Online bike-renting appeared for the first time in Beijing in September this year. An attempt to meet transportation needs through green finance, the new business model still faces an uncertain future.

 

At the recently concluded G20 Hangzhou Summit, China put green finance on the agenda for the first time, showing its ingenuity in face of environmental threats, a prominent scholar from Fudan University said.

“This has shown to the world that China is determined to actively address global ecological crises—specifically China is preparing to meet environmental challenges with financial measures, said Rui Mingjie, director of the Department of Industrial Economics at the School of Management under Fudan University.

The meaning of green finance can usually be understood from two aspects: On the one hand, it means that the financial industry provides supports for the sustainable development of the national economy, and takes into consideration the potential return, risk and cost of environmental factors when making investment decisions, said Zhu Qiaoling, a professor from the Economics School at Zhongnan University of Economics and Law.

“On the other hand, green finance also aims for the sustainable and green development of the financial industry itself. This strategy involves avoiding financial speculation, with its excessive pursuit of immediate interests that will burst the asset bubble and lead to financial crises,” Zhu said.

In the wake of the 2008 financial crisis, the world economy needed new engines of economic growth and potential targeted industries for investment, said Cao Heping, a professor from the School of Economics at Peking University. Green finance is China’s way of economic development, and it is also an exploration of possible roads for world economic development, Cao said.

Green finance should deal with such issues as financing, monetary liquidity and the settlement of mid-term notes, Cao said. However, China does not have much practical experience with issues like securitizing green behavior on the primary market and then trading it on the secondary market, Cao said, adding that it is nevertheless exploring green financial practices, such as emissions trading.

The guideline on the development of a green financial system was jointly released by the People’s Bank of China and several other ministries on Aug. 31 this year in an effort to encourage the investment of more social capital into green industries.

This new guideline covers various aspects, such as the green bond index, financing instruments and green development funds, and it is a system that integrates finance and policies regarding the development of the green economy and the industries of environmental protection, Rui said.

Despite its similarities with traditional finance, green finance differs in a few important ways, Rui said. First of all, it is crucial to decide how a green industry will be defined and what agency will make that determination since financial support is vital for an enterprise’s development, he said.

Second, social mobilization is important because green finance cannot merely depend on government or banking support. Scholars and leaders need to seek ways to encourage social capital investment under the framework of public-private partnerships, Rui said.

Green finance is the way of the future, Cao said. In order to establish a financial system that grants a higher rate of economic return in the green economy than in traditional economy, it is essential to establish a properly functioning primary market and secondary market of green finance, he said.   

 

Niu Dongjie is a reporter at the Chinese Social Sciences Today.