China's Netzero Goal Poses Threat to Finance Sector, Ex-PBOC Adviser Says

China’s pledge to become carbon neutral by 2060 poses an existential threat to polluters that could have ramifications for the financial sector, a former central bank adviser said.

“High-carbon emission companies and industries in China will have to exit the market in the next 30 years if they can’t cut down their emission, and this will bring about huge financial risks,” Ma Jun, previously a member of the People’s Bank of China’s monetary policy committee, said at a briefing during the Boao Forum in southern China’s Hainan province.

The country’s shift to cleaner energy means companies in high-polluting industries face a decline in revenue, leading to more bad loans, he said. The loan default rate among coal power firms could jump to 22% by 2030 from the current 3%, according to estimates by his team. Ma, who retired from the monetary policy committee in March, is the chairman of the Green Finance Committee of China Society for Finance and Banking, a research body managed by the central bank.

It has become a global consensus view that climate change will have an impact on financial stability, and the PBOC is paying close attention to this, Ma said. The central bank will gradually incorporate climate risks into its macro-prudential policies, Governor Yi Gang said in a speech last week.

On the positive side, the nation’s carbon neutrality goal will entail investments of at least 100 trillion yuan ($15.4 trillion) over the next three decades, presenting an opportunity for the finance sector, Ma said. It’s not immediately clear how this will affect monetary policy, but it’s possible that the investment will initially drive up inflation, he added.

©2021 Bloomberg L.P.

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