A leading Chinese economist proposed establishing a China-model-based structural monetary policy that is in line with the country's carbon peak and neutrality goals to help secure the country's competitive edge in a low-carbon world.

Zhu Min, chair of the National Institute of Financial Research at Tsinghua University, called on the central bank to step up structural tools in conventional macroeconomic policies so as to address the mismatch of the market, facilitate low-carbon transformation and maximize social utility.

Speaking via video link at the 2022 Tsinghua PBCSF Global Finance Forum on Saturday, Zhu said China would need a brand-new financial model to achieve net-zero emissions.

This brings about tremendous challenges as well as opportunities, he said. "Carbon neutrality is a paradigm shift, which indicates a change of people's way of working and living since the industrial revolution."

According to Zhu, finance will play a crucial role in this regard. To achieve carbon neutrality, large-scale and long-term financing support will be needed. As all sectors of society begin to cut emissions, the valuation of high-carbon and low-carbon financial assets will be reshuffled. Efforts should also be made to forestall and defuse potential financial risks.

In addition, Zhu urged that more financial support should be given to sci-tech innovation, especially in electrification, renewable energy, energy storage, electricity distribution network, and 5G technologies. "Sci-tech innovation is the basis of carbon neutrality," Zhu noted.

In September 2020, China announced that it aims to have CO2 emissions peak before 2030 and achieve carbon neutrality before 2060. Since then, authorities and industries have scaled up their green efforts. For example, by the end of 2020, green loans and green bonds in China totaled $1.8 trillion and $125 billion, respectively, ranking as the world's largest and second-largest. Furthermore, the country's balance of green loans reached 11.6 trillion yuan, making China the world's largest green-finance market.

The outstanding green credit of 21 major banks in China reached 15.1 trillion yuan at the end of 2021, accounting for 10.6% of their total lending.

Carbon neutrality has fundamentally recreated China's economic growth model, Zhu said. "As the country's economy shifts from a high- to low-carbon paradigm, the upcoming energy revolution and economic innovation will reshape its entire manufacturing industry."

Editor: Guo Lili