How the game changer was generated? An analysis on the legal rules and development of China’s green bond market

Despite its late start, China has become the world’s largest green bond market in a very short time. This extraordinary development is closely related to its unique rules system, which has also made China a ‘game changer’ to the green bond market. This article tries to explain the generation mechanism of the ‘game changer’ by comparing the rules systems of China and the international green bond market and examining the particularities of China’s financial market. Unlike the international green bond market, within which ‘soft laws’ are formed from the bottom up and are driven by investors’ joint efforts, stock exchanges, intermediaries, and social organizations, China’s green bond market is provided with a top-down system of rules, which are dominated by public departments and consequently manifests as a series of ‘hard laws.’ These rules provide a variety of favorable measures for the issuance of green bonds, and greatly stimulate the development of this newly emerged product under the condition that the liberalization of China’s bond market is limited at present. Nonetheless, this article also points out that amid existing financial market and regulation systems in China, the development of green bond markets needs to address the ‘regulatory arbitrage’ brought about by regulatory decentralization and should overcome the imperfection of implementation mechanisms. Therefore, the regulatory authority of green bonds should be exercised uniformly by the CSRC, and an effective constraint and disciplinary mechanism should be established.