China Green Bond Market Newsletter Q3 2019中国绿色债券市场季报 2019 第三季度
July-September 2019/2019 年 7 月- 9 月

Market overview
Green bond market increase in Q3 2019
Both global and Chinese green bonds issuance have increased
significantly in Q3 compared to the same quarter of 2018, although
the total amount of global green bonds that are aligned withinternational definitions decreased from last quarter.

Total Q3 Chinese issuance: USD14.5bn/CNY104.3bn
Onshore issuance: USD13.9bn/CNY100.2bn

80

Offshore issuance: USD600m/CNY4.1bn

60

Issuance that meets international definitions:
USD5.8bn/CNY40.3bn

40
USD Billions

At a glance

Largest issuer: Industrial Bank Co., Ltd at USD2.9bn

20Largest issuing sector: Low Carbon Transport

0
Q1

Q2

Q3
2018

Q4

Q1

Q2

Q3

2019

Pending
China issuance not aligned with international definitions
China issuance aligned with international definitions
Global issuance aligned with international definitions (excl. China)

Despite the surge from the same period last year, the USD14.5bn
worth of green bonds dropped by 2% from Q2. Only 40% (orUSD5.8bn) of the Q3 volume from Chinese issuers is in line withinternational green bond definitions. Another 45% is aligned with
China’s domestic green bond definitions only
There are 15 deals on the Pending list, all from onshore issuers. They
account for USD2.1bn or 15% of Q3 volume. The largest deal on thelist is China Three Gorges’ CNY3.5bn (USD509.2m) bond which
finances hydropower, but the information provided was not enoughfor us to determine if this relates to existing or new reservoirs withhigh density (preferably 5W/sqm or higher). BYD Company Limited
ranked second on the pending list with issue amount of USD490m(CNY3.48bn) as we are seeking further clarifications on allocations.
Green bonds on Pending list
Sometimes use of proceeds details are not available or insufficient at
issuance, so we cannot make an immediate assessment on the green
credentials of the bond. So, the bond is marked as Pending. Further
research is carried out by the end of the next quarter. If no further
information becomes available or the information obtained does notshow alignment, the bond is added to the excluded bond list.

Proceeds for general use remains primary reason for exclusion
By amount issued, 63% of all excluded Chinese green bonds in Q3
allocated more than 5% of proceeds to general corporate purposes
or working capital, with no disclosure if they finance green assets or
projects. For example, Guangzhou Metro Group allocated 60% ofproceeds to finance metro construction, and the rest 40% tosupplement general corporate working capital.

China Green Bond Market Newsletter Q3 2019 Climate Bonds Initiative

Greater levels of alignment might be achieved if Chinese issuers
provide more clarity on the use of proceeds for working capital.
Tightening NDRC regulations, which allow up to 50% of green bondproceeds to be allocated to working capital, and Shanghai Stock
Exchange rules, which allows 30% for bonds listed on it, would help.
2%
Working capital/General needs

35%
63%

Not aligned
Insufficient information

35% of all excluded bonds are not in line with international green
definitions. For example, ‘replacing the small coal powered plants
with the bigger ones’ is eligible in China’s local context but is notconsidered as green by international investors. The remaining 2% failto provide sufficient information.

Most Chinese green bonds are issued domestically
In Q3 2019, 96% of Chinese issuance was issued domestically(onshore). Specifically, 69% were placed on the China Interbank
Bond Market, followed by listings on Shanghai Stock Exchange with
USD3.6bn (CNY25.8bn), or 25% of the Q3 total.
Shenzhen Stock Exchange
2%

offshore
4%

Onshore96%

Shanghai Stock
Exchange25%

China Interbank Bond Market
69%

Hong Kong Stock Exchange (HKEX) was the offshore venue for CGN
Power Company International’s USD600m bond listing.

1

Government-backed entities step up issuance

Low Carbon Transport increases its dominanceAs the largest sector for bonds aligned with Climate Bonds
definitions, Transport’s share rose to 46% of issuance volume in Q3.
Water (22%) and Renewable Energy (20%) followed.

20
16

Transport: The prevalence of commercial banks among transportrelated issuance grew to over 50%, driven by Industrial Bank andChina Zheshang Bank. Dedicated regional railway and urban transit
issuers included Sichuan Railway Investment and Wuhan Rail Transit
Construction, the latter issuing Q3’s only green ABS. Beijing
Infrastructure Investment, and Anshun Automobile Trucking issued
the other two aligned bonds.

USD Billions

12
8
4
0
Q1

Q2

Q3

Q4

Q1

2018

Q2

Q3

2019

Financial corporate

Non-financial corporate

Policy Bank

Government-backed entity

ABS

Government-backed entities had the strongest quarter on record,reaching USD4.8bn in issuance. However, the vast majority of this(75%) refers to deals that are not aligned with Climate Bonds
definitions.
Financial corporates remain prolific issuers with USD4.6bn issuance,
despite not being at the top this quarter. Within this issuer type,
USD3.7bn of issuance conforms with CBI definitions. The three deals
that did were issued by Industrial Bank, China Zheshang Bank andHangzhou United Rural Commercial Bank. The largest was by far
Industrial Bank’s, for an amount of CNY20bn (USD2.9bn).
Non-financial corporates dropped to 3rd place. This is composed of
24 deals from 19 issuers, with only 17% aligned to our definitions.
Aligned deals were from issuers from different industries. For
example: CGN Power International (energy) and China Jushi(manufacturing).

Water: Q3 was a relatively strong period for the water sector with
USD1.3bn from five deals. Most of this (82%) came from Industrial
Bank’s deal, with 36% of proceeds financing water projects. Stateowned Tongling Construction and Fuzhou Water Affairs were the 2nd
and 3rd largest, respectively.
Energy: Energy-related issuance was weaker than usual at USD1.2bn.
Unlike most other sectors, it was dominated by a non-financial
corporate (CGN Power International), which issued a USD600m deal
in July to finance wind power. As in transport, Industrial Bank andChina Zheshang Bank were the two largest financial corporates.
0.3%

1%
Renewable Energy

8%

Low Carbon Building

20%

22%

3%

Low Carbon Transport
Water
Waste
Land Use

46%

Industry

According to China’s local green bond definitions, the top three
Two aligned ABS were issued by Wuhan Rail Transit Construction and categories are Clean Transport , Clean Energy and and EcologicalProtection and Climate Change Adaptation.
Guizhou Anshun Automobile Trucking Company.

60% of issuance carries an external review
Deloitte had a strong quarter, achieving 24% market share among
deals with an external review, solely due to providing an assurance
for the CNY20bn(USD2.9bn) Industrial Bank deal. Lianhe Equatorfollowed in 2nd place with USD1.1bn. EY ranked at the 3rd , having
reviewed two deals: the bonds from China Zheshang Bank and Qilu
Bank.
The rest were Chinese providers. Zhongcai Green Financing and
CECEP make up the top 5. The share of green bonds without anexternal review was quite high in Q3 at 40%.

Deloitte
24%

Lianhe Equator

40%

EY
8%

Zhongcai Green Financing
CECEP Hundred8%
5%

3% 6% 6%The iGreenBank
OthersN.A

China Green Bond Market Newsletter Q3 2019 Climate Bonds Initiative2

Climate Bonds discussion: Sustainable waste management
BackgroundThe consultation paper of Waste criteria of Climate Bonds
Standards indicates that the waste sector has the potential tocontribute a 10-15% reduction in global greenhouse gas
emissions. Opportunities in prevention, reuse, recycling, andenergy recovery can achieve significant mitigation by reducing
landfill emissions, reducing emissions linked to resource extraction
and production using virgin materials, and providing an alternative
energy source that substitutes fossil fuels.
The enforcement of waste sorting regulations in China
Starting from early 2019, a couple of cities in China have launchedpilot programs to create “waste-free cities”, aiming to eliminate
environmental impact caused by municipal waste and to use
resources more efficiently. Cities including Shanghai, Beijing,
Guangzhou, Shenzhen and Hangzhou have enacted or revised
regulations on waste classification and have enhanced theguidance on residents’ behaviour, strengthened enforcement
powers and improved classification in the whole process.

The largest issuer segment are financial corporates, representing 68%
of the total. The largest non-financial corporate issuers include
dedicated WEEE recycling companies such as Zhejiang Huayou Cobalt
Co., Ltd, and comprehensive waste and water management
corporates such as Tus-Holding, Capital Environment Holdings andChina Energy Conservation and Environmental Protection Group.
Future trends
Green bonds provide a channel for waste management facilities
financing by introducing both public and private investment. In China,
there are 46 cities currently involved in a waste management pilot
program, according to the Ministry of Housing and Urban-Rural
Development. By 2022, every city at the prefecture level and above
should have at least one district where all household garbage isclassified. Therefore, we expect to see a surge in waste management
and recycling facilities financing.
Eligible green assets according to the Climate Bonds Taxonomy
Waste management asset typeFor example, Shanghai's regulation requires residents to sortmunicipal waste into four categories - dry garbage, wet garbage(kitchen waste), recyclables and hazardous waste. Individuals who
fail to do so may face fines.
Waste infrastructure financing in China – challenges andopportunities
According to World Bank research, China’s solid waste
infrastructure is struggling to cope with unprecedented levels ofwaste generation. With the tightening of waste sorting andmanagement regulations, the demand for investment in waste
management facilities is expected to increase.
China’s government is seeking to address the situation throughmeasures such as increasing public investment, introducing“marketization” reforms, and encouraging private sector
participation.

Preparation

Facilities and assets with high recovery rates ofreusable or recyclable material; Collection ofwaste that is going to landfill

Reuse

Facilities refurbishing or repairing products or
cleaning components or products for reuse in
their original function

Recycling

Facilities for recycling or metals, plastics, glass(except aggregate) and paper

Biologicaltreatment
facilities

Facilities for the production of biogas fromorganic waste; Facilities for the production ofcompost from organic waste

Waste toenergyFacilities for solid waste treatment withproduction of electricity or heat as a by-product

Closed landfill

Projects to add gas capture to existing, closed
landfill facilities

Radioactive
waste

Nuclear waste treatment; Nuclear waste
disposal

Green bond financing for waste infrastructure
57 Chinese entities that have issued green bonds fully or partiallyfinancing waste assets. The total proceeds allocated to the theme
has reached USD12bn, accounting for 13% of China’s overall green
bond market that are aligned with international definitions.

News and events
China’s Foreign Minister states that China will continue to build agreen Belt and Road
China State Councilor and Foreign Minister Wang Yi said that “climatechange is a common challenge faced by all countries” in a speech at the
UN Climate Action Summit in New York on 23 September. He noted, that,cooperating to address climate change is related to the future of
mankind, and that China will continue to build a green Belt and Road andbring more power to international cooperation on climate change.
Hong Kong Green Finance Association (HKGFA) will form Green
Finance Alliance with cities in the Greater Bay Area
The Guangdong-Hong Kong-Macao Greater Bay Area Development Plan
provides a huge opportunity for the development of green finance.
HKGFA announced in September that it plans to establish the “Green
Finance Alliance” to promote green and sustainable development in the

Greater Bay Area with Guangzhou Green Finance Committee, Shenzhen
Green Finance Committee and Macau Association of Banks. This platform
will host research projects and incubate green investment projects in four
key areas: greening the supply chain in Guangzhou, major waste treatment
facilities in Shenzhen, standardised water risk analysis and green building
initiatives, leveraging the vast green investment demand in Guangdong andgreen finance capacities in Hong Kong and Macau.
The Bank for International Settlements (BIS) recommends that central
banks consider green bonds as reserve assets
BIS found that about 65% of the green bonds issued so far this year are"investment grade" and potentially in line with the requirements of central
banks for reserve assets. The authors said that, overall, “we found thatsustainability goals can be incorporated into the (central bank) reserve
management framework without giving up security and returns.”

China Green Bond Market Newsletter Q3 2019 Climate Bonds Initiative3

Policy update
State Council supports Shenzhen's Pilot Demonstration Zone ofSocialism with Chinese Characteristics
The State Council of the People's Republic of China announced theOpinion on Supporting Shenzhen's Pilot Demonstration Zone of Socialismwith Chinese Characteristics. The opinion emphasizes the need toaccelerate the establishment of a low-carbon economic system bycreating a new pattern of urban green development.
The opinion suggests Shenzhen is to accelerate the establishment of an
economic system for green and low carbon development, build a marketoriented green technology innovation system, develop green industries,
promote green consumption and the development of green finance. It isalso expected to implement dual control actions on energy consumption
and intensity and take the leading role in building a water-saving city.
Investment quota limit for QFII and RQFII has been cancelled
On 10 September, the State Administration of Foreign Exchangeannounced to cancel of investment quota limit for Qualified Foreign
Institutional Investors (QFII) and RMB Qualified Foreign Institutional
Investors (RQFII). This will largely increase the convenience of foreign
investors to participate in the Chinese domestic financial market.
The Qualified Foreign Institutional Investor program was established in
2002. It provides foreign institutional investors the right to trade on the
Shanghai and Shenzhen Stock Exchanges in China. And the RMB Qualified
Foreign Institutional Investors was launched in 2012. Over 400
institutional investors from 31 different countries and regions haveentered the Chinese market.

Jiangsu Province introduced a subsidy for green bond issuers
Jiangsu Province has introduced a subsidy of 30% on green bond interest,
which is expected to decrease company financing costs. This subsidy isapplicable to non-financial corporates and will be compensated to thecorporate after their payment of the interest. The total amount of thesubsidy should not exceed CNY2m per annum per bond.
The subsidy scheme is part of a wider set of incoming policies, including
also Jiangsu Province Green Industry Enterprise Issue and Listing Award
Policy Implementation Rules, Jiangsu Province Environmental Pollution
Liability Insurance Premium Subsidy Policy Implementation Rules, andJiangsu Province Green Guarantee Awards Policy Implementation Rules,
These demonstrate Jiangsu Provinces commitment to green finance.
Innovation and development of Green Finance Reform in Guangzhou
The General Office of the Guangzhou Municipal People's Government
announced the Guangzhou Municipal People's Government Office’s
opinions on Promoting Guangzhou implementation of the Innovation
and Development of Green Finance Reform.
The key points cover deepening the reform and innovation of green
finance, implementation of some main tasks and the leading role ofgreen finance demonstration in Dawan District of Guangdong, Hong
Kong and Macao, strengthening green financial risk prevention andimproving safeguard measures.

This newsletter is produced by Climate Bonds Initiative in partnership with China Central Depositing and Clearing Co. (CCDC). Funding for this publication
was provided under a grant from the UK Government under its Partnering for Accelerated Climate Transitions Programme (PACT) and HSBC as a supportingorganisation.
* Figures used in this report refer to both onshore and offshore green bonds issued by entities domiciled in mainland China, and green panda bonds unlessotherwise stated. Internationally aligned green bonds are those aligned with both local and international definitions of green.

The report is also available in Chinese

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China Green Bond Market Newsletter Q3 2019 Climate Bonds Initiative

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