It’s Quite Easy Being Green

Beijing’s environmental investment plans are generating interest from markets, along with the potential for green investment to provide an alternative growth engine for China’s economy in the years ahead. This note creates an early-stage bottom-up framework allowing investors to track money flows associated with green investment, including the borrowers and ultimate destinations of financing.

Green bonds issued in recent years are funding a mixture of real environmental projects along with some old wine in green bottles—traditional local government and SOE investments bearing green tags to facilitate easier financing. The PBOC has also unveiled its own liquidity facility for green investment, which should improve the profitability and sustainability of these projects. So far, the sums involved are not meaningful as a broader driver of growth, but the bottom-up framework within this note should help to evaluate if and when these investments become more important within China’s economy.

Posted December 2, 2021
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