HSBC's journey to participate in China's green finance market

He explains that in a non incentivized model, some environmentally conscious issuers will opt for green bonds to raise capital because it helps to facilitate environmental investments, although they will still be in the minority. This means financial incentives are need to encourage a larger number of issuers to choose green bonds.

Huo Rongrong, Head of China and Renminbi Business Development at HSBC, says that the growth of China's sustainable financing agenda is also an important step to further develop China's domestic' capital market opening up.

In recent years, China is gradually opening up its onshore capital market to foreign access, but the overall integration between the Chinese and global capital markets are still yet to take off.

Allowing and encouraging foreign issuers into the Chinese green bond market could become a catalyst for Chinese regulators to further develop rules and standards on how foreign participation in China's onshore bond market should be done, and in turn open up China's bond market in a more efficient and sophisticated way', Huo says.

For example, foreign issuers could potentially issue green bonds in China's domestic market and then use the renminbi proceeds to finance environmentally friendly projects in China.

"For this to happen, more clarity is needed for this process including documentation requirements and use of proceeds etc. Also a balanced focus is needed for both issuers and investors," Huo says.

"Over time more smooth channels would also be established to help facilitate more foreign issuers who can participate in the onshore capital market and in return create more products for both domestic and international investors," she says.

She says all those efforts and progress would gradually lead to a convergence of the onshore and offshore renminbi markets, which is one of the ultimate goals of the renminbi internationalization agenda that the Chinese government has been pushing forward.

China's push to internationalize its currency started in 2008, when the global financial crisis demonstrated the danger of over-reliance on the US dollar. In recent years, many European financial centers have been very keen to establish offshore renminbi activities, creating new renminbi products and building up offshore renminbi liquidity.

HSBC has played a key role in the driving this process of renminbi internationalization. In April 2012, it issued the first renminbi bond outside China and Hong Kong, raising 2 billion yuan in London.

It has also actively assisted the creation of a range of offshore renminbi products, and participates in the City of London's working group on renminbi internationalization, which gives advice to policy makers and private sector players to grow offshore renminbi business.

Now that China's green finance agenda has taken a policy priority, HSBC has been keen to help China grow a sustainable green finance market, and especially leveraging on the offshore centers such as UK's strength in sustainable finance.

"Green finance is a key advantage of London's capital markets. Already, the UK is leading this market with its Green Investment Bank and it has the aspiration to continue growing this market through financial innovation," she says.

Founded in 2012, the Green Investment Bank is the first bank of its type in the world. It was created by the UK Government and capitalized with an initial 3.8 billion pounds of public funds.

Huo says that she believes China going global is not just about cross-border trade and investment flows, but to increasingly engage with and integrate into the global capital markets and society, and also bring international contents and solutions back to China.

On this evolutionary journey, it is important for China and its currency to engage with globally important themes such as green financing, building the global financial infrastructure and adapting new financial regulations.

Lake adds that the rapid development of China's capital accounts liberalization will provide Chinese issuers and investors the access to an already large and rapidly growing green capital market both domestically and internationally.

"For me though it is the nexus between environmental sustainability, the development of China's own financial system and the globalization of China's financial markets that I find so exciting. The internationalization of China's financial system has come on leaps and bounds over the last few years, and this is only set to continue," he says.

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