Investment Institute
Asset Class Views

China green bonds: Too big and attractive to ignore

  • 13 April 2022 (7 min read)

Key Points

  • The ambition to decarbonise the world’s largest greenhouse gas emitter has fuelled tremendous growth in China’s burgeoning green bond market. As the world’s second largest supplier of these bonds, China offers several attractions to global ESG-focused investors.
  • First, as a platform for financing a key national development objective, the green bond market will likely continue to receive strong policy support. It could serve as a haven for investors who have been through a hard time investing in China due to regulatory uncertainties.
  • Second, global demand for green assets has grown strongly. While China is a latecomer to ESG investing, the theme has caught on fast with local investors reflected by the boom in ESG-focused funds in recent years
  • Third, China’s size is striking when it is seen in the Emerging Market (EM) context. With a 90% market share in local currency bonds, China cannot be overlooked by any investors who seek to earn an extra yield on their green investments.
  • Finally, China green bonds are attractive from both green and financial perspectives. The former is due to a closer alignment between local and international green bond standards. As for the latter, China bonds are generally higher yielding, shorter in duration and have delivered competitive performance on a gross and risk-adjusted basis in recent years.
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