Hard work bears fruit for future

Carbon trading capitals market seen as essential to China's long-term economic growth

The International Finance Corporation, which has spent two decades helping China to open up its capital markets, is lending its support to guide the country toward its next major goal - growing its low-carbon financial markets.

On May 18 the IFC will co-host a forum in Shanghai with the China Clean Development Mechanism Fund, part of the Ministry of Finance. The event will bring together financial experts from the public and private sectors to discuss ways of growing a sustainable carbon trading and green bond market in China.

Hua Jingdong, IFC's vice-president and treasurer, says the event, known as the Capital Market and Funding Mechanisms Forum, is critical as it allows Chinese and international experts and policymakers to exchange views and may lead to significant agreements.

"China can be a global leader in developing the carbon capital market and green finance market," he says. "It has realized that the US will continue to be the global leader in the regular capital market, but in the carbon and green finance markets China has great potential due to the size of its markets and government commitment to reduce carbon emissions."

The IFC, a member of the World Bank Group, has many lending activities in China, where funds are channeled to projects that deal with climate change, as well as those that are aimed at reducing rural-urban inequality and supporting sustainable investment.

The IFC says that since 1985 it has invested almost $9 billion in about 300 projects in China. The organization has combined global expertise with local knowledge to maximize investment returns and social benefits. Its investments include projects in sectors such as renewable energy, water and microfinance.

Hua says one key contribution from the IFC in helping China to reform and open up its capital markets was the issuance of an onshore yuan-denominated bond in 2005, making it the first AAA-rated foreign issuer to do so. It issued a 10-year bond worth 1.13 billion yuan ($184 million) and used the proceeds to finance projects. This milestone encouraged other international organizations to take part in China's onshore bond market, and has helped China's financial market to integrate further with global markets.

"China's bond market has grown exponentially compared with 10 years ago, when we became the first to issue Panda Bonds," Hua says. "We have seen an opening-up of the market to foreign issuers, and the growth means companies have been taking advantage of developments in China's capital markets to raise funds for their activities. This is tremendously encouraging."

The inaugural renminbi bond was the result of hard work between 2000 and 2005, when the IFC worked closely with the People's Bank of China, the Ministry of Finance and other ministries, to deal with technical and regulatory issues.

Hua says the bond had significant implications for China's capital market because the IFC worked with the Chinese government to develop the regulatory framework, as the market is crucial for the Chinese economy's long-term growth.

"For any economy to achieve full potential, it needs to be supported by a functioning, deep and liquid market to link the country's savings to economic development, and to attract foreign capital," Hua says. "The US and UK economies developed not by relying on foreign investment, but relying on entrepreneurship and a capital market framework that developed in tandem with their own economic growth. For an economy like China to fully develop, it has no other way but to develop a sound capital market."

At the same time, the bond also had great advantages for the IFC, as it is able to lend directly in renminbi to Chinese private sector projects, avoiding foreign exchange risks.

cecily.liu@chinadaily.com.cn

(China Daily Africa Weekly 05/15/2015 page19)