China Soars to Become the Globe's Largest Green Credit Market

Financials Author: Yuehan Li Editor: Yiru Qian Oct 30, 2023 09:27 AM (GMT+8)

China leads the world in green finance with technology-driven growth and innovation, poised to achieve environmental goals

Green Finance

Paulson Credit Opportunity Funds and Beijing Institute of Finance and Sustainability jointly released a report titled "Financial Technology Driving China's Green Finance Development: Cases and Prospects (2023)"(Chinese:金融科技推动中国绿色金融发展:案例与展望(2023)) on October 26 in Beijing. The report highlights China as the world's largest green credit market and the second-largest green bond market in terms of the scale of green financial products. 

Digital technology plays a crucial role in advancing green finance, applied in green credit and expanding into various areas. As green finance develops, the importance of technology-driven support in green inclusivity, carbon accounting, biodiversity financing, and transformation finance has become increasingly evident. 

By the end of 2022, China's green loans, denominated in both domestic and foreign currencies, reached an impressive CNY 22.03 trillion, with a remarkable year-on-year growth of 38.5%, surpassing the growth rate of all loan types by 28.1 percentage points, shown by the People's bank of China. Equally remarkable is China's green bond market, which stood at CNY 1.4 trillion in 2022, securing its position as the world's second-largest market globally. This market saw 610 issuances, totaling CNY 804.4 billion, with a year-on-year increase of 32.3%. As a result, China has claimed its position as the world's largest green credit market and the second-largest green bond market. 

In 2022, green financial bonds remained the dominant force in China's green bond market, comprising about a third of the total issuances at CNY 356.63 billion. Notably, blue bonds, carbon-neutral bonds, and transformation bonds have emerged as the most innovative and popular categories in the past two years.

Moreover, the report highlights that China's green insurance market is in its early stages, primarily offering catastrophe and environmental liability insurance. There is significant room for expansion in both coverage and size. As per the Global Insurance Market Development Report, China, the largest insurance market in Asia, is poised for a 9.5% average growth rate in the coming decade, likely leading to an increased green insurance market.

Financial technology plays an integral role in supporting the development of green and transformational finance. Fintech has inherent technological advantages for enhancing data accuracy, reliability, and traceability, which can effectively fulfill the growing information disclosure needs for sustainability in green finance as well as the "dynamic" information disclosure requirements in transformation finance.

This report is the fourth in a series that delves into China's green finance advancements and future possibilities. It reviews developments from 2021 and 2022, examining three novel cases in transformation finance, green inclusive finance, and carbon asset management. These cases provide a blueprint for how financial technology can contribute to realizing environmental and climate objectives.