China

The 13th Five-Year Plan (2016-20) set green development and the achievement of ecological civilisation as a key principle guiding Chinese domestic policy, targeting innovative, coordinated, green, open, and shared development. It also introduced a green indicators system, including monitoring of resource efficiency, pollution, and green investment, and made reporting against the indicators mandatory for all provinces. The 14th FYP (2021-25) was anticipated to bring further ambition and institutionalisation of progress, but has disappointed in failing to move beyond the high-level commitments to mid-century net-zero and 2030 carbon-peaking.

On paper, public consultation is mandatory under Chinese environmental law, and gender-sensitive policymaking monitored by the National Working Committee on Children and Women. However, inclusive consultation is rare in practice; top down, centralised policymaking is the norm. Corporate governance has seen substantial changes as China has embraced private enterprise, with listed companies formally requiring employee representatives to compose a third of supervisory boards. Supervision of directors is broadly weak and state influence on firms is substantial.

Chinas SDG implementation strategy makes no specific mention of business reporting or monitoring, but the Made In China 2025 program is designed to roll out green manufacturing, increase industrial energy efficiency and encourage clean production. An environmental business platform is available. Chinese multinationals are collaborating with the UNDP in assessing how they can help implement the SDGs in countries hosting Belt and Road projects.

National wealth accounts do exist at the pilot stage, covering green GDP and natural capitals for land, forestry and water resources. The Pilot Program for Preparing Natural Resource Balance Sheets is currently assessing the ecological civilization performance of resource consumption, environmental damage and ecological benefits, and establishing a knowledge base for low-carbon development.

The People's Bank of China, the Ministry of Finance and five other ministries jointly issued a policy paper on the need to establish and grow green financial markets in 2016, but the document is not legally binding. Green finance is seen as a priority by government, but concrete measures are yet to be announced.

Under the main national budget, China has run independent sustainable development budgets and a green procurement system since 2006, financing investment in clean energy, efficiency and environmental protection. The budgeting process is opaque, however, and the process by which departmental budgets and fiscal policies are assessed remains unclear.

Stress tests are in place as part of the Peoples Bank of China (PBoC) risk management strategy, but these focus on financial risk. While current stress tests do include a few environmental indicators, and the Banks credit sensitivity stress test does measure "loans to high pollution, high energy consumption and overcapacity industries" as a risk factor, these remain marginal.

In August 2021, the PBoC conducted a pilot climate stress test involving 23 major banks, but with a relatively narrow scope focused only on the effects of increased emissions costs on the repayments capability of enterprises in high-carbon industries, and the knock-on impacts on banks' asset quality and capital adequacy levels. The results revealed the growing risk of defaults on loans to high carbon sectors faced with rising emissions costs, with vice-governor Liu Guiping warning of stranded asset and related transition risks to lenders. More recently at the International Green Swan Conference, Yi Gang, Governor of the PBoC, announced the central bank plans to further it's climate-related "examination" of the financial sector, by conducting a second pilot climate stress test, expanded to cover eight industries including aviation, non-ferrous metals and petrochemicals. Beyond these exercises, there is currently no indication of intent to adopt formal and comprehensive climate stress testing.

After more than a decade in planning, China launched the first implementation cycle of its national emissions trading scheme (ETS) in January 2021. Despite only covering its power sector (2,225 coal and gas plants), the ETS is now the worlds largest carbon market (eclipsing the EUs), and nearly doubling the share of global emissions covered by trading (from 9 to 17%).

The design of the scheme prioritises businesses and industry, aiming to encourage buy-in and engagement during what can be considered its early operational phase. Analysts suggest it will be another 3-5 years before the ETS is fully up and running, during which continued high-level political support will be needed to foster its adoption and resolve cross-ministry challenges. While Chinese leadership propose the scheme will aid in reaching the countrys climate goals - including President Xi Jinpings pledge to reach carbon neutrality by 2060 - commentators note significant shortcomings in terms of its oversupply of allowances (oversaturation), limited coverage and flexible" emissions cap, leaving it currently lacking regulatory bite. A weak penalty for non-compliance also effectively provides an opt-out option and implicit upper limit on the cost of carbon. Much rests on whether China's ETS is tightened going forward - by adjusting the allowance plan, introducing a (declining) hard emissions cap and expanding its scope to cover other sectors though there are no indications from the Ministry of Environmnt and Ecology of intent to do so at present.

Chinas economy is highly centralised, with sectoral policy managed by the National Development and Reform Commission (NDRC) of the central government. The NDRC is responsible for issuing and implementing each 5 Year Plan; the current 5YP includes specific strategies for all high-impact sectors to achieve ecological civilisation.

Despite the fact that China's SMEs account for more than 65% of GDP, there is little national support assisting small businesses to adopt green and sustainable business models, and social enterprises have no separate legal status or formal government recognition. The Ministry of Civil Affairs and some local governments have suggested that new financial and regulatory support might be implemented, but existing registration and documentation procedures are slow, complex and capricious. Finance for green SME's is limited, but the Bank of China does have an "SME Green Financing Initiative Scheme" which provides low-cost loans for green projects.

China recently introduced new measures to support MSME's still suffering from the pandemic, with the Ministry of Industry and IT announcing tax refunds, fee reductions, reduced rents, and cheaper and more accessible financing for MSMEs, along with policies to boost collaboration on innovation between smaller and larger enterprises. Large state-owned banks were also directed to add over 1.6 trillion yuan ($240 billion) in inclusive loans to MSMEs. However, these support measures do not prioritise or emphasise green or social businesses.

Chinas 14th Five Year Plan includes carbon budgeting, although measured relatively as emission reductions per unit of GDP ("CO2 emissions intensity") rather than absolute cumulative total emissions. The plan sets a compulsory emissions intensity reduction target of 18% by 2025 along with measures to achieve this. For the first time, it also introduces the idea of an absolute carbon cap to supplement the intensity target - though it does not go so far as to set one. Efforts to introduce a cap may have been hindered by the 13FYP's adoption of a binding total energy consumption cap which, when implemented by the State Council in the form of provincial-level goals, led to widespread electricity shortages and outages as provinces attempted to meet unrealstic targets.

Experts suggest a cap could be set during the next plan period, but its formulation is anticipated to be bottom-up (with each province setting their own carbon cap) and it is unlikely to be announced before China has conducted more detailed research on its pathway to "carbon neutrality" by 2060.

With energy demand growing rapidly and air pollution following suit the Chinese govt has made clean energy a national strategic priority, and the country now leads the world on deployment and manufacturing of RE. The current 5YP targets 210GW wind and 110GW of solar by 2020, more than the current total electricity output of India; the next 5YP, due to be announced in 2020, may include longer-term targets.

The current 5YP makes some mention of expanding access to public services and strengthening income taxation to bridge income gaps, and states that "public services should be inclusive, equitable, and sustainable and should guarantee the basic needs of the people. However, no targeted green job strategy is currently in effect.

A new poverty alleviation plan was issued in 2018, with the goal of lifting 30 million above the poverty line inside 3 years; some connections made between poverty alleviation and environmental protection though eco-civilisation is still seen mainly as an industrial and technological vision. Many examples of pro-poor green policies, but most remain at the local level.

Some mention of inequalities and vulnerability in the 5YP, together with impact assessments for major economic and social policies. Gender policy falls under the Plan for Womens Development in China (20112020), targeting equal rights and opportunities with respect to education, employment, marital property, and participation in social affairs. However, Chinas repressive policies towards some minority and marginalised groups most recently the Uyghurs have been well documented.

The Chinese system favours centrally planned, large-scale initiatives rather than experimental pilot projects. Social policies remain tightly controlled by the government. A nation-wide minimum income guarantee, the dibao, has been operating since 2007, but is plagued by poor data collection and corruption.

The SDGs are not mentioned in Chinas current 5 Year Plan, and there is no official implementation strategy for goals 14 and 15. China has made a diplomatic commitment to shoulder the responsibility of implementing the 2030 development agenda, and seek solidarity and cooperation to constantly push the cause of global development," but lacks concrete policies.

China is receptive to natural capital policies although these remain in the early stages. Following a pilot effort in eight provinces, balance sheets for water, land, timber, and mineral resources at a national level are under development at the National Audit Office. Pilot programmes are also underway at the State Statistics Bureau and the Ministry of Ecology and Environment.

No separate natural capital advisory or expert biodiversity governance body exists currently.

New policies on conservation and restoration, and environmental taxes aimed at greening the financial system and controlling pollutants, have been introduced under the 13th Five Year Plan, which affords high priority to environmental protection and letting nature restore itself. Enforcement remains a major issue.