China’s first national-level green investment fund has begun making its first batch of investments.
Experts believe the National Green Development Fund (NGDF), which was launched in 2020 and manages 88 billion yuan (US$14 billion), can unlock much-needed capital for areas critical to the low-carbon transition.
At the end of March, it joined forces with China’s largest steelmaker Baowu Steel to set up a 50 billion yuan (US$7.8 billion) private equity fund focusing on decarbonising the steel sector.
Three months earlier, it had invested 180 million yuan (US$28.2 million) into the Yunnan Green Fund which will be financing efforts to clean up Erhai Lake.
Lan Hong, a professor at Renmin University, wrote in China Environment News last week that the NGFD would play an important role in filling the equity investment gap in China’s green finance space.
Over 95% of green financing in China is debt financing, mostly in the form of bank loans and corporate bonds. China’s highly leveraged industries badly need capital injections to improve their credit standing, wrote Lan. Green equity investments can help optimise corporate financing structure, laying the foundation for the healthy expansion of green loans and bonds, Lan added.
There is optimism that the state fund, backed by the Ministry of Finance, can lead the way for capital market players, such as venture capital and private equity funds, to get into green investments. One estimate puts China’s financing need for peaking its carbon emissions in 2030 at 2.2 trillion yuan (US$345 billion) per year.
Read China Dialogue’s latest article on the challenges of financing the decarbonisation of China’s massive steel sector.