This article was originally published by the Paulson Institute.

China released its new Green Industries Guidance Catalogue to help promote green development through clarifying the definition of “green industry” as well as harmonizing differing standards for sustainability. This new catalogue, essentially a mini-industrial plan, will be an important step in energizing and growing the Chinese sustainable industry goods and services sectors.

This past March, seven Ministries came together to launch the catalogue, including the National Development and Reform Commission, the People’s Bank of China, and the Ministry of Ecology and Environment. These powerful government bodies touch upon the key aspects of green industry from finance to buildings, energy, and new technologies. Together, they have established a plan to develop and enact policies that will support the growth of the green sector, develop a regulatory and financial infrastructure to promote investment, and determine clear standards on issues from the definition of “green” to high-level building code standards.

These policies combined with the existing push for green development could lead to China establishing the standards necessary for building a competitive industry for environmental goods and services – but also becoming a major exporter of those standards.

China’s market is the largest in the world for green goods and services, estimated by Goldman Sachs to be a $1 trillion opportunity. These new guidelines could further energize the sector through creating consistency in the understanding of what constitutes a green investment or product, but also through the creation of preferential treatment for sustainable companies.

Six broad categories of goods and services are being promoted. These range from renewables, cleaner production methods, waste management, sustainable infrastructure and services that support green development such as third-party verification and consulting. The increased focus will provide significant opportunities for Chinese and foreign companies alike.

As China defines what “green” encompasses in the financial sector, a taxonomy that the rest of the world has struggled with, it will allow for more confident investing and the potential rise of innovative financing vehicles. One of the challenges in the growth of the bond and equity markets has been deciding upon a common understanding of just what “green” encompasses.

In addition, developing a consistent definition of what constitutes a “green” company will create opportunities for increased micro-lending for small and medium-sized enterprises (SMEs).  Already, China’s major banks, such as the Industrial and Commercial Bank of China, will lend to established sustainable companies at a preferential rate, but often SMEs are too small to qualify for these loans. With the massive rise in fintech, companies such as Pintec or Ant Financial can provide microloans at a slightly preferential rate which provides capital to growing firms, but also provides financial incentive for small companies to “go green.” It is a virtuous circle.

China has also clarified how clean coal will be treated in these new guidelines. The country has taken a step forward in removing clean coal from qualifying for green bonds. Yet for the catalogue, the Ministries have chosen to retain coal in the definition of green for goods and services. They argue that coal still accounts for 60% of primary energy production and that it would be irresponsible – and unrealistic – to remove it. The compromise position is that only “clean coal” will be considered and the intent will be to promote its greater adoption.

Lastly, the new policies attempt to merge the standards that have been created through different pieces of legislation and policy guidance under one catalogue to make them accessible and easier to follow. China is rapidly moving ahead to set the standards in many of these sectors due to the fast pace of development of its own vibrant green industry—faster than the rest of the world—but also because, due to China’s sheer size, it tends to dominate.

The Green Industries Guidance Catalogue raises awareness that China’s green industry has grown 2.6 times in the last six years. As implementing guidelines are formulated to further define the opportunities, one thing that is clear is that China is moving ahead with building a vibrant “green” industry. As U.S. companies are some of the most competitive in the world in sustainability, these new guidelines should provide opportunities for firms in China.

The Paulson Institute’s Green Scene Blog features stories on green finance in China.

Posted by The Paulson Institute