China s green finance is heading towards offshore bond issuance due to tepid bank credit and a regulatory push

ASIA THEMATIC INSIGHTS WRITTEN BY China’s green finance is heading towards Alicia GARCIA HERRERO offshore bond issuance due to tepid bank Tel. credit and a regulatory push Haoxin MU Tel.

With contribution from: China’s green finance heavily relies on the banking system, but Jiayu HUANG as banks hold their punches in green loan amid lower margins and industry downturn, China may need more efficient means of green finance beyond the current bank credit-driven model.

In contrast with green loans, green bond issuance has surged since 2025. Aside from the strong headline growth, the structure also shows a divergence between tepid banks and aggressive corporates, whose new issuance has reached a historic high. Putting them together, it seems that the direct financing route is increasingly important to China’s green finance.

And the offshore market is also flourishing. As we wrote before, Chinese banks’ overseas expansion has favored the Dim Sum bond market, and offshore green bonds have contributed substantially to the supply of this market. Looking ahead, we expect this momentum to continue under the tailwinds from the regulator’s consistent push and investors’ growing appetite. Although the offshore green bond remains small compared to onshore, it is bound to be the focus of attention.

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Banks still dominate China’s green finance but facing challenges China’s green finance heavily relies on the banking system, not only because green loans make up the lion’s share of total outstanding value, but also more than 50% of existing green bonds are issued by banks. Meanwhile, green finance has become more important to Chinese banks as the policy framework takes shape since 2021. As such, green loans surged from 12 trillion yuan in 2020 to 48 trillion as of late, and over 50% of all new loan disbursement are labeled as green through 2025 to March 2026 (Chart 1).

That said, banks seem to be holding their punches and slowing their investment in clean energy projects given the deep overcapacity and worsening profitability of China’s renewable sector. For the 12 months ending March 2026, new loans to energy transition projects fell by 1.4 trillion yuan versus 2024, while green infrastructure and unspecified projects experienced sizeable credit growth (Chart 2).

Chart 1: China Loan Disbursement (RMBtn) Chart 2: New Green Loan by Sector (RMBbn)

Non-green Infrastructure Energy transition Green Environment Unspecified Share of green (%, rhs) 4,500 4,000 25 60 3,500 20 50 3,000 40 2,500 15 30 2,000 10 1,500 20 1, *

Source: Natixis, PBoC. *Trailing 12 months through March Source: Natixis, PBoC. No breakdown for 1Q25 due to 2026. change of statistical methodology.

This is also reflected on the institutional level. Although total green loans managed to keep growing in 2025, the growth was mainly driven by smaller banks while state- owned banks, once the main growth driver, appeared lackluster (Chart 3). Such shift in the creditor structure shows a widening gap between the largest banks’ downbeat willingness to invest in green projects and the real economy’s upbeat green finance demand. Currently, the gap is being filled by smaller and less robust banks, which may incur systematic risks. As such, China may need more efficient means of green finance to fuel a continuous green transition beyond the current bank credit-driven model, especially given the thinning margins of the banking industry itself.

Direct financing gaining traction both onshore and offshore In contrast with green loans, green bond issuance has surged since 2025. The total issuance has shot up from less than 700 billion yuan in 2024 to around 1 trillion as of late on a 12-month rolling sum basis (Chart 4). Moreover, the breakdown by issuer industry echoes with the green loan market as banks are reducing their activities. Corporates, on the other hand, are raising green funds aggressively through this…