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Green Bond Channel expected to draw foreign investors to China green bonds

By Hui Ching-hoo   
January 23, 2018

China’s green bond market is expected to gain more traction with foreign investors with the upcoming launch of the Green Bond Channel by the Luxembourg Stock Exchange (LuxSE) and the Shanghai Stock Exchange (SSE), according to LuxSE Chief Executive Officer Robert Scharfe.

“The idea [of the Green Bond Channel] was simply to show the international market the performances of China-listed green bonds,” Mr. Scharfe said at a sustainable investing seminar in Hong Kong on January 16. “The channel will provide greater transparency and easier access to Chinese green bonds for offshore investors.”

The two exchanges haven’t finalised when the Green Bond Channel will go live, he added.

Mr. Scharfe said thus far, Chinese green bonds have only drawn a few foreign investors due to a lack of transparency, even though China is the world’s largest issuer of the debt.

Figures from data provider Dealogic show that China led global green bond issuance last year with 66 deals that raised as much as US$24.89 billion between January and November 2017. It’s not clear how much of this is held by foreign investors. But overall, foreign investors make up less than 2% of China’s onshore bond market.

Mr. Scharfe said the global green bond market has grown significantly in recent years, with new issuance almost doubling every year since 2013. He said new issuance is expected to increase 650% over the next two years to reach about $1 trillion by 2020.

Chinese regulators released guidelines on green bond standards in 2016, but according to Mr. Scharfe, they are different from international standards. Furthermore, foreign investors have little information on individual bonds as most of them are traded in the domestic inter-bond market.

LuxSE teamed up with the Shenzhen Stock Exchange and the Central University of Finance and Economics (CUFE) last March to compile a China green bond index in order to boost foreign investments in the securities.

Launched in June, the CUFE-CNI Green Bond Index Series is the first Chinese green bond benchmark to provide synchronised quotes between China and Europe.

Mr. Scharfe said LuxSE and the SSE reached an agreement in September to display the three indexes simultaneously in China and Luxembourg via the Green Bond Channel.