GREEN FINANCE: Green finance slowdown expected to push China to seek overseas investment

As published on: thebanker.com, Monday 11 November, 2025.

China will probably need to look overseas for investment into its green economy as falling returns are impacting domestic bank appetite, according to new research.

In a recently published report, Natixis says green finance has begun to decline from its peak, but as one of the key goals of the Chinese government, finding alternative sources of funding may mean looking externally.

“China wants to dominate the [environmental, social and governance] international market, and for that, they need Hong Kong,” said report author Alicia García-Herrero, chief economist for Asia-Pacific at Natixis. “China will need foreign capital to finance this. It’s not only going to be ESG for China financed by China, but ESG with an international benchmark.”

Green finance saw a compound annual growth rate of 30 per cent between 2020 and 2024, with green loans at 93 per cent, and green bonds 12 per cent, the report says.

Yet this rate began to slow from 2023, with falling bank profitability as loan interest income fell due to cuts to the loan prime rates in 2024 and weak loan demand. Green loan growth almost halved in 2024 compared with the previous year. And the loss of appetite for green assets impacted the largest banks in particular, as green loan disbursement fell sharply from 2023.

In addition, the financing gap to achieve the green transition is only likely to grow. In 2024, China’s green investment totalled Rmb4.5tn ($632bn), but green finance only covered 54 per cent of this demand, with the rest funded by reinvested profits.

García-Herrero said that previously green tech companies did not need to issue bonds, as they had huge retained earnings and could use these funds to finance capex. However a slowing market means they have looked to banks for external funding.

Chinese banks have been directed by monetary authority the People’s Bank of China to support the green sector as one of their five major articles of focus, a directive which also includes technology finance and digital finance. In 2020, China announced a goal to reach its carbon peak by 2030 and carbon neutrality by 2060.

With the US no longer competing for the ESG space, this is opening an opportunity for China to expand globally and take advantage of international ESG investment appetite.

However, García-Herrero noted there are significant issues in China around greenwashing, stating there are elements of greenwashing in as many as 90 per cent of issuances in China.

“They have a taxonomy that the market does not believe in. If they want to look for funding overseas, they need to address this. They need to be more credible on the quality of their ESG paper.”

She added that this work needs to be done well in advance of a market launch: “If they launch it, and then nobody believes in it, they will not attract any foreign investors.”

To create new revenue-generating opportunities, China should broaden its investment focus to less profitable sectors, as the electric vehicle and renewables markets have reached maturity.

“China needs a new green tech sector to grab everyone’s attention. The development of drones is likely not big enough. It needs something to move investors to a new sector,” said García-Herrero.