This paper reviews the progress of carbon trading in China and examines the involvement of the state and financial sectors. China witnessed proliferation of domestic carbon markets before attempting to institutionalize the carbon trading regime. Direct and strong government intervention is a key feature of this process. The domestic carbon markets are primarily created, shaped, and operated by the central and local governments supported by a cohort of macro-economic planners, local economic agencies, state-owned financial institutions, and business organizations with government backing. Key market players are institutionally dependent on the state - much more so than in capitalist economies. Private investments have not been adequately and effectively mobilized due to unfavorable economic, regulatory, and policy conditions. Non-state financial actors are not an active and influential player. This indicates a hierarchical relationship between the state and finance and a clear asymmetry of power in the organization of China's carbon markets. These observations constitute a notable difference to the international carbon markets, which are subject to the strong influence of private finance. China has put the market-based policy instrument of carbon trading under a substantial concentration of state power. The findings have important implications for understanding the rise of carbon markets in non-traditional capitalist economies.
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