China Watch Vol. 1, No. 5, November 2021, ISSN 2786-2860
The Green Transformation of China’s Economy is Steadily Advancing
ZOU Jiayi[1]
Vice Minister of the Ministry of Finance, China
The pandemic has stimulated deep reflection on humankind’s relationship with nature, while climate change and the transition to low-carbon have become important topics throughout the economic recovery process. At present, a “green recovery” has become a global consensus as well as a development trend, manifested chiefly in the following ways:
Basic clarity on the goals of green recovery. At present, 131countries around the world have proposed peak carbon and carbon neutral goals, and they will all achieve carbon neutrality by 2060. For all of them, these are solemn promises, and represent a beautiful prospect that people around the world look forward to. In June 2020, the International Energy Agency and the International Monetary Fund put forward a US$3 trillion green recovery plan, recommending that countries strive to achieve their net zero carbon emission targets.
Intensive introduction of green investment policies. In order to respond to the pandemic’s impact, various countries have implemented large-scale stimulus policies, which are effectively driving the recovery of the global economy. At the same time, the major economies are actively promoting green investment and increasing support for green industries. The Biden administration in the United States has pledged to invest approximately US$2 trillion during its tenure to address climate change and promote clean energy. The European Union (EU) supports the green transformation of the economy through its “European Green Deal” investment plan. The United Kingdom (UK) has introduced the “Ten Point Plan for a Green Industrial Revolution,” which focuses on green-dominant industries and promote economic and social reconstruction.
The bright prospects for the green economy. The green economy has just begun, so there is plenty of room for development in the future. UN statistics show that in 2020, the total green recovery expenditures of 50 economies around the world were approximately US$341 billion, which accounts for 18% of long-term recovery expenditures. Of this amount, the green recovery expenditures of most developing countries accounted for less than 10%, leaving ample room for growth. Clear blue water and green mountains are equivalents of lakes of silver and mountains of gold. Meeting the need for green investment and realizing green value through market mechanisms are the challenges and opportunities that we all face.
Green development has been included in the five development concepts of the Chinese government, and it has become a point of broad consensus in contemporary Chinese society. In September 2020, President Xi Jinping announced at the UN 75th General Assembly that China’s goals to “hit peak CO2 emissions before 2030 and achieve carbon neutrality by 2060” demonstrate China’s firm determination to respond to climate change; they highlight China’s assumption of its responsibilities as a major country practicing the concept of a community of common destiny for mankind and building a clean and beautiful world. At present, while China’s economy is maintaining steady recovery and improvement, the green transformation is steadily advancing:
First, the ecological environment continues to improve. The concentration of major air pollutants has dropped significantly, the environmental quality of surface water has further improved, soil environmental risks have been basically managed and controlled, and decisive efforts to defend our blue sky, clear water, and pure land have achieved remarkable results. At present, a picture of green mountains, blue water, and beautiful landscape is gradually unfolding in the land of China.
Second, the industrial structure continues to be optimized. Low-carbon industries are developing rapidly, and traditional industries are accelerating their transformation and upgrading. During the “Thirteenth Five-Year Plan” period (2016-2020), China’s energy consumption per unit of GDP dropped by 15%. In the first five months of this year, energy consumption per unit of industrial added value of enterprises above a certain size fell by 5.7% year-on-year. The levels of digitalization, networking, and computerization in the manufacturing sector continues to increase, and digital economy industries such as big data, cloud computing, and blockchain technology are booming. In the first half of this year, the year-on-year growth rate of the added value of the high-tech manufacturing sector was significantly higher than that of industry as a whole, and the output of new energy vehicles and industrial robots increased significantly.
Third, the energy structure is being continuously optimized. Although China’s fossil energy consumption ratio is high and the volume of it is high, clean energy is developing rapidly, and the proportion of clean power production has increased substantially. In 2020, natural gas, hydropower, nuclear power, wind power and other forms of clean energy consumption as a proportion of total energy consumption increased by 5.2 percentage points from 2016. At present, China’s total installed capacity of hydropower, wind power, and photovoltaic power generation ranks first in the world and makes an important contribution toward the reduction of carbon emissions.
Fourth, the green lifestyle has become fashionable. Since the pandemic, people’s lifestyles have undergone important changes, the “contactless” economy has flourished, and low-carbon, environmentally friendly green travel has become more popular. Cloud offices, cloud classrooms, cloud social networking, cloud recruitment, cloud-based medical care, and other “cloud-based” eco-friendly services are flourishing. In the first half of this year, retail sales of physical goods nationwide increased by 18.7% year-on-year, and the two-year average growth rate was 16.5%.
Fifth, the development of green finance has accelerated. A multi-level and diversified green financial system has gradually formed in China; green financing channels have been continuously expanded, and the efficiency of green financial services has been improved. As of the end of 2020, China’s green loan balance was nearly 12 trillion yuan, ranking first in the world, and its stock of green bonds was 813.2 billion yuan, ranking second in the world. At present, the quality of green financial assets is relatively high, the non-performance rate of green loans is lower than the average, and there have been no cases of default on green bonds.
In Green Development, Fiscal Policy Needs to Play an Important Role
In green development, fiscal policy needs to play an important role. The difficulty of green development lies in the fact that it must be both green and promote development at the same time. The role of fiscal policy is, on the one hand, to internalize the external costs caused by pollution, and on the other hand, to support green production methods and lifestyles and compensate for the additional costs of green development through taxation and other approaches. The Ministry of Finance has thoroughly implemented the concept of green development, proactively introduced a series of fiscal and taxation support policies, vigorously supported the development of green and low-carbon recycling, and created a good environment for the green recovery of China’s economy.
First, it is giving full rein to the role of tax regulation by, for example, including refined oil products in the scope of consumption tax collection in order to limit energy consumption in the transportation sector. Vehicle Purchase Tax and Vehicle and Vessel Tax is being reduced or waived for the purchase of new-energy vehicles, since this would lead to more green and low-carbon travel. An environmental protection tax is being imposed on pollutants, in order to increase the costs of pollutant discharge for business enterprises, while tax reductions and exemptions are being granted for the use of clean energy. A tariff policy to support environmentally friendly products is being introduced. In 2021, import tariffs on products such as exhaust gas recirculation valves (EGR valves) will be reduced.
Second, the Ministry of Finance is increasing financial support by, for example, actively arranging funds to promote energy conservation and emission reduction, renewable energy substitution and promotion of new-energy vehicles, supporting clean heating and the reduction of atmospheric pollution and carbon in the northern regions, promoting large-scale greening throughout the country, and improving the country’s ecosystem carbon sink capabilities. It is improving the government’s green procurement policies, implementing compulsory and priority procurement for energy-saving and environmentally-friendly products, and launching pilot projects in government procurement to support the application and promotion of green building materials. During the “Thirteenth Five-Year Plan” period, the central government allocated a total of 1.9 trillion yuan in budgetary funds for supporting pollution prevention and the construction of an ecological civilization.
Third, it guides, finances, and supports green development. In a variety of ways, the Ministry of Finance is giving full play to the guiding and leading role of financing that provides “greater bang for its yuan,” i.e., leveraging financial resources and social capital to serve green development. It initiated the establishment of the National Green Development Fund, which focuses on the Yangtze River Economic Belt region and supports ecological restoration, environmental protection, and the development of green industries. Using the public-private partnership (PPP) model, it is attracting more social capital to participate in the investment, construction, and operation of green and low-carbon projects. As of the end of June this year, 4,156 PPP projects nationwide in the areas of pollution prevention and green or low-carbon construction, with an investment of 4.1 trillion yuan, have been signed and landed. The ecological and environmental benefits of many of these projects are already manifest. The Kitchen Waste Treatment Plant project in Ningbo, Zhejiang, which “turns waste into treasure,” is expected to reduce carbon dioxide emissions by an average of 340,000 tons per year, and as a result of the Hutuo River Ecological Restoration Project in Hebei, the endless expanses of flowers and blue water, blue skies are seen once again.
Fourth, the Ministry of Finance has established a compensation mechanism for ecological protection. In key river basins, such as the Yangtze and Yellow River basins, a horizontal compensation mechanism for ecological protection has been established, and supporting policies have been formulated to reward localities that establish the mechanism. The mechanism strengthens ecological protection and restoration, with beneficial compensation of the ecological benefits of forests and wetlands and promotion of improved ecological functions.
Fifth, the Ministry of Finance has strengthened international cooperation in green development. It carries out green finance cooperation with the World Bank, Asian Development Bank, Asian Infrastructure Investment Bank, and other multilateral institutions. Through international platforms such as the G20 and the Financial Stability Board, it strengthens exchanges on topics relating to climate change and the promotion of green development. It promotes practical South-South cooperation, providing financial, technical, and capacity-building support to help developing countries to improve their ability to respond to climate change and accelerate their green and low-carbon transformation.
Looking ahead, we see that green development still has a long way to go. We must see clearly that China’s heavy chemical industry-based industrial structure, coal-based energy structure, and highway-based freight transport structure have not yet fundamentally changed. At present, there are fewer than ten years before China reaches its carbon peak goal, and fewer than 30 years before it reaches its carbon neutrality goal. In comparison with developed countries, our time frame is tighter, the difficulties are more plentiful, and the tasks are greater. The Ministry of Finance, guided by the vision of achieving these carbon peak and carbon neutral goals, will improve the fiscal and taxation policy system, strengthen financial support, and promote green economic recovery and low-carbon development. At the same time, it will firmly adhere to the principle of shared but differentiated responsibilities, actively carry out international exchanges and cooperation, and join hands in addressing the challenges of climate change.
Green development is of concern to humanity’s future. Achieving green development will depend on technological progress and industrial transformation. Supporting the development of green technology and the transformation of industry is the shared responsibility of public and private finance. To promote green recovery, we all need to work in concert with one another. I believe that green recovery will surely lead human society toward a more high-quality, efficient, fairer, and more sustainable pathway of development.
(Translated by Thomas E. Smith)
[1] This essay presents the main points of a speech delivered by the author on 24 July 2021 at the Global Asset Management Forum 2021 Beijing Summit.