Out of the window? Green monetary policy in China: window guidance and the promotion of sustainable lending and investment

摘要

Chinese monetary and financial authorities have been among the pioneers in promoting green finance. This article investigates the use of one specific monetary policy tool, namely window guidance, by the Peoples' Bank of China (PBC) and the China Banking Regulatory Commission (CBRC) to encourage financial institutions to expand credit to sustainable activities and curb lending to heavy-polluting industries. 'Window guidance' is a relatively informal policy instrument that uses benevolent compulsion to 'guide' financial institutions to extend credit and allocate lending in line with official (government) targets. We investigate window guidance targets for the period 2001-2020 and find that 'green' targets were included by the CBRC from at least 2006 and by the PBC from 2007 to discourage lending to carbon-intensive and polluting industries and/or to increase support to sustainable activities. In 2014, both authorities stopped discouraging lending to carbon-intensive/polluting industries through window guidance. Sustainable objectives were subsequently also removed from the PBC's list of window guidance priority sectors at the start of 2019, ending the practice of green window guidance in China. Sustainability-enhancing window guidance targets were replaced and formalized through new 'Guidelines for Establishing the Green Financial System', reflecting efforts to move away from controls-based towards market-based policy instruments. Based on this analysis, the article draws four lessons for the design of green finance policies for other countries that seek to enhance sustainable finance and mitigate climate change and related risks.