Financing China’s sustainable urban transformation
Author: Jasmine Tillu
The low-carbon transformation of China’s urban areas is a crucial action towards meeting the Paris Agreement’s temperature goal. In this policy insight, Jasmine Tillu addresses how the challenge of financing the transformation may be met. An accompanying insight, The economic case for China’s sustainable urban transformation, is also available.
- For China to meet its climate goals under the Paris Agreement and its 2060 carbon neutrality target, it is estimated that the country needs to spend US$20 trillion over the next three decades across all sectors.
- As cities are the primary source of China’s carbon emissions, much of this investment is needed in the form of low-carbon and sustainable urban infrastructure.
- Decades of rapid infrastructure growth, initially funded through the sale of land use rights and off-budget investment vehicles, have left many municipalities in deep debt. The debt situation has prompted concerns over the long-term ability of cities to sufficiently meet the financing needs of a sustainable transition.
- Meeting this financing challenge will require a multi-layered fiscal strategy that empowers municipalities with sufficient financial resources and incentivises low-carbon and sustainable urban investments over the long term.
- An important step is to empower cities themselves with the fiscal stability they require. Several well-designed local taxes have been identified by experts that can provide municipalities with additional own-source revenues.
- Equally important is to incentivise the existing financial system to prioritise low-carbon and sustainable urban investments.
- Cities can also be enabled to make low-carbon and sustainable investments through more efficient data-sharing and coordination and by expanding issuing requirements to include minimum environmental thresholds for special-purpose bond use.
- The majority of funding needed for the low-carbon and sustainable infrastructure to meet carbon neutrality goals needs to come from outside of government budgets.
- Develop stable own-source revenue streams at the municipal and provincial levels.
- Prioritise the strengthening of systems for data collection and data sharing.
- Include minimum environmental thresholds for projects funded by special purpose bonds.
- Scale up environmental information disclosure.
- Develop a clear taxonomy system for green bonds.
Jasmine Tillu is a Policy Fellow at the Grantham Research Institute.
This policy insight is based on Chapter 4 of the report Accelerating China’s urban transition: Priority actions for high-quality growth and enhancing leadership for carbon neutrality, the production of which was led by the Grantham Research Institute, the World Resources Institute (USA) Beijing Representative Office, Hong Kong University of Science and Technology, and Tsinghua University. Accelerating China’s urban transition represents the culmination of a multi-year research programme from the Coalition for Urban Transitions’ China Country Programme.