This is an extract from a recent report “China Green Bond Market Report 2020” published jointly by the Climate Bonds Initiative and China Central Depository & Clearing Research Centre (CCDC Research). Funding for this publication was provided by HSBC as a Gold Partner and UK PACT.

China has, for the last 6 years, been one of the world’s largest green bond markets and yet, the market in 2020 was bumpy. Total Chinese green bond issuance in the domestic and overseas market reached USD44bn (RMB289.5bn), representing a 21% decrease from the USD55.8bn (RMB386bn) achieved in 2019. Onshore issuance stood at USD36.3bn (RMB234.9bn), translating into a 13% decrease from 2019. Offshore issuance also plummeted by 38% to USD7.8bn (RMB54.6bn). The labelled green bonds only accounted for less 1% of China’s overall bond market in 2020, the potential for growth is huge.

Late May 2020 saw the removal of fossil fuels in the updated ‘Green Bonds Endorsed Projects Catalogue (Consultation Draft)’, which has brought China into closer alignment with international green classification systems, such as the new EU Taxonomy as well as the Climate Bonds Taxonomy. The final draft was published in April 2021 and has improved the prospect of taxonomy harmonisation and the confidence of international investors. However, discrepancies still exist between China’s local green bond guidelines and the international ones, for example, some local green bond guidelines continue to allow the proceeds of green bonds to fund general working capital.

Screened against the Climate Bonds Initiative Green Bond Database Methodology (2020 version), we have identified USD23.8bn (RMB157.5bn) worth of Chinese green bonds that are aligned with both Chinese and Climate Bonds green definitions (henceforth referred to as ‘aligned green bonds’), while a further USD20.2bn (RMB132bn) are only aligned with China’s local definitions of green. The volume of aligned green bonds will continue to grow as standards are harmonised and transparency improves over time.

Beijing Jingneng Clean Energy is the largest Chinese issuer in 2020, with a total of RMB15bn (USD2.1bn) green bonds issued. This was the first time that a non-financial corporate became the largest issuer. Among the green bonds that are aligned with Climate Bonds green definitons, Low Carbon Transport remained the largest theme (30%) among bonds aligned with Climate Bonds Initiative’s definition, followed by Energy (29%).

In China, the green bond market has clearly been affected by the ramifications of the COVID pandemic, with many issuers preferring to issue social-themed bonds, especially those pertaining to the pandemic response. This was also a result of the shift of regulatory focus to COVID-related financing in the first half of the year. However, the green bond market saw a rebound in the second half of the year, especially in Q3 when China made its carbon neutrality commitment. In addition to this policy announcement, China’s green bond market also showed positive development in many aspects, such as the continued increase of non-financial corporate issuers. China also continues to have one of the largest offshore green bond markets in the world.

Onshore vs offshore

18% of green bonds were issued in the offshore markets

16 issuers raised a total of USD7.8bn (RMB54.6bn) in offshore green bond issuance. Despite the 38% decrease in volume from the USD12.5bn (RMB87.5bn) achieved in 2019, 11 of them were new to the overseas green bond market. This mainly included real estate developers such as Landsea Green Properties, Yango Justice, Yuzhou Group, and Zhenro Properties, as well as renewable energy operators ENN energy, Concord New Energy, and CIFI Holdings.

Most (86%) of the offshore deals were denominated in USD, and EUR ranked the second (7%), followed by CNY (5%). Hong Kong Exchange (HKEX) remained the largest listing venue for Chinese offshore green bonds, accounting for 54% of the total offshore volume in 2020. London Stock exchange (LSE) was the second largest offshore market for Chinese deals, with Singapore Stock Exchange (SGX) being the third. Green building was the largest sector financed by offshore green bonds (35%), followed by low carbon transport (29%).

Green kungfu bonds

Kungfu bonds – referring to Chinese bonds denominated in USD and issued offshore, are a rising asset class gaining traction in the global market. Greater onshore regulation and rising funding costs in China’s debt capital market are driving the growth of Kung Fu bonds. There is an increasing preference for corporates to source funding for their activities from the dollar bond market. Kung Fu bonds also give the issuer exposure to a new investor base. For global investors looking to capture higher yields, Kung Fu bonds are an appealing way of gaining exposure to the Chinese market while managing financial risks.

As of December 2020, there had been a total of USD30bn (RMB210bn) Kung Fu bonds labelled as green, representing 68% of overall Chinese green bonds issued offshore since 2015. Among the 40 green Kung Fu bond issuers, Industrial and Commercial Bank of China (ICBC) is the largest issuer with a total of USD6.75bn issued cumulatively, followed by Bank of China (USD5.1bn from via three branches).

Green dim sum bonds

A dim sum bond refers to an RMB- denominated bond issued in Hong Kong. Dim sum bonds are marketed to foreigners who wish to circumvent Chinese capital controls, but still have direct exposure to RMB-denominated assets. Multinational corporations may choose to issue these bonds to access regional financing from foreign creditors without restrictions or strict oversight from Chinese authorities.

Hong Kong Exchange is the largest marketplace for offshore Chinese green bonds, with a total listing volume of USD15.4bn (RMB107bn). This accounts for 37% of all Chinese offshore green bond issuance since 2015.

Cumulatively, USD1.6bn (RMB11.4bn) of Chinese green bonds listed on Hong Kong Exchange are denominated in RMB – hence classified as Green Dim Sum bonds. Bank of China is the largest green Dim Sum bond issuer, with a total of three issuances in 2016 (RMB1.5bn), 2019 (RMB2bn) and 2020 (RMB3bn), respectively.

Green panda bonds

Panda bonds are onshore RMB-denominated debt issued in China by foreign/overseas issuers. The panda bond market is used as a capital- raising platform for foreign entities targeting domestic investors and hence, domestic investors are the main purchasers of these bonds. The New Development Bank is the largest green panda bond issuer (RMB3bn, 2016), while Beijing Enterprise has the most deals (a total of three deals issued in 2016, 2019 and 2020).

The China Interbank Market is the largest marketplace for green panda bonds that has a total of USD571m issued, representing 47% of all cumulative issuance. Shenzhen Stock Exchange is the second largest, with USD342m (28%), followed by Shanghai Stock Exchange (USD300m, 25%).

Issuer types

2020 was marked by new developments in China’s profile of issuer types. The most noticeable was the strong growth in the total volume of green bonds issued by government-backed entities that increased by 18%, representing 38% of the total volume of issuance in 2020.

Government-backed entities contributed USD17bn (RMB119bn) to total green bond issuance in 2020, representing 38% of 2020 issuance. Climate Bonds Initiative categorises local government financing vehicles (LGFVs) as government-backed entities in China’s context. LGFVs are financing firms established and owned by the local government in order to fund the construction of public projects. Green bonds issued by LGFVs largely reflect Chinese local governments’ ambitions to address climate change and local environmental issues.

There are four formal levels of administration in China – provincial, prefectural, county and township. The issuance of government-backed entity green bonds varies significantly across provinces. Metro and urban public transit projects are the most funded project type by government- backed entity issuers. Local water authorities such as Guizhou Water Investment, Qingdao Water Group and Hangzhou Water Affaires Group are among the largest government-backed entity issuers. In 2020, the amount issued by government-backed entity green bonds volume was up 30% from the preceding year.

Non-financial corporates had the highest share since 2015. Beijing Jingneng Clean Energy was the largest non-financial corporate issuer in 2020, with one bond amounting USD2.1bn (RMB15bn). The bond’s net proceeds were exclusively directed to financing and refinancing wind and solar projects, as well as to supplement the working capital that was related to the company’s wind and solar business. Among the total 53 corporate issuers, 45 were new to the market. These included Shenhua New Energy – a fully owned subsidiary of Shenhua which is the largest state-owned coal mining enterprise in Mainland China and in the world – that issued
a RMB1bn green bond purely financing wind and solar project development. Chongqing Rail Transit, Jiangsu Railway and Shenyang Metro were also among the new issuers bringing finance to intercity and urban rail construction.

Financial corporates’ share decreased by 19% year- on-year. The actual amount and share of financial corporates both dropped from 2019, witnessing the lowest annual issuance in absolute terms since 2016. There were only 14 financial corporates issuing green bonds in 2020, totalling USD6.6bn (RMB46.2bn). USD2.9bn (RMB20.3bn) were issued in the domestic market, while USD3.7bn (RMB25.9bn) were issued in the offshore market.

Among the nine domestic issuers, five were commercial banks and four were financial leasing companies. Huaxia Bank, Bank of Ganzhou, Auhui Maanshan Rural Commercial Bank, Chongqing Rural Commercial Bank and Fuyang Yingquan Rural Commercial Bank are first-time issuers that brought a total of USD2bn (RMB14.1bn) to market in 2020.

Offshore issuance included Industrial Bank’s debut offshore green bond (USD450m) that provided financing for the implementation, construction, maintenance, and development of energy efficiency-enhancing technologies that must result in at least 20% of energy savings. Bank of China brought a dual currency (USD and RMB) ‘Blue’ bond through its Paris and Macau branches respectively, adding USD942m to its existing green bond programme. The offshore green deals from China Construction Bank (USD1.2bn) and China Merchants Bank (USD800m) both carry Climate Bonds Certification.

ABS issuance fell by 33% year on year. The first Chinese green ABS were issued in 2016. however, green securitisations remain a small proportion of the green bond market, and the potential for growth is huge. Allocations have covered a variety of use of proceeds categories such as renewable energy, low-carbon buildings, water management and low-carbon transport. The types of securities have also become more diversified and included revenues from wind turbines and other renewable energy equipment leasing, green commercial building mortgage receivables, and account/bill receivables.

In 2020, however, ABS issuance saw a 33% decrease from the 2019 basis. There were also eight green ABS deals that did not meet
the Climate Bonds Database requirements either because the underlying assets were not considered green or there was a lack of disclosure. Examples include Chongqing Yuanda Flue Gas Treatment Franchise Co and Xi’an Hi- tech Zone.

By aggregating smaller-scale funding into a common structure split into tranches with different risk profiles, securitisations enable institutional investors with different mandates to finance small-scale assets and small- and medium-size businesses. An ABS instrument can be defined as “green” when the underlying cash flows relate to low-carbon assets or where the proceeds from the deal are earmarked for investing in low-carbon assets.


2020 has been a tumultuous year for China’s green bond market as the country, like the rest of the world, rushed to respond to the impacts of the COVID-19 and to find its own path to post-pandemic recovery with coordinated macroeconomic policy, regulatory, institutional and technological developments.

Chinese regulators have continued to stimulate market growth through an array of financial and regulatory incentives, and sought to further integrate China’s green financial market into the global capital market. The year has seen an important market consolidation with a long- awaited unification and update of its domestic green bond standards, which will improve the attractiveness of Chinese green bonds for offshore investors and pave the way for better taxonomy coordination between China and the rest of the world.

Outside of the green bond universe, there was a growth in other labelled bonds, with a spike in the issuance of sustainability and social-related debt instruments, and a cluster of new products, such as “carbon neutral” bonds, sustainability- linked bonds (SLBs) and social bonds.

Nonetheless, the gaps that remain between Chinese and international green bond standards have the potential to dent foreign investors’ enthusiasm, while the international investors still need to grow understanding and confidence in the emerging products including the “carbon neutral” and transition bonds from the Chinese market.

Going forward, the government’s role in providing consistent and credible policy signals will continue to be paramount for the sustained and orderly growth of China’s domestic green bond issuance volume, yet the market stakeholders will need to keep abreast of the rapidly evolving and proliferation of debt instruments. The key “gatekeepers” of the labelled bond market, such as the external review providers and underwriters, also need to insist on high standards.

The complete report can be accessed here