Saturday, July 07, 2007

Sure, pollution is bad, but so is heavy handed intervention into the banking sector. The new decree by the PBOC to stop banks from lending to polluting industries not only shows that the era of heavy intervention into the banks is far from over. It also shows that local enforcement is far removed from central regulations, forcing the central government into this desperate tactic. The main beneficiaries: diversified large state owned conglomerates which are flooded with money. They can lend to polluting industries with a premium.

Publication: BBC Monitoring
Provider: BBC Monitoring
Date: July 6, 2007 (11:58)

Chinese banks ordered to suspend loans to non-environmentally friendly projects
Chinese banks ordered to suspend loans to non-environmentally friendly projects

Text of report in English by official Chinese news agency Xinhua (New China News Agency)

["China Tries To Choke off Money Supply To Non-Environmentally Friendly Projects" - Xinhua headline]

Beijing, July 6 (Xinhua) - China's central bank instructed commercial banks on Friday to suspend credit support for to-be-eliminated high-energy and high-resource consuming projects and heavy-polluting projects, demonstrating the country's determination to reach its energy efficiency and pollutant reduction targets.

The central bank also asked commercial banks to provide no credit support for new projects that are discouraged by the government in terms of energy saving and environmental protection, and give no more than essential credit to ongoing projects of this type.

Commercial banks are required to simplify lending procedures to positively support energy-saving and environmentally-friendly enterprises and projects, and offer them preferential lending policies.

The central bank said that banks should channel credit to projects using energy saving and environmental protection technologies and making innovations in these areas.

It called on lending houses to include environmental protection information in a company's credit record.

The central bank also encouraged financial institutions to develop more direct financing products for environmentally-friendly enterprises to help them explore financing channels and cut their financing costs.

The instructions from the central bank aim to pull the financial sector into line with the country's industrial policies and make sure the country's energy efficiency and environmental protection targets are met.

Chinese Premier Wen Jiabao said earlier this year "the current macro-control policy must focus on energy conservation and emission reduction in order to develop the economy while protecting the environment".

The challenge of reducing energy consumption and greenhouse gas emissions is proving arduous, to say the least. China's economy grew 11.1 per cent in the first quarter but power consumption surged 14.9 per cent, suggesting there has been no major change in the country's overall emissions trend.

China has set a target of reducing energy consumption for every 10,000 yuan of GDP by 20 per cent by 2010, while pollutant discharges should drop by 10 per cent.

But energy consumption fell only 1.23 per cent last year, well short of the annual 4 per cent goal.

The Chinese government has vowed to reform the pricing of natural gas, water and other resources, raise taxes levied on the discharge of pollutants, establish a "polluter pays" system and severely punish those who violate environmental protection laws.

China's top legislature began in late June deliberating a draft amendment to the Law on Conserving Energy, which details measures to avoid energy waste in construction projects, the transportation sector and government buildings to improve energy efficiency and cut pollution emissions.

Source: Xinhua news agency, Beijing, in English 1158 gmt 6 Jul 07

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