It pays to enter China’s green bond market early, before prices take off

The lack of ‘greeniums’ – the premium that green bonds can command – for China’s products won’t last

As China aligns its green bond standards with the rest of the world, capital flows will ramp up and the boom should have plenty more room to run

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Electricity workers patrol a solar and wind power farm in Sheyanghu, Baoying county, in Jiangsu province, on November 3. Photo: Xinhua

Martin Dropkin

Martin Dropkin is head of Asian fixed income at Fidelity International

Published: 2:30pm, 13 Nov 2021

Among the financial market fallout from the Covid-19 pandemic was a slump in green bond issuance in China, where a five-year growth streak was snapped last year.

The government orchestrated the sale of more than 1 trillion yuan (US$156 billion) in pandemic control and relief bonds last year, capturing what remained of investor demand already weakened by the public health crisis.

But the green bond market has made a strong comeback this year as economic recovery continues and, more importantly, China fires on all cylinders to cut carbon emissions.

This has led to China ranking fourth in the value of its internationally aligned green bond issuance so far this year, after the United States, Germany and France, according to the Climate Bonds Initiative.

Most of the action is onshore. More than 80 per cent of Chinese green bonds are yuan-denominated and issued to domestic investors, with the rest primarily dollar bonds offered through the Hong Kong exchange.

In the first half of this year, the value of Chinese green bond sales that comply with domestic definitions and criteria surged to 242.5 billion yuan, while those aligned with international standards jumped to a record 141.9 billion yuan.