Green Finance as an Institutional Mechanism to Direct the Belt and Road Initiative towards Sustainability: The Case of China

Abstract

China’s Belt and Road Initiative (hereinafter BRI) has been challenged due to its failure to promote long-term environmental sustainability. Recent years, however, have witnessed a tendency in which green finance is being deliberately crafted by Chinese regulatory authorities in order to support a green BRI. Despite BRI’s popularity as a scientific research topic, the legal literature with regard to China’s domestic green finance laws/regulations and their impact on BRI’s sustainability is insufficient. The purpose of this study is to fill this research gap by examining how China has utilized green finance as an institutional mechanism in order to steer the BRI toward sustainability, as well as to provide policy suggestions on how to further improve BRI’s sustainability by addressing existing legal and regulatory deficiencies. The methodology utilized was a textual analysis of legal/regulatory documents. Based on an investigation of the environmental sustainability challenges faced by the BRI, this paper elaborates Chinese banks’ green finance practices in facilitating a sustainable BRI. It makes a further inquiry into the regulatory instruments by which Chinese banks are able improve their green performances, and elucidates existing regulatory deficiencies. Finally, it presents policy recommendations intended to enhance the ability of Chinese banks to obtain more private capital to finance BRI green projects, including: (1) introducing ‘green’ provisions to the draft Commercial Bank Law; (2) developing a mutually recognized green standard; (3) mandating environmental disclosures; and (4) encouraging institutional investors to buy green assets.