Tapping bay's potential for green finance growth

Promotion of Guangdong-HK-Macao Greater Bay Area offers fertile soil for synergistic cooperation

Under the impetus of the Belt and Road Initiative, the creation of new opening-up policies and the promotion of supply side structural reform, the Guangdong-Hong Kong-Macao Greater Bay Area has gained strategic attention, and a top level economic Greater Bay Area has moved to the forefront of China's priorities for sustainability.

On Aug 31, 2016, the People's Bank of China, the Ministry of Finance and other ministries and commissions jointly issued the Guidelines for Establishing the Green Financial System. Since the Greater Bay Area is a frontier for China's ongoing reforms, promoting green finance cooperation is an indispensable part of the plan to develop the region into one of the world's leading bay areas.

The Guangdong-Hong Kong-Macao Greater Bay Area has fertile soil for green finance cooperation because it is home to many important financial institutions and markets, and because many innovative practices in green finance have been carried out in Guangdong province and the Hong Kong and Macao special administrative regions.

Other advantages of the Pan-Pearl River Delta include its well-developed industry, support of innovation and the standardization work in regional cooperation.

Despite the many advantages though, cooperation in green finance still faces some headwinds. There are some noteworthy obstacles including the difficulty caused by differences in the legal, fiscal and taxation systems, a natural hindrance to cross-boundary flows of finance among the three different regions, and the lack of comprehensive policy design. Besides that, there are significant differences in green standards between Hong Kong and Macao and the nine cities of the Pearl River Delta.

Furthermore, cooperation is currently constrained by unhealthy competition between cities within the region as well as external economic challenges such as the trade dispute between China and the United States and the slowdown in domestic growth.

To overcome these challenges, the Greater Bay Area should make the most of its comparative advantages and promote green finance cooperation.

According to the different industrial resources and geographic characteristics of the various regions in the Greater Bay Area, all cities in this area should make the best use of their respective advantages and aim for synergetic effects. That is to say the combination of Hong Kong as the international green financial center and Guangzhou as the national green financial reform and innovation pilot zone could act as the dual core driving force, forming a green finance cooperation platform for the entire area.

Hong Kong, Macao, Shenzhen and Guangzhou should focus on building green financing service districts. Foshan, Dongguan, Jiangmen and Zhongshan, which are manufacturing-focused cities, should aim at building green industrial clusters. Zhuhai, Huizhou, Zhaoqing and other cities that have rich natural resources and good ecological conditions should focus on building green city demonstration districts.

Considering Macao's advantage in developing unique financial products in recent years, it could focus on being a green financial exchange platform between China and Portuguese-speaking countries, a green financing leasing platform, and/or a green lottery trading market platform.

Shenzhen has the potential to be a green financial technology innovation center, since it enjoys the status of the national science and technology innovation center. Guangzhou, on its part, could act as the Green Finance Center of the Greater Bay Area. The Huadu district of Guangzhou, as the green financial reform pilot zone of Guangzhou city, should fully push the construction of the National Green Finance Demonstration Zone.

Rapid improvement is needed for the organizational leadership system of green finance cooperation in the Greater Bay Area. The establishment of a task force, which is supported by China's financial management commissions and relevant government departments from Guangdong, Hong Kong and Macao, is badly needed.

Other necessary steps are building a daily work mechanism to promote cooperation in the Greater Bay Area, promoting the three local governments to negotiate and sign a Guangdong, Hong Kong and Macao Green Financial Cooperation Agreement and clarifying the communication channels, discussing cooperation plans, and setting the problem-solving procedures.

Under the framework of financial supervision cooperation, the financial supervision commissions of Guangdong, Hong Kong and Macao should accelerate the establishment of regulatory and self-regulatory mechanisms for green finance and connect and coordinate mechanisms between the closer economic partnership agreements between the mainland and the SARS and the construction of the Greater Bay Area.

Meanwhile, it is of vital importance to create a set of green finance standards that are in line with the current national conditions and that are benchmarked to international standards. To do so, the first step is to build an information-sharing platform that covers all areas from green credit, green bonds, green insurance and green funds to carbon finance, environmental information and green industries. Furthermore, a relevant credit information-sharing mechanism among enterprises and a credit supervision system should be established.

It is necessary to set up administrative enforcement and criminal justice bodies in this area. In addition, a compensation mechanism for environmental damage should be built by clarifying responsibility, monitoring, evaluating, supervising and the usage of policy incentives. We also suggest setting up an ecological compensation and restoration fund for "redline" ecological conservation areas.

The Greater Bay Area should make full use of the academic resources of the central cities by promoting the discipline of green finance, joint training of green finance professionals across the three regions and attracting more talents from domestic and international platforms to advance green finance cooperation.

The author is director general of the International Institute of Green Finance at Central University of Finance and Economics, and president of National School of Development at Peking University. The author contributed this article to China Watch, a think tank powered by China Daily. The views do not necessarily reflect those of China Daily.