China’s Green Debt Sales Suffer Big Pandemic-Induced Slowdown

(Bloomberg) -- A plunge in China’s green debt issuance this year is leading broader declines across Asia, after regulators and businesses shifted their focus toward countering the economic fallout of the pandemic.

Sales of green bonds from China have fallen by 43% so far this year to around $13.1 billion, the first drop for the period since data compiled by Bloomberg became available in 2015. The slowdown saw the country lose its crown to Germany as the top issuer of such debt as it slid to fourth place in global rankings. The volumes in ex-Japan Asia sank a similar 42% to $21.7 billion.

The decline in Asian green bond issuance is in sharp contrast with a global rise of about 22%, led by sales from Germany. Chinese firms’ green and sustainability-linked loans also have tumbled nearly 25% to $3.1 billion since the year began.

The latest contraction in China’s green debt sales illustrates the pandemic’s disruption to the nation’s green projects and financing needs. Whether Beijing can revive the momentum as its economy stabilizes will be closely watched, given President Xi Jinping’s recent bold pledge to make the nation carbon neutral by 2060.

Environmental, social and governance-focused, or ESG, debt is issued to finance projects with certain environmental goals or to reward issuers who meet such targets.

“The main reason for such a decline is possibly attributed to the unprecedented health crisis and socio-economic challenges due to the Covid pandemic,” said Chaoni Huang, executive director and head of sustainable capital markets, global markets APAC at BNP Paribas. She added that there has been a significant focus on Covid-19 response efforts such as aiding smaller businesses.

Huang said the supply of ESG debt is subject to market conditions but expects recent pledges by China, Japan and South Korea to achieve carbon neutrality to be strong drivers for future growth of ESG bond markets.

Huike Gao, an analyst at CSCI Pengyuan, said China’s green bond sales may pick up again once the country’s regulators finalize and publish a list of the project types to be financed via green bonds but the timing remains “uncertain and depends on regulators.”

©2020 Bloomberg L.P.

With assistance from Bloomberg