fbpx 53345-001: Bank of Xingtai Green Finance Development Project | Asian Development Bank

China, People's Republic of: Bank of Xingtai Green Finance Development Project

Sovereign (Public) Project | 53345-001 Status: Proposed

Asian Development Bank (ADB) proposes a financial intermediation loan in an amount of $200 million to Bank of Xingtai, a regional city commercial bank in Hebei Province, to provide critically needed long-term debt at competitive rate to promote green finance in Hebei Province. The ADB funds will compensate for the negative externalities and incentivize green finance lending by adopting an international green finance definition and help improve green finance's regulatory effectiveness in the People's Republic of China (PRC). Bank of Xingtai will allocate up to $1 million equivalent to strengthen its institutional capacity to green finance and its related lending experiences. The overall assistance package (lending and capacity development) should greatly facilitate the improvement of Hebei Province's environmental condition, which is a regional public goods to the Beijing, Tianjin, and Hebei Province region.

Project Details

Project Officer
Huang, Anqian East Asia Department Request for information
Country
  • China, People's Republic of
Sector
  • Finance
 
Project Name Bank of Xingtai Green Finance Development Project
Project Number 53345-001
Country China, People's Republic of
Project Status Proposed
Project Type / Modality of Assistance Loan
Source of Funding / Amount
Loan: Bank of Xingtai Green Finance Development Project
Ordinary capital resources US$ 200.00 million
Strategic Agendas Environmentally sustainable growth
Inclusive economic growth
Regional integration
Drivers of Change Gender Equity and Mainstreaming
Governance and capacity development
Knowledge solutions
Partnerships
Private sector development
Sector / Subsector

Finance / Finance sector development

Gender Equity and Mainstreaming Effective gender mainstreaming
Description Asian Development Bank (ADB) proposes a financial intermediation loan in an amount of $200 million to Bank of Xingtai, a regional city commercial bank in Hebei Province, to provide critically needed long-term debt at competitive rate to promote green finance in Hebei Province. The ADB funds will compensate for the negative externalities and incentivize green finance lending by adopting an international green finance definition and help improve green finance's regulatory effectiveness in the People's Republic of China (PRC). Bank of Xingtai will allocate up to $1 million equivalent to strengthen its institutional capacity to green finance and its related lending experiences. The overall assistance package (lending and capacity development) should greatly facilitate the improvement of Hebei Province's environmental condition, which is a regional public goods to the Beijing, Tianjin, and Hebei Province region.
Project Rationale and Linkage to Country/Regional Strategy

The breakneck speed of PRC's economic development over the past decades has led to rapidly accumulating ecological and environmental damages. According to Yale University's Country Environmental Performance Index, PRC ranked 120th of 180 countries across 24 categories that include air, water, soil, ocean, climate, and biodiversity. In 2018, average annual mean particulate matter 2.5 micrometers or less (PM2.5) and PM10 in the greater capital region were 60 g/m3 and 109 g/m3 (WHO standards are below 10 g/m3 and 20 g/m3 respectively). In fact, 66.3% of the 338 cities in PRC exceeded these standards in 2018. This environmental condition causes unprecedented health risks, more so on the poor, and made the Chinese cities less livable. In this connection, PRC Government requested the proposed project from the ADB to provide a successful development model showcasing how to promote green finance through leveraging the financial and technical resources in the domestic banking sector.

The concept of green finance was first developed by People's Bank of China or PBC (central bank), China Banking and Insurance Regulatory Commission or CBIRC (banking regulator), and Ministry of Ecology and Environment or MEE (environment protection agency) through a joint opinion on Implementing Environmental Protection Policy to Reduce Credit Risk (2007). This piece of legislation for the first time incorporated the environmental protection requirements in domestic financial institutions' lending practices. Thereafter, a number of more comprehensive green finance policies and regulations followed. In 2016, PBC issued its green finance definition as "financial services provided for economic activities that are supportive of environment improvement, climate change mitigation and more efficient resource utilization." Among the 21 major commercial banks in PRC, qualified green finance lending has reached an accumulative $1.17 trillion from 2013-2017.

Despite the rising green finance volume, the domestic commercial banking sector is still far from meeting the actual environmental challenges in PRC. The domestic green finance definition is not aligned with international best practices (e.g., from clean development mechanism or CDM) that exclude fossil fuel-based technologies such as "clean coal." The PBC, CBIRC, and MEE have not enforced qualified green finance lending. Most commercial banks do not have a functioning green finance policy to operate it in a systematic manner. As a result, the green finance lending is far from being mainstreamed into commercial banks' operation as an explicit product line. Few banks have an adequate environment and social safeguard system. In fact, only three commercial banks in PRC have adopted the equator principles. In terms of the certified green bond issues in 2018, PRC's $31 billion (or 14% of total global issues) ranked 2nd behind the United States' $34 billion. However, $10 billion (excluding the $31 billion in PRC) were not aligned with the international definition that excludes fossil fuel power stations, clean coal, coal efficiency improvements, and hydro projects. The benefits of issuing green bonds are not inclusive but centered on a limited number of progressive financial institutions such as Industrial Bank Company Limited, which issued certified $10 billion green bond alone in 2018. Overall, the green finance challenges in PRC centered on misalignment with international best practices, developing legal and regulatory frameworks, limited technical capacities, and the lack of long-term financing.

PRC faces environmental challenges covering a myriad of industrial sectors and subsector across a diverse region, some of which are still underdeveloped. Therefore, the push for international definition that excludes advanced fossil fuel-based technologies in the past may not have been practical. In addition, due to the lack of financial incentives (e.g., rationalized interest rates) to compensate for polluting industries' negative externalities, effective regulatory enforcement to mandate annual green finance lending targets was difficult. In PRC, commercial banks' technical capacity to undertake unconventional green finance lending is generally limited. Finally, there is a lack of long-term debt in PRC's domestic banking sector to support industrial and manufacturing corporate and project lending. This is because the corporate bond market in PRC is underdeveloped and unable to supply banks with the necessary long-term funding. These challenges are significantly amplified in smaller joint stock banks, city commercial banks, and rural commercial banks. This leaves a major green finance funding gap, estimated at about 50% of the total commercial banking sector.

Impact Domestic total energy consumption per unit reduced and total discharge of major pollutants decreased
Outcome Hebei Province's environmental condition and climate resilience enhanced
Outputs

Green finance in Hebei Province increased and catalyzed

Bank of Xingtai's institutional capacity to expand green finance improved

Bank of Xingtai's institutional gender mainstreaming improved

Bank of Xingtai's corporate governance improved

Geographical Location Hebei
Safeguard Categories
Environment FI
Involuntary Resettlement FI
Indigenous Peoples FI-C
Summary of Environmental and Social Aspects
Environmental Aspects
Involuntary Resettlement
Indigenous Peoples
Stakeholder Communication, Participation, and Consultation
During Project Design
During Project Implementation
Responsible ADB Officer Huang, Anqian
Responsible ADB Department East Asia Department
Responsible ADB Division Public Mgt, Financial Sector and Regional Coop Division, EARD
Executing Agencies
Hebei Finance Bureau
24 Kangle St.
Shijiazhuang, Hebei
People's Republic of China 050051
Hebei Provincial Government
Hebei Provincial Finance Bureau
48 South Zhonghua St Shijiazhuang 050051
Hebei Province, People's Rep of China
Timetable
Concept Clearance 27 Nov 2019
Fact Finding 08 Apr 2020 to 08 Apr 2020
MRM 22 Jun 2020
Approval -
Last Review Mission -
Last PDS Update 27 Nov 2019

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