Greening China - How Fintech drives Green Finance in China
By Erik Wernberg-Tougaard
CHINA HAS ACCELERATED ITS GREEN FINANCE AGENDA BY COMBINING STRONG STATE-LED INITIATIVES WITH INNOVATIVE FINTECH SOLUTIONS FROM ITS TECH GIANTS. IN THIS BLOGPOST, WE TAKE A CLOSER LOOK AT THE INSTITUTIONAL ENVIRONMENT AND PROVIDE SPECIFIC EXAMPLES OF HOW FINTECH IS DRIVING THE GREEN FINANCE AGENDA.
China’s fintech market is the fastest growing and the largest fintech market in the world. In 2018, China’s investments in fintech deals stood at 25.2 billion USD, corresponding to 46% of all fintech investments globally. That was more than the US and Europe combined that year.
In April 2020, the Paulson Institute’s Green Finance Center launched a report which looked at the impact of fintech on sustainable development in China. Below we take a closer look at three cases where fintech helps China’s green finance ambitions.
1) CHINA’S CENTRAL BANK USE FINTECH TO MANAGE GREEN FINANCE
Making an old and rigid financial system greener and more sustainable is not an easy task. Today, one of the most significant barriers to improve green finance, is the access to accurate data. In China much data is disconnected and inaccurate, which is why the People’s Bank of China, the Chinese central bank, has launched its Green Finance Information Management System in August 2019.
The system uses big data, AI and cloud computing to increase the speed of data collection, enhance the quality of green standards and facilitate the evaluation of green lending performance by financial institutions. The programme is currently in a pilot-phase, where it is being tested by 36 banks in Huzhou city in Zhejiang province. The system makes it possible for People’s Bank of China’s branch in Huzhou to track every transaction almost in real time and manage and review the performance of green lending.
2) HUZHOU’S ONE-STOP SERVICE PLATFORM HELP SME’S OBTAIN CREDIT
In China, the role of SME’s cannot be underestimated. While it is often the state-owned enterprises that are at the centre of scholarly debate, the reality is that there are more than 30 million SME’s, that account for around 60% of the national GDP and over 80% of employment in China. Even though this is the case, the SME’s are still struggling to get access to the necessary funding to grow their business and undertake green projects.
To address this, the Huzhou government has launched an initiative called “One-Stop Service Platform”. The platform provides three main services: Firstly, the platform can help business and banks connect, facilitating better information sharing and increased financing efficiency. Secondly the platform can connect businesses and investors, and making sure that information is made transparent to the investors. This helps to reduce searching costs for companies, thus making green investments faster and cheaper. Thirdly, the platform has a Green Credit Rating Platform, which makes it possible for investors to quickly identify which companies are living up to the national governments green standards.
So far, the platform has helped over 13,000 green SMEs to obtain credit for their green projects and found investors for 73 projects that received financing of more than RMB 6.6 billion. For now, the initiative is limited to Huzhou, but the government has a plan to scale the ambitious project to other cities and provinces in China.
3) TECH GIANT ALIBABA JOINS HANDS WITH UNEP
Some of the biggest technology like Alibaba are also eyeing opportunities to become leaders in sustainable energy business. For instance, Ant Financial Services – Alibaba’s Fintech arm – has together with the United Nations Environment Programme (UNEP) founded the Green Digital Finance Alliance. The alliance works to showcase the potential for digital finance and fintech to reshape the financial system to a more sustainably-friendly one.
The overall objective of the alliance is to “leverage digital technologies & innovations to enhance financing for sustainable development”. That entails (1) improving the knowledge-base on digital finance practices, (2) creating networks of fintechs, financial players and stakeholders that can collaborate to create sustainable digital finance practices and (3) supporting action at the country level to pilot innovative approaches and scale successes. In addition to this, the initiative promulgates itself as addressing problems with corruption, driving investments in Africa and supporting biodiversity in support of the UN’s sustainable development goals 14 and 15.
SUPPORTING CHINA’S PLANS FOR GREEN FINANCE
Fintech has the potential to fundamentally change the financial system as we know it and to promote green finance and environmentally-friendly investments. It is a strong tool to improve efficiency and transparency and is therefore vital to address the financing gaps experienced by the market for sustainability. And China has been quick to realise this.
INSTITUTIONAL SUPPORT AND GOVERNMENT INITIATIVES
Since green finance became a focus of the Chinese government, a number of initiatives, regulations and alliances have been established to support the development of fintech to address green finance. Today, one of China’s big challenges is how to reconcile development and economic growth with environmental sustainability.
One of the ways in which China promotes its green development, is through the establishment of the five Green Finance Pilot Zones, that have been set up in the provinces of Guangdong, Guizhou, Jiangxi, Zhejiang, and Xinjiang. As the examples show, especially Huzhou city in Zhejiang is an interesting place to watch for innovative fintech solutions to green finance. In addition to these pilot zones, China now has more than 60 organizations, such as financial institutions, research institutes, and technical service providers, that are exploring how fintech solutions can provide better services for green finance across the country.
China has also established a number of groups and alliances that support its ambitions for sustainable green finance. For instance, when the G20 summit took place in Hangzhou in 2016, the G20 Sustainable Finance Study Group was established and co-chaired by China and UK. The forum works towards identifying institutional and market barriers to green finance, in order to find easier ways to mobilize private capital to green investment. Looking to the universities, a number of institutes focusing on green finance and fintech are popping up all over the country. Noteworthy examples include the Research Center for Green Finance Development and the Institute for Fintech Research both placed at Tsinghua University.
LOOKING AHEAD: THE FUTURE IS FINTECH
The examples above clearly indicate that China is both innovative and bold in its fintech ambitions. Fintech has come to stay, and it has come to improve efficacy and data analysis which will have a huge impact on the future of green finance.
It´s applicability spans from logistics management and pricing, to marketing and environmental protection. In a general sense, all companies working within green finance and green tech can benefit from this fintech revolution.
