now loading...
China’s Ministry of Finance ( MoF ) has publicized its first Sovereign Green Bond Framework, a milestone that signals the country is preparing to step into the international green bond ( GB ) market as a sovereign issuer.
The framework, issued on February 20, is developed and structured in accordance with both the domestic GB standard ( the China Green Bond Standard Committee’s China Green Bond Principles ) and the globally recognized standard ( the International Capital Market Association’s Green Bond Principles ).
“The framework lays the ground for China to issue offshore sovereign GBs and attract international capital for its green development initiatives,” says John Wang, vice-president and senior analyst at Moody’s Ratings in a research commentary.
Sovereign green bonds issued under the framework will be used to finance or refinance eligible green expenditures from the central government budget, which will channel the funds into eligible projects in five key areas:
The MoF will be responsible for overseeing the process of project evaluation and selection, proceeds management and information disclosure to ensure transparency.
“Transparency and accountability in the allocation of funds will be key to increasing the framework’s credibility among international investors,” Wang shares. “The size of the GB programme, which has yet to be announced, could also shape its overall effectiveness in achieving its goals.”
Both DNV and Lianhe Green provided the independent second-party opinions for the framework.
First sovereign GB issuance
In recent years, Chinese financial institutions and corporates have actively participated in GB issuance both domestically and overseas. China issued US$409.9 billion of GBs in 2024, according to data from Environmental Finance, of which US$49.5 billion were issued out of the country, contributing to 8% share of the global GB market.
However, the country itself has not yet staged a sovereign-level GB issuance.
That said, the publication of the framework suggests its debut in the sovereign GB market will not come too far in the future because the action is a critical condition that needs to be met before the country’s issuance of GBs internationally.
Additionally, MoF has informed the public earlier that China will implement more active fiscal policies in 2025, including setting a higher fiscal deficit rate and arranging larger sizes of government bond issuances, with areas such as carbon emissions reduction and green development normally being key priorities for any special purpose central government bonds.
Wide implications
If China really steps into the sovereign GB market, the impact will be significant. An expert from the International Institute of Green Finance under the Central University of Finance and Economics sees four key implications.
First, it will reinforce China’s commitment in green development, showcasing its continuous efforts towards achieving its decarbonization goal in a complicated global environment.
Second, it will encourage more Chinese entities, including local governments, financial institutions and corporates, to participate in GB issuance in both the domestic and international markets.
Moreover, it will expand the supply of RMB-denominated assets in the green finance product space, offering international responsible investors opportunities for diversified green asset allocations, and draws more long-term capital into China’s sustainable development.
Finally, it will fill in the gap of the RMB-denominated GB yield curve, providing a critical reference for future Chinese GB issuance and increasing the pricing transparency of China’s GBs.
