Executive Summary
This report develops a systematic analytical framework to assess the current landscape, potential, and pathways for greening China’s local government bonds (LGBs). The analysis centres on two interconnected dimensions: policy space (the authority granted to local governments for bond issuance and management) and financing demand (genuine and sustainable green project financing needs). Through policy review and data analysis, the report identifies key bottlenecks and pinpoints the regions best positioned to pioneer offshore green LGB issuance. The findings provide actional insights to facilitate Chinese local governments’ access to international green capital markets and to deepen United Kingdom (UK)-China collaboration on sustainable finance.
A. Strategic values of issuing green LGBs in offshore markets
Substantial green investment demand meets structural financing gaps. China’s “carbon peak and neutrality” goals are driving large and growing green investment needs across energy transition, clean transport, ecological protection, and sustainable urban development. These projects typically involve long investment cycles and high capital intensity, creating structural demand for long-term, low-cost green finance. Local governments—the primary implementers of such projects—face a significant financing gap, making the mobilisation of international capital a strategic imperative. Special local government bonds (SLGB), with their institutional design linking bond proceeds to specific projects and repayment to project performance, are inherently well suited to meet international green bond standards, offering the most promising instrument for greening and internationalisation.
Promoting the internationalisation of local government bonds and tapping into global green capital channels offers profound strategic value beyond mere capital mobilization. First, leveraging international market forces can accelerate the convergence of domestic green bond standards, disclosure requirements, and climate governance frameworks with mainstream global rules. Second, the issuance of sovereign and sub-sovereign green bonds establishes a critical pricing benchmark, facilitating Chinese corporates in accessing global green investor pools. Third, it advances Renminbi (RMB) Internationalisation. By issuing a greater volume of high-quality RMB-denominated green government bonds in offshore markets, it not only enriches the categories of RMB assets available to international investors—alleviating the scarcity of offshore RMB assets—but also strengthens global confidence in the RMB as a vehicle for green, low-carbon, and sustainable investment.
The UK–China cooperation provides a strong foundation. Deepening economic and financial ties between the UK and China have laid the groundwork for knowledge sharing and market connectivity in green government bonds. The 11th UK-China Economic and Financial Dialogue in January 2025 identified sustainable government financing as a priority area. In April 2025, China’s Ministry of Finance (MOF) successfully issued its first RMB green sovereign bond on the London Stock Exchange (LSE) under its Green Sovereign Bond Framework, setting a policy precedent and boosting market confidence for local governments considering offshore issuance. London, with its mature regulatory framework, deep capital pools, and sophisticated green finance ecosystem, is an ideal platform to enhance the international credibility of Chinese green LGBs.
B. Market readiness and challenges
Market potential exists but remains largely untapped. While labelled “green bonds” remain limited, a substantial share of LGB proceeds is already directed to green sectors— effectively making many LGBs “de facto green bonds”, despite the absence of a green label. In the Yangtze River Delta alone, such bonds accounted for 32.2% of total LGB issuance between 2022 and 2024, representing hundreds of RMB billions in potential. In offshore markets, Shenzhen, Guangdong, and Hainan have piloted RMB green LGBs in Hong Kong (HK) and Macau. By the end of 2025, cumulative issuance reached RMB 68.7 billion across 44 bonds, of which 29 were labelled green (RMB 44.7 billion, or 65.1%), providing valuable cross-border issuance experience. However, the “greenium” (green pricing advantage) remains unstable, and offshore issuance costs are still significantly higher than onshore, indicating the market is in its early stages.
A two-dimensional screening approach identifies pioneer regions. The report focuses on the ten provinces included in the national “self-review and self-issuance” pilot for SLGBs. Using a framework combining policy space and financing demand, the report selects those with sound fiscal fundamentals and manageable debt risks, and further prioritises regions with robust green project pipelines. On this basis, Guangdong (including Shenzhen), Zhejiang, and Beijing emerge as the “first-tier” candidates with the highest potential for overseas issuance. Their pioneering efforts could provide replicable models for the greening and internationalisation of China’s LGBs.
Four interrelated challenges constrain China’s progress in greening its LGBs. First, policy gaps—a lack of specific guidelines for offshore green LGB issuance creates compliance uncertainty around cross-border approval, fund conversion, and alignment with international standards. Second, insufficient economic incentives—the high cost of third-party verification is rarely offset by a meaningful greenium, weakening local governments’ motivation to issue labelled green bonds. Third, limited expertise—local governments lack the specialised knowledge required for international capital market transactions, including cross-border structuring, investor engagement, and ESG disclosure management. Fourth, inadequate green project pipelines—despite large-scale investment plans, there is a shortage of “bankable” green projects that meet international standards, generate stable cash flows, and can be packaged into SLGBs.
C. Key recommendations
To advance the greening and internationalisation of China’s LGBs, effectively connect with global green capital markets such as London, and serve the broader goal of UK-China sustainable development cooperation, this report proposes the following:
Establish a dedicated policy framework. Central authorities should introduce a dedicated policy framework specifically addressing green LGB issuance. This should clarify approval procedures, foreign debt quota usage, and fund conversion and remittance rules. Crucially, it should provide official guidance on aligning SLGBs’ repayment mechanisms and disclosure requirements with international standards such as Green Bond Principles (GBP) by International Capital Market Association (ICMA) or Common Ground Taxonomy (CGT) by International Platform on Sustainable Finance (IPSF), thereby reducing compliance uncertainty and issuance costs.
Strengthen disclosure and capacity building. The disclosure framework for China’s green government bonds should be enhanced to improve the transparency, comparability, and verifiability of environmental impact data, boosting investor confidence and helping to lower issuance costs. Concurrently, platforms such as the UK-China green finance cooperation should be leveraged to build capacity systematically among local governments—particularly potential issuers like Guangdong, Zhejiang, and Beijing—through targeted training, international exchanges, and expert advisory support. This will strengthen their ability to navigate green finance rules, environmental benefit accounting, and international market practices.
Cultivate a high-quality green project pipeline. Local governments should be guided to introduce a “green project” classification in their annual investment plans and to screen projects using internationally recognised green taxonomies. Technical assistance from multilateral development banks (MDBs) or non-governmental organisations (NGOs) should be proactively used to support pre-feasibility studies, environmental impact assessments, and project preparation. This will ensure that bond proceeds are directed towards projects with genuine and measurable environmental benefits, solidifying the asset base for future green LGB issuance.
Deepen UK–China cooperation to pilot first issuances. Building on high-level dialogues, the promotion of Chinese green LGB issuance in London should be positioned as a tangible outcome of bilateral green finance cooperation. Capable provinces and cities—including Guangdong (with Shenzhen), Zhejiang, and Beijing—should be supported to explore pilot issuances of high‑standard green LGBs in the London market, drawing on the Ministry of Finance’s successful sovereign green bond precedent. Such pilots would not only secure long-term, low-cost capital for green projects in these regions, but also create a powerful demonstration effect, showcasing the creditworthiness and green commitments of China’s local governments to global investors. They would further establish a new benchmark for UK-China collaboration in sustainable finance.