China’s race to become a climate leader could be paying off

In the first part a two-part profile of the world’s second-largest economy, the reasons for China’s lead on green finance and regulation come under the microscope. 

As the US pulls back from its climate policies, China is looking to become a leader in the energy transition and has already taken steps to expand its influence on green finance.

It debuted its first green sovereign bond on the London Stock Exchange in early April, while Chinese president Xi Jinping reaffirmed the country’s commitment to curbing greenhouse gases ahead of the Cop30 summit in November.

“However the world may change, China will not slow down its climate actions,” Xi said.

As the top carbon polluter in the world, accounting for 30% of total emissions in 2023, China is no stranger to the effects of climate change and has previously made long-term commitments to cutting emissions. At the same time, it has continued to build new coal plants as its push for renewables has yet to meet the energy demands of the country’s large population.

But experts say that while China’s domestic coal should be criticised, there are aspects of Chinese commitment to the green transition that are promising – especially as other nations like the US and EU pull back or pause their climate work.

Under Donald Trump, the US pulled out of the Paris Agreement and cut funding for climate programmes, criticising institutions that have made climate a priority. Even the EU, which has long been a promoter of climate work, has limited its recent progress as it refocuses its efforts on competition and defence spending.

“We’re witnessing a profound recalibration of the global economic structure—one that carries significant implications for climate governance,” said Xie Wenhong, head of the China programme at the Climate Bonds Initiative.

Changing global dynamics

With trade tensions between the US and the rest of the world, global dynamics are changing, as are efforts on green finance. While the financing of green projects could be challenged under trade tensions, for China it could be an opportunity to replace the vacuum left by the US.

“In this evolving landscape, it’s in China’s interest to assert global leadership. And China has actively pursued this through green finance initiatives,” said Xie.

China’s approach to the green finance model could make it a global leader, but in many ways it is already becoming a leader for global south countries, especially in Asia.

“When I speak with regulators in emerging market countries, such as Vietnam or Indonesia, there seems to be more interest in Chinese experiences and examples than in the EU or in the US,” Xie said.

Other countries, especially in south-east Asia, are starting to see China as a source for green financing and an example of how to approach product green labelling. While not many are under green labels at the moment, there’s still huge potential according to Xie.

China’s commitment to green finance

So is China’s commitment to renewables and curbing emissions part of a larger picture or just a political ploy to snatch power?

“China’s initiatives have been extremely successful. I would say that what China has done is exactly what you would want to see every country doing,” said Justine Leigh Bell, executive director at Anthropocene Fixed Income Institute.

The communist country is criticised for many things, including its use of coal and other controversial assets. “But what we have to also remember is that they are the largest provider of renewable energy finance in the world,” she said.

Clean energy technologies made up more than 10% of China’s economy in 2024, according to Carbon Brief, driving up a quarter of its GDP and overtaking real estate sales in value. According to the Chinese government, the country added 373mn kilowatts of newly installed energy from renewable sources last year while electric vehicles made up around 40% of all car sales.

“All of this comes from very strong government signals,” Bell said.

While China’s commitment to curbing emissions and its work on green finance might seem new given its continued coal use, it has been slowly making progress on implementing green programmes for over 10 years.

China has a 20-year horizon on its green finance ambitions and has been clear with providing subsidisation programmes, green lending schemes, green guarantee programmes and carbon reduction facilities.

The domestic market has responded to these measures and now China is turning its sights to the international sphere.

“China wants to be the leader forming this [green] consensus, instead of being left behind,” said Ting Su, Chinese sustainable research associate at the World Resources Institute.

China is coming to the end of its 14th five-year plan which covered 2021 to 2025 and included goals to increase the country’s share of renewables. These five-years plans set China’s economic development goals and the next iteration is set for March 2026, with Chinese president Xi telling officials to take a forward-looking approach which considers the “changing international landscape”.

There is a window of opportunity for China’s green policies to continue to be shaped ahead of the next five-year plan and climate remained top of the agenda during China’s annual plenary known as the Two Sessions, Ting said.

“I think that’s also why I’m so optimistic about China’s leadership in the green transition, because [during the Two Sessions] the mood didn’t change. And this year, everything will shape from thinking into concrete policies and strategic planning for the next five years”.