China deploys its financial arsenal to green its industry

When one thinks of China, one rarely imagines a leader in the green economy. However, while Europe retains a certain lead in ecological transition, Beijing fully intends to reverse the trend.

The government is investing massively in low-carbon projects. It is prioritising financing sectors deemed useful for the transition. It is now deploying an arsenal of financial and fiscal tools to stimulate the liquidity of green financing, improve the management of ecological assets and reduce valuation costs. By treating these investments as qualitative assets, the authorities intend to strengthen the segment's attractiveness for investors, particularly institutional investors.

Green strategy supported by massive investments

According to the People's Bank of China (PBOC), outstanding green loans reached 35,000 billion yuan at the end of 2024, approximately 4.38 trillion pounds, based on average 2024 exchange rates. This represents 14 percent of total bank outstanding, an unparalleled level globally. On the bond market side, green bond issues remain modest (less than 1 percent of the domestic market). However, they are now complemented by a new instrument: transition finance. This aims to support sectors that are still carbon-intensive, such as steel, cement and textiles.

In 2024, transition finance product issues jumped by 54 percent, reaching 64.9 billion yuan (8.1 billion pounds), according to data from the Green Finance & Development Center.

Strengthened normative framework

To guide capital flows towards the right projects, in February 2024, China published a revised version of its Green and Low-Carbon Transition Industries Catalogue. This repository, updated after public consultation, defines the sectors eligible for tax and financial incentives. According to the CFA Institute, it is “a strategic tool to direct financing towards priority sectors, while ensuring greater transparency for investors”.

Calibrated financial and fiscal instruments

Under the joint leadership of the Central Bank, the National Financial Regulatory Administration (NFRA) and the China Securities Regulatory Commission (CSRC), numerous tools have been put in place: preferential interest rate credit lines; public guarantees; bonds indexed to ESG objectives; and tax incentive measures. The objective is twofold. Firstly, to reassure investors about the quality of the projects. Secondly, to encourage the private sector to take part in the transition effort. “It is about reducing information asymmetries and ensuring market transparency”, the CFA Institute analyses.

Textiles in the sights of pilot zones

Although textiles do not always appear on national lists of green sectors, several pilot zones have chosen to include them in their own catalogues. In Huzhou, Zhejiang, a city known for its industrial dynamism, textiles have been a priority sector for several years. In 2022, a 200-million-yuan transition loan enabled a textile company to modernise its equipment, saving over 600 tonnes of CO₂ per year. The enriched version of the local catalogue, published in 2023, now specifies the eligibility criteria for the textile and chemical industries.

The same dynamic is at play in Shanghai, where the catalogue published in January 2024 covers six industrial sectors, with specific criteria in terms of energy, pollution and recycling. Textile companies can thus claim subsidised financing if they commit to measurable objectives.

Coherent architecture, from national to local

These pilot zones are not isolated experiments. They are part of a governance system articulated between Beijing and local governments. While the central authorities define the guidelines and technical criteria, the cities experiment in the field, adapting the tools to the industrial reality of their region.

In other words, all these initiatives are part of an integrated normative and financial framework. Three key entities, namely PBOC, CSRC and NFRA, lay the national foundations. At the municipal level, pioneers like Huzhou translate these guidelines into operational mechanisms, including project auditing, ESG transparency obligations, structuring transition loans, risk management and tax incentives.

In Huzhou, for example, green credit already represented over 30 percent of bank outstanding in 2023, with a near-zero default rate, according to HZGF, a non-profit research institution based in the city. The municipality has also implemented an evaluation grid for financed projects, ESG reporting obligations and close cooperation with local banks. “This articulation guarantees the coherence of the system while allowing fine-tuning to regional realities”, the Griffith Asia Institute emphasises.

Alignment with international standards

Does China aim to define the rules of the game? By aligning its benchmarks with international standards, and sometimes going further, it seeks to position its players as champions of a globalised green industry.

In textiles, this means that manufacturers who benefit from Chinese schemes will be among the best performers in the world in terms of sustainability. This greening is a key factor in competitiveness. International clients, major brands, distributors and regulators are imposing ever stricter standards. However, by anticipating this development, China intends to preserve, and strengthen, the place of its textile industry on the world stage.