimistic with regards to potential Chinese cooperation on climate change and sustainable finance with the U.S., noting that the two nations share more common ground in the area than in other fields.