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Green finance needs government intervention

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Staff writer ▼ | July 14, 2014
Green projectsChina should strengthen its control over financing of green projects to help the green economy grow, experts say during an environmental protection forum in Guiyang, Guizhou Province.


Ma Jun, economist with the People's Bank of China, the central bank, said there is currently little incentive for green investment in China, so polluting projects enjoy an oversupply of capital while environmentally friendly ones are faced with a severe capital shortage.

The country should build a policy system to direct more investment into the green sector, Ma said at the forum, scheduled to run from Thursday to Saturday. It can consider establishing specialist banks to implement the government's funding of preferential credit terms for green projects, he added.

Besides this policy support, the government can also enhance its control over green financing through legislation, Zuo Xiaolei, chief economist at China Galaxy Securities, suggested.

The development of such financing relies more on government control than market forces, and it should be made obligatory for banks to offer preferential credit terms for green projects, she said.

Financial institutions including banks, securities, insurance and investment companies all pursue maximized profits. That makes them less likely to lend to green enterprises, which usually have higher production costs than polluting industries and are less profitable, especially in the early stages, Zuo noted.

"Many green companies are innovative businesses, and innovation is a long-term investment which usually does not make money in a short period of time," the economist said.

Therefore, government policies are of primary importance in fostering the growth of the green economy by motivating financial institutions to develop green-focused products that do not rely on quick returns, according to Zuo.

China introduced preferential credit terms in July 2007, as part of its enforcement of eco-friendly economic policies, and the country has been working to help solve the financing difficulties of green industries.

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