By Wang Hui, Tian Hui & Lan Hong
Research Report Vol.20 No.2, 2018
With green development promoted to be a national strategy, the green finance system has flourished in China. It has fostered green development by leveraging its functions of financing and risk management, and has become a hot spot and focus of the financial market in recent years. On June 14, 2017, the State Council decided to establish pilot zones in selected places in Guizhou, Zhejiang, Jiangxi, Guangdong, and Xinjiang to further promote green finance system in China. By setting up pilot zones in the five provinces differing in the stage of economic development and resource and environmental capacity, the State Council demonstrates that green finance is a systemic and significant task while carrying out relevant work in a more differentiated context so as to accumulate sufficient experience for nationwide promotion. However, it is not easy and is bound to face many challenges and tests to establish the pilot zones for green finance reforms and innovations. This paper presents the case study of Guizhou Province and Gui’an New Area to highlight some of the valuable experience that local governments have acquired and some common problems they face in promoting green finance, and makes targeted policy suggestions.
I. Guizhou’s Exploratory Practices in Developing Green Finance
Gui’an New Area of Guizhou Province, among the first five national-level pilot zones for green finance reforms and innovations, is the only one in the southwest China. It is undeniable that the selection was related to the previous success in promoting green finance in Guizhou Province. In fact, Guizhou is ahead in green finance construction and has accumulated certain experience, mainly including:
1. Focus on ecological progress laying the foundation for green finance system
Guizhou Province is a typical region in that it has a relatively backward but fast developing economy and a good but very fragile ecological environment①. As Guizhou provincial government has a clear understanding of its own advantages and disadvantages, it adheres the idea of “defending the bottom lines of development and ecology” ②; strives to realize the win-win situation for both economic development and ecological protection by avoiding the outdated approach of “seeking remedies after pollution”. The government also has introduced many practical measures to hold on to the two bottom lines, including revising the comprehensive assessment methods conducted in 10 counties that are located in key ecological function areas; canceling the indicators for GDP assessment; holding leading officials accountable for ecological damage and carrying out pilots of asset liability audit of leading cadres. These measures are conducive to optimizing the external environment for green finance development. In addition, under the specific development design, Guizhou Province has vigorously revitalized existing green resources and focused on the development of “four type” industries such as eco-utilization, high-efficiency recycling, low-emission and clean service, and environmental governance. In 2017, the four types of green industry accounted for 37% of the total GDP of Guizhou Province. How to focus on these four types of industrial services has become the development focus of green finance in Guizhou.
2. Prompt introduction of local green finance development plans sending clear and positive signals to financial markets
On August 31, 2016, seven ministries and commissions including the People’s Bank of China, the Ministry of Finance, the National Development and Reform Commission, the Ministry of Environmental Protection, the China Banking Regulatory Commission, the China Securities Regulatory Commission, and the China Insurance Regulatory Commission jointly promulgated the Guidelines on Building a Green Finance System, which has since become the top-level reference document for developing green finance system in China. Guizhou Province responded positively. In November 2016, the local government issued the Opinions on Accelerating the Development of Green Finance and clearly stated the specific requirements and work arrangements for promoting the local green finance, which also included “actively preparing Gui’an New Area as a Pilot Zone for Green Finance Reforms and Innovations with state’s approval”. In sharp contrast to Guizhou Province, many provinces in China still have not introduced development plans for local green finance according to local conditions. Even if there are plans, they are mainly based on documents issued by prefecture-level cities rather than the overall planning provided by the provincial level. The promulgation of the local green finance development plan, together with the Overall Plan for Building a Pilot Zone for Green Finance Reforms and Innovations in Gui’an New Area, Guizhou Province issued jointly by seven ministries and commissions, not only provide guidance for but also assure the financial market the government’s firm attitude in developing green finance, which is conducive to attracting more financial institutions and investors to participate in building the local green economy.
3. Further advancing relevant fields with focus on green-oriented development
The market activities related to green finance are very active in Guizhou Province, as seen in such sectors as credit, insurance, securities, among others. Some practices have also created a national trend. For example, in terms of the franchise of green credit, Industrial Bank Guiyang Branch established the first ecological sub-branch in Guizhou in 2014 to implement a differentiated authorization policy for green credit. In addition, under the government’s guidance, the financial markets and the policy measures have already display green-oriented features. For example, as of the end of June 2017, there are 88 domestic and foreign listed companies and new board listed companies in Guizhou province. About half of the 30 new companies since 2016 belong to the “four type” industry. Another example is when rolling out the policy-based financing underwriting to cover the entire region, those policy-based agencies are encouraged to support green projects.
II. Challenges in Developing Green Finance in Guizhou
Green finance is not only a financial issue but also an environmental protection issue. It is a new field worldwide. In addition, some issues in the traditional Chinese financial system have not yet been effectively resolved (such as inadequate financial infrastructure and lack of solid institutional investor teams). As new problems keep emerging, the local governments are to face many challenges in the process of developing green finance. Most of these challenges are universal and not specific to a certain province.
Based on the practices in Guizhou, the current prominent problems in developing green finance include:
1. Lack of effective mechanism to connect local exploration and top-level design
The purpose of establishing a pilot zone for green finance reforms and innovations is to foster the implementation of top-level design through local exploration. However, there are still some gaps between the design and local practices. As far as Guizhou is concerned, the problems are reflected in two aspects: First, the decision on most financial matters is controlled by the central government and its functional departments, while the local governments have very limited power over the business reform, regulation, and supervision, which are essential in developing green finance. They also have little authority over the scale of credit, supportive framework construction, among others, which may affect the deepening of green finance; second, there are gaps in integrating the ecological progress demonstration area and Gui’an New Area green finance demonstration area. At present, Guizhou has 25 counties (cities) listed as national key ecosystem service zones. However, the industries supported by green finance are mainly concentrated in the Gui’an New Area, which causes limited influence of the aggregated green finance to reach the entire province.
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