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China’s green finance system: Policies, market and international role

Mengdi Yue and Christoph Nedopil

China’s understanding of sustainable development and approach to addressing environmental challenges have evolved significantly in the past decade: from tackling air, water and soil pollution resulting from rapid industrialisation in the early 2010s (Schmid and Xiong 2023) and its 2020 pledge to achieve carbon peak by 2030 and carbon neutrality by 2060, to the imperative to fully establish ‘a beautiful China’ by mid-century, which was announced in 2024. It is estimated that to achieve carbon neutrality by 2060, China will need RMB487 trillion in investment in green and low-carbon industries between now and 2050 (Green Finance Committee 2021). With limited fiscal resources, a green financial system is critical in mobilising (‘financing green’) and redirecting (‘greening finance’) private capital to achieve this goal and facilitate China’s sustainable development goals.

China’s green finance system has evolved in parallel with, and to serve, these sustainable development goals. Since the issuance of the ‘Green Credit Guidance’ in 2012 to encourage banks to use green credits to manage environmental and social risks and the official establishment of the green financial system in 2016, China’s green finance has matured into a complex structure covering most of the financial system, including multiple instruments and several regulators.

China’s green bond market, for example, remained the world’s largest, with a total issuance of US$131 billion both onshore and offshore in 2023—nearly double that of Germany, the second-place issuer (Climate Bonds Initiative 2024). Similarly, by the end of 2024, China’s outstanding green loans reached RMB36.6 trillion (approximately US$5.1 trillion), representing 14 per cent of total outstanding loans. China’s national carbon market—the world’s largest by emissions coverage—encompassed 5.24 billion metric tonnes of carbon dioxide, accounting for more than 40 per cent of China’s carbon emissions (Velev 2025). Despite these achievements, challenges persisted, including drops in green bond issuance in two consecutive years (Yue and Nedopil 2025), a small percentage of green credits in the total credit market, concerns about oversupply of allowances in the carbon market, limited participation by the private sector and the unclear (understudied) effectiveness of green finance in terms of carbon emissions reduction.

Internationally, China has initiated a wide range of green investments and infrastructure in the Global South through the Belt and Road Initiative (BRI). China has also become an increasingly active actor in advancing global green finance and biodiversity standards and regional taxonomy harmonisation. China’s engagement in the green finance field outside its borders is seen as using green finance to build soft power in the BRI countries (Nedopil 2022) or seeking global leadership on the environment and sustainability (Rodenbiker 2025).

With this context, this chapter aims to reflect on the decade-long development of China’s green finance system and the status of policies, markets and China’s international role. It also provides ideas for future research questions relevant to this topic. The remainder of this chapter is structured as follows. Section two examines the evolution of China’s green finance policy from the 1990s to the present, highlighting key stages of development, the institutional landscape and the roles of governmental and nongovernmental actors. Section three analyses the components of China’s green finance market, including environmental, social and governance (ESG) reporting standards, financial instruments (green bonds, equity, loans and funds), risk management tools (green insurance) and market-based mechanisms, such as the China Certified Emission Reduction (CCER) program and its emission trading system (ETS). Section four explores China’s influence in shaping global green finance standards and promoting green investment through the BRI. Section five concludes by summarising key findings, offering an outlook on China’s green finance trajectory and identifying areas for future research.

China’s green finance evolution and governance

Understanding China’s green finance system requires an awareness of historical developments to appreciate potential path dependencies (Heine and Kerber 2002; Nedopil et al. 2021b) and the role of different actors in China’s top-down system.

China’s green finance evolution

In a historical context, the development of China’s green finance governance can be conceptualised in four main stages (see Figure 7.1). During the 1990s and 2000s, awareness of integrating environmental considerations into bank lending began to rise. In 1995, the People’s Bank of China issued the Notice on Implementing Credit Policies and Strengthening Environmental Protection (PBOC 1995), followed by the joint issuance of the Opinions on Implementing Environmental Protection Policies and Regulations to Prevent Credit Risks (SEPA 2007).

Figure 7.1: Stages of green finance policy development in China

Source: Authors.

From 2012 to 2015, policies on green credit continued to grow, with the China Banking Regulatory Commission (CBRC) establishing its green credit guidance and statistics system. The Green Credit Guidelines (CBRC 2012) further strengthened this initiative by requiring banks to integrate environmental, social and governance (ESG) factors into their risk assessments and lending decisions. At the end of 2015, the Green Bond Endorsed Project Guidelines were released, listing the sectors eligible for green bond issuance (NDRC 2016). Further preparation work for the green financial system was also underway with the establishment of a taskforce by the PBOC and the United Nations Environment Programme.

The 2016 Guiding Opinions on Establishing a Green Financial System issued by a PBOC-led coalition of seven ministries laid out the components of the green finance market (green credits, green securities, green funds, green insurance, environmental rights and regional green finance), marking the third stage of green finance implementation (PBOC et al. 2016).

The development of green finance in China has entered a stage of expansion and acceleration since the government announced its ‘dual carbon’ goals in 2020. A key policy framework serving these goals, introduced in 2021, was the ‘1+N’ policy framework, which outlines a comprehensive strategy to help the country achieve its dual carbon targets: peaking carbon emissions by 2030 and reaching carbon neutrality by 2060. The ‘1’ represents the overarching guiding document that defines the objectives, fundamental pathways and key tasks for achieving these goals, while the ‘N’ refers to a series of policies and plans formulated by various departments and local governments. The financial sector is considered an integral part of these goals.

This evolution of China’s green finance ecosystem highlights two key features elaborated in the next sections. First, reflecting China’s underlying model of political economy, the system is predominantly governed by a top-down approach (Nedopil and Larsen 2023). Policies establishing standards and guidance are typically issued before large-scale application occurs, but once policies are in place, the application accelerates.

Second, through the setup of pilot zones, city or provincial-level governments play a crucial role in experimenting with green finance policies. One example is the seven pilot emissions trading markets established in 2011, which preceded the national ETS that was initiated in 2017 and became operational in 2021. More recently, several provinces and cities have begun exploring transition finance taxonomies, even in the absence of a unified national standard. Local pilots of innovative insurance products also started in the early 2010s, while more formal policies and guidelines were not in place until 2022.

Top-down green finance governance

The development of green finance in China is mainly achieved through top-down and central-to-local governance, with a high-level guiding policy issued before any market practice is implemented. This remains true after China’s financial governance system underwent a significant transformation in 2023 with the newly established Central Financial Commission (CFC) and National Financial Regulatory Administration (NFRA) (see Figure 7.2). The CFC replaces the former Financial Stability and Development Committee and has become the primary body for centralised financial decision-making and coordination. The NFRA replaces the China Banking and Insurance Regulatory Commission (CBIRC), which had replaced the CBRC, while taking on broader responsibilities. Accordingly, the responsibilities of the PBOC and the China Securities Regulatory Commission (CSRC) were also slightly adjusted.

The responsibilities of the various bodies are as follows:

• People’s Bank of China: The PBOC implements monetary policies that encourage green lending; issues guidelines for green bonds and financial instruments; oversees green investments and supports the development of green industries.
• National Financial Regulatory Administration: The NFRA ensures financial stability while aligning financial regulations with China’s sustainability goals. It promotes green finance by regulating the greening of financial industries (for example, insurance and banks) and preventing financial risks.
• National Development and Reform Commission: The NDRC sets national policies and strategies for green finance, integrating environmental objectives into economic planning. It also leads the issuance of the Green Industry Catalogue, a taxonomy of green and low-carbon transition industries.

Figure 7.2: China’s green finance regulatory environment

Source: Adapted from Zhang et al. (2024).

• Ministry of Finance: The MoF supports green finance through fiscal policies, subsidies and tax incentives for green industries. It also mobilises development funds and collaborates with international organisations to secure funding for China’s green transition.
• Ministry of Ecology and Environment: The MEE advances green finance by setting carbon accounting standards, managing the national carbon market and developing carbon sink methodologies. It ensures environmental compliance of companies and translates ecological value into actionable financial data and tools. It also supports greening overseas investment through the BRI Green Investment Principles.
• China Securities Regulatory Commission: The CSRC regulates green securities including green bonds and stocks and promotes ESG disclosures for publicly listed companies.

At the subnational and local levels, provincial and city government offices support and partly implement national green finance policies through local Development and Reform Commissions (the subnational ministries of the NDRC), the Bureaus of Finance (subnational level of the MoF) or the Bureaus of Ecology and Environment (subnational level of the MEE). They also publish local policies based on national high-level policies for more targeted implementation.

Nongovernmental actors in China’s green finance ecosystem have limited standard-setting roles and are responsible for implementing government and regulatory policies:

• Market exchanges (such as Shenzhen, Shanghai and Beijing stock exchanges): These provide standards for the ESG information disclosures of listed companies.
• Associations: Associations, such as the National Association of Financial Market Institutional Investors (NAFMII) and the Green Finance Committee (a network of Chinese financial institutions), explore rules and principles for innovative green finance products and provide capacity building as well as standards. These associations are often supported by government regulators (for example, the Green Finance Committee is supported by the PBOC).
• Financial institutions: These are the main bodies for implementing green finance products (such as green insurance, green credits) and policies (stress tests and scenario analyses for climate risks, capacity building).
• Service providers: These offer services such as assessment, certification of green bonds, capacity building, etcetera.

The role of subnational green finance pilot programs

Subnational green finance pilot programs are integral to China’s efforts to build a sustainable financial system, serving as testing grounds for innovative policies and mechanisms at the regional level. At the subnational level, two types of pilot zones have been established to explore replicable and scalable green finance practices: the Green Finance Reform and Innovation Pilot Zones, since 2017, and the Climate Investment and Financing Pilots, since 2022. In August 2022, 23 climate finance pilot zones across China were approved. While some cities belong to both categories, the missions of climate finance pilot zones focus more on discouraging high-emission projects and developing carbon finance and carbon accounting.

Figure 7.3 illustrates the first and second batches of green finance pilot zones, outlining their key focus areas. Initially, the program was implemented in eight cities across Zhejiang, Jiangxi, Guangdong, Guizhou and Xinjiang provinces. Later, green finance reforms were extended to Lanzhou in Gansu and Chongqing in Sichuan.

Figure 7.3: Subnational green finance pilot programs in China

Source: Adapted from Zhang et al. (2024).

Green finance application and market development

The development of China’s green finance system has led to the development of green financial instruments (for example, green credit, bonds, as well as equity and loans), ESG disclosure standards, environmental risk management through green insurance and carbon market mechanisms. The following subsections examine how these elements have been applied and how they contribute to the broader development of China’s green finance market.

Green financial instruments

The application of China’s different green financial instruments has evolved significantly, with green credits introduced in 2012 and now the instrument with the largest green finance value, while green bonds, introduced in 2015, have traditionally received the most attention due to their higher disclosure requirements, which facilitate a greater level of research (Wang and Li 2020; Wang et al. 2020; Zhang 2020). Other green securities (such as stocks and mutual funds) have received more attention lately but lag the development of credit and bonds.

Green credit

Green credit, also referred to as green loans, is a key financial instrument employed by Chinese banks to support projects and enterprises operating in environmentally sustainable sectors, while simultaneously imposing strict credit constraints on industries characterised by high pollution, high energy consumption and excess production capacity (CBRC 2012).

As mentioned above, the origins of green credit in China can be traced back to 2007 when the State Environmental Protection Administration, PBOC and CBRC jointly issued the Opinions on Implementing Environmental Protection Policies and Regulations to Prevent Credit Risks (SEPA et al. 2007). With the issuance of green credit guidelines in 2012 and a green credit statistics system in 2013 by the CBRC, Chinese banks started to use credit issuance to manage environmental risks before the green financial system was officially established.

Green credit in China has exhibited a sustained high growth rate since 2018 (Figure 7.4). According to data compiled by the PBOC from 21 major banks, as of the end of 2024, the total outstanding green loans—denominated in both renminbi and foreign currencies—amounted to RMB36.6 trillion (approximately US$5.1 trillion). A significant proportion of these green loans are allocated to the ecological modernisation of infrastructure, with primary investment directed to industries related to electricity, heat, gas and water supply (Fu and Sun 2025).

Since 2021, the PBOC has implemented an assessment framework to evaluate banks’ green finance performance based on qualitative and quantitative indicators. These metrics include, among others, the volume of outstanding green loans and the holdings of green bonds by banks. This regulatory emphasis may partly explain the strong growth of outstanding green loans since 2018 and serve as an incentive for banks to further expand their green loan issuance in the coming years.

Green bonds

China’s green bond market was officially launched in late 2015 (the international green bond market emerged in 2007). China quickly became a dominant global player, accounting for roughly one-quarter of the total global issuances of US$81 billion in 2016, positioning the country as a leader in annual issuance volume (Climate Bonds Initiative and CCDC Research 2017).

Figure 7.4: Green credits in China, 2013–24

Notes: Data only include 21 major Chinese banks. Data for 2018Q2 are not available, likely due to the transition of green credit accounting responsibilities from the CBRC to the PBOC.

Sources: Compiled by authors based on public data from the PBOC and CBRC.

China’s green bond market operates within a fragmented regulatory framework (see Table 7.1), with oversight distributed across multiple entities, including the PBOC, the NDRC, the CSRC, the NAFMII and stock exchanges, depending on the bond type (Lin 2023).

Table 7.1: Green bond types and regulators in China

Types of green bond	Issuer	Regulatory authority	Percentage of funds used for green projects
			Before CGBP	After CGBP
Green financial bonds*	Financial institutions	PBOC	100	100
Green debt financial instruments	Non-financial corporations	NAFMII	100	100
Green corporate bonds	State-owned and private corporations	CSRC and stock exchanges	70	100
Green enterprise bonds	Mostly state-owned enterprises	NDRC	50	100

Note: ^* Issued by financial institutions to raise funds for green loans.

Sources: Compiled by authors based on Escalante et al. (2020) and publicly available information.

Before 2022, green financial bonds (regulated by the PBOC) and green debt financial instruments (regulated by NAFMII) required that 100 per cent of proceeds be allocated to green projects. In contrast, green corporate bonds (regulated by the CSRC and stock exchanges) must allocate at least 70 per cent of proceeds to green projects, while green enterprise bonds issued by state-owned enterprises (regulated by the NDRC) had a minimum threshold of 50 per cent. In 2022, the China Green Bond Principles (CGBP) were introduced by the China Green Bond Standards Committee to enhance alignment with internationally recognised standards (especially those of the International Capital Market Association, ICMA) and harmonisation within China. The CGBP mandate a 100 per cent use-of-proceeds, ensuring that all funds raised through green bonds are directed to the construction, operation and acquisition of green projects, as well as refinancing of working capital or repayment of debts associated with such projects (ICMA 2022).

The convergence of Chinese and international green bond standards has been progressing to align Chinese with international taxonomies. As of 2024, the eligibility of green projects for onshore green bond issuance is determined based on the 2021 version of China’s Green Bond Endorsed Project Catalogue, whereas offshore issuance may reference international taxonomies, such as ICMA standards (as well as the Common Ground Taxonomy, discussed below). Notably, the 2021 revision of the catalogue removed categories such as clean gas production, clean coal utilisation and the retrofitting of coal-fired power plants, which had been part of the 2015 version. This update resulted in an increased share of China’s labelled green bonds aligning with the definitions of the Climate Bonds Initiative—from 54 per cent in 2020 to 62 per cent in 2021 (Climate Bonds Initiative and CCDC Research 2022).

China’s efforts to align with international standards were further evidenced by the publication of the China–European Union Common Ground Taxonomy (CGT) in 2022, which identifies 72 climate change mitigation activities shared between the EU and Chinese taxonomies regarding the ‘substantial contribution’ criteria. As of February 2025, 245 green bonds issued in the interbank market comply with the CGT standards, with a combined volume of RMB351.8 billion (US$48.6 billion) and accounting for 20.31 per cent of total outstanding green bonds in the interbank market (Green Finance Committee 2025).

In 2024, despite a slight decline (Figure 7.5), newly issued green bonds onshore and offshore totalled more than RMB850 billion (US$120 billion). The proportion of green bonds in the domestic bond market remains trivial: newly issued green bonds accounted for less than 1 per cent of the total bond market in 2024. Central and provincial state-owned enterprises (SOEs) continued to dominate the issuance landscape, contributing more than 80 per cent of green bonds by volume. Most green bonds have a maturity of less than five years and therefore specialise in providing short-term financing (compared with green loans).

In the offshore market, the Hong Kong Stock Exchange is the largest venue for green bonds issued by Chinese entities, and more than half those issued in 2024 were denominated in US dollars, followed by 37 per cent in renminbi (Fu and Sun 2025).

Figure 7.5: China’s green bond issuance, 2016–24

Sources: Compiled by authors based on data from the International Institute of Green Finance (iigf-china.com/); Climate Policy Initiative (www.climatepolicyinitiative.org/); Wind (www.wind.com.cn/).

Green stocks

Green stocks are shares in companies that demonstrate they contribute to the green economy (Alnes et al. 2024). The concept of green stocks has been briefly mentioned in Chinese policy documents, such as through encouraging green enterprises in their initial public offerings and refinancing and supporting the compilation of green stock indices. However, so far there are no established standards for or definitions of green stocks. In March 2024, a coalition of seven ministries, led by the PBOC, issued the Guidelines on Further Strengthening Financial Support for Green and Low-Carbon Development, emphasising the need to ‘develop standards for green stocks and unify the business rules for green stock operations’ (PBOC et al. 2024), indicating that this area may witness more rapid progress in the future.

An analysis of 248 A-share listed companies falling under the categories of ‘New Energy’ and ‘Energy Conservation and Environmental Protection’ reveals that, as of December 2023, their total market value constituted only 1.81 per cent of the total market value of A-share listed companies in China. Furthermore, their average market value per company was RMB6.4 billion (US$883 million)—significantly lower than the A-share market average of RMB33 billion (US$4.5 billion) (Jin and Jiang 2024). These figures highlight the relatively small scale and limited market presence of green listed companies in China’s equity markets.

ESG mutual funds

Environmental, social and governance (ESG) mutual funds and indices have emerged as rapidly expanding categories of green financial products in China (Shen et al. 2023). ESG mutual funds pool money from various (including private) investors to invest in securities such as bonds and stocks. While no official definition or dedicated policy guidelines for ‘ESG funds’ have been established in China, research institutions and data providers generally classify these funds into two categories:

1. Pure/strongly related ESG funds, which explicitly include keywords such as ‘ESG’, ‘sustainable development’, ‘carbon neutrality’ or ‘carbon peak’ in their fund names or investment objectives.
2. Broad/weakly related ESG funds, which encompass a wider range of funds with environmental and social responsibility themes in their investment strategies and often include keywords such as ‘energy conservation’, ‘low carbon’, ‘clean energy’ and ‘biodiversity’ in their names or investment objectives.

Figure 7.6: Number and share of ESG funds in China, 2019–23

Source: Compiled by authors based on data from IIGF (2024).

A large majority of ESG public mutual funds in China are equity or equity-oriented hybrid funds. As of the end of 2023, there were 101 pure ESG mutual funds (RMB66.4 billion/US$9.15 billion of scale) and 485 broad ESG mutual funds (RMB563.9 billion/US$77.7 billion of scale) in the Chinese market. The proportion of ESG funds within total mutual funds remains small, declining in both 2022 and 2023, to 5.2 per cent and 4.1 per cent, respectively (see Figure 7.6).

As of November 2024, there were 858 ESG indices in China’s domestic market, with bond indices the most common (463 indices, 53.76 per cent), followed by stock indices (392 indices, 49.46 per cent). Indices with environmental protection themes still dominate, but the share of ESG indices covering all three dimensions (environmental, social and governance) has been rising, ranking second only to environmental themes (Li et al. 2025).

ESG disclosure

China’s stock markets have been at the forefront in implementing ESG disclosure requirements, as demonstrated by the Shenzhen Stock Exchange SZSE 100 Index and the Shanghai Stock Exchange (SSE), which mandated companies to disclose ESG or corporate social responsibility (CSR) reports in 2008. However, the quality of these ESG and CSR reports remained poor and uninformative due to limited ESG awareness and the absence of clear regulations (Yuan et al. 2022).

By 2025, ESG disclosure requirements were quite disparate, varying between entities (Table 7.2). Most of these requirements have been voluntary, allowing organisations to prepare conceptually and institutionally before mandatory implementation. This approach has facilitated a gradual transition towards more comprehensive ESG reporting practices.

Two significant developments in China’s ESG disclosure framework in 2024 are worth noting. First, the Corporate Sustainability Disclosure Standards (MoF 2024) were published, aligning closely with the International Sustainability Standards Board’s IFRS S1 standard. It is voluntary but represents the first step towards China’s goal of establishing a nationally unified ESG disclosure framework by 2030.

Second, China’s three major stock exchanges (Shanghai, Shenzhen and Beijing) jointly published consistent guidelines that mandate ESG information disclosure for specific listed companies, including those on the SSE180, KIC 50, SZSE 100 and GEM indexes, as well as companies with dual domestic and international listings. The required disclosures include Scope 1 and 2 emissions, with Scope 3 emissions and scenario analysis being encouraged.

Table 7.2: Evolution of ESG disclosure requirements for different Chinese entities

Entity type		2021	2022	2023	2024
Companies (general)		MEE: Certain companiesa are required to disclose environmental (‘E’) information annually	–	Revised Company Law provides a legal explanation for ESG disclosure	MoF et al: Basic Principles of Corporate ESG Disclosure; all companies voluntarily disclose ESG information similar to IFRS S1
Listed companies (including listed financial institutions)	Shanghai	–	Certain companiesb are required to publish environmental and social responsibility reports together with annual reports	–	Certain listed companiesc are required to disclose ESG information including Scope 1 and 2 emissions (Scope 3 emissions and scenario analysis are encouraged)
	Shenzhen	–		–
	Beijing	–	–	–
SOEs		–	SASAC: All listed central SOEs should publish dedicated ESG reports by 2023	SASAC publishes ESG report reference documents for listed central SOEs	SASAC promotes ESG governance and disclosure in overseas investment
Financial institutionsd		–	PBOC: Voluntary disclosure of environmental and climate information annually	Insurance Association of China: Insurers are encouraged to disclose ESG information based on metrics and framework provided	–
Green bond issuers		–	–	Green Bond Standards Committee publishes Information Disclosure Guide to improve the transparency of use of funds	–

Notes: SASAC = State-Owned Assets Supervision and Administration Commission.^a Such as key pollution-discharging entities, listed or bond-issuing companies with violations of environmental laws.^b SSE: listed companies; SZSE: Shenzhen 100 and GEM-listed companies.^c SSE180, KIC 50, SZSE 100, GEM indexes and companies listed both domestically and overseas.^d Commercial banks, asset management institutions, trust companies and insurance companies.

As of the end of 2024, about 41 per cent of listed companies in China had published the previous year’s ESG report, compared with 27 per cent in 2022 and 34 per cent in 2023 (Lu and Deshangyu 2025); 99.6 per cent of listed companies held by central SOEs had published ESG reports, but only 14 per cent had worked on ESG standards compilation (Wang 2024). These developments show that harmonisation of the now scattered ESG disclosure policies would motivate more stringent ESG disclosure practices.

Green insurance for risk management

One of the earliest categories of green insurance implemented in China was environmental pollution liability insurance (EPLI), which covers a company’s legal obligation to compensate third parties for damages resulting from pollution incidents. EPLI could effectively strengthen environmental risk management among companies, mitigate their financial burdens in the event of pollution incidents and ensure timely compensation for affected parties. Between 2007 and 2015, EPLI was piloted with high-polluting companies in selected regions with positive results, which underscored the effectiveness of this market-based approach to environmental governance (Chen et al. 2022). In 2018, EPLI became mandatory for enterprises operating with significant environmental risks or those with a history of major environmental emergencies since 2005.

Since 2018, the definition of green insurance in China has expanded significantly, encompassing a broader range of categories including agriculture, natural disasters, green buildings and carbon finance, while China seeks a more robust green finance framework for managing environmental risks. The development of green insurance gained momentum following the issuance of statistical standards in 2022 and a classification guide in 2023, which delineated 69 categories of insurance products (Table 7.3).

As well as a taxonomy for green insurance products and services innovation, insurance funds in China are also provided with a list of green financial products in which to invest, as well as a dedicated framework for ESG information disclosure. This holistic approach reflects China’s commitment to integrating sustainability principles across the insurance sector.

Table 7.3: Green insurance classification guidelines in China

Setting	Category	Insurance product
Cope with extreme weather and climate events	Meteorological disaster	Meteorological disaster Public infrastructure disaster Agricultural weather index
Promote the development of green industries	Clean energy	Solar power Wind power Utilities and electricity Nuclear energy Energy storage Hydrogen energy Power grid
	Industrial optimisation and upgrading	Green manufacturing system Circular economy Optimising and upgrading insurance in other industries
	Green transportation	New-energy automobile industry Rail transit New-energy ships and aircraft Green and efficient transportation system Green transportation infrastructure
	Green building	Green building
	Green low-carbon technology	Green environmental protection equipment Green low-carbon material Green low-carbon technology
Promote low-carbon transformation economic activities	Low-carbon transition	Fossil energy low-carbon transition Low-carbon transition in the industrial sector Low-carbon transformation in the construction sector
Support environmental improvement	Pollution reduction	Environmental pollution liability Ship pollution liability Oil pollution Hazardous materials liability Environmental protection infrastructure
Support biodiversity conservation	Ecological environment	Ecological planting industry Ecological forestry Green livestock Green fishery Ecological functional zone Wildlife Ecological restoration Landscaping
Support the construction of green financial market	Green financing	Green loan
	Carbon market	Carbon trading Carbon sink
Promote green, low-carbon and safe social governance	Green and low-carbon social governance	Production safety liability Public safety liability Critical infrastructure Green service provision
Promote green and low-carbon exchanges and cooperation	Green and low-carbon trade	Green foreign trade Green ‘Belt and Road’ Green domestic trade
	Green and low-carbon activity	Green and low-carbon exhibition Green and low-carbon event
Promote green and low-carbon lifestyle	Green life	New-energy automobile Non-motor vehicle Residential decoration quality
Other	Corporate sustainability	Corporate sustainability

Source: Compiled by the authors.

Carbon market mechanisms

China’s ETS and the China Certified Emission Reduction (CCER) program operate as distinct but interconnected carbon market mechanisms. The national ETS is a mandatory system covering high-emission sectors. It requires key emitters to manage their carbon emissions within allocated quotas. The CCER program functions as a voluntary carbon market where companies can generate and trade carbon reduction credits from certain projects such as offshore wind and solar thermal power.

The two systems connect through a crucial link: companies in the ETS can use the CCER to offset up to 5 per cent of their annual emissions obligations. This integration creates additional demand for the CCER and provides ETS participants with more flexibility in meeting their compliance requirements.

Emissions Trading System

The development of the ETS in China began in 2011, with the NDRC’s approval of seven regional carbon trading pilot schemes, in: Shanghai, Beijing, Guangdong, Shenzhen, Tianjin, Hubei and Chongqing. These pilots started trading in 2013, laying the groundwork for a national system. The national ETS was launched in 2017 and was fully operational by July 2021, initially covering only the power sector. A substantial expansion occurred in March 2025, incorporating 1,500 additional companies from the steel, cement and aluminium smelting sectors. This expansion not only increased the ETS’s coverage to more than 60 per cent of China’s carbon dioxide emissions but also broadened its scope to include other greenhouse gases (GHGs) such as carbon tetrafluoride and hexafluoroethane.

China has established a comprehensive policy framework to support its ETS (Figure 7.7), the cornerstone of which are the Interim Regulations on the Administration of Carbon Emission Trading, which provide guidelines for the responsibilities of government agencies, key emitting entities and third-party service providers, as well as legal penalties for behaviours such as falsification, failure to pay carbon allowances or obstruction of inspection by supervising government agencies.

Figure 7.7: Policy framework for China’s Emissions Trading System

Source: Modified from MEE (2024).

Of the 36 emissions trading markets globally, China’s national ETS is now the largest in terms of carbon dioxide emissions coverage, accounting for about 5 billion tonnes of carbon dioxide (ICAP 2024). A major difference between China’s and the European Union’s ETSs is the approach to capping emissions: the EU ETS employs an absolute cap, which sets a fixed limit on the total amount of GHG emissions allowed. In contrast, China’s ETS employs an intensity-based cap, which limits emissions per unit of production but allows total emissions to fluctuate based on economic output, aligning with its goal of carbon peaking by 2030 (Chen 2024). This makes the Chinese ETS somewhat less predictable as the tradable allowances are not a scarce good a priori, making spot and futures trading of allowances less or not attractive (Liu and Nedopil 2021).

China Certified Emission Reduction program

The CCER program is a voluntary carbon trading mechanism that allows companies to offset their emissions by purchasing credits generated from certified emission reduction projects (Li et al. 2019; Wu 2024). The CCER system was initiated in 2012, entered the trading phase in 2015 and suspended issuance in 2017. In January 2024, China’s Ministry of Ecology and Environment officially relaunched and renamed the CCER, the China Carbon Emission Reduction market, after seven years of hiatus. Before this relaunch, several policy documents were in place, providing detailed guidance for all participants (Figure 7.8).

The CCER supplements the mandatory ETS, enabling companies to offset up to 5 per cent of their annual emissions obligations using CCER credits. The initial four sectors supported by the CCER are offshore wind power, solar thermal power, afforestation and mangrove revegetation. Methodology for two more sectors, coalmine gas recycling and energy saving in highway tunnel lighting, were published for consultation in August 2024.

Figure 7.8: Policy framework for the China Carbon Emission Reduction program

Notes: ^* Serving as the national registration agency for CCER projects. ^** Acting as the national trading platform for the CCER.

Source: Compiled by the authors.

China’s role in global green finance

China has taken a central role in global green finance, which can be evaluated through international green finance standardisation and application—for example, green investment in its overseas collaboration programs such as the BRI.

International coordination of green finance standards

China’s role in coordinating international green finance standards is twofold: aligning its domestic practices with global norms and actively shaping the development of these standards. This dual approach underscores China’s commitment to both integrating into and influencing the global green finance landscape.

On the one hand, China has aimed to strengthen the harmonisation of its domestic green finance framework with international standards, including advancements in corporate disclosure requirements, green bond taxonomies and carbon footprint accounting.

• Cooperation on taxonomy: In November 2024, the International Platform on Sustainable Finance (IPSF) Multi-Jurisdiction Common Ground Taxonomy (M-CGT) was introduced at the UN Climate Change Conference COP29. Jointly led by the PBOC, the European Commission’s Directorate-General for Financial Stability, Financial Services and Capital Markets Union and the Monetary Authority of Singapore, the M-CGT builds on the previous China–EU Common Ground Taxonomy. It aims to harmonise sustainable finance criteria across China, the European Union and Singapore, facilitating cross-border capital flows into green projects.
• Cooperation on emissions trading schemes: In August 2024, China’s Ministry of Ecology and Environment signed an updated memorandum of understanding (MoU) with the European Commission to enhance cooperation on emissions trading. The MoU outlines collaboration on key areas, including the role of CCER credits, the expansion of China’s ETS, the integration of the ETS with green power and green certificates and mutual recognition of carbon accounting and product carbon cost verification. It also emphasises joint efforts in developing carbon market systems, quota allocation methods and monitoring, reporting and verification mechanisms.

Internationally, China has taken a proactive role in global standard-setting platforms and sustainable finance initiatives:

• In the G20 Sustainable Finance Working Group, China has taken a leadership position as co-chair alongside the United States. This working group, elevated from its previous status as a study group in 2021, aims to mobilise sustainable finance to ensure global growth and stability while promoting the transition to greener, more resilient and inclusive economies.
• China is also a founding member of the Network for Greening the Financial System (NGFS), which was established in December 2017. The PBOC has actively participated in NGFS activities, contributing to the development of methodologies and tools for assessing climate-related financial risks. For instance, China conducted its first climate risk stress test in 2021, referencing the network’s carbon price scenarios (NGFS 2023).
• China has played a pivotal role in the International Platform on Sustainable Finance (IPSF) since its inception in 2019. Notably, China co-chairs the IPSF Taxonomy Working Group, which led to the development of the EU–China CGT in 2020. In 2024, the CGT was expanded into the M-CGT, incorporating Singapore into the framework to enhance global interoperability in green finance, as discussed previously.

Green investment through the BRI

Since its inception in 2013, the Belt and Road Initiative has evolved into a significant channel for Chinese companies to export green technologies and invest in green projects such as clean energy infrastructure, electric vehicle technology and solar and wind facilities. China’s green overseas investment has reached record levels in recent years. In 2021, China announced it would not build new coal-fired power plants abroad. In 2024, China’s engagement in green energy (solar, wind and biomass projects) reached an all-time high of US$11.8 billion, representing about 30 per cent of its total energy engagement in BRI countries; this marks a significant increase from 2023 when green energy investments amounted to US$7.9 billion (Nedopil 2025).

Green investment through the BRI has been driven by Chinese regulators, quasi-governmental institutions and industry associations.

Regulators

Before 2017, Chinese companies and financial institutions engaging in overseas investment primarily adhered to a ‘host country approach’, which entailed complying with local environmental regulations, even when these were less stringent than international standards. Since President Xi Jinping’s announcement to build a green BRI in 2017, China’s approach to overseas investment has undergone a significant transformation.

In 2022, a key document, Opinions on Promoting Green Development in the Joint Construction of the Belt and Road Initiative, was issued by the NDRC, the Ministry of Foreign Affairs (MFA), the MEE and the Ministry of Commerce (NDRC et al. 2022). This policy encouraged enterprises to adopt international or Chinese environmental standards in cases where local standards were absent or inadequate. In its notices to the banking and insurance industry, the former CBIRC also encouraged banks and insurance institutions to ensure that project management was substantively aligned with international best practices (CBIRC 2022).

Quasi-governmental institutions and industry associations

The Belt and Road Initiative Green Development Coalition (BRIGC) is a multi-stakeholder platform co-founded by China’s MEE and international partners in 2019, aiming to foster international cooperation on green development and encourage sustainable infrastructure and investment practices. From 2020 to 2023, BRIGC led and published a series of studies of the Green Development Guidance, which provides a ‘traffic light system’ to label projects as ‘encouraged’, ‘neutral’ or ‘restricted’ based on their impact on pollution, climate change and biodiversity (see Figure 7.9; Nedopil et al. 2020, 2021a). This served as a basis for new policy documents issued in 2021 and 2022 that explicitly encouraged the integration of biodiversity, climate and pollution controls throughout all investment phases.

The Green Investment Principles for the BRI were co-initiated by the Green Finance Committee of the China Society for Finance and Banking and the City of London Corporation’s Green Finance Initiative in 2018—a set of eight high-level principles for financial institutions to integrate sustainability into BRI-related investments (Green Finance Leadership Program 2018).

Chinese financial institutions are also contributing to a green BRI through industry associations. In November 2024, the Belt and Road Reinsurance Pool held its tenth council meeting, in Kunming, Yunnan Province. The meeting launched ‘Green Insurance Principles’ for BRI projects, including identifying and assessing environmental risks in projects and developing differentiated underwriting solutions (Xinhua 2024). Similarly, the Belt and Road Bankers Roundtable was established in 2017 with the goal to ‘strengthen cooperation in the Belt and Road project financing, transaction bank, and financial market’ (ICBC 2019), part of which includes green finance collaboration.

Figure 7.9: Chinese Government-issued guidance and opinions relevant to greening finance in the Belt and Road Initiative

Source: © 2022 Nedopil, Green Finance & Develompent Center, FISF Fudan University.

Conclusion and outlook

China has made significant progress in developing its green finance sector, positioning itself as a key player in the global sustainable finance landscape. While China is often described as a leader due to the scale of its green bond market and the institutionalisation of green credit policies, this characterisation requires critical examination. The country has implemented a top-down regulatory approach (unlike the European Union, with its more market-driven approach), exemplified by the PBOC’s green credit guidelines and the establishment of a national taxonomy for green finance. These efforts have driven substantial capital flows into green projects, particularly in renewable energy and infrastructure. However, challenges remain, including persistent discrepancies in green finance definitions, the prevalence of greenwashing due to less developed disclosure standards, the relatively limited role of the private sector and international investment and the lack of understanding of de facto emission reductions. China persists in its approach of ‘establishing the new before abolishing the old’ in its green economic transition (Xi 2024)—that is, ensuring energy security by building clean energy alongside traditional energy. The development of its green finance ecosystem has followed a similar approach, taking into consideration the needs of traditional high-emission industries (which also explains the increasing importance of transition finance). As a result, and as some studies have highlighted, there is a ‘Panda–Dragon’ paradox where China has an aggressive green finance agenda and carbon neutrality goals while expanding the build-out of high-emission fossil fuels (Nedopil 2023). Questions thus remain about the extent to which China’s green finance model can serve as a replicable framework for other economies.

Future developments in China’s green finance ecosystem will likely focus on enhancing the credibility of green financial products through stricter disclosure requirements and third-party verification mechanisms. The integration of climate risk assessment into macroprudential policies and stress testing will be critical in managing systemic financial risks associated with climate change. Additionally, the digitalisation of finance, including blockchain-based green bond issuance and AI-driven ESG analytics, presents opportunities for improving transparency and efficiency. Further research is required to evaluate the effectiveness of China’s green finance policies in mobilising long-term private investment, the role of SOEs in sustainable financing and the implications of China’s green finance development for de facto emission reductions and China’s global sustainable development leadership. A sectoral analysis of the impact of green finance on industries such as energy, transportation and urban infrastructure would provide deeper insights into the financial mechanisms driving China’s low-carbon transition.

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