The policy mix of green finance in China: an evolutionary and multilevel perspective

ABSTRACT

Against the background of climate change, green finance has received worldwide attention in recent years, as policymakers bring the ‘green’ idea into financial sectors and encourage investments in green projects. From an evolutionary and multilevel perspective, this study conducts a comprehensive review of the policy mix of green finance in China. Our analysis emphasizes the dimensions of time and scale of a policy mix that are important elements to understanding the evolution process. We identify a transition process in green finance policies in China with changes in both policy objectives and policy instruments. China has gradually shifted its policy focus from direct public intervention and investment to the construction of a green finance market. From the multilevel perspective, the dynamic vertical interactions between different levels of government have played an important role in this transition.

Key policy insights

• Time and scale are important dimensions of a green finance policy mix, as policy strategies and instruments evolve over time; policies are also designed and implemented at different scales – with direction, learning and guidance from national to local (provincial) and eventually, with time, vice versa.

• China’s green finance policy mix is undergoing a transitional process, characterized by a shift from direct public intervention and investment to the construction of a green finance market. This involves placing greater emphasis on attracting private investment and financing, and moving away from top-down intervention towards a market-based, polycentric approach with greater engagement and interaction with the private sector.

• The dynamic vertical interactions between different levels of government have played an important role in the transition toward a more market-based approach. For instance, we find that local experimentation of green finance policies explores different development models for the local financial system against diverse local contexts, and these have, in turn, both influenced policy design of the central government and in some instances diffused to other jurisdictions.

KEYWORDS:

• Green finance
• policy mix
• policy evolution
• multilevel governance
• China

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 ‘Energy crisis sparked by Ukraine war to speed up green transition – IEA’ (Reuters, October 2022).

2 ‘Global Low-Carbon Energy Technology Investment Surges Past $1 Trillion for the First Time’ (Bloomberg BNF, January 2023)

3 https://www.climatebonds.net/files/releases/joint_release-cbi_ccdc_hsbc-china_green_bond_market_report2020.pdf

4 Green Finance in Asia: Challenges, Policies and Avenues for Research

5 In this article, policy documents are coded as two categories. We use ‘Nx’ to code national policies, where listed policy documents can be found in Appendix 2, Table 1; we use ‘Px’ to code provincial policies, where listed documents can be found in Appendix 2, Table 2.

6 The Equator Principles were formulated in 2003 based on sustainability standards from the International Finance Corporation (IFC). It serves as voluntary guidelines for financial institutions to identify, assess and manage environmental and social risks when financing projects.

7 Environmental Equity Financing Instrument (financial industry standard) officially launched (cfstc.org).

8 The first carbon allowance collateralized finance succeeded in Guangzhou successfully completed (https://www.cnemission.com/article/cgal/201505/20150500000892.shtml).

9 Environmental Equity Financing Instrument (financial industry standard) officially launched (https://www.cfstc.org/jinbiaowei/2929436/2980681/index.html).