Earlier this month, Julian Wong, Chief Editor of the Green Leap Forward blog, testified before the U.S.-China Economic and Security Review Commission. His testimony provides a crystal clear overview of the different factors that are supporting China’s push to lead the global green economy, (at the expense of the U.S.). Over the next couple of weeks we plan to republish different portions of Wong’s comprehensive testimony. We start today with his assessment of China’s capital markets and their role in executing Beijing’s green policies. Unlike the U.S. and Europe, where banks have tightened lending, Chinese banks are well stocked and therefore able to lend to renewable energy and cleantech companies at very competitive prices.
A distinct advantage of the Chinese system is its ability to both mobilize large volumes of low-cost capital through various channels, including state-owned investment vehicles and financial institutions, and economic stimulus programs. Planners also use smart, targeted, and sometimes novel financial and tax policy instruments to stimulate investments in clean energy projects.
First and foremost are the “Big Four” state-owned commercial banks, which really seem to play the role of development banks and whose lending activities are often times driven by central government policy. As a “priority sector,” clean energy and its related infrastructure projects have received preferential access to bank loans, and at borrowing rates below what is available in other countries for similar projects. The role of credit has been particularly significant in the wake of China’s economic stimulus plans, which unleashed a floodgate of bank lending—an unprecedented $1.5 trillion in 2009, and $680 billion in the first half of 2010 despite efforts by China’s de facto central bank to tighten up bank lending due to concerns about inflation. Continue reading Cheap Capital Bankrolls China’s Green Revolution