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China at the forefront of building a sustainable economy

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This is a sponsored article from BNP Paribas.

Following years of tremendous economic achievement, China is shifting its focus to quality of growth. Since 2007, the country has been the world’s largest producer of C02 emissions, with smoggy skies and contaminated water leading to large-scale health problems that include premature deaths and rising cancer rates. The World Bank estimates that air and water pollution could cost China close to 10% of its gross domestic product.1

China’s focus on environmental protection culminated in a range of ambitious commitments at the UN Paris Climate Agreement (2015) and the 13th Five-Year Plan (2016-2020), a plenary session that lays down the nation’s strategies for social and economic development.

In October 2017, Chinese President Xi Jinping reiterated in the 19th Party Congress the country’s vow to pursue sustainable development, pledging to “encourage simple, moderate, green and low-carbon ways of life.”

Stricter regulations, investments in cleantech infrastructure, as well as green finance, are at the forefront of the national agenda. By 2020, China is expected to have invested a total of US$2.2 trillion – equivalent to India’s 2016 GDP2 – across six sustainability-focused sectors, according to consultancy ENEA3.

China, the world’s largest automotive market, is also reshaping the industry’s future. In 2016, the country was by far the largest electric vehicle market, accounting for more than 40% of electric vehicles sold in the world and more than double the amount sold in the US4.

China continues its transition from an export and investment-led economy towards a new economy dominated by consumption and services. This pivot is, in turn, contributing to the effort to tackle climate change via the growth of less energy-intensive business models.

New players like Didi Chuxing, China’s largest ride sharing company, are embracing the potential of electric vehicles while seeking to transform the future of urban mobility in a sustainable manner. This new model of growth has also transpired into construction. China, one of the world’s largest construction market, is experiencing a rapid rise in green buildings thanks to a set of favourable government policies5.

China has also incentivised the corporate sector to conduct business in a more sustainable manner, an ambition that has taken its most sophisticated form with the launch of the world’s largest carbon trading market in December 20176.

The financial industry plays an important role in channelling capital into sustainable projects. Despite being a new entrant, China is already one of the world’s leading issuers of green bonds, totalling USD 22.5 billion in 20177.

China’s transition to a low-carbon economy constitutes an opportunity for investors. Various industries could be beneficiaries, including renewable energy, water treatment, and battery makers to name a few.

Equity investors can access this opportunity through responsible indices and thematic baskets.

The FTSE China A50 Divest Invest Index allows investors with a positive view on Chinese onshore equities to capitalise in a more sustainable way. This index removes companies involved in fossil fuel-related sectors and replaces them with stocks with the highest green revenues.

Thematic baskets can provide investors exposure to bespoke Chinese ESG themes. For example, the China Green Basket is a selection of 26 stocks that focus on environmental protection and clean energy.

Fixed-income investors can look at the rapidly developing green bond market where proceeds are invested in green projects that benefit the environment.

By approaching the sustainability theme from different angles, forward-thinking investors can take advantage of BNP Paribas CIB’s strengths in this area.

1 World Bank, The Cost of Pollution, 2013
2 World Bank data
3 ENEA Seizing China’s Cleantech Opportunity
4 International Energy Agency, Global EV Outlook 2017
5 CBRE, China Green Building Annual Report 2017
6 Xinhua News Agency, “China launches nationwide carbon trading system” report (citing National Development and Reform Commission), 2017.
7 Climate Bonds Initiative, Green Bond Highlights 2017

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This is a sponsored article from BNP Paribas.

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