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Yang Junhao, CFA, FRM, is currently the CEO of CCX Green Finance International and the Vice President of CCX Asia Pacific. Previously, he was a senior investment banker with more than ten years of experience in the financial industry, and worked at Guotai Junan Securities and China Merchants Securities. Dr. Yang holds a Master of Finance from the University of Sydney, a PhD in Finance from the University of Queensland, and is a postdoctoral fellow in Applied Economics at Renmin University of China.   The Third Plenary Session of the 20th Central Committee of the Communist Party of China was held in Beijing from July 15 to 18, 2024.   The plenary session pointed out that opening up is a distinctive mark of China's modernization. We should steadily expand institutional opening up, deepen foreign trade system reform, deepen foreign investment and outbound investment management system reform, optimize regional opening layout, and improve the mechanism for promoting high-quality joint construction of the "Belt and Road".   As a RMB-denominated bond issued by overseas institutions in China, panda bonds have achieved remarkable results in recent years. According to statistics, the issuance volume of panda bonds in 2023 hit a record high, and the annual issuance scale exceeded the 150 billion yuan mark for the first time.   "Starting from 2022, except for the United States, major developed economies including Europe have raised interest rates. China's repeated interest rate cuts have made financing costs low, attracting many issuers to come to China to raise RMB and issue panda bonds." Yang Junhao, CEO of CCXGF International and Vice President of CCXAP, said in an exclusive interview with a reporter from 21st Century Business Herald recently.   Regarding Panda Bonds, Yang Junhao commented that it is one of the important breakthroughs in China's financial reform and opening up. He said that the positive results of Panda Bonds show that the function of RMB as a financing currency is constantly improving, especially in the context of continued foreign investment in China. With the development of the dual market structure of domestic Panda Bonds and overseas Dim Sum Bonds, the domestic and overseas international bond markets have their own characteristics, and the two complement each other and will achieve common development.   The plenary session pointed out that it is necessary to coordinate development and security, and implement various measures to prevent and resolve risks in key areas such as real estate, local government debt, and small and medium-sized financial institutions.   In recent months, the highly anticipated ultra-long-term special treasury bonds have been launched for sale and have been welcomed by the market. Yang Junhao commented that the issuance of ultra-long-term special treasury bonds will optimize the debt structure of the central and local governments, and part of the funds from the treasury bonds will be used by local governments, which can increase the fiscal space of local governments, especially in places with relatively high debt repayment pressure, certain debt risks, and relatively backward economic development.   From the demand side, "Since the beginning of this year, non-bank institutions including insurance, wealth management, and funds have had a strong demand for ultra-long-term treasury bonds. Ultra-long-term treasury bonds not only meet the investment needs of market institutions for ultra-long-term bonds, but also balance the supply relationship in the treasury bond market. At the same time, the supply of government bonds also increases the liquidity of medium- and long-term investments." Yang Junhao added.   Yang Junhao also pointed out that the issuance of ultra-long-term government bonds and policy bank bonds will accelerate in the future. "We expect that the issuance of government bonds and policy bank bonds will reach a peak in the third quarter."   01Non-bank institutions have strong demand for ultra-long-term government bonds 21st Century : On June 14, China's Ministry of Finance issued 50-year special bonds for the first time, with a total issuance of 35 billion yuan. What do you think of the significance of China's issuance of special bonds? What market impacts are expected to be brought?   Yang Junhao : This year's "Government Work Report" mentioned that the ultra-long-term special treasury bonds will be used specifically for the implementation of major national strategies and the construction of security capabilities in key areas. This is China's fourth issuance of special treasury bonds, and the estimated issuance scale this year is 1 trillion yuan.   I believe that the ultra-long-term special treasury bonds release a positive fiscal policy, which will help boost current market confidence and expectations. First, the funds raised from the treasury bonds will be used for scientific and technological innovation, urban-rural integration, regional coordinated development, food and energy security, and high-quality population development. Measures in these key areas will help expand total demand in the short term, and in the long term will help promote the transformation of new and old economic drivers, build a modern industrial system, and develop new quality productivity.   Secondly, I think that in the short term, the issuance of ultra-long-term special government bonds will have a relatively small impact on the fiscal budget, because special government bonds are not included in the deficit, and their issuance is only included in the management of the government bond balance limit for the year. However, it should be noted that the issuance of long-term government bonds will increase the leverage ratio of the central government. According to our preliminary calculations, the issuance of 1 trillion yuan of special government bonds this year will increase the leverage ratio of the central government by about 0.7 percentage points, reaching 25.5% for the whole year.   In addition, the issuance of ultra-long-term special treasury bonds will also optimize the debt structure of the central and local governments. Part of the funds from the treasury bonds will be used by local governments, which can increase the fiscal space of local governments, especially those with heavy debt repayment pressure, certain debt risks, and relatively backward economic development.   It can be seen from the "Government Work Report" that special government bonds will continue to be issued, which also lays the foundation for the proactive fiscal policy in the next few years, which will help boost market confidence, ensure the stability of expectations, and further optimize the debt relationship between the central government and local governments, and reduce the fiscal pressure and expenditure of local governments. The launch of government bonds and the acceleration of special bonds are carried out simultaneously.   From the perspective of market impact, we have already collected some positive signals. Since the beginning of this year, non-bank institutions including insurance, wealth management, funds, etc. have shown strong demand for ultra-long-term government bonds. Ultra-long-term government bonds not only meet the investment needs of market institutions for ultra-long-term bonds and balance the supply relationship in the government bond market, but also increase the liquidity of medium- and long-term investments. Next, we expect the issuance of ultra-long-term government bonds and policy bank bonds to accelerate. It is expected that the issuance of government bonds and policy bank bonds will reach a peak in the third quarter.   Overall, ultra-long-term government bonds send positive fiscal policy signals. Their impact is not only on the bond market, but also on the entire financial market, sending more positive signals.   21st Century: CCXAP Credit Rating Co., Ltd. believes that if the trend of interest rate differential inversion remains unchanged in the next three quarters of this year, the scale of offshore RMB bond issuance should continue the momentum of the first quarter of this year. Could you please elaborate on how the offshore RMB bond issuance market will develop in the future? What are the important influencing factors?   Yang Junhao : The year-on-year and month-on-month data of the US CPI in the fourth quarter of last year showed that the US inflation control was still good. Therefore, the Federal Reserve did not raise interest rates in the first quarter of this year, and even expressed its intention to cut interest rates soon. At that time, the market generally believed that the Federal Reserve would start to cut interest rates in the middle of this year, so the US Treasury yield has been falling, and the bond yields in the market have begun to rise.   However, in the first quarter of this year, the US CPI data always exceeded expectations, which made the Fed a bit passive. The Fed has to control the overall CPI data and meet economic development, and has been unable to finalize the specific time of interest rate cuts. The market's expectations for the first interest rate cut have also begun to move back. Some believe that it may be at the end of 2024, while others believe that the entire channel of interest rate hikes has not yet ended, which has affected the market's expectations for US bonds.   At the same time, China began to introduce a relatively loose monetary policy in the first quarter of this year to reverse expectations of deflation and change the current situation of sluggish consumption. For example, the People's Bank of China announced a cut in the reserve requirement ratio and loan interest rates in January to promote a reduction in overall social financing costs. These policies pushed China's treasury bond yields to continue to decline in the first quarter, further deepening the inverted interest rate gap between China and the United States.   In 2023, about 350 offshore RMB bonds were issued, totaling about 30 billion yuan, of which about 150, totaling about 8 billion yuan, were issued in the last four quarters. According to data from the first quarter of this year, more than 150 offshore RMB bonds have been issued, totaling more than 9 billion yuan, and the year-on-year growth rate has reached 100%. This is the growth momentum we have seen.   I believe that the momentum of offshore RMB bond issuance will continue in the coming year. The Fed's outlook on interest rates will be an influencing factor. If the Fed quickly reverses to a rate cut trend, the RMB financing cost advantage may be weakened.   On the other hand, if the policy level further tightens restrictions on the overseas financing review system for municipal investment companies, then as an important issuer of offshore RMB bonds, its issuance volume will also affect the overall issuance scale of offshore RMB bonds.   02Interest rate differential between China and other countries promotes the issuance of panda bonds "21st Century": Please talk about the relationship between "dim sum bonds" and the internationalization of the RMB.   Yang Junhao : Dim sum bonds first appeared in 2007, and after so many years of development, they have become a major bond variety. The Federal Reserve has raised interest rates seven times in a row in 2022, and the gradual increase in the cost of the US dollar has promoted the rapid development of dim sum bonds.   Of course, the development of dim sum bonds is closely related to the internationalization of the RMB. The opening and development of the dim sum bond market has made the RMB an important currency, which has not only increased the international acceptance of the RMB, but also increased the settlement and savings functions of the RMB.   In addition, as dim sum bonds continue to develop and improve, more international funds will invest in China through dim sum bonds, join the Chinese bond market, and invest in China's overall financial market. This increases the liquidity of the RMB in the international market, especially cross-border liquidity.   At present, the scale of dim sum bonds has increased significantly, attracting many international investors and foreign institutions such as sovereign funds and pension insurance companies to invest in China. Their participation has made China’s bond market more diversified and increased the market’s ability to resist risks. Improved its stability.   With the development of the dual market structure of domestic panda bonds and overseas dim sum bonds, the international bond markets at home and abroad have their own characteristics, which can be said to complement each other and develop together. Among them, dim sum bonds are more conducive to the expansion of cross-border RMB and play a greater role in helping the two-way opening of the domestic capital market. At the same time, the offshore RMB pricing environment is also more conducive to investors' risk management of exchange rate fluctuations.   "21st Century": According to statistics, the issuance volume of panda bonds in 2023 hit a record high, and the annual issuance scale exceeded the 150 billion yuan mark for the first time. Considering the current interest rate environment, how do you think the market outlook for Panda Bonds will develop? How to attract more overseas issuers to participate in panda bonds?   Yang Junhao : Panda bonds have been very popular recently, mainly due to the interest rate differential between China and developed economies in monetary policy. Starting from 2022, except for the United States, major developed economies including Europe have raised interest rates. China's repeated interest rate cuts have made financing costs low, attracting many issuers to come to China to raise RMB and issue panda bonds. This is the main feature of panda bonds, and the interest rate differential is the main reason for its high issuance volume.   We believe that Panda Bonds are one of the important breakthroughs in China's financial reform and opening up. The function of RMB as a financing currency is constantly improving and strengthening, especially against the backdrop of continued foreign investment in China. With the internationalization of RMB, the frequency of RMB use in cross-border payments, foreign exchange reserves, financial transactions, currency swaps and other fields is increasing, and overseas institutions are also more interested in raising funds by issuing RMB-denominated bonds.   Especially since 2023, we have observed that Russia, India, France and other countries have begun to use RMB in foreign trade transactions and investment and financing. Argentina also announced that it would use RMB to repay foreign debt for the first time. These are all very positive market signals.   According to the Society for Worldwide Interbank Financial Telecommunication (SWIFT), in May 2024, the RMB remained the world's fourth most active currency in the global payment currency ranking based on amount statistics, which means that the RMB's global payment ranking has remained fourth in the world for seven consecutive months. I think the popularity of panda bonds is not only due to the advantage of interest rate spreads, but also closely related to China's macroeconomic development strategy and China's degree of opening up to the outside world.   03The international recognition of Chinese rating agencies continues to increase "21st Century": How do you evaluate the degree of openness of China's bond market?   Yang Junhao : Overall, since the fourth quarter of last year, foreign institutions’ holdings of inter-bank bonds have continued to increase. Specifically, from September 2023 to April 2024, the cumulative increase in positions held by overseas institutions each month reached 820 billion yuan, setting a new high since February 2022. Judging from the transaction situation, the trading activity of overseas institutions has also increased significantly.   In March this year, the transaction volume through CCDC was close to 2 trillion yuan, of which about 1 trillion yuan was through the "Global Connect" channel and the "Bond Connect" channel exceeded 800 billion yuan. The total volume has increased by more than 500 billion yuan compared with February.   We believe that there are several main reasons for this trend. First, China's fundamentals are relatively stable. The government's relatively loose monetary policy and proactive fiscal policy have led to steady economic growth, which is our biggest advantage. Chinese bonds also have the natural function of diversifying risks and have a low correlation with other types of global assets. This is one of the main reasons why domestic and foreign investors choose to invest in Chinese bonds.   Second, since 2019, Chinese bonds have been included in the Bloomberg Barclays Global Aggregate Index (BBGA), the JPMorgan Emerging Markets Bond Index (EMBI), the FTSE World Government Bond Index (WGBI) and other indices. Therefore, international investors have increased their holdings of Chinese bonds when investing passively, bringing in more international funds, especially institutional investors. This is a very favorable growth.   Third, China’s financial market is relatively mature, and many foreign investors are also very good at using financial derivatives such as swap lines to hedge the risks of new bond positions. This also provides foreign investors with more protection and investment tools. Richer.   Fourth, compared with other emerging sovereign economies, China’s sovereign risk is very low. Recently, as the geopolitical situation has escalated, more and more foreign investors are more inclined to invest in bonds in China.   "21st Century": What is the current social recognition, especially international recognition, of Chinese-funded rating agencies?   Yang Junhao : At present, the international recognition of Chinese-funded rating agencies is constantly increasing. From the perspective of market share, starting from the second half of 2022, with the support of regulatory policies, the business of Chinese-funded overseas rating agencies has grown significantly. In terms of business volume, the number of new customers of Chinese-funded rating agencies has exceeded 200 in 2023, an increase of two times compared with 2022, and the number of existing customers has exceeded 300, an increase of nearly three times compared with 2022.   With the rapid development of China's overseas bond market, CCXAP's business has also achieved significant improvement. As of the end of April this year, our company has more than 200 existing rating entities and more than 30 debt ratings. This also shows the market recognition of Chinese rating agencies.   It is worth mentioning that CCXAP obtained the business qualification from the Hong Kong Mandatory Provident Fund Schemes Authority ("Hong Kong Provident Fund Authority") in March 2023, becoming the first Chinese-funded credit rating agency approved by it. The five rating agencies are all foreign-funded institutions. This represents the recognition of our company by very large investment entities.   The current investment scale of the entire MPF (Hong Kong Mandatory Provident Fund) is approximately HK$1 trillion, of which 20 to 30% is invested in the bond market. With the participation of Chinese rating agencies, I believe that the market areas of Chinese issuers will receive more attention, such as Chinese dollar bonds, and our company will also increase its allocation in this area. I think this is also very helpful for professional investment institutions like MPF to make longer-term development decisions.

        Yan Yan, the Chairman of China Chengxin International and the Chairman of China Chengxin Asia-Pacific. He is also a member of the Asian Credit Rating Association, the Vice President of the Institute of Economics at Renmin University of China, and the Vice Chairman of the China Macro-economy Forum (CMF)                 The Third Plenary Session of the 20th Central Committee of the Communist Party of China was held in Beijing from July 15th to 18th, 2024. Fiscal and tax reform was one of the key topics of this plenary session, and how to promote a new round of fiscal and tax system reform received much attention.   Yan Yan, Vice Chairman of the China Macro-economy Forum, stated in an exclusive interview with 21st Century Business Herald that the Third Plenary Session of the 20th Central Committee of the Communist Party of China provided a systematic response to the main problems encountered in the new stage of China's socio-economic development, and also made forward-looking arrangements for future development issues.   Yan Yan further stated that the 1994 tax-sharing reform was a systematic institutional change during China's economic transition period, which also laid the basic pattern of China's current fiscal relationship, gradually forming a preliminary framework for income distribution, as well as the division of powers and expenditure responsibilities. After 30 years of development, the pattern of China's fiscal system has been continuously changing, and it is necessary to reform the existing problems.   The "Decision of the Central Committee of the Communist Party of China on Further Comprehensive Deepening Reform and Advancing China's Modernization in a Chinese Way" (hereinafter referred to as the "Decision") proposes deepening the reform of the fiscal and tax system, establishing clear rights and responsibilities, coordinated financial resources, and balanced central and local fiscal relations. Increasing local fiscal autonomy, expanding local tax sources, and appropriately expanding local tax management authority. Improving the fiscal transfer payment system, cleaning up and standardizing special transfer payments, increasing general transfer payments, and improving the degree of matching between fiscal power and powers and responsibilities at the city and county levels.   Yan Yan believes that the most important issue with China's fiscal and tax system at present is that the relationship between the central and local governments has not been fully rationalized, and local government expenditure pressures are high. The excessive decentralization of some expenditures with certain systemic and spillover significance has led to the inconsistency of powers and financial resources between the central and local governments, resulting in an imbalance in local finances.   According to data from the Ministry of Finance, as of the end of 2023, the balance of local government debt in the country was 40.7373 trillion yuan, controlled within the limit approved by the National People's Congress. Among them, general debt was 15.8688 trillion yuan, and special debt was 24.8685 trillion yuan. Government bonds accounted for 40.5711 trillion yuan, and non-government bond forms of outstanding government debt were 16.62 billion yuan.   Regarding the debt problems currently faced by local governments, Yan Yan believes that the overall risk of local government debt is controllable, but structural and regional problems are more prominent, including significant debt pressure, mismatch between the structure of local government debt and government financial resources, etc. In the medium and long term, it is necessary to establish and improve a long-term mechanism for preventing and resolving local government debt risks and a government debt management mechanism that is compatible with high-quality development, and improve the ability to solve local government debt problems in the medium and long term, and enhance the sustainability of local government debt.   The "Decision" also proposes to promote the shifting of consumption tax collection to downstream and steadily transfer it to local governments, improve the value-added tax (VAT) carryover and refund policy and deduction chain, and optimize the sharing ratio of shared taxes.   Data shows that in 2023, China's four major tax categories, including VAT, corporate income tax, consumption tax, and personal income tax, accounted for a total of 78.0% of tax revenue. Among them, consumption tax realized revenue of 1.6 trillion yuan, accounting for 8.9% of the national tax revenue, 7.4% of the national fiscal revenue, and is the only central exclusive tax among the four major taxes, accounting for 16.2% of the central fiscal revenue, while the others are shared taxes between the central and local governments.   Yan Yan stated that under controllable management, reasonably shifting the collection of consumption tax downstream will further expand the tax base and give full play to its function of raising fiscal revenue. Moreover, against the background of increasingly heavy local powers and responsibilities and unsustainable land finance, if some revenue is further transferred to local governments, it will help supplement local financial resources, ease fiscal imbalances, and support local economic development. For the central government, as the consumption tax is currently exclusively owned by the central government, if it is shifted downstream and transferred to local governments, the central fiscal revenue will correspondingly decrease, or other means may be needed to make up for the central fiscal gap, such as increasing other tax revenues or optimizing the structure of fiscal expenditures.   The following is a transcript of the interview:    01 The Coordination of Fiscal and Tax Relations between the Central and Local Governments Needs to Be Further Improved   21st Century: What do you think is the main focus and highlight of the Third Plenary Session of the 20th Central Committee of the Communist Party of China?   Yan Yan: The biggest highlight of the Third Plenary Session of the 20th Central Committee of the Communist Party of China is the systematic and forward-looking nature of the reforms. The theme of the "Decision" adopted at this meeting is about further comprehensive deepening reform and advancing China's modernization in a Chinese way, which indicates that our reforms are advancing into deeper fields. This meeting has put forward comprehensive requirements for deepening reforms in various fields to achieve the 2035 vision. These aspects have been set in the past reform process, and this time, we are further deepening the reforms on this basis. The content proposed at this meeting is basically consistent with the expected direction of reforms.   The focus of this Third Plenary Session is on coordination and integration. Firstly, it is about promoting high-quality economic development, which involves the system and mechanism of high-quality development. How to build a comprehensive innovation system and mechanism is closely related to high-quality economic development. On the other hand, it is about improving the macro-control system, which is also closely related to reform and governance.   Secondly, it is about the integrated development of urban and rural areas and high-level reform and opening up, which are important issues encountered in the past development process. These areas have already been addressed in the past deepening of reforms, but this time we are further deepening them based on the previous comprehensive reform. Therefore, from the perspective of the field of reforms, it is overall the same as the one proposed at the Third Plenary Session of the 18th Central Committee of the Communist Party of China, but with a focus on how to further deepen the reforms based on this foundation.   21st Century: This Third Plenary Session has identified the deepening of the reform of the fiscal and tax system as a focus. Regarding the reform focus, Finance Minister Lan Fo'an has previously stated that the new round of fiscal and tax system reform should highlight problem orientation. What do you think are the main problems with China's current fiscal and tax system?   Yan Yan: China established a tax-sharing system in 1994. This system was the basic fiscal and tax system reform during China's economic transition period. After 30 years of development, China's market economy and fiscal system have undergone significant changes. To continue to promote reforms, it is necessary to form a fiscal and tax framework based on income distribution and the division of financial powers, powers and responsibilities, and expenditure responsibilities. In the past, the fiscal and tax framework had been established. However, after 30 years of operation, there are still some problems that need further reform.   Currently, there are some problems with the fiscal and tax system, the first of which is that the relationship between the central and local governments has not been fully rationalized, and local government expenditure pressures are high. After 30 years of development, there have been significant changes between the tax-sharing system and the responsibilities and obligations of local governments. Currently, the relationship between the central and local governments has not been rationalized, mainly because local tax revenues account for a relatively low proportion, and there is a mismatch between local financial powers and powers and responsibilities. Relevant reforms have been carried out in the past period, but there are still many problems that need to be further deepened.   Secondly, the reform of fiscal and tax system below the provincial level is relatively lagging and not thorough enough. On the one hand, the division of powers and responsibilities between governments at all levels below the provincial level is relatively vague, especially at the city level and below. This can easily lead to lower-level governments passively accepting the powers and responsibilities arranged by the upper-level governments, increasing the pressure at the grassroots level. On the other hand, the mechanism for sharing expenditure responsibilities still needs to be improved. Currently, basic public service expenditures are jointly borne by governments at all levels, and there are situations of case-by-case negotiation, game-playing, and mutual shifting of responsibilities, which can easily lead to the downward shift of expenditure responsibilities. Therefore, further reforms may be needed from this perspective.   Thirdly, tax reform needs to be deepened. Currently, local taxes are mainly shared taxes, with relatively scattered tax sources, small scales, and relatively difficult tax administration. In this situation, the main tax categories are lacking, and according to the current tax structure, it is not conducive to the long-term stability of local financial resources. At the same time, over the past three to four years, impacted by the epidemic and large-scale tax and fee reductions, the growth of local tax revenue has also had a profound impact, leading to an increasingly widening gap between local tax revenue and expenditures. These factors have led to many difficulties in the current fiscal and tax system and operation at the local level, which need to be further improved in the next fiscal and tax system reform.   02 There Needs to Be An Adjustment of the Debt Structure between the Central and Local Governments   21st Century: In recent years, on the one hand, local government land sale revenue has been decreasing, and the issuance of urban investment bonds has encountered difficulties; on the other hand, in the face of economic pressure, local governments need to take measures to reduce taxes and fees to support the development of people's livelihood. In this situation, how can local governments maintain the sustainability of their debt?    Yan Yan: In the evolution and development of debt risks, the fiscal structure of local governments has also undergone continuous development. On the one hand, the structure between local tax revenue and non-tax revenue has changed, especially the structure between tax revenue and general budget revenue and fund budget revenue. In the past, with the development of the Chinese real estate market, local financial resources mainly relied on land transfers.   However, after the adjustment of the real estate market in 2021, local land transfers face significant downward pressure. Therefore, in this context, the contribution of land transfers to local fund budgets has declined, resulting in increased debt pressure on local governments.   We need to change the fiscal and tax structure that has been primarily based on land finance in the past and shift to a structure that is truly market-oriented, has more new sources of taxes and other financial resources to promote growth. For example, the proposed equity finance is actually more about raising local financial resources through state-owned equity and state-owned assets.   From the perspective of the fund budget, the future may still face a further decline in land transfer income. From the perspective of taxes, the current proposals to increase the proportion of shared taxes for local governments, and to transfer consumption taxes to local governments, can all enhance the proportion of general budget revenue for local governments. This can balance the pattern of excessive reliance on fund budgets and optimize land and real estate taxes in the past, and find more balanced measures from the financial aspect to resolve local debt risks in the next step.   21st Century: How do you evaluate the current debt level of Chinese local governments? How to solve the debt problem of local governments currently?    Yan Yan: The overall debt level of local governments in China is currently relatively high, with a relatively low tax burden on the central government and high pressure on local governments. Currently, the total debt balance of local governments in China is about 40 trillion yuan, which is formed through general bonds and special bonds issued by local governments, mainly special bonds.   From this perspective, in the next step, we need to further solve the problem of local government debt risks and the overall debt ratio structure between local and central governments. By increasing the size of the central government's debt, raising the central government's debt ratio, and reducing the debt pressure and debt ratio of local governments.   03 Consumption Tax Reform Needs to Consider Balancing Different Regional Interests   21st Century: Currently, the country has a certain idea in terms of fiscal and tax reform. One direction is to shift the collection of consumption tax to the retail stage and convert it into a local tax. What impact do you think this will have on the finances of the central and local governments? What resistance might it face?    Yan Yan: From the current perspective of adjusting the tax structure, it is actually an adjustment of the tax source structure of the revenue-sharing system. The so-called consumption tax in the past mainly belonged to the central government tax. Now, if there is a division between the central and local governments, there may be several issues.   One aspect is that the current consumption, especially terminal consumption, is still weak, which is one of the hard constraints on the growth of the entire consumption tax scale. If consumption does not grow, the growth of consumption tax itself will also be limited.   The second aspect is that if the consumption tax is collected by both the central and local governments, there may be differences in the difficulty of collection and management, which will increase the difficulty of collection and also increase the collection and management costs of local governments. Therefore, from this perspective, the shift of consumption tax to local governments may face certain problems.   The third aspect is the differentiation and intensification of industry conflicts of interest, which may also intensify horizontal competition. If the consumption tax is collected at the local level, it may face the differentiation of commodity consumption between regions in the future, leading to differences in the collection and scale of consumption tax in different regions. Some regions may have a relatively developed economy, and the scale of consumption tax will be relatively large. However, the consumption capacity in underdeveloped areas is limited, and the scale of consumption tax is also limited, which will lead to differentiation and differences in the distribution of consumption tax among different regions and horizontal competition between different regions.   21st Century: How do you think the distribution of consumption tax among different regions should be balanced?   Yan Yan: This requires us to balance the relationship between local economic consumption levels and the scale of consumption tax when formulating relevant policies for the decomposition of consumption tax. For some different types of consumption taxes, the decomposition at the local level may need to consider the impact on local tax scale, local economic development level, and consumption level. At the same time, in the process of decomposing consumption tax, the central government may need to do some regional balancing in terms of the distribution ratio of consumption tax and future transfer payments for underdeveloped areas.    

  On 8 November, Xinhua Finance forwarded the article ‘Empowering the “Stars of Tomorrow”: Bond Market Serves the Growth of Science and Innovation Enterprises’ from Financial Markets Research. The article is Yan Yan, Chairman of China Chengxin International and Vice Chairman of China Macroeconomic Forum (CMF), published in Financial Markets Research, Issue 11, 2024, ‘Bond Market Service for Financing of Science and Technology-Based Enterprises from the Perspective of the Whole Lifecycle’, and the following is the abstract of the article:    Yan Yan Chairman of China Chengxin International Credit Rating Company Limited, Vice Chairman of China Macroeconomic Forum (CMF)   ‘ The article takes a full life cycle perspective and divides the financing journey of science and technology start-ups into three stages: start-up, growth and maturity. Each stage needs to be matched with different financial strategies.’   I. Introduction   Science and technology innovation enterprises are known as the ‘stars of tomorrow’, just like a rising star, they are glittering with future possibilities, but they are also eager to be ‘recharged’ and empowered by capital. The article ‘Bond Market Services for Financing of Science and Technology Innovation Enterprises from the Perspective of the Whole Life Cycle’ published in the November 2024 issue of Financial Markets Research reveals how the bond market can empower these ‘stars of tomorrow’ and cultivate new productive forces for the development of the economy.   II. The Financing Life Cycle of Science-Based Enterprises: Three Stages of Growth   Firstly, the article takes a full life cycle perspective and divides the financing journey of science and technology start-ups into three stages: start-up, growth and maturity. Each stage needs to match different financial strategies.   ① Challenges and opportunities in the start-up period. Start-ups are difficult to obtain support from traditional financing channels because of higher risks and lack of collateral. In recent years, the bond market has achieved remarkable results in product innovation in key areas, innovating and launching products such as hybrid science and technology creation notes, which have enhanced the bond market's ability to support science and technology creation, green and inclusive.   ② Expansion and demand during the growth period. In the growth period, science and innovation enterprises have a greater demand for capital, and need to invest a large amount of capital in technology research and development, manpower costs, new product promotion, production scale expansion, market expansion, etc., and are more looking forward to obtaining large-scale, medium- and long-term financing support.   (iii) Stability and innovation in maturity. Enterprises in the maturity stage, they need more funds to maintain and expand the existing achievements to cope with changes in market risks. Science and innovation enterprises in the maturity stage are more mature in technology, have certain brand advantages, have formed a more mature supply chain system, have a stable product market, and have entered a stable development stage.   Enterprises may experience different financing methods at different stages of development, and the choice of financing methods has its complexity and variability. From the indirect support mode mainly based on re-investment and re-lending, to the development of high-yield bond market, and from science and innovation pool-type bonds to innovative debt instruments such as dual-credit bonds and science and innovation bonds (notes), all of them can be regarded as the development space for the bond market to support the financing of science and innovation enterprises.   III. International experience and Chinese practice   Secondly, the article analyses the experiences of the US and Germany in bond market support for financing of science and innovation enterprises; and discusses the Chinese practice and explores the progress and challenges of China's bond market in serving science and innovation.   ① Multi-level bond market in the United States. The multi-level bond market in the U.S. provides a variety of financing channels for science and innovation enterprises. In particular, the U.S. high-yield bond market, with its perfect issuance system, developed over-the-counter (OTC) trading, and sound risk management system, facilitates direct financing for science and innovation enterprises.   ② Germany's policy financial institutions. The policy financial institutions in Germany, on the other hand, guide the flow of bond market funds to the science and technology sector through sub-lending and other forms. German science and technology enterprises have less direct financing through the bond market, and most of the small and medium-sized science and technology enterprises rely on the financial institutions to transfer loans to achieve the connection with the bond market.   ③ Chinese practice: bond market and science and technology enterprises dance together. In recent years, China has introduced a number of supportive systems around strengthening the bond market's precise support and direct access to funds in the field of science and technology innovation, further enriching the innovative financial instruments for the direct financing of science and technology-based enterprises, expanding the channels for the direct financing of science and technology-based enterprises, and guiding the flow of more funds to the field of science and technology innovation. The authors point out that although China's bond market has introduced a variety of innovative tools, there are still problems such as the inconsistency of the identification standard of science and technology innovation, and the issuance structure needs to be optimised.   IV. Recommendations for bond market services for science and technology finance   Finally, the article puts forward a series of recommendations aimed at strengthening the bond market's ability to provide full-life-cycle financial services to science and innovation enterprises.   ① Establish a sound bond financing support model for the whole life cycle. According to the characteristics and financing pain points of science and innovation enterprises at different stages, establish a sound full life cycle bond financing support model and build a multi-level bond financing service system.   ② Accelerate the innovation of debt financing tools. In addition to the existing sci-tech bond varieties, we can consider strengthening the linkage between stocks and bonds according to the market demand, and increasing the market promotion of innovative varieties such as hybrid sci-tech notes, sci-tech bonds with conversion conditions, convertible sci-tech bonds, sci-tech bonds with warrants, sci-tech bonds with early redemption rights, and so on.   (iii) Improve the multi-credit enhancement mechanism and sound risk-sharing mechanism for science and innovation bonds. Credit enhancement mechanism is a key factor to reduce the issuance cost and increase the issuance success rate of science and innovation bonds, and improving the effectiveness of bond market services for science and innovation enterprises also requires further improvement of credit enhancement mechanism.   ④ Strengthen credit rating and risk assessment services and enhance the effectiveness of credit rating services. Credit rating agencies, as an important reference for enterprises to issue bonds for financing, play an active role in serving the financing of science and innovation enterprises and promoting the precise flow of bond market funds into the field of science and innovation.   ⑤ Deepen the construction of basic systems to create a favourable market environment. Improving the bond market's ability to provide financing services to science and innovation enterprises also requires further deepening the basic system construction and optimising the market environment for bond financing of science and innovation enterprises.

Recently, the People's Bank of China and eight other departments jointly issued the "Guiding Opinions on Further Improving Financial Support for Green, Low-Carbon and High-Quality Development of the Yangtze River Economic Belt", proposing to make full use of structural monetary policy tools to support green and low-carbon development. Prior to this, the CPC Central Committee and the State Council issued the "Opinions on Accelerating the Comprehensive Green Transformation of Economic and Social Development" (hereinafter referred to as the "Opinions"), proposing to enrich green transformation financial tools and extend the implementation period of carbon emission reduction support tools to the end of 2027.   Which companies will be given new opportunities by extending the implementation period of the carbon emission reduction support tool? In the process of promoting the internationalization of carbon footprint, what overseas experience can be used as a reference? Recently, Yang Junhao , CEO of CCXGF International and Vice President of CCXAP , accepted an exclusive interview with 21st Century Business Herald. He believes that clean energy, energy conservation and environmental protection, and carbon reduction technologies will continue to receive financial support. In terms of carbon footprint certification, there are still certain barriers between the mainland and Hong Kong. It is a future trend to establish a unified and efficient carbon footprint certification system across the country and abroad.   Yang Junhao , CFA, FRM, is currently the CEO of CCX Green Finance International and the Vice President of CCX Asia Pacific. Previously, he was a senior investment banker with more than ten years of experience in the financial industry, and worked at Guotai Junan Securities and China Merchants Securities. Dr. Yang holds a Master of Finance from the University of Sydney, a PhD in Finance from the University of Queensland, and is a postdoctoral fellow in Applied Economics at Renmin University of China.   Clean energy, energy conservation, environmental protection and carbon reduction technologies will continue to receive financial support   " 21st Century ": What do you think of the quantitative transformation goals in energy, transportation and other areas proposed in the "Opinions"?   Yang Junhao : The Opinions put forward relatively clear time nodes and task goals for the transformation and development of the real economy, and made it clear that it is necessary to promote the green and low-carbon transformation and upgrading of traditional industries. I believe that in order to promote the green and low-carbon transformation of industries such as steel, nonferrous metals, petroleum, and chemicals, it is necessary to further promote clean production technology and equipment and promote industrial process upgrades. At the same time, the Opinions also emphasizes the optimization of industrial capacity scale and layout, the use of national standards to guide and enhance the upgrading of traditional industries, and the establishment of a sound capacity withdrawal mechanism, which is conducive to curbing the blind launch of high-emission projects.   "21st Century": Which companies will be given new opportunities by extending the support tools for carbon emissions reduction to 2027?   Yang Junhao : The carbon emission reduction support tool adopts a direct mechanism of "lending first and borrowing later". The People's Bank of China provides financial support for 60% of the loan principal for eligible carbon emission reduction loans issued by financial institutions to relevant enterprises in key carbon emission reduction areas. At present, the carbon emission reduction support tool focuses on supporting three carbon emission reduction areas: clean energy, energy conservation and environmental protection, and carbon emission reduction technology. We expect that enterprises related to clean energy, energy conservation and environmental protection, and carbon reduction technology will continue to receive greater support. When the carbon emission reduction support tool is extended to after 2027, we also believe that more financial institutions will obtain the business qualifications of the carbon emission reduction support tool. At the same time, carbon financial products and derivatives can be aligned with international standards, especially with the financial instrument standards of the United States and the European Union.   21st Century: What do you think of the Opinion on the formulation of transitional finance standards? At present, the national transitional finance standards have not yet been introduced. What difficulties are there in standard formulation?   Yang Junhao : The scale of the transition finance market is huge and is crucial to the healthy development of the real economy. At present, in the field of transition finance, the market expects that more comprehensive transition finance standards can be issued at the national level as soon as possible. For industries such as steel, cement, building materials, non-ferrous metals, chemicals, aviation, and papermaking, there is currently no unified transition path and standard in the industry, which is also one of the challenges facing transition technology. The formulation of relevant standards requires the active participation of the above-mentioned real industries, especially leading enterprises and industry associations.   Establishing a cross-border carbon footprint certification system   "21st Century": What are the similarities and differences between Hong Kong's green finance development policies and those of the mainland?   Yang Junhao : The development of Hong Kong's green market follows multiple standards, including the Green Bond Principle of the International Capital Market Association and the Green Loan Principle of the Asia Pacific Loan Market Association. At the same time, the domestic market operates according to the assessment guidelines of the People's Bank of China, which leads to differences in the assessment standards under the regulatory system of the two places. In cross-border business, we will also consider green standards and catalogues in other regions, such as the China-EU Common Classification Catalogue and Hong Kong's Sustainable Classification Catalogue, and are committed to promoting the integration of these standards. We firmly believe that unified green and sustainable standards are crucial to the unification of capital market opinions and the convergence of investment decision-making processes.   Hong Kong explored the concept of green earlier than other regions. Thanks to the integration of Chinese and Western cultures, the concept of green environmental protection has been deeply rooted in the hearts of the people. For example, local developers have long focused on zero-emission design in the construction of buildings and commercial real estate, and have chosen environmental protection measures such as lighting and water use. In addition, Hong Kong financial institutions also attach great importance to sustainable development. Some institutions have even established the position of Chief Sustainability Officer (CSO) and a special green finance review committee to promote the greening of the bank's loan issuance and asset allocation. The requirements set up at the board level not only reflect good corporate governance standards, but also demonstrate Hong Kong's in-depth layout and high attention in the field of green finance.   "21st Century": In terms of product carbon footprint, what experiences and practices can Hong Kong provide for reference for the mainland?   Yang Junhao : In terms of carbon footprint certification, there are still certain barriers between the mainland and Hong Kong. Due to the high degree of internationalization of the Hong Kong market, its recognized certification standards have been integrated into the EU system. After completing carbon accounting, many certification agencies can directly connect with the European Carbon Exchange and even attract investment and subscription from EU ESG funds. However, with the continuous development of green finance, I believe that a unified and efficient carbon footprint certification system that spans domestic and foreign countries will be gradually established in the future. This is the inevitable trend and direction of future development in the field of green finance.   "21st Century": What are the specific difficulties in implementing cross-border authentication?   Yang Junhao : There are differences in green finance standards at home and abroad. The mainland has a unique classification system, while Hong Kong used to follow international certification systems such as the ICMA Green Bond Principles. But in May this year, Hong Kong also released a local classified directory. In terms of certification standards, there are significant differences in industry coverage between the mainland and Hong Kong and the international industry. It will take time to verify whether mainland carbon assets can be recognized by overseas investors.   "21st Century": What suggestions do you have for companies to manage product carbon footprints?   Yang Junhao : Most companies may have done quite well in scope 1 and scope 2. However, in scope 3, it is still difficult to obtain data from upstream and downstream companies. In this process, the voice and control of companies in the supply chain are one of the key factors. We are relatively more objective and fair in doing this as an independent third party. Because we can communicate with upstream and downstream companies from a professional perspective, obtain data without affecting the normal production and operation of the company , and convert these data into disclosable standards. This is also the main pain point and difficulty of most companies, and it is also the core of our value service.   "21st Century": How do you evaluate the development of green finance in Mainland China and Hong Kong?   Yang Junhao : The Hong Kong SAR government is vigorously promoting subsidy programs to build a green financial center, attracting many Chinese issuers to come to finance. US dollar financing costs may fall due to the Federal Reserve's interest rate cuts, and the amount of green financial financing in Hong Kong is expected to grow significantly, indicating the general trend of it becoming a green financial center. At the same time, green finance is also booming in the mainland. The People's Bank of China, the National Association of Financial Market Institutional Investors, and the Shenzhen and Shanghai Stock Exchanges have continuously launched innovative products such as green bonds and special loans, and regulators have actively promoted them. At the same time, mainland financial institutions have also begun to proactively deploy green loans and green investments, setting up specialized departments or institutions for overall coordination and allocation. This process not only promotes the green development of the capital market, but also benefits financiers and borrowers, promoting the transformation and development of the mainland's green industry.

"Rating agencies should optimize rating methods, accelerate the popularization and application of innovative products in the capital market, and help build a multi-level bond market." Yue Zhigang, president of China Chengxin International, said in an interview with a reporter from Shanghai Securities News that the company is strengthening credit risk research in the fields of science and technology innovation, private enterprises, financing of small and medium-sized enterprises, ESG, etc., strengthening research on innovative financing tools in key areas and carrying out special rating services.   It is reported that after launching the rating methods and models for science and technology innovation enterprises in April, China Chengxin International also plans to carry out research on rating methods related to small and medium-sized enterprise bonds.   Currently, listed companies are paying more and more attention to their ESG performance. Yue Zhigang believes that the demand for ESG ratings by listed companies is still rigid and long-term, and may show differentiated characteristics at different stages, but in the future, ESG ratings need to pay more attention to independence, objectivity and professionalism.   Credit environment continues to improve   Yue Zhigang said that China can expect to achieve its GDP growth target of 5% this year. In the current environment, companies are more willing to raise funds and credit risks are expected to be better controlled.   Judging from the latest economic statistical indicators, the macro-economy has started smoothly, industrial production growth has expanded, and the growth rate of manufacturing investment has accelerated. In the future, with the release of the effects of large-scale equipment renewal policies, equipment manufacturing production and investment will maintain strong resilience, and infrastructure investment will continue to play a bottoming role under the support of special bonds and special government bonds.   "This year's Government Work Report has made targeted top-level designs and specific deployments for some bottlenecks. The development of new quality productivity will also continue to inject new impetus into economic growth. I believe that this year's economy will achieve effective improvement in quality and reasonable growth in quantity, and successfully complete the annual growth target of 5%. "Yue Zhigang said that judging from the performance of the credit bond market, with the steady recovery of the macro economy, companies' willingness to invest has increased, financing demand has increased, and the cost benefits brought by the low interest rate environment have driven a rebound in credit bond financing in the first quarter, achieving a net inflow of financing of 433.9 billion yuan, a significant year-on-year and month-on-month increase.   Judging from the data at the end of the first quarter, the financing conditions in various industries and regions have generally improved, with more than 70% realizing net inflows. Among them, the net financing amount of real estate companies turned positive, ending a year-long net outflow.   Yue Zhigang said that the bond default risk has been generally controllable since the beginning of this year, with the default scale of 3.49 billion yuan in the first quarter, a new low since 2016, continuing the slowdown trend in the past two years. However, considering that the risks in the real estate industry are still high and the scale of bond extensions is still high, we still need to be vigilant about the liquidity risks of companies in trouble and the possibility of substantial defaults due to the obstruction of bond extensions.   ESG ratings should be independent, objective and professional   Since the beginning of this year, ESG-related policies have been continuously improved, and ESG ratings have also been highly anticipated.   In April, the People's Bank of China, the National Development and Reform Commission and seven other ministries and commissions issued the "Guiding Opinions on Further Strengthening Financial Support for Green and Low-Carbon Development". The document encourages credit rating agencies to establish and improve a rating system for green financial products and supports credit rating agencies to incorporate environmental, social and governance (ESG) factors into credit rating methods and models. "ESG ratings will be an inherent requirement for listed companies in the future." Yue Zhigang said that the awareness of sustainable development among listed companies is gradually increasing.   According to the statistics of CCXGF ESG Ratings Database, the disclosure ratio of ESG-related reports of A-share listed companies will increase from 26.41% in 2020 to 35.39% in 2023. At the same time, the three major stock exchanges have also issued the "Sustainable Development Report" (Trial) Guidelines to further strengthen ESG information disclosure. The rules have been officially implemented in May.   At the same time, the application scenarios of ESG ratings have gradually been implemented and are receiving more and more attention.   Yue Zhigang believes that actively carrying out ESG ratings is an important way for listed companies to keep their own development consistent with the investment philosophy of the capital market. At present, ESG investors around the world are paying close attention to corporate ESG ratings, and driven by policies and markets, they incorporate corporate ESG performance into their investment decision-making references. ESG ratings are a measure of investors' value and risk management capabilities for high-quality development of companies. Investors expect to conduct a comprehensive and integrated evaluation of companies through the risk transmission mechanism of ESG, combined with their own credit risk management concepts, thereby reducing investment decision-making risks and obtaining excess returns.   However, most domestic companies are still in the early stages of understanding ESG. They are more likely to focus on ESG rating levels in response to policies and stakeholders, but they do not fully understand the internal factors that affect rating results. In particular, there is no effective market supervision and punishment measures for ESG ratings in China. It is a completely market-based competitive behavior. Considering the profit-seeking nature of enterprises, the phenomenon of "greenwashing" is inevitable in this process, which is also a challenging problem facing the orderly and healthy development of the domestic ESG rating industry.   "How to ensure the independence, objectivity and professionalism of ESG ratings in the future is something worth thinking about," said Yue Zhigang.   The rating system for sci-tech innovation bonds has been unveiled   China Chengxin International is also continuing to improve the existing rating system and research and explore new rating methods. This year, China Chengxin International has launched a rating method system for science and technology innovation bonds, and will also improve the rating system for small and medium-sized enterprise bonds in the future.   Data shows that in the first quarter of this year, the issuance of science and technology innovation bonds on the Shanghai Stock Exchange continued its rapid growth momentum, with an issuance volume of 75.5 billion yuan, a year-on-year increase of 184%. The trading volume of science and technology innovation bonds in March reached 124.159 billion yuan, an increase of 67.425 billion yuan from February, reaching a historical high.   "The company just released the country's first systematic science and technology innovation bond rating method and model in April." Yue Zhigang said that China Chengxin International, based on the risks and characteristics of science and technology innovation companies, introduced the indicator of "science and technology innovation competitiveness" for the first time. By analyzing the three dimensions of a company's science and technology innovation value, science and technology innovation capabilities and operating strength, the technological innovation competitiveness of the rated objects is comprehensively measured. The innovative rating model setting can enhance investors' understanding of the strength and potential of science and technology innovation companies, increase corporate transparency, enhance market confidence, and guide funds and other innovative resources to more accurately concentrate on high-quality science and technology innovation companies.   In addition, in order to respond to the bond financing needs of high-quality SMEs and improve risk prevention and control mechanisms, China Chengxin International plans to conduct research on the issuance of SME bonds, risk characteristics and related rating methods to help build my country's high-yield bond market.   Yue Zhigang said that in terms of research methods, the company will further combine artificial intelligence and big data in the future, continue to deepen the research and development of credit risk warning and rating systems, effectively improve rating warning capabilities, and actively study the application of new tools in the AI field in rating business and various businesses.

  Green bond issuance policy process and case sharing in Hong Kong 【Sharing time】 March 5 (Tuesday) 15:30-16:45   【Live link】 https://qpoqg.xetlk.com/sl/48L6mu   Scan the QR code to watch   【Sharing Guests】 Tang Huan Assistant General Manager, Business Department, Hong Kong Quality Assurance Agency Zuo Yanran, General Manager of Green Finance Department of CCXGF 【Sharing points】 Hong Kong Green and Sustainable Finance Certification Scheme Hong Kong Monetary Authority Green and Sustainable Finance Funding Scheme Applicable Rules for Green and Sustainable Development Financial Products in Hong Kong Successful case studies on issuing green bonds in Hong Kong   Guest Introduction Tang Huan Assistant General Manager of Business Department, Hong Kong Quality Assurance Agency   With more than 15 years of experience in promoting ESG-related standards, it has provided support and services related to major ESG risk links (such as climate change, supply chain management risks, environmental, occupational health and safety risks, etc.) for hundreds of companies. In 2019, it began to promote the Hong Kong Green and Sustainable Finance Certification Program and cooperated with a number of banks, securities firms and other financial institutions in Hong Kong to carry out green finance assessment work.   Zuo Yanran General Manager of Green Finance Department, China Chengxin Green Finance   Master of Environmental Engineering, with 7 years of working experience in the field of green finance. He has extensive practical experience in the evaluation and certification of sustainable financial products such as green bonds, sustainable development-linked bonds, and sustainable development-linked loans, and has handled more than 200 related projects. He also has extensive consulting experience in green financial services for local governments and financial institutions.   On February 28, 2024, Hong Kong Financial Secretary Paul Chan announced the 2024-25 Budget and proposed to extend the Green and Sustainable Finance Funding Scheme, which was originally scheduled to expire in the middle of this year , for three years to 2027, and expand the funding scope to transformation bonds and loans to further encourage relevant industries in the region to use Hong Kong's transformation financing platform to gradually reduce carbon emissions. It is reported that the SAR government has successfully funded eligible bond issuers and borrowers through the Green and Sustainable Finance Funding Scheme to issue more than 340 green and sustainable debt instruments in Hong Kong, with a total amount of US$100 billion, to realize Hong Kong's vision of becoming an "international green technology and financial center."   green and sustainable finance funding program will strengthen market confidence, send more positive signals to the market, enhance market vitality, and help market issuers and borrowers to reasonably arrange the progress of overseas financing. At the same time, this proposal also covers transition bonds and transition loans, which can further encourage high-carbon enterprises to raise funds in Hong Kong and promote the low-carbon transformation and development of the real economy. China Chengxin Green Finance and Shenzhen Green Finance Association will, through this online sharing event, combine actual cases to explain in detail the subsidy rules and practical procedures for issuing green bonds and obtaining green loans in Hong Kong.   On June 26, 2023, CCX Green Finance International Limited (CCX Green Finance International Limited), a subsidiary of CCX Group, officially entered the list of external review agencies approved by the Hong Kong Monetary Authority's "Green and Sustainable Finance Funding Program", becoming the first Chinese rating agency to obtain this qualification. (Click "Read Original Text" for more details)  

On November 6, the Shanghai and Shenzhen Stock Exchanges simultaneously issued the “Self-Regulatory Guidelines for Listed Companies - Preparation of Sustainability Reports” (hereinafter referred to as the “Guidelines”), which will be open for public consultation until November 21, with a view to forming suitable China's more comprehensive and systematized norms for sustainability disclosure. As a supporting document of the “Self-Regulatory Guidelines for Listed Companies - Sustainability Reporting (for Trial Implementation)” (hereinafter referred to as the “Guidelines”), the Guidelines analyze the relevant requirements of the Guidelines in detail, and provide effective guidance for listed companies to better understand and carry out the disclosure of sustainability reports. The Guidelines provide a detailed analysis of the relevant requirements of the Guidelines, providing effective guidance for listed companies to better understand and carry out disclosure of sustainability reports. The Guidelines include two specific guidelines on “General Requirements and Disclosure Framework” and “Responding to Climate Change”, which are applicable to companies listed on the Main Board, the Technology and Innovation Board (TIB), the Growth Enterprise Market (GEM) and the Bejing Stock Exchange (BSE). The Guide specifies key tips and examples for disclosure of sustainability reports, explains important concepts and clarifies implementation steps to promote listed companies to enhance their awareness of sustainability and continuously optimize their sustainability management.   Interpretation of the guidance on General Requirements and Disclosure Framework   The General Requirements of the Guidelines continue and analyze the requirements of the Guidelines of the exchanges, and emphasize that the sustainability report should be published in the form of independent report. The “General Requirements and Disclosure Framework” guide specifies the subject of disclosure of the sustainability report, the form of disclosure of dual materiality issues, and refines the process of analyzing the materiality of the issues, the factors for assessing the financial/influential materiality and the thresholds for judging, so as to provide support and reference for listed companies to reasonably carry out the assessment of the materiality of the issues.   In terms of materiality assessment, listed companies are required to assess the materiality of the 21 issues stipulated in the Guidelines, and conduct their own identification and assessment in light of the company's situation. Issues identified as financially material need to be disclosed in accordance with the four elements of “Governance - Strategy - Impact, Risk and Opportunity Management - Indicators and Targets”.     The “General Requirements and Disclosure Framework” guide greatly expands the explanations and sample references of the four elements, clarifies the specific steps and measures that companies can take, and provides a lot of inspiration on how to integrate with the existing governance structure and employee responsibilities, the construction of internal reporting and monitoring mechanisms, and the establishment of management objectives and indicators, providing Chinese listed companies with specific and clear management measures and practices, so that the content of sustainability reports can be guided by rules and regulations and be based on evidence to promote governance and enhance the level of ESG governance and the ability of sustainable development of listed companies in China. The content of the sustainability report can be followed and documented, promoting governance through disclosure and enhancing the ESG governance level and sustainable development capability of listed companies in China. The last chapter of the “General Requirements and Disclosure Framework” guide provides listed companies with a referable framework for sustainability reporting. The report needs to take material issues as the main chapters, and for the issues with financial materiality, the four elements are used as the disclosure method, and each issue is required to be disclosed in accordance with the framework of the four elements, and the “governance” part of the four elements can be integrated and disclosed in the report. The General Requirements and Disclosure Framework guide provides a reference disclosure framework for the specific content of the four elements, which will help companies to quickly understand and be able to quickly carry out work related to sustainable development.       Interpretation of the Guidelines for Responding to Climate Change   The second part of the Guidelines is a guide on “Responding to Climate Change”, which corresponds to the topic of “Responding to Climate Change” under the environmental dimension of the Guidelines. The three exchanges indicated that they will accelerate the development of specific guides on other important topics according to market needs under the coordination of the SFC, so as to gradually realize the full coverage of the key contents of the Guidelines. Against the backdrop of the global development of a low-carbon transition economy, many countries and companies have proposed carbon neutral targets and formulated carbon reduction/transformation plans to constrain and manage their carbon emissions. China's dual-carbon target is proposed to promote the whole society and industry to reduce energy consumption, improve energy efficiency and guide the development of green transformation. The disclosure of energy consumption, greenhouse gas emissions and other relevant information by listed companies can actively drive the entire value chain to reduce carbon emissions and play a leading role in benchmarking the industry. In addition, physical risks and transformation risks brought by climate change will eventually be transformed into financial risks, or the company has explored new opportunities in strategic transformation and business models to adapt to climate change. Climate-related risks and opportunities may affect the company's current and future financial position, operating results and cash flow, and the actual and potential financial impacts are significant to the capital market. The Responding to Climate Change guidance fully extends the requirements of the Guidelines, drawing on the specifics of the International Sustainability Standards Board's (ISSB's) International Financial Reporting Standard S2 - Climate-Related Disclosures, and combining the guidance with the actual conditions of China's market, such as Certified Voluntary Emission Reductions (CCERs) and Carbon P&L.     concluding remarks   The release of the Guidelines provides listed companies with a complete set of tools and methods for sustainability work, assists listed companies in improving their sustainability governance structure and workflow, and provides effective methods and references for materiality issue assessment, and identification of sustainability-related risks and opportunities. In addition, the Guide refines the disclosure requirements in the Guidelines into specific disclosure points and explanatory notes, providing convenience for the preparation of sustainability reports by listed companies.   The time has come for China to take the lead in initiating the standardized compilation of sustainability reports by listed companies, which will accumulate rich exploratory experience and excellent practice cases for the disclosure of sustainability information by domestic enterprises. The release of the Guide will better serve listed companies in responding to the demands of various stakeholders, and lead China's enterprises and economy into a new stage of high-quality development with the disclosure of sustainability reports as a starting point.   Author: Li Yue Audit: Zhou Meiling

On 6 November 2024, the Shanghai Stock Exchange (hereinafter referred to as ‘SSE’), taking into account China's national conditions, market characteristics and stage of development, compiled and released the ‘Three-Year Action Plan for Promoting the Improvement of the Quality of ESG Disclosure of Listed Companies in Shanghai (2024-2026)’ (hereinafter referred to as the ‘Action Plan’), which puts forward the general objectives, general principles and main actions of the programme for improving the quality of ESG disclosure of listed companies in Shanghai. (hereinafter referred to as the ‘Action Plan’), which puts forward the overall objectives, general principles and major actions of the programme to improve the quality of ESG disclosure of Shanghai listed companies, with the aim of promoting listed companies to improve their ESG governance level and guide listed companies to better practice the concept of sustainable development.     I. Core elements of the Programme of Action   The Action Programme consists of four principles, six major areas and 17 specific work arrangements, forming a mutually supportive and reinforcing system. Through the work content published in the Action Programme, SSE strives to complete the following objectives within three years:       SSE adheres to the four principles of ‘seeking truth from facts, advancing prudently; cost-effectiveness, advocating mainly; classifying measures, rewarding and punishing equally; systematic thinking, gathering joint efforts’, and has formed 17 specific tasks from six aspects, namely, capacity building for information disclosure, information disclosure service and supervision, strengthening capital support, ESG evaluation and rating and investment, listed company promotion and international exchange and cooperation, and digital construction. The six major aspects of digital construction have resulted in 17 specific tasks, which are as follows:       II. Interpretation of the highlights of the Programme of Action   1. Introducing regulatory incentives and penalties The Action Plan proposes a regulatory mechanism that emphasises both rewards and penalties. While rewarding outstanding companies, it increases the supervision of non-compliant companies. SSE will strengthen the supervision of companies' malicious selective disclosure, “bleaching green” and other initiatives. For companies that fail to disclose or disclose incomplete information as required, it will take corresponding self-regulatory measures to enhance the cost of their non-compliance. Meanwhile, the Action Programme proposes to take incentives for outstanding companies. SSE encourages companies to publish their characteristic practice results, and gives extra points to companies with high quality and high ratings of ESG reports in the appraisal of their information disclosure work, regularly invites companies with outstanding performance to hold performance briefing sessions, supports mainstream media to publicise outstanding cases, and promotes listed companies to carry out overseas exchanges and international cooperation.     2. Enriching the application of ESG financial scenarios The Action Programme specifies the application of ESG financial products, which mainly involves the areas of equity financing, debt financing and innovative ESG financial products. In terms of equity financing, SSE supports the combination of green industry transformation and mergers and acquisitions (M&A), encourages business expansion by financing M&A, integrates the green industry chain, and realises industrial transformation and upgrading; at the same time, it encourages all kinds of financial institutions to incorporate ESG factors, and provides preferential financing facilities for listed companies with higher ESG ratings under the premise of controllable risks. In terms of bond financing, SSE supports companies to issue ESG-themed bonds, green bonds, low-carbon transformation bonds and other means of financing to help green and low-carbon transformation. In terms of innovation of ESG financial services and products, SSE encourages third-party organisations to launch ESG innovation indices and promote the inclusion of listed companies with good ESG performance in important indices; and encourages fund companies to issue ESG-themed ETF funds and ESG index funds to guide the flow of capital to the field of sustainable development.     3. Promoting digital construction and data application While promoting green finance, the Action Programme also reinforces the support of digital tools to support the construction of digital management and reporting platforms for ESG data by enterprises. Through digital tools, enterprises can more efficiently collect, analyse and report ESG data to promote green and low-carbon transformation. At the same time, SSE promotes the application of ESG data information in various scenarios to provide reference for investors to carry out sustainable investment, laying a foundation for enhancing the value of ESG data usage.   4. Facilitating corporate value enhancement The SSE encourages investors to discover corporate value and expand the scope of application of ESG information by improving the quality of ESG reports, and on 6 November, the SSE released a series of documents, including the "Self-Regulatory Guidelines for Listed Companies on the Shanghai Stock Exchange, No. 4 - Preparation of Sustainability Reports (Exposure Draft)" (hereinafter referred to as the Guidelines), to further explain and provide examples for reference.On 6 November, the SSE simultaneously released a series of documents including the "Self-Regulatory Guide No. 4 - Preparation of Sustainability Report (Exposure Draft)" (hereinafter referred to as the "Guide"), which further explain and provide examples for reference in respect of the assessment of materiality issues, the four elements of "governance - strategy - impact, risk and opportunity management - indicators and targets", etc., so as to facilitate the preparation of sustainability reports for listed companies; and to provide positive feedback to enterprises by promoting the discovery of the value of ESG reports, and to enable the company to greenBy promoting the value discovery of ESG reports, we will continue to provide positive feedback to enterprises so as to provide strong support for the financing of green transformation, improve the market value management system of listed companies, and help listed companies obtain a reasonable valuation.     III. Recommendations for listed companies   The release of the Action Plan highlights SSE's determination to actively promote the sustainable development of listed companies in Shanghai, and will play a positive role in promoting listed companies' awareness of ESG risk management, actively participating in ESG information disclosure, and continuously strengthening sustainable development management. In addition, by increasing positive publicity, enhancing the use value of ESG data, expanding the application scope of ESG ratings, effectively mobilising the enthusiasm of listed companies, encouraging listed companies to carry out overseas exchanges, and promoting the listed companies to devote themselves to the construction of sustainable development with stronger determination and motivation, so as to set up a model of sustainable development for other enterprises. Combined with the specific requirements of the Action Programme, CCXFGI puts forward the following suggestions to listed companies in Shanghai:       1. Enhance the quality of ESG data from a global perspective. CCXGFI suggests that listed companies improve the ESG report disclosure system, strictly control the quality of ESG information disclosure, strengthen ESG data management, and enhance the authenticity and credibility of data by actively carrying out ESG data validation and authentication. Grasp the window period of the Guidelines and proactively disclose high-quality ESG reports in response to regulatory requirements and stakeholder expectations.     2. Cooperate to build ESG management system. CCXGFI suggests listed companies to cooperate with various departments to build ESG management system, improve system construction, and incorporate ESG risk identification into the overall risk management system; strengthen ESG training to ensure that ESG strategic concepts are carried through all levels of decision-making and operation; and at the same time, promote ESG management of upstream and downstream industrial chain to create green supply chain, so as to comprehensively improve the company's ESG management level and performance performance. The company will also promote the ESG management of upstream and downstream industry chain to build a green supply chain, so as to comprehensively improve the ESG management level and performance of the company.   3. Systematic thinking and joint efforts to build ESG development ecology. CCXGFI suggests that listed companies obtain policy support and technical support through co-operation with the government, industry associations, rating agencies and other third-party organisations. With the auxiliary power of third-party organisations, we can improve the level of internal ESG control, actively communicate with international and domestic rating agencies, promote enhancement and development by rating, systematically improve ESG rating performance, enhance the influence of corporate sustainable development, and expand the application of multiple values of corporate ESG.    作者：丁美琳 审核：周美灵