1. Since China announced its “carbon peak” and “carbon neutrality” goals in 2020, its green credit market — already the world’s largest — has kept expanding. By the second quarter of 2025, outstanding green loans in the banking sector reached 48.6 trillion yuan ($7.3 trillion), accounting for 17% of all loans. [para. 1]
2. Yet a structural bottleneck threatens these climate ambitions: “brown” industries, which are crucial to meeting the goals and urgently need carbon-reduction upgrades, still face severe difficulties obtaining financing. [para. 2]
3. Banks are largely ignoring polluting industries in favor of pure green projects, and competition for established high-quality green projects such as new energy and green infrastructure has reached a “white-hot” stage. These areas offer better profitability and controllable nonperforming-loan ratios; by the end of 2024, the “Big Six” state-owned banks held more than 57% of all outstanding green loans. [para. 3]
4. Funding only pure green projects ignores the reality of China’s carbon footprint. Lu Zhengwei, chief economist at Industrial Bank Co. Ltd., notes that high-carbon industries account for over 90% of carbon emissions, and with green loans making up just 17% of all loans, the remaining 83% financing other sectors offers vast room for reducing emissions. A chart accompanying the article shows year-end outstanding green loans rising from roughly 10 trillion yuan in 2019 to 44.8 trillion yuan in 2025, with year-on-year growth of about 20.2%. [para. 4]
5. Banks’ reluctance has deep roots: the industry has traditionally been cautious toward sectors with high energy consumption, high pollution or overcapacity, maintaining high lending barriers. Apart from power and non-ferrous metals, supply-demand conditions and operating performance in most traditional high-carbon industries are generally deteriorating. [para. 5]
6. Expanding transition finance could help bridge the gap. Unlike traditional green finance, transition finance mainly supports high-carbon companies, such as steelmakers, in reducing emissions through technological transformation and process upgrades. [para. 6]
7. Despite the urgent need, transition finance remains nascent. Official data put outstanding loans for the green and low-carbon transition of the energy sector at 8.7 trillion yuan at the end of June, but an industry insider says the actual volume of strictly certified transition loans may currently be less than 100 billion yuan. [para. 7]
8. “The biggest difficulty of transition finance is how financial institutions ensure commercial viability and conduct reasonable risk pricing,” said one banker. Transition finance also adds considerable costs, requiring banks to help companies draft carbon-reduction plans and judge whether borrowers meet transition standards during post-loan management. [para. 8][para. 9]
9. To mitigate risks and prevent greenwashing, China is gradually advancing transition finance standards. The People’s Bank of China is trialing national standards for coal power, steel, building materials and agriculture in selected areas. According to Qian Lihua, executive vice president of the CIB Institute for Carbon Neutrality and Finance, clear standards give financial institutions rules to follow and give high-carbon enterprises guidance on what improvements can secure funding. [para. 10][para. 11]
10. When properly executed, such efforts yield tangible results. For example, Industrial Bank’s Jinan branch provided a 200 million yuan transition-linked loan to a company, tying the interest rate to verified reductions in energy consumption per unit of alumina and electrolytic aluminum production. The arrangement incentivized the company to reduce product energy consumption by 8% and cut carbon dioxide emissions by about 12,000 tons. [para. 12]
AI generated, for reference only
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