China: Riding the green wave

Key points

• Beijing’s emphasis on balancing growth and sustainability has reinforced the importance of developing a well-functioning green bond market to support China’s transition to net zero
• Despite strong demand for green assets, global investors have so far been side-lined in the world’s second-largest green bond market due to concerns over the “green-ness” of Chinese bonds
• Our analysis suggests a significant quality convergence between Chinese green bonds and their global peers in recent years. However, gaps remain in parts of the onshore market where regulations and standards still lag those in developed markets
• As an early international investor in this market, AXA IM has developed strict standards to analyse Chinese green bonds, consistent with those applied to our global green bond investments, to minimise the risk of ‘green washing’
• Besides their sustainability appeal, Chinese green bonds also provide a yield premium. Contrary to the experience in Europe, investors in China are effectively paid to hold ‘green’ in their portfolio. This has helped Chinese green bonds to deliver strong performance compared to conventional Chinese bonds and global green bonds