Green fi­nance — HK primes the pump Ex­perts say SAR must act fast as fi­nan­cial hubs up the stakes in the green ‘gold rush’

China Daily (Hong Kong) - - BUSINESS HK - By LUO WEITENG in Hong Kong sophia@chi­nadai­lyhk.com

With re­gional ri­vals breath­ing down its neck in the race to be Asia’s fi­nan­cial ser­vices doyen, Hong Kong is spar­ing no ef­fort in the con­test for an­other crown — in green fi­nance.

The buzz­word high­lights a global in­vest­ment theme com­bin­ing the world of fi­nance and busi­ness with an en­vi­ron­men­tally friendly touch that of­fers credit and spe­cial funds for a more sus­tain­able, low-car­bon and cli­mate-re­silient econ­omy.

The ur­gency to meet the threat has been made the more rel­e­vant for Hong Kong as world fi­nan­cial cen­ters, in­clud­ing cities on the Chi­nese main­land, rise to the oc­ca­sion with in­vestors scour­ing mar­kets for “green funds”.

While the SAR con­tin­ues to sharpen its edge as a worl­drenowned fi­nan­cial hub, green fi­nance — equally im­por­tant as the much-vaunted fi­nan­cial tech­nol­ogy (fin­tech) — stands as one of the fields where the city should strive to take the lead, says new Sec­re­tary for Fi­nan­cial Ser vices and the Trea­sury James Henry Lau Jr.

Lau, who took of­fice on July 1, stresses that Hong Kong must dou­ble its ef­forts to make both fin­tech and green fi­nance a solid suc­cess.

With com­pa­nies world­wide scram­bling to go green and in­vestors fa­vor­ing green, he hopes to bur­nish the city’s brand as a mag­net not only for green bond is­suers but also for green in­vestors.

Fi­nan­cial ex­perts agreed that Hong Kong must act fast. “For Hong Kong, it’s re­ally a race against time and other ma­jor fi­nan­cial hubs,” warned Han­nah Li Wai-han, a strate­gist at UOB Kay Hian (Hong Kong).

“Pre­vi­ously a niche ac­tiv­ity, green fi­nance to­day is be­com­ing a main­stream part of the fi­nan­cial ser­vices world, lur­ing many ju­ris­dic­tions with the fore­sight to vie for a share,” she said.

Among world fi­nan­cial piv­ots, London is one of the most ag­gres­sive to have joined the fray. In Jan­uary, the Bri­tish cap­i­tal rolled out the Green Fi­nance Ini­tia­tive in its at­tempt to achieve an “early mover” ad­van­tage.

Shang­hai, for its part, aims to turn Lu­ji­azui — the na­tion’s fi­nan­cial epi­cen­ter and pow­er­house in the heart of the city’s Pudong New District — into Asia’s green fi­nance hub, ac­cord­ing to a low-pro­file an­nounce­ment by the Lu­ji­azui Fi­nan­cial City Man­age­ment Board in April.

In a sign of Hong Kong’s re­solve to press ahead with green fi­nance, the Fi­nan­cial Ser­vices De­vel­op­ment Coun­cil, which has warned that the SAR would lose out if it fails to max­i­mize its uniquely placed po­si­tion as the re­gion’s leader in the field, un­veiled a high­level study in May last year that set the tone for and shed light on prospects of is­su­ing green bonds in the city.

The open­ing shot in the green fi­nance race was fired in the arena of green bonds. Hong Kong went into the game in mid-2015 with the maiden is­suance of $300 mil­lion worth of green bonds by wind en­ergy com­pany Xin­jiang Gold­wind Sci­ence and Tech­nol­ogy. The is­suance was five times over­sub­scribed and marked the first such move by a main­land en­ter­prise.

A year later, prop­erty in­vest­ment gi­ant Link REIT be­came the first Hong Kong-based green bond is­suer with a $500-mil­lion tranche. It was fol­lowed by MTR Corp, which is­sued its 10-year green bonds worth $600 mil­lion in Oc­to­ber last year and pledged to is­sue more in the com­ing years.

“Ba­si­cally, the huge ap­petite for the Chi­nese main­land’s green in­vest­ments is what Hong Kong’s green fi­nance am­bi­tion could gain mo­men­tum from,” said Li.

Al­though shy of the govern­ment’s $46-bil­lion tar­get, the world’s sec­ond-largest econ­omy raised more than $30 bil­lion worth of green bonds last year, ac­count­ing for 31 per­cent of the world’s to­tal is­suance and 65 per­cent of the global growth, says a re­search report by Bank of Amer­ica Mer­rill Lynch.

China, which over­took the United States last year as the world’s largest is­suer of green bonds, is poised to be the pre­dom­i­nant driver of the global green in­vest­ment boom and “a good il­lus­tra­tion of sup­port­ive gov­ern­men­tal pol­icy”, the report noted.

“The emer­gence of China as a sig­nif­i­cant is­suer has been a ma­jor mile­stone for the broader green bond mar­ket,” said Bei­jia Ma, an an­a­lyst at Bank of Amer­ica Mer­rill Lynch who tracks this emerg­ing mar­ket­place. “As the cen­tral govern­ment crys­tal­lizes its cli­mate com­mit­ments, the coun­try will con­tinue to set the trend in 2017.”

Al­though green bond is­suance may slow down af­ter a bumper year in 2016, the Chi­nese main­land is still pro­jected by Bank of Amer­ica Mer­rill Lynch to con­trib­ute to 30 to 50-per­cent growth of the global green bond mar­ket.

For the next five years, the coun­try needs at least 2 tril­lion yuan ($295.5 bil­lion) of green in­vest­ment an­nu­ally to pay for the war on pol­lu­tion, Ma Jun, chief econ­o­mist at the Peo­ple’s Bank of China (PBOC), es­ti­mates.

“With such a ro­bust in­vest­ment de­mand up for grabs, Hong Kong has no rea­son and can­not af­ford to miss the boat,” said Ja­cob Zhou, a Hong Kong- per­cent based con­sul­tant at one of the “Big Four” ac­count­ing firms.

“Tra­di­tion­ally, Hong Kong has po­si­tioned it­self as a ma­jor mar­ket for eq­ui­ties trad­ing rather than bond trad­ing. Now, rid­ing high on the un­der­tak­ings and goals of the cross-bound­ary Bond Con­nect and the main­land’s green fi­nance ‘gold rush’, Hong Kong may have a chance to re­ju­ve­nate its do­mes­tic debt mar­ket,” Zhou noted.

“Not to men­tion the in­sa­tiable ap­petite for in­fras­truc­tur­ere­lated bonds and the pop­u­lar choice of sus­tain­able in­vest­ments along the Belt and Road route, the story is made the more promis­ing.”

In par­tic­u­lar, as the am­bi­tious Guang­dong-Hong KongMa­cao Greater Bay Area plan re­in­forces the theme of re­gional co­op­er­a­tion and in­te­gra­tion, Hong Kong may join hands with Guang­dong prov­ince to jump on the green fi­nance band­wagon.

The prov­ince on the mainl a n d ’s s o u t h e a s t e r n c o a s t , to­gether with the na­tion’s other four ar­eas, stand as the test­ing ground for green fi­nance, with the creation of five pi­lot zones in June.

The move puts Guangzhou, cap­i­tal of in­dus­tri­al­ized Guang­dong, on course to em­brace a green fi­nance revo­lu­tion, fit­ting in well with the city’s vi­sion to di­ver­sify the re­gional econ­omy in a greener man­ner, ac­cord­ing to the PBOC.

The cen­tral bank’s en­cour­age­ment high­lights the sup­port for in­sti­tu­tional in­vestors from Hong Kong and Ma­cao to take a share of the green pri­vate eq­uity in­vest­ment funds and green ven­ture cap­i­tal funds un­der the Qual­i­fied For­eign

of the world’s green bonds were is­sued by the Chi­nese main­land last year The SAR govern­ment re­ally feels the urge to put green fi­nance and fin­tech on top of its work­ing list. We may get off to a good start, but we re­ally should speed up.”

Lim­ited Part­ner scheme within the pi­lot zone.

“All in all, at the heart of the green fi­nance boom, pol­icy sup­port al­ways mat­ters,” Ma reck­oned.

“With gov­ern­ments in the Asia Pa­cific and Europe at the fore­front in poli­cies to de­velop the kind of sus­tain­able in­fra­struc­ture that green bonds are de­signed to fund, and to grow the green bond sec­tor, you can see the mar­ket is be­ing fu­eled by pow­er­ful, broader fac­tors that will en­sure the as­set class re­mains vi­brant,” said Lorna Greene, di­rec­tor of debt syn­di­cate and orig­i­na­tion at Na­tional Aus­tralia Bank in Hong Kong.

“In the end, our goal is to set up a well es­tab­lished green fi­nance ecosys­tem where op­por­tu­ni­ties could ex­tend to green ini­tial pub­lic of­fer­ings and green in­dexes. This can­not go with­out the col­lab­o­ra­tion of the pub­lic and pri­vate sec­tors,” Zhou said.

“You can see the SAR govern­ment re­ally feels the urge to put green fi­nance and fin­tech on top of its work­ing list. We may get off to a good start, but we re­ally should speed up,” Li ob­served. “With op­por­tu­ni­ties on the cards, the ques­tion is: Are we well pre­pared to catch the ball?”

PARKER ZHENG / CHINA DAILY

Link REIT be­came the first Hong Kong-based green bonds is­suer last year with a $500-mil­lion tranche. The Chi­nese main­land had a good start in the realm of green fi­nance with the value of green bonds is­sued last year ex­ceed­ing $30 bil­lion — top­ping the world. This could trans­late into great op­por­tu­ni­ties for Hong Kong, ac­cord­ing to ex­perts.

Han­nah Li Wai-han,

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