Africa –China 2.0 with Mercy TEDEKU: China’s Green Finance standards and their adaptation in African markets

The Rise of China’s Green Finance Standards

China is now a global leader in green finance. It has one of the largest green bond markets worldwide. In 2023, China issued $80 billion in green bonds. This amount surpasses Germany's $68 billion and the U.S.'s $60 billion.

Since 2014, China's green bond issuance has steadily increased. There was only a slowdown in 2020. That year, China announced its climate goals: carbon peaking by 2030 and carbon neutrality by 2060. These targets led to strategic policy reforms aimed at sustainability.

A significant moment occurred in August 2016. The State Council approved guidelines for establishing a green financial system. Seven ministries, including the People’s Bank of China, released these guidelines. This made China the first major economy to set national standards for green investments.

The guidelines aim to direct capital into eco-friendly sectors while limiting funding for polluting industries. They introduce various policy incentives like re-lending initiatives and interest subsidies for green projects. A national-level Green Development Fund was also created.

In 2021, China updated its Green Bond Endorsed Projects Catalogue. It officially excluded coal-related projects, aligning with the Paris Agreement. New Green Development Guidelines encourage Chinese companies to follow host country regulations and international sustainability standards.

Africa’s Green Finance Aspirations

Africa is making progress in green finance as part of sustainable development goals. Countries like Nigeria, South Africa, and Egypt have issued sovereign green bonds. These bonds support renewable energy, clean transport, and reforestation efforts.

Nigeria launched Africa's first green bond in 2017 for solar and afforestation projects. South Africa's Just Energy Transition Plan secured over $8.5 billion from international partners. The African Development Bank has also increased climate finance allocations recently.

Despite this progress, barriers still hinder access to sustainable financing across Africa. Fragmented investment opportunities and small-scale projects are common challenges on the continent. Limited reliable data and high financial risks further constrain financing flows.

Disjointed supply chains and underdeveloped export markets weaken the environment for green investment too. The African Development Bank estimates that Africa needs $277 billion annually for climate goals but currently receives only $30 billion per year.

To realize its potential in green finance, Africa must strengthen domestic policies and improve project preparation capacity.

China’s Growing Green Footprint in Africa

China's model of green finance offers opportunities for Africa's energy sector. The continent's renewable energy sector is underfunded despite ambitious goals like bringing 300 GW of renewable energy by 2030.

China has shifted its focus from large-scale fossil fuel projects to renewable energy investments in Africa since President Xi Jinping announced a halt on new coal power funding abroad in 2021.

Between 2000 and 2023, Chinese banks issued about $182 billion in loans across Africa; however, only less than 1% supported solar or wind initiatives until recently.

In contrast, EXIM Bank and CDB committed $502 million to renewable energy projects in Madagascar, Burkina Faso, and Uganda in 2023 alone.

At last year's FOCAC meeting, "green development" was emphasized heavily by President Xi Jinping who pledged support for developing clean energy projects across Africa.

China is also launching the Africa Solar Belt program to accelerate low-carbon development on the continent with an investment of CNY 100 million (about $14 million) between 2024-2027 to provide solar home systems to local communities.

How Africa Can Adapt and Benefit

Partnerships with China are crucial for Africa’s energy transition strategy. African countries should position themselves as attractive destinations for renewable investments.

To leverage China's ecosystem effectively:

1. Build Capacity: Collaborate with Chinese institutions to enhance regulatory oversight on green projects.

2. Leverage Regional Platforms: Use institutions like the African Development Bank as platforms for alignment with China's standards.

3. Promote Joint Ventures: Encourage partnerships between African businesses and Chinese firms targeting renewable sectors.

4. Issue Green Bonds: Tap into China's capital markets by issuing bonds there.

5. Develop Taxonomies: Create or refine classification systems that define eligible activities aligned with local definitions of “green.”

Toward a Green Partnership

Aligning green finance standards can attract billions into sustainable investments across both regions while fostering climate-resilient growth strategies tailored to their needs.

With proactive adaptation efforts underway, Africa can transform its approach towards economic prosperity through environmental sustainability alongside financial growth opportunities.

About Author

Mercy Tedeku is a Research Associate at the Africa-China Centre for Policy & Advisory based in Accra, Ghana.