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Harvest cool to China’s green bonds

The mainland's green bonds do not appeal to Harvest Fund Management due to lower yields and less liquidity than the overall bond market, according to Jing Lei, the firm’s Beijing-based chief investment officer for fixed income.


“Green bonds are mostly issued to fund green industries and green projects, which are usually relatively less profitable. Compared to the other bonds with the same rating, green bonds are issued with lower coupons and lower yields when they go to the secondary market,” Jing told FSA.

He noted, however, that it depends on the issuer. Green bonds issuance in China has been dominated by banks and public utility companies, a majority of which are state-owned enterprises.

Green bonds issued by financial companies, by comparison, do not have significantly lower yields compared to other bonds. In addition, they have maturities of around three-to-five years, which is shorter than corporate bonds’ maturities of five years.

Because the themed bonds are relatively new, data is not yet sufficient to gauge performance, he added.

China’s central bank, the People’s Bank of China, first allowed the issuance of green bonds at the end of 2015. In 2016, the size of the country’s green bond market reached RMB 205.23bn ($30.65bn), which is less than 1% of China’s bond market.

However, in a global context, China has one of the biggest green bond markets, accounting for around 39% of global issuance of green bonds in 2016, according to a joint report from the Climate Bonds Initiative and the China Central Depositary & Clearing Company.

Liquidity risk 

Jing said that the main risk when investing in green bonds is liquidity.

“Investors take green bonds as a special category of bonds and the market is still not deep enough for green bonds.”

The average daily trading volume for green bonds in China is around RMB 2bn-RMB 4bn, which is only around 1% of the trading volume of China’s overall bond market.

There is also no special treatment, such as tax exemptions for investors, when investing in green bonds, he added.

However, investors should not worry about credit risk, he said, adding that they do not necessarily come with high risk. 

“The green projects which are funded by green bonds are generally backed and encouraged by China’s central and local governments.”

In addition, bonds issued by SOEs tend to have a higher credit rating compared to other bonds and usually carry a rating of AA+ or above, he said.

Part of the Mark Allen Group.