Investing for a World of Change

How will China’s net zero commitment influence markets?

China may lead the world on carbon emissions, but it also leads the world on carbon reduction. There is significant innovation on renewables, plus a burgeoning green bond market. This creates real opportunities for investors.

2021 M10 21

38 minutes

Michael Power
Wenchang Ma
Alan Siow
China may lead the world on carbon emissions, but it also leads the world on carbon reduction. There is significant innovation on renewables, plus a burgeoning green bond market. This creates real opportunities for investors.

The fast view

  • China has committed to net zero by 2060, which represents a significant transition in its economy, requiring complex central and regional planning.
  • China’s energy transition must work with its other objectives, such as technological leadership and common prosperity.
  • The government is approaching carbon reduction aggressively. Renewables are a huge part of the process. China generates one-third of global solar and wind energy and has been a technology innovator.
  • For investors in Chinese equities, there is significant potential among the decarbonisation ‘winners’.
  • China has also been leading the charge in the issuance of green bonds. Its green bond market has grown 5x since 2015, with US$200bn in annual issuance. Bonds are issued onshore in China, using the Chinese green bond taxonomy, but also internationally in dollars, aligned to international rules.
  • In Chinese green bonds, there is a tight linkage between bonds and their end use. There are opportunities in the onshore and offshore markets. We believe, convergence between Chinese standards and those in the rest of the world is likely.
  • Increasingly, banks in China are refusing to finance ‘dirty’ production altogether, rather than simply charging a higher price. The cost curve is reshaping in favour of those companies that are the cleanest and most efficient.
  • As the world starts to re-engage ahead of COP26, it is facing a crossroads and must make a choice about how to carry this mission forward. It is heartening to see that China and those emerging market economies that are the key engines of economic growth are playing their part in the transition to decarbonisation.

 

All investments carry the risk of capital loss.
Michael Power
Global Strategist
Wenchang Ma
Portfoliomanager
Alan Siow
Portfoliomanager

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