Out of the window? Green monetary policy in China: window guidance and the promotion of sustainable lending and investment

Chinese monetary and financial authorities have been among the pioneers in promoting green finance. This article investigates use of one specific policy tool, namely window guidance, by Peoples’ Bank China (PBC) Banking Regulatory Commission (CBRC) to encourage institutions expand credit sustainable activities curb lending heavy-polluting industries. ‘Window guidance’ is a relatively informal instrument that uses benevolent compulsion ‘guide’ extend allocate line with official (government) targets. We investigate guidance targets for period 2001–2020 find ‘green’ were included CBRC from at least 2006 PBC 2007 discourage carbon-intensive polluting industries and/or increase support activities. In 2014, both stopped discouraging carbon-intensive/polluting through guidance. Sustainable objectives subsequently also removed PBC's list priority sectors start 2019, ending practice China. Sustainability-enhancing replaced formalized new ‘Guidelines Establishing Green Financial System’, reflecting efforts move away controls-based towards market-based instruments. Based on this analysis, draws four lessons design finance policies other countries seek enhance mitigate climate change related risks.Key insights The experience using direct bank national sustainability goals shows how can be successfully used markets are an early stage market development.The efficacy directed bank-lending likely diminish as mature instruments become less powerful.When used, it should linked clear criteria success, achievement which monitored.Green embedded broader framework policies, well environmental policies.While today's framing language focuses increasingly instruments, offers valuable emerging economies Asia beyond systems dominated banks.