Green finance is considered to be an important driving force for sustainable development [1]. Its core is to guide social capital into ecologically sustainable and socially beneffcial projects through financial leverage and resource allocation. The concept of green finance originated from pollution control in the 1970s. Over the years, its focus has gradually expanded to address climate change and broader nature-related issues[2] .
China has been actively promoting green finance for years, gradually establishing its green leadership. The use of green financial instruments, including green bonds and green credit, dates back to 2007. In 2014, the People's Bank of China established a green finance working group, proposing 14 suggestions for the development of green finance. They highlighted that China needs 4 trillion yuan to support green development, with more than 85% provided by social capital. In 2016, China issued Guidelines for Establishing the Green Financial System [3], the world's first comprehensive green financial system policy framework led by a central government. The following year, China implemented the more extensive Green Finance Pilot Policy (GFPP) [4].
Eight cities across five provinces were selected as pilot zones for green finance reform and innovation. These zones were tasked with improving existing green financial instruments and building a green technology innovation system. Their shared goal was to test the effectiveness of green financial instruments and policies within five years, exploring their potential for nationwide implementation. This initiative marks a crucial stage in the development of green finance under a regional policy framework. By 2023, China had issued 479 green bonds totaling 838.87 billion yuan, ranking second globally. The balance of green credit surpassed 30 trillion yuan, accounting for 13.4%5 of all outstanding loans.
Figure 1: Distribution Map of China's Green Finance Reform and Innovation Pilot Zones
Source: Opinion Review Article from Paulson Institute[6]
As one of the first pilot cities for green finance reform and innovation in China, Huzhou serves as a vanguard, demonstrating the effectiveness of the pilot scheme [7] through its remarkable achievements. In 2017, the State Council designated Huzhou as part of the initial batch of green ffnance reform and innovation pilot zones. In the seven years since, Huzhou's green credit balance has grown by over 40% annually, with green loans now accounting for more than 30% of the city's total loans. The green credit balance surged from over 30 billion yuan in 2017 to more than 300 billion yuan in 2023. Notably, the non-performing rate of green loans is nearly zero, signiffcantly below the national average[8] .
Huzhou's financial institutions have developed over 180 green financial products, including green credit, bonds, insurance, and guarantees. These products provide robust ffnancial support for the city's green economic development. Moreover, Huzhou has established a comprehensive green finance incentive and restraint system, offering strong organizational assurance and institutional backing for the pilot zone's development. Green finance has become a significant driver for both the high-quality growth of Huzhou's ffnancial sectors and the city's transformation towards a green, low-carbon economy.
Systematic green ffnance reform spans across various industries, ffelds, and departments, requiring the participation of multiple stakeholders. A signiffcant characteristic of Huzhou's green ffnance development is its adoption of a path that combines a "top-down" approach with "bottom-up" innovation (Table 2).
Table 2: the Implementation Framework for Green Finance Reform in Huzhou
Source: HZGF compiled from public information
For the top-level policy design, in June 2017, seven ministries and commissions, including the People's Bank of China, jointly released the Overall Plan of Constructing Green Finance Reform and Innovation Pilot Zones in Huzhou and Quzhou in Zhejiang Province11 (hereinafter referred to as the “Overall Plan”), providing a reference framework for Huzhou's green finance reform. The Overall Plan speciffes 10 main tasks, including: 1) building a green ffnance organizational system, 2) accelerating innovation in green finance products and services, 3) expanding financing channels for green industries, and 4) establishing a mechanism for preventing and resolving green ffnance risks.
The Overall Plan also emphasizes the importance of policy support. It proposes actively leveraging fiscal funds and using monetary tools such as refinancing and rediscounting to provide policy incentives to pilot zone institutions that have performed well in green credit. This approach aims to enhance the endogenous driving force for innovation in green credit products and services.
In July 2017, based on the Overall Plan, Huzhou formulated the Implementation Plan for the Construction of Huzhou National Green Finance Reform and Innovation Pilot Zone[12] (hereinafter referred to as “Implementation Plan”) The Implementation Plan speciffes 21 reform tasks and annual promotion plans, establishes a task division system, and implements responsible units. This provides policy guidance and support for relevant departments and financial institutions' exploration and practice.
In 2023, Huzhou further introduced a new round of Green Finance Reform Policy Opinions, known as Green Finance Policy 2.0[13] . This policy focuses on: 1) improving the green finance policy support system, 2) enhancing green ffnance infrastructure, 3) strengthening the construction of sustainable finance standard system, 4) encouraging innovation in green finance products and services, and 5) building capacity of green finance. These measures aim to promote the deepening and implementation of Huzhou's green finance reform.
Fiscal policy played a crucial role in the early stages of green finance reform. The Huzhou government recognized that relying solely on fiscal funds couldn't meet the substantial needs of green development. Consequently, it effectively leveraged social capital through fiscal incentive mechanisms. In 2017, Huzhou unveiled supporting policies such as the 25 Articles on Green Finance and 10 Articles on Finance. It also established 1 billion yuan of special ffnancial funds and 100 million yuan of green interest subsidy funds, speciffcally for loan interest subsidies and risk compensation for green projects[14]. While similar ffscal subsidy mechanisms in other regions proved difffcult to sustain—as subsidy require immediate government expenditures but the returns potentially taking years—Huzhou ffrmly implemented this policy. It became one of the few areas to truly implement green loan interest discounts15 . Furthermore, Huzhou established a "fallback" green credit loan risk compensation mechanism, setting up a 5% risk compensation fund pool for green loans issued by banks to reduce the risk of non-performing loans.
Huzhou also formulated special support policies in areas such as green construction and green insurance, tailored to industry characteristics. For instance, Huzhou issued the Opinions on Accelerating the Quality and Development of Green Construction[16] , which offers plot ratio rewards for new advanced green buildings and provides direct subsidies to green building materials enterprises, encouraging the industry's green transformation. Through these measures, Huzhou has reduced the ffnancing cost of green projects and promoted more social capital to invest in green finance.
On this basis, Huzhou further leveraged monetary policy instruments to enhance financial support for green projects and expand the coverage of green finance. In 2017, Huzhou established a green finance product design framework called "relending loan + green credit products," which combined Central Bank refinancing with green credit products. This framework launched innovative green credit products such as the Green Park loan and Two Mountains White Tea loan, helping enterprises obtain concession loans. Huzhou has also included green credit assets as eligible collateral for relending, encouraging banks to prioritize using green and small micro-enterprise credit assets as collateral, so that increased credit support for green and small micro enterprises through the internal rating tool of the central bank. By 2021, green credit assets accounted for 39.75% of the 3.741 billion yuan of credit assets pledged by legally incorporated urban commercial banks.
To support the industrial sector’s low-carbon transition, Huzhou issued the Implementation Opinions on Financial Support for Industrial Carbon Efffciency Reform. This document outlined 12 financial support measures, including prioritizing support for carbon efffciency credit programs, low-carbon enterprises, and technology upgrade projects, as well as promoting the rediscounting of bills for low-carbon enterprises. Huzhou utilized the Carbon Emission Reduction Facility, launched by the People's Bank of China, to guide ffnancial institutions in providing preferential interest rates for projects in clean energy and carbon emission reduction technology. As of September 2024, more than 70 carbon emission reduction loans, totaling 2.26 billion yuan, were implemented in Huzhou through this instrument.
Local legislation is crucial for ensuring the long-term implementation of the policies. To this end, Huzhou introduced the ffrst Green Finance Promotion Regulations[17] (hereinafter referred to as the “Regulations”), establishing a comprehensive system to promote green finance through planning guidance, policy incentives, ffnancial investments, and talent support. The Secretary of the Municipal Party Committee and the Mayor of Huzhou actively participated in the coordination efforts. The Regulations clearly deffne the cross-departmental cooperation mechanism and each department's responsibilities, ensuring that special support for green ffnance in the ffscal policy system becomes a long-term mechanism unaffected by government changes.
Furthermore, the Regulations incorporate green ffnance performance evaluation into legislation, mandating that all departments and ffnancial institutions consider this evaluation in their operations. The Regulations also establish an active judicial protection system to strengthen the supervision and management of green ffnancial activities. They set penalties for false carbon emission disclosures, fraudulent claims for green ffnancial fund awards and subsidies, and misleading promotions of green ffnancial products. These measures ensure green ffnance reform and innovation both dynamic and standardized.
Huzhou has established and improved a comprehensive local standard system to regulate and guide the implementation of green ffnance reform. The government has been instrumental in developing standards at various levels: participating in the preparation of 7 national standards, 6 provincial standards, issuing 15 local standards, and promoting the establishment of 6 additional provincial standards. These efforts encompass crucial areas such as the identiffcation of green ffnancing entities and green ffnance branches, as well as the evaluation of green ffnance development. By doing so, Huzhou effectively guides the rational allocation of ffnancial resources towards sustainable initiatives.
In 2021, Huzhou developed China's ffrst regional green ffnancing entity identiffcation standard to tackle the challenge of identifying green entities. This standard employs 55 evaluation indicators across environmental, social, and governance (ESG) dimensions, assessing environmental impact, social responsibility, and corporate governance. It applies varying weights and score coefffcients, classifying ffnancing entities into four categories: non-green, light green, medium green, and deep green. This standard has enabled ffnancial institutions to accurately identify green projects and enterprises, guiding them in building project databases and adjusting interest rates accordingly. Furthermore, in 2022, Huzhou introduced several standard documents based on the G20 Transition Finance Framework (TFF) [18], including the Transition Finance Taxonomy, Transition Plan Guidelines, and Just Transition Requirements. These standardized tools offer clear templates for enterprises to develop transition plans, thereby smooth enterprise transition.
To prevent "greenwashing" and ffnancial risks, Huzhou has established a robust risk management system. Firstly, Huzhou pioneered a comprehensive environmental information disclosure mechanism, developing standard templates for banks of various types and sizes. Implemented gradually since 2018, all ffnancial institutions in the city had conducted environmental information disclosure by 2021. Secondly, since 2018, Huzhou has established self-discipline mechanisms for green credit access, interest rate pricing, and sustainability reporting. The city released the Huzhou Green Finance Industry Self-Discipline Convention and Green Credit Service Self-Discipline Convention19 , promoting compliance with environmental laws, regulations, industrial policies, and credit requirements among ffnancial institutions. Inter-bank disciplinary mechanisms further ensure adherence to green finance practices. Thirdly, to support effective reform implementation, Huzhou issued the Opinions on Judicial Protection of Green Finance. This document outlines 18 speciffc measures covering fund flow guidance, judicial protection, and financial security, helping maintain stable ffnancial system operations. Fourthly, Huzhou's regulatory authorities conduct annual green ffnance assessments on banking institutions. Based on these assessments, they implement differentiated regulatory measures, further strengthening oversight and compliance. These initiatives collectively guarantee the steady growth of green ffnance.
Fintech and digital platforms have played a pivotal role in this transformation. The Huzhou government launched an online service platform called "Central Bank Policy Support Loan" to improve the alignment of monetary policy and central bank funds. This platform connects the People's Bank of China, local ffnancial institutions, and enterprises with ffnancial needs. It enables swift transmission of green projects' ffnancing needs, ensuring efffcient ffow of low-cost central bank policy funds to the real economy. Based on green certiffcation standards, Huzhou developed an ESG evaluation system for financing entities. The government provides loan interest subsidies of 12%, 9%, and 6% for projects with different green grades, while non-green projects receive no subsidies. To date, 61.31 million yuan in interest subsidies have been provided to 636 green enterprises.
In 2018, the Financial Department of Huzhou Municipal People’s Government established a green ffnance service platform. This platform signiffcantly improves ffnancing efffciency by connecting green-standard projects with ffnancial institutions. Since its inception, it has facilitated over 500 billion yuan in funding for green projects, reducing the average connection time from several days to 36 hours. Furthermore, Huzhou collaborated with the local state-owned enterprise, Huzhou Green Gold Development Center Co., Ltd., to develop and operate ffnancial technology platforms such as the ESG Evaluation System and Green Loan Express. These platforms optimize the bank-enterprise connection process, accurately identify green projects, and provide data support for macro decision-making. The extensive application of these digital solutions signiffcantly increased the efffciency and effectiveness of green ffnance tools.
Driven by top-level design and platform empowerment, the green ffnance market in Huzhou has shown strong vitality. Financial institutions continually innovate green ffnance products, while social capital actively responds, creating a positive feedback loop between policies and market forces.
Huzhou has pioneered the establishment of specialized green ffnance institutions nationwide, including dedicated business entities and branches focused on green ffnance innovations. These institutions set themselves apart from traditional banking by implementing tailored approaches to credit approval, fund pricing, risk management, and performance evaluation. They also innovate in product development and information disclosure to better support green projects. As of September 2024, Huzhou boasts 53 such specialized institutions: 24 green branches, 26 green ffnance business units, 2 green insurance innovation laboratories, and 1 green insurance innovation research institute. Furthermore, Huzhou actively encourages the creation of Carbon Neutral Banks, urging ffnancial institutions to achieve net-zero emissions in both their operations and ffnanced activities. By September 2024, 15 banks in Huzhou had initiated Carbon Neutral Bank Pilot projects. Notably, Anji Rural Commercial Bank became China's ffrst legally incorporated rural commercial bank to achieve carbon neutrality in its operations.
With the help of institutional construction mechanisms, Huzhou's ffnancial institutions have developed over 180 green ffnancial products in recent years, leveraging their individual strengths. These products span multiple ffelds, including green credit, bonds, insurance, and guarantees, providing robust ffnancial support for Huzhou's green economy. For instance, in the realm of green insurance, the Huzhou branch of the People's Insurance Company of China (PICC) has introduced an innovative environmental pollution liability insurance model called "Premium, Service, Supervision and Credit" (PSSC). This model allocates a portion of the premium towards environmental risk assessments, helping companies identify potential environmental hazards. If a company fails to enhance its environmental protection measures, banks may adjust its credit limit, raise loan interest rates, or even deny loans altogether, effectively mitigating related risks preemptively.
Beneffting from strong policy support and comprehensive ffnancial incentive mechanisms, enterprises such as Dadongwu and Tianneng Group have seized the opportunity to promote green transformation. With the help of green ffnancial instruments, these enterprises have not only reduced transformation costs but also enhanced their market competitiveness through green technology innovation and development. Huzhou's efforts have yielded impressive results: in 2023, it was awarded the title of China's most ecologically competitive city, and its green development index has ranked among the top in the province for four consecutive years. The city's PM2.5 concentration decreased by 31.9%, while its air quality improvement rate rose to 77.6%. Public satisfaction with the ecological environment continued to improve, ranking third in Zhejiang province. In recognition of these achievements, Huzhou City was designated as a demonstration zone for international cooperation in ecological civilization by COP15 in 2022.
Reference
HZGF