Update on Investment and Development Opportunities in China's Green Economy 2022
浅析2022在中国绿色经济中的投资和发展机遇
Overview
Since 2021, the central bank of China began to arrange significant activities in the field of green finance, namely "Further allocate more resource to the financial sector green projects", "Provide comprehensive support to carbon markets across the country in green finance" and "Launch pilot green transformation in real estate investment and financing". This marks China’s entry into an era of "carbon neutral" development in the global competition for a green economy.
On July 4, 2022, the APEC China council and the international cooperation center of National Development and Reform Commission（NDRC）jointly launched "Sustainable development of China industrial action", focusing on green growth and the digital economy, the development of sustainable models to explore an effective path of green recovery and economic growth.
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What is the status quo of China's green economy?
中国绿色经济发展现状？
As mutation induced several waves of outbreaks of Covid globally, emerging environmental and social issues are urgent to be solved in order to put back the economy on track while defeating the epidemics.
China has been increasingly focusing on the green economy and is committed to achieve carbon neutrality by 2060. In order to promote the construction of a sustainable economic system of green and low carbon, the 14th Five-Year Plan proposed to reduce carbon intensity, support pilot cities to take the lead and formulate a plan of action to peak carbon emissions China is aiming to achieve a peak in carbon emissions by 2030.
Data source from: NetEase News
At the same time, green development needs financial support. Data from The China Green Bond Market Report 2021 released on July 4, 2022 show that: By the end of 2021, China's cumulative issuance of green bonds ranks second place in the world, with $199.2 billion ahead of other major markets with an increase rate of 186% from the previous year. Nearly 90% of the funds raised in 2021 went to renewable energy, low-carbon transport and construction.
绿色债券年度发行量Annual green bond issuance
Data source from: Wind & CICC
Along with the carry forward of building national green financial reform pilot zone, the financial departments of the pilot areas in China have made great efforts to provide financial support for green finance through the expansion of financial incentives, subsidies and tax relief. The types of green bonds in the green finance pilot areas have been constantly enriched, covering corporate bonds, financial bonds, government bonds and medium-term notes. The green equity market is active and the form of financing is constantly improving. The overall scale of ESG and green finance is expected to exceed 20 trillion yuan in 2022.
There are currently nine pilot carbon markets in China, including Beijing, Tianjin, Shanghai, Hubei, Chongqing, Guangdong, Shenzhen, Fujian and Sichuan. As one of China's first carbon emission permit trading pilot markets, Beijing is working to build China's first international green financial center. Recently, the Beijing Environment Exchange is trying to transform into the country's first Green Asset Exchange. The goal is to attract more domestic and foreign capital to participate in green asset trading such as green bonds, green asset-backed securities (ABS), green project financing and carbon finance, to bring in foreign institutional investors and to activate secondary market liquidity.
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Opportunities for Foreign Investment in the Green Economy?
绿色经济中外商投资的机遇？
China's green economy needs the participation of foreign capital. In the context of China's pursuit of green growth, we need to consider the performance of foreign direct investment (FDI) in terms of economic and environmental benefits. As important market players in China, foreign-invested companies account for about 2% of the total number of companies in China, create about 2/5 of China's foreign trade and 1/6 of its tax revenue, and drive 1/10 of urban employment directly or indirectly, thus making important contributions to build a moderately prosperous Chinese society.
CCPIT (China Council for the Promotion of International Trade) Press Conference, July 2022
Foreign-invested companies have achieved great development while made a large contribution in China market. According to the Report on Business Environment for Foreign Investors in China in the second quarter of 2022 released by CCPIT on July 29th, compared with 2021, 18.5% surveyed foreign companies expanded their business scale, up 2.1% from the first quarter. 72.5% maintained their business scale, up 1.5% from the first quarter. They are generally optimistic about the long-term prospects of their business in China, with 11.2% of them increased their investment in China in the second quarter. It is worth noting that more than 40% of the foreign-funded companies plan to take Chengdu-Chongqing area as the main investment destinations. Foreign companies that increased investment and expanded capacity in China include BMW, Daimler, Siemens, Toyota, LG, ExxonMobil, BASF, Volkswagen and Tesla, etc.
Data from:www.mofcom.gov.cn
Statistics from the Ministry of Commerce show that foreign investment is rising and exceeded 170 billion US dollars in 2021. FDI expanded by 20.5% year-on-year (YoY) to more than 70 billion US dollars in the first four months of 2022. In terms of sectors, the actual use of FDI in service increased by 12.5%, the service sector is the main force in attracting foreign investment and will continue to be the leader. High-tech industries increased by 45.6%, among which high-tech manufacturing and high-tech services increased by 36.7% and 48.3% respectively.
Data source from: British Chamber in Shanghai
Business Confidence Survey 2021-2022 released by the British Chamber of Commerce in China indicated that companies are gradually recovering from previous year's economic challenges. 70% of UK businesses believe their revenues in 2021 will be impartial or exceed previous year. 52% remain optimistic about their future development in China. Foreign enterprises expect significant opportunities in tech-innovation, economic prospects and decarbonization fields of China market.
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Green recovery-the new driver for economic development in the post pandemic era
绿色复苏将成为后疫情时代经济发展驱动力
A look beyond the pandemic
1. Society: theoutbreak has revealed the insufficiencies in the urban infrastructure. Promotinggreen transformation will be a central part of the 14th Five-yearplan “Ecological civilization construction”.
2. Financialsector: In response to the economic impact of the outbreak, further improvementof the green financial system will provide support for the real economy sectorto facilitate economic recovery such as the resumption of tourism, shopping anddining activities, as well as provide adequate support for supply chaindisruptions.
3. Real economysector: China's energy mix will change dramatically, and there is huge room forgrowth in the new energy industry chain, such as PV（photovoltaics）and wind power. In the future, theimpact of ESG (environmental, social and corporate governance) in investmentdecision-making will continue to grow, and "climate change, greenrecovery" will be a key global issue. Under the technology competition anddeglobalization, "green cooperation" has become a new direction, and businessesshould seize the opportunity to make long-term planning.
4. Science andtechnology:China will increase investments in newinfrastructure, raise the level of innovation in key areas of green transformation,and ensure the import of important products. Advanced environmental protection,energy-efficient equipment manufacturing industry will be prioritized thanks tohigh-tech enterprises policies.
Suggestions on the sustainable development of foreign investment in China green economy
The Chinese market has become one of the most important markets for global capital with its huge scale, consumption capacity, complete industrial system and constantly optimized business environment. The development of China in green finance is receiving increasing attention.
In 2022, NDRC and the Ministry of Commerce jointly released the “The Catalog of Encouraging Industries for Foreign Investment (2022 Edition，draft for comments)”. This Catalog further encourages investments in the production-oriented services industry, adding or expanding items such as professional design, technical services, and development. It has expanded the scope of preferential policies for foreign investments and made it more convenient for foreign companies to enter the Chinese market.
Green economy has a broad future, foreign companies and investors shall pay close attention to China’s policy orientation and identify high quality and growth-related projects that fit in China strategic development and actively participate in the green transformation of infrastructure and technology innovation. The pandemic is both a challenge and an opportunity. It has facilitated Sino-foreign cooperation, seek more healthy, long-term development and achieve win-win partnerships towards a sustainable global economy in the post-pandemic era.
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