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US and China agree on the green revolution

This week, the US will hold its two-day virtual summit on climate-change policies, ahead of which China and the US found common ground.

This week, the US will hold its two-day virtual summit on climate-change policies, ahead of which China and the US found common ground.

by
Charles Stanley

in Features

19.04.2021

In preparation for this week’s US conference, John Kerry, the President’s Special Envoy on Climate Change last week reached a high-level agreement with China. It commits both countries to the goal of limiting future rises in temperature and rolling out programmes to phase out fossil fuels and change to green ways of travelling, manufacturing and farming. Both countries pledged to come up with more detailed plans by the time of COP 26, the UN global climate-change conference this November in Glasgow.

The long agenda includes renewable energy, green hydrogen, maximising low-carbon investment, energy storage, carbon capture, green agriculture and new ways of powering international aviation and shipping.

Recently, the People’s Bank of China (PBOC) produced statements confirming its role in the green transition. It is a great relief to many Chinese to know that the People's Bank of China, their central bank, intends to "follow the guidance of Xi Jinping Thought on Socialism with Chinese characteristics for a New Era".

The recent publications from the central bank show the intensified need to demonstrate complete loyalty to the government and to the work programme set out by the recent 14th Five Year Plan. Policy we are assured is geared to delivering stability – stability of the currency, stability of the growth rate, stability of the banking system.

This makes anything new on their website of even greater interest. Suddenly there has been a flurry of attention given to green finance and the climate-change issue. The PBOC held a joint seminar with the IMF on green finance and climate policy and used it as a chance to showcase the government's reinforced concern to be regarded as a leading carbon warrior.

New climate focus

The new texts are laced with references to 30/60, the policy of ensuring peak carbon dioxide output by 2030 and net zero by a distant 2060. China claims to be a leader in green lending and wants to become number one in green bonds. The PBOC pledges that "the financial system can play a key role in supporting green transition and managing climate related risk. Going forward the PBOC will continue to support green and high-quality development". China is working with the EU on common definitions of green finance. The central bank will expect banks to report on green issues related to lending and bond issues.

The Monetary Policy Committee is content with the slower rate of money growth seen recently, at 9.6% for March. It targets keeping M2 in line with nominal GDP growth. It is working to deliver at least 6% growth this year, with some expecting them to try to outperform in what is the 100th Centenary year of the Communist Party. Current M2 allows for some rise in inflation. It also targets the total debt to GDP ratio and now wish to keep that stable, which implies a less debt fuelled growth trajectory in future than in the past. The PBOC also wish to keep the renminbi stable and took a side swipe at US policy: “The monetary policy will refrain from indiscriminate massive stimulus”. Despite all these prudent targets it also thinks it can do this whilst allowing a further decline in real lending rates.

The goal is high-quality growth, with more accent on technology, national resilience and capability, and growing small and medium-sized enterprises. It wants a supply-side structural change pushing into higher value and more technology-oriented areas. The government believes in the dual circulation economy, giving more emphasis now to domestic markets as well as to exports, and believes it needs to build and rebuild crucial capabilities at home given the growing trade and political tensions.

If we believe what it has said so far, it wants a stable year – sorting out lending and shifting the structure of the economy behind the scenes. It does not want to take risks with inflation, the exchange rate or debt levels. There remains, however, the wish to please and the wish of the government to put on something spectacular for the 100th anniversary, so maybe we will see some temporary relaxation to splash a bit of cash for the party.

Meanwhile, the new aim is clearly to pilot through the reefs of climate-change conferences whilst still allowing fossil fuelled growth for a bit longer at home. The Chinese will make much of the need to look after biodiversity on the planet as they prepare to host the UN’s Conference on that topic this October. They have prepared thoroughly to be in a strong position to export the products needed to make the green investments.

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