Developing Green Finance in Tianjin: 10 Policy Measures

On November 24, 2020, the Tianjin Branch of the People’s Bank of China issued the Guiding Opinions for Further Promoting Innovative Development of Green Finance in Tianjin (“Guiding Opinions”). This put forth 10 policy measures to drive the development of green finance in Tianjin.

Under China’s development strategy, green finance refers to financial services provided for economic activities that support environmental protection, climate change mitigation, and promote or facilitate the efficient use of resources. The said activities include financing, project operation, and risk management of projects related to environmental protection, energy saving, clean energy, green transportation, and green building financial services.

The establishment of a green financial system was first proposed in March 2016, when the National People’s Congress (NPC) passed the Five-Year Plan for Economic and Social Development of the People’s Republic of China; it is now a core part of China’s national development strategy.

The main framework for China’s green financial system is given by the Guidance on the Construction of a Green Financial System (“Guidelines”) – Yinfa [2016] No. 228, jointly issued by People’s Bank of China and six other agencies with the approval of the State Council in August 2016 – that facilitates the implementation of the overall strategy for promoting ‘ecological civilization’, and advance the development concepts of innovation, harmony, greenness, openness and sharing, and promote the establishment of China’s green financial system.  

The Guiding Opinions of Tianjin have been introduced at the local level to further implement the abovementioned Guidelines. These will have practical significance in promoting the innovative development of Tianjin’s green finance and improving the level of green development.

Green finance in Tianjin: What are the new measures?

The Guiding Opinions introduce measures under 10 categories, with the purpose of strengthening the improvement of the green financial organization system, accelerating the innovation of green credit products and service methods, vigorously developing the green bond market, actively promoting the development of green leasing business, innovating and developing green supply chain finance, and coordinating the development of emissions trading.

1. Improving the green financial organization system

The improvement of the green financial organization system shall regard all the institutions involved. Thus, banks, financial leasing companies, intermediaries agencies –  such as credit rating, information consultation, and environmental risk assessment – trust companies, and auto financing companies are all encouraged to improve their green financial services capabilities (for instance by establishing green finance business units, green finance business centers, green finance franchised branches, or green leasing franchise departments), to actively expand the green finance business, and to provide relevant professional services.

2. Innovating green credit products and services

In order to accelerate the innovation of green credit products and services, Tianjin encourages  financial institutions to improve the green credit management system, to vigorously develop energy efficiency credits, to promote the innovation on green credit products in sectors, such as clean production, clean energy, recycling economy, green buildings, green consumption, etc., to support green agricultural projects, and to encourage the provision of credit support for projects related to the treatment of urban black and odorous water where the risks are manageable.

3. Developing the green bond market

Among the measures introduced to develop the green bond market, the Guiding Opinions state that qualified financial institutions are supported to issue green financial bonds and reduce capital costs. Besides, qualified non-financial enterprises can issue green debt instruments under guidance, while financial institutions and non-financial institutions are supported to issue securitized products. Moreover, overseas parent companies or subsidiaries of foreign-capital enterprises are encouraged to issue green debt financing instruments.

4. Developing green leasing business

With the purpose of promoting the development of green leasing business, financial leasing companies are encouraged to strengthen the layout of green leasing business in the Beijing-Tianjin-Hebei area, explore ways to carry out financial leasing of pollution control equipment, and improve the ability of managing green leasing assets. In addition to this, such companies are encouraged to issue green financial bonds, and to carry out cross-border financing in RMB and foreign currencies under the macro-prudential policy framework of full-caliber cross-border financing.

5. Developing green supply chain finance

With reference to the green supply chain finance development, the financial institutions are encouraged to strengthen their business connections with core green supply chain companies, actively develop the supply chain finance, as well as relevant financial products and services. Furthermore, the Guiding Opinions prescribe that to achieve such development – internet, big data, blockchain and other technologies shall be used to enhance the risk control capabilities of supply chain finance and to reduce the overall cost of the business.

6. Promoting emission trading

Financial institutions are requested to refer to the Tianjin Emissions Rights Exchange to carry out financial product innovation and launch financial products with Tianjin green finance characteristics.

7. Consolidating the foundation for green finance development

In order to fortify the green finance system and allow its development, the Guiding Opinions introduce measures, such as promoting the construction of a green financial statistics system, improving the green financial information sharing mechanism, organizing projects promotion meetings, and enhance the efficiency of bank-enterprise cooperation. Moreover, enterprises are encouraged to use RMB in cross-border green-related trade.

8. Enhancing risk prevention and control mechanisms

One of the aspects covered under the Guiding Opinions is the improvement of the mechanisms to monitor and prevent risks in green financing. In this regard, the following measures are introduced –  involving third-party professional agencies in funds usage evaluation to ensure that such funds are invested in green projects; improving the risk analysis capabilities of banks and any other entity that may issue green credit and bonds; improving environmental and social risk assessment and related management processes; and improving internal reporting systems, public disclosure systems, and accountability systems.

9. Increasing the policy support to green finance development

Pursuant to the Guiding Opinions, green finance development shall be achieved by implementing policies and measures aimed at supporting the steady and healthy development of small, medium, and micro enterprises in the green industry. Other policies and measures to be adopted include, for instance, the full adoption of monetary policy tools, such as refinancing and rediscount,  the improvement of the evaluation of green credit performance, and the provision of more convenient financial services for cross-border financing.

10. Strengthening publicity research and talents building

In the context of green finance, the Guiding Opinions underline the importance of having professionals, talents, and researchers to promote and diffuse knowledge of concepts, policies, and products related to green finance. To this purpose, various measures shall be adopted, such as organizing seminars, deepening the cooperation between financial departments, financial institutions, and scientific research institutes, and investing in the training of new talents and practitioners.

The role of Tianjin in China’s sustainable development

Over the last few years Tianjin has put unprecedented efforts to reduce environmental pollution and to develop the region’s green financial system, thus protecting natural resources while accelerating the construction of an ecological civilization.

By the end of the third quarter of 2020, the balance of green loans in local and foreign currencies in Tianjin was RMB 318.430 billion (approx. US$ 48.6 billion), accounting for 11.8 percent of the loans to enterprises and institutions in the same period – 1.3 percentage points higher than that of the whole country.

Green loan balance of financial leasing companies reached RMB 102.117 billion (approx. US$15.6 billion), accounting for 32.1 percent of the green loan balance in Tianjin, proving the city’s leading role in the green leasing business segment in China.

Considering the region’s efforts, the Tianjin Branch of the People’s Bank of China has shown by issuing the Guiding Opinions that it intends to play an active role in developing green finance and promoting the implementation of the “six stability” and “six guarantees” strategy.

In this regard, is worth noting that the Chinese government’s plan is to ensure stability on six fronts and security in six areas: the first refers to employment, the financial sector, foreign trade, foreign investment, domestic investment, and expectations, while the six areas include job security, basic living needs, operations of market entities, food and energy security, stable industrial and supply chains, and the normal functioning of primary-level governments.

The final goal of the government is, to use Premier Li Keqiang’ s words, “maintaining security to guarantee the stability needed to pursue the progress, thus laying a solid foundation for accomplishing the goal of building a moderately prosperous society in all respects.”

The Guiding Opinions, by emphasizing the key role played by green finance in sustainable development, intends to implement the central government’s strategy – pursuing progress by protecting the environment.

Indeed, by means of the Guiding Opinions, green finance reforms already implemented in other pilot zones will be replicated in Tianjin, where the development of green supply chain finance will be continuously promoted. This will also inevitably accelerate the innovation of credit products and services in clean production, green manufacturing, green building, green consumption, and related fields.

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