China Green Bond Market Newsletter H1 2020中国绿色债券市场季报 2020 上半年度
January-June 2020/2020 年 1 月 6 月

Market overview
At a glance

Green bond market slowed down in H1 2020

USD Billions

Not only China’s but also the global green bond market witnessed aslow-down year on year. This is largely due to impact of COVID tothe economy and financial market as a whole, especially in the firsthalf of 2020. In China, the decrease in green bonds issuance wasalso a result of the surge of other labelled bonds – specifically
Pandemic Prevention and Control bonds which stood just under
USD60bn by the end of H1. The total amount of labelled green
bonds that is aligned with international definitions reached
USD4.5bn in H1 - a 58% decrease from the same period last year.

Total H1 Chinese issuance: USD15.7bn/RMB97.0bn
Onshore issuance: USD14.8bn/RMB95.9bn
Offshore issuance: USD924mn
Issuance that meets international definitions:
USD4.5bn/CNY31.4bn
Largest issuer: Huaxia Bank at USD1.4bn
Certified Climate Bond: Nanjing Jiangbei New Area Public Assets
Investment & Development NJPAID, Anhui Maanshan Rural
Commercial Bank

8060

Largest issuing sector: Low Carbon Transport

4020Proceeds for general use remains primary reason for exclusion

0Q1

Q2

Q3

Q4

2019

Q1

Q22020pending
China issuance not aligned with international defination
China issuance aligned with international defination
Global issuance aligned with international defination (except China)

By amount issued, 81% of the overall excluded bonds in H1 fail tomeet best practice as they allocate more than 5% of proceeds togeneral corporate purposes, not necessarily linked to green assets orprojects. For example, Jinjiang Industrial Park Development &Construction Co Ltd allocated 50% of bond proceeds to financeeligible wastewater treatment facilities, while using the rest tosupplement general corporate working capital.

Chinese green bond market fell 28% in H1 2020
19%

The USD15.7bn worth of green bonds from China shrank by 28%
year-on-year. Only less than one third (or USD4.5bn) of H1 volume
from Chinese issuers is in line with international green bonddefinitions. Another 46% has been excluded in accordance with CBIGreen Bond Database Methodology.
Two Certified Climate Bond from China’s domestic market
The CNY490m deal from Nanjing Jiangbei New Area Public Assets
Investment & Development (NJPAID) is one of the two certified
Climate Bonds issued domestically (see more on page 4). Being astate-owned enterprise in Nanjing, NJPAID owns and operates
municipal infrastructure, including water supply and treatment
facilities. iGreenBank is the verifier of this deal. It is also the firsttime the Climate Bonds Standard Version 3 has been used for a
Certification in China.

Working capital/General needs
Not aligned

81%
19% was excluded for projects that are not in line with international
green definitions. For example, all hydropower facilities are eligible in
China’s local context, but are not considered as green by international
investors if the power density does not meet certain threshold.

Closed in June, the CNY 400m deal from Anhui Maanshan Rural
Commercial Bank became the second Chinese Certified Climate
Bond in the first half of 2020. This deal also became the first
Certified Climate Bond issued by an onshore financial institution.
Lianhe Equator is the verifier of this deal. As the Anhui Maanshan
Rural Commercial Bank serves the City of Maanshan which is known
as a steel city, this deal helps to adjust the industrial structure ofMaanshan to enhance green development.

China Green Bond Market Newsletter H1 2020 Climate Bonds Initiative

Green bonds on Pending list
In some cases, use of proceeds details are not available atissuance. Thus we cannot make an immediate judgement on
the green credentials of the bond, the bond is marked as
Pending and further research is needed. The investigation
process is carried out by the end of the next quarter. If nofurther information is made available or the information
obtained does not show alignment with taxonomy, the bond isadded to the excluded bond list.
Note: due to the change of the green bond methodology and the lack ofdisclosure, 25% (or USD21.9bn) of total H1 issuance is on the Pending list.

1China interbank market remained the largest venue

Low Carbon Transport remains the dominant theme

In H1 2020, 91% of all onshore green bonds were placed on theChina Interbank Bond Market. Despite the slow-down of onshore
issuance, the size of total green bonds listed on China Interbank
Bond Market increased more than three times in H1 2020 which
was largely driven by the finical institutions. The remaining 9% werelisted on the Shanghai Stock Exchange and the Shenzhen Stock
Exchange respectively.

By Climate Bonds definition, Low Carbon Transport has been thelargest climate sector since Q4 2018, representing 43% of total issued
volume in H1 followed by Renewable Energy (33%) and Waste (10%).

5%4%
China interbank
Shanghai stock exchange
Shenzhen Stock Exchange91%

In addition to this, there were also USD924m worth of Chinese
green bonds issued offshore.

Transport: In addition to dedicated regional railway and urban transit
operators such as Nanjing Metro, Ningbo Rail Transit, and Wuhan
Metro who have brought a total of USD1.6bn green bonds,
commercial banks including Huaxia Bank and Bank of Ganzhou havealso contributed to the sector with USD299m worth of proceeds
allocated to passenger rail and metro line projects. Among a totalled
USD1.9bn proceeds dedicated to the transport sector, the largest
issuance came from Nanjing Metro at USD398m.
Energy: Huaxia Bank, with 41% of its USD1.4bn deal allocated torenewable energy, which ranked the largest issuer in the climate
sector, contributed to USD568.3m of proceeds allocated to eligible
renewable energy projects. The second-largest renewable energy
proceeds allocation at USD1.4bn is contributed by Jiangsu Financial
Leasing company, which using green bond proceeds to purchase solar
and wind equipment for leasing.

USD Billions

Financial corporates were active issuers
10%3025201510506%

Renewable Energy

33%Low Carbon Building
Low Carbon Transport
Water

43%
H1

H2
2018

H1H2
2019

8%Waste

H12020ABSDevelopment Bank

Financial Corporate

Government-Backed Entity

Local Government

Non-Financial Corporate

According to China’s local green bond definitions, the top two
categories are Clean Energy at USD4.1bn, Clean Transport at
USD3.3bn, and General use of refinancing also accounted for
USD2.4bn.

Financial corporates remained the largest issuer type accounting for
43% (USD1.9bn) of the overall issuance in H1. This is mainly
contributed by Huaxia Bank’s USD1.4bn (CNY10bn) deal.
Government-backed entities is the 2nd largest issuer type with 35%of the total issued amount. Among these 10 bond issuances that
totalled USD1.5bn, five (USD1.2bn) of which had all proceeds
allocated to the construction of public passenger transport. These
green infrastructure projects in the transport sector contribute to79% of issuance from the government-backed entities.
Issuance from non-financial corporate reached USD780m,accounting for 17% of the H1 total. 40 issuers have brought a totalof USD6.3bn worth of green bonds, accounting for 40% of the total
H1 Chinese issuance. However, only 12% is aligned with CBI green
definition, mainly due to a large proportion of proceeds being
earmarked for working capital.
One green ABS deal issued by China Longyuan Power Groupaccounts for 5% (USD 780m) of the total aligned green bonds.
Collateral type is the feed-in-tariff backed by renewable energy
infrastructures. This has dropped for more than 90% year-on-year,
following the declining overall bond issuance of the Chinese green
bond market over the H1 2020 period.

China Green Bond Market Newsletter H1 2020 Climate Bonds Initiative2

82% of all issuance carries an external review

EY and Lianhe Equator reviewed 57% of H1 issuance byvolumeComparing to H1 2019 (74%), a higher percentage of green bonds
issued in the Chinese market carries an external review. EY was thelargest external reviewer in H1 2020 with 36% market share. It
provided assurance for bonds issued by two financial corporations,
Huaxia Bank and Bank of Ganzhou, which totalled USD1.6bn worthof green bond. Lianhe Equator ranks 2nd with USD923.6m worth ofgreen bonds, providing external reviews for six issuances withproceeds allocated to the renewable energy and transport sectors.
The 3rd largest external reviewer is Shanghai Brilliance Credit Rating.
18% of green bonds did not carry any form of external review.

18%

CCX

2%5%

CCXI
EY

1%
36%
17%

Lianhe Equator
Shanghai Brilliance Credit Rating
The iGreen Bank

Top 3 regions: Beijing, Jiangsu and Zhejiang
21%

There are noticeable clusters in terms of issuance. East China (ledby Jiangsu, Zhejiang, Jiangxi), Central North China (led by Beijing,Tianjin), as well as Guangdong province in South China and Sichuan
and Chongqing province in Central West China dominate volumes.
Beijing, Jiangsu and Zhejiang provinces rank at the top with
USD1.6bn, USD1.1bn and USD428.7m respectively. Green bondissuance from Jiangsu Province has a more than 50% increase overH1 2019.

_No

Green bond proceeds allocation of the top 20 aligned issuers
EnergyBuildings

Transport

Water

Waste

100%
80%
60%
40%
20%
0%

News and events
Shenzhen city to release green fund standards in 2020Launch of CSI-Zhongcai Shanghai and Shenzhen 100 ESG Leading Index

At the Sustainable Finance Forum held in Shenzhen on 14th July, thepresident of China Emissions Exchange, Ge Xing'an, revealed that Shenzhen
is developing green finance sub-standards, including green funds andcarbon finance products, environmental equity products, green guarantees
and environmental information disclosure, etc., of which the green fundstandard has been drafted and may be officially released next year.

The new ESG index will create a localised assessment system, making up
for some of the shortcomings in the existing ESG assessment
methodology for Chinese shares. Internationally, as Chinese A-shares
have been included in the MSCI Emerging Market Index and thus gainedwider, more direct exposure in portfolios, the new CSI-Zhongcai Shanghai
Shenzhen 100 ESG Leading Index will work as a potential verification toolfor ESG conscious investors.

China to open up finance sector to more foreign investment in 2020
China Green Bond Market Newsletter H1 2020 Climate Bonds Initiative3

According to a statement released by Financial Stability and Development
Committee, shareholding limits on foreign ownership of securities,insurance and fund management firms will be removed in 2020.

If everything goes according to plan the index will also be tradeable on
the Luxembourg Stock Exchange that already hosts the China green bondconnect program.

Foreign investors will be encouraged to set up wealth management firms,currency brokerages and pension management companies.

ADBC & Climate Bonds Initiative sign MoU on developing green
agriculture in China

Foreign-owned credit rating agencies will also be allowed to evaluate agreater number of bond and debt types, the statement said. The
announcement signals accelerated inter-country green capital flows
between China and the rest of the world.

Agricultural Development Bank of China (ADBC) and the Climate Bonds
Initiative have signed a Memorandum of Understanding (MoU)
signifying a mutual consensus on the importance of developing green
agriculture projects and green bonds in China, and the need to direct
private capital to support China’s transition towards a green economy.

Authors: Ellen Li, Alan Meng
This newsletter is produced by Climate Bonds Initiative. HSBC as a supporting organisation.
* 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.

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the Climate Bond Standard only reflects the climate attributes of the use of proceeds of a designated debt instrument. It does not reflect the credit worthiness ofthe designated debt instrument, nor its compliance with national or international laws. A decision to invest in anything is solely yours. The Climate Bonds Initiative
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China Green Bond Market Newsletter H1 2020 Climate Bonds Initiative4