Introduction

China contributes 27% of global CO₂ emissions and one-third of greenhouse gases. Almost half originate from heavy industries such as steel (15% of emissions), cement (11%), and petrochemicals (5%). Decarbonising these sectors is central to achieving China’s “30-60” targets: peaking emissions by 2030 and reaching carbon neutrality by 2060.

The estimated investment cost is substantial. Tsinghua University projects more than CNY100 trillion will be required over 30 years, while the World Bank estimates up to USD17 trillion will be needed to decarbonise power and transport alone. Existing government efforts have relied mainly on administrative targets, subsidies, and significant public investment in renewables. However, the World Bank notes the need for greater private-sector participation and financing structures that enable polluting industries to transition, not solely new green projects.

Transition finance takes root

China is a global leader in climate-related finance, driven by the 2012 Green Credit Guidelines and the acceleration following the 2020 “30-60” announcement. By end-2021, banks held USD2.3 trillion in green loans. China is the world’s largest green bond issuer, with cumulative issuance reaching CNY3.3 trillion by end-2022.

Sustainability-linked bonds (SLBs) have grown since NAFMII issued the first national SLB framework in 2021. SLB issuance reached CNY121.5 billion by 2022, enabling companies—including those without dedicated green projects—to set emissions or intensity KPIs. The Shanghai Stock Exchange introduced a similar instrument in 2022.

Transition bonds remain nascent. By end-2022, only CNY10.4 billion had been issued, mainly by Bank of China and China Construction Bank, with proceeds largely directed to natural gas-related projects. Despite rapid growth, green and transition bonds represent a small share of the overall debt market: green loans were 8% of all lending and green bonds 1.5% of the onshore market in 2022. Banks prefer lending to state-owned enterprises, limiting access for private firms.

Short maturities and limited standardisation also constrain market development. Green bonds typically mature in under five years, and transition bonds in two to three years. China lacks unified transition finance standards, and voluntary disclosure frameworks yield inconsistent data. The World Bank warns that 30% of bank loans (USD6.8 trillion) are exposed to “disorderly transition” risks.

Towards a common framework

Internationally, governments and institutions have created transition finance frameworks. ICMA’s Climate Transition Finance Handbook sets disclosure expectations for transition-related use-of-proceeds and sustainability-linked instruments. The Climate Bonds Initiative outlines five principles for credible transition pathways and divides economic activities into categories reflecting alignment with 1.5°C trajectories.

The EU Taxonomy establishes criteria for environmentally sustainable activities, while the Platform on Sustainable Finance has acknowledged the need to include transition-related activities to avoid discouraging financing for high-emitting sectors requiring clean-up. The OECD’s Guidance on Transition Finance distinguishes between sustainable and transition finance and proposes 10 elements of credible corporate transition plans. G20 guidance emphasises whole-of-economy transition across diverse sectors.

China’s evolving frameworks

China has not yet issued a national transition finance taxonomy, but the People’s Bank of China is developing standards for agriculture, building materials, coal-fired power, and steel. The 2021 Green Bond Catalogue aligned more closely with EU taxonomy principles by excluding fossil fuel projects.

From 2021–22, NAFMII and the Shanghai Stock Exchange introduced SLB and transition bond guidelines. These support projects in sectors such as chemicals, aviation, construction materials, non-ferrous metals, petrochemicals, power, and steel. Eligible activities include clean production, natural gas efficiency, and equipment upgrades.

Local frameworks have also emerged. Bank of China, China Construction Bank, and Huzhou city issued transition taxonomies referencing ICMA, EU, and G20 guidance. All frameworks support finance for cement, chemicals, steel, and power, though coal-related activities are generally excluded, with Huzhou allowing limited coal-transition projects. Compared with Singapore’s DBS, Chinese frameworks remain project-focused and do not provide entity-level transition finance.

China faces ongoing debate over whether coal and natural gas should qualify for transition finance and how to mitigate greenwashing risks. The report notes differing stakeholder positions and highlights the need for standard setting, mandatory disclosure, and third-party verification.

Conclusion

Transition finance in China is concentrated in the most energy-intensive industries and remains limited to project financing. Expanding to entity-level financing and developing clear national standards will be essential. Financial institutions are encouraged to develop their own taxonomies and innovate transition products rather than wait for top-down policy. The central bank’s forthcoming standards are expected to enhance credibility and support China’s alignment with the G20 Framework for Transition Finance.