• AXA IM
  • AXA IM Talk on Asia & China Market: China’s Green Transition: The economic impact and the finance plan
Investment Institute
Macroeconomic Research

AXA IM Talk on Asia & China Market: China’s Green Transition: The economic impact and the finance plan

  • 26 May 2021 (5 min read)

AXA IM’s Senior Emerging Asia Economist, Aidan Yao, shares his latest macro views on China and Asian Market every month.

This month he is joined by Shirley Shen, Emerging Asia Economist, the two of them discusses the economic impact of China’s ambitious green transition and how Beijing plans to finance it.


Please find the full script below:

Aidan: Hello, welcome to our monthly video series, my name is Aidan Yao, I’m the senior economist here in AXA Investment Managers.

In March we discussed China’s ambitious plan to become carbon neutral by 2060. In this video, we will focus on economic impact of this massive decarbonization drive, as well as how China is going to finance this vast green transformation. On this topic I have invited my colleague Shirley Shen to share her insights on the latter subject.

How will the decarbonization campaign impact China’s economy?

Aidan: Let’s first focus on the economic impact. We think that, for China to accomplish its 2060 commitments, it needs to achieve two things:

  1. China needs to rebalance its economy, moving away from industrial-driven growth to services-driven growth, in order to lower the energy intensity of the economy. Our analysis suggests that such an economic rebalancing will help China to achieve over 60% of its decarbonization objective.
  2. China needs to revamp its current energy system, by significantly raising the share of renewable power in its energy mix. Our estimate suggests that the share of non-fossil fuels needs to increase to over 80% of the energy system for China to achieve carbon neutrality.

On the micro level, such an energy revolution will obviously create winners and losers. At one end of the spectrum, renewable power and electric vehicle industries will continue to attract significant capital inflows to the tunes of trillions to power their further secular growth going forward.

At the other end of the spectrum, traditional industries linked to fossil fuels will face a bleak future ahead. Rising defaults, non-Performing Loans and unemployment will create a painful adjustment for some sectors and regions. The onus will be on the government to mitigate these shocks through fiscal transfers, re-employment training, debt write-offs and reallocation of gains from new emerging industries. All considered, we think the benefits of the green transformation will outweigh the costs, creating a net gain for Chinese economy and society over the long run.

How will China finance its vast green transformation?

Shirley: Finally, it is essential to consider how Beijing will finance this green transition.

While there are plenty of instruments invented in recent years, green bond stands out as a preferred vehicle to mobilize public and private resources to support the country’s green ambition.

Started in late 2015, it took less than a year for the Chinese green bond market to become the top issuer of green bonds in the world, with its annual issuance among the top 5 ever since.

Apart from its size, the market is also diverse in green projects and high-quality issuers. Yields and valuations of Chinese green bonds are also more attractive than their foreign counterparts.

While there are still some discrepancies between the Chinese and international green bond standards, our study has found that the gap has continued to narrow over time. While there are risks factor specific to Chinese green bond market for global investors to consider, overall, we think the potential benefits still outweigh the hurdles.

    Disclaimer

    This website is published by AXA Investment Managers Asia Limited (“AXA IM HK”), an entity licensed by the Securities and Futures Commission of Hong Kong (“SFC”), for general circulation and informational purposes only. It does not constitute investment research or financial analysis relating to transactions in financial instruments, nor does it constitute on the part of AXA Investment Managers or its affiliated companies an offer to buy, sell or enter into any transactions in respect of any investments, products or services, and should not be considered as solicitation or investment, legal, tax or any other advice, a recommendation for an investment strategy or a personalised recommendation to buy or sell securities under any applicable law or regulation. It has been prepared without taking into account the specific personal circumstances, investment objectives, financial situation, investment knowledge or particular needs of any particular person and may be subject to change at any time without notice. Offering may be made only on the basis of the information disclosed in the relevant offering documents. Please consult independent financial or other professional advisers if you are unsure about any information contained herein.

    Due to its simplification, this publication is partial and opinions, estimates and forecasts herein are subjective and subject to change without notice. There is no guarantee such opinions, estimates and forecasts made will come to pass. Actual results of operations and achievements may differ materially. Data, figures, declarations, analysis, predictions and other information in this publication is provided based on our state of knowledge at the time of creation of this publication. Information herein may be obtained from sources believed to be reliable. AXA IM HK has reasonable belief that such information is accurate, complete and up-to-date. To the maximum extent permitted by law, AXA IM HK, its affiliates, directors, officers or employees take no responsibility for the data provided by third party, including the accuracy of such data. This material does not contain sufficient information to support an investment decision. References to companies (if any) are for illustrative purposes only and should not be viewed as investment recommendations or solicitations.

    All investment involves risk, including the loss of capital. The value of investments and the income from them can fluctuate and that past performance is no guarantee of future returns, investors may not get back the amount originally invested. Investors should not make any investment decision based on this material alone. 

    Some of the services listed on this Website may not be available for offer to retail investors.

    This Website has not been reviewed by the SFC. © 2022 AXA Investment Managers. All rights reserved.