Recently I attended a conference on how sustainable finance can facilitate green transformation in China. What struck me most was the speech from He Jie, director of the Shenzhen Municipal Finance Bureau, on how Shenzhen is building up a green finance center in China.
The shining figures he provided showed how successful Shenzhen is in this area, and what role a regional authority can play from the perspective of the global consensus on the Paris Agreement and green transformation. As I have lived in many cities both in and out of China, I think it is wonderful to share this event and my reflections with researchers and practitioners.
First, let us look at the milestones of Shenzhen's implementation of sustainable finance. In 2017, Shenzhen became the first local government that issued supporting details on the first directive guidance of Green Bonds in China. In December 2018, Shenzhen published the framework for building a green finance ecosystem, which encourages Shenzhen-based financial institutions to create and provide green finance products and services. On March 1, 2021, the city legislature passed its local legislation on green finance, which was the first of its kind in China. It outlines how Shenzhen would disclose the environmental information, assess sustainable investment, build up institutional capacities, and punish misbehaviors. Meanwhile, the Shenzhen Green Finance Association has been established to better represent the city on the national and global stages.
As a result of the effective policy framework and implementation, Shenzhen has achieved significant progress in green finance. In March 2019, Shenzhen Energy Corp. issued a green bond, which is the first bond issued under the scheme of Shenzhen-Hong Kong Bond Connect. In September 2020, the Shenzhen Stock Exchange launched the Green Governance Index, which is the first index to trace the performance of public companies from a sustainable perspective. Together with the central bank’s green finance efforts, Shenzhen has motivated local companies to contribute and has led to some successful examples, such as Ping An Trust's asset-backed midterm notes (ABN) on industrial sewage treatment issued in 2020, the first ABN of its kind in China, and the National Development Bank's project supporting waste incineration power generation. These cases demonstrate the strong public-private engagement under the green finance agenda.
Shenzhen is also keen to collaborate with neighboring cities. In October 2019, Shenzhen launched the Real Economy Lab with the Financial Centers for Sustainability (FC4S). In September 2020, Shenzhen launched the Alliance of Greater Bay Area in green finance together with Guangzhou, Hong Kong and Macao. Shenzhen also became the operational headquarters of this alliance and will represent this region in green finance. Outside the Greater Bay Area, Shenzhen also set the City of London as its benchmark not only as a competitor in global finance, but a partner in areas of green finance, ESG (environmental, social and governance) and post-pandemic recovery.
However, Shenzhen has not been superior in all aspects to other cities, such as Beijing, Shanghai and Guangzhou. There are several aspects where Shenzhen can make additional progress. For example, the private sector should play a greater role in this process. If you look at the membership list of Green Finance Association in Shenzhen, you will find that financial institutions dominate the club. It is not surprising as Shenzhen is one of the top-ranking financial cities in China and it has perhaps the most intensive distribution of financial institutions among Chinese cities. However, Shenzhen is also a manufacturing city and it is the youngest city with a large number of small and medium enterprises (SMEs) and startups. What surprised me most is that tech giants such as Tencent, Huawei and DJI are currently missing in this association. It would be such a loss if Shenzhen continues promoting green finance without the backup from the private sector, particularly those tech giants.
Shenzhen also needs to identify and strengthen its own competitiveness in green finance in the Greater Bay Area. Although Shenzhen has a national-level stock exchange, it faces competition from Beijing, Shanghai and Hong Kong bourses. Can Shenzhen work with Hong Kong to establish a more effective green finance center? That is a promising future for both cities but more effort is needed to accomplish this goal.
Why should we focus on Shenzhen? Shenzhen symbolizes the success of the private sector in China. In many aspects, Shenzhen is a leading city in China and is driven by the private economy. If Shenzhen can stand out as a city of green finance, it will become a symbol of China's success in this aspect, by showing that businesses can benefit from the green transformation, and it would be encouraging to see that they are capable of driving the increase of productivity and employability during this process.
(The author is an economic geographer and an entrepreneur with a doctoral degree currently living in Shenzhen. He returned to China after eight years working and studying in the United Kingdom.)