Under the impetus of the Belt and Road Initiative, the creation of new opening-up policies and the promotion of structural supply side reform, the importance of building a top level economic Greater Bay Area has moved to the forefront of sustainable priorities in China.

The Guangdong-Hong Kong-Macao Greater Bay Area has gained strategic attention. On Aug 31, 2016, the People's Bank of China, the Ministry of Finance and other ministries and commissions jointly issued the Guidelines for Establishing the Green Financial System. Since the Greater Bay Area is on the frontier of China's ongoing reforms, it’s an indispensable piece in the effort to promote green finance cooperation in this region.

The Greater Bay Area currently has fertile soil for green finance cooperation because it is home to many important financial institutions and markets, and because many innovative practices in green finance have been carried out in Guangdong, Hong Kong and Macao.

Other advantages of the Pan-Pearl River Delta include a well-developed industry and the innovative atmosphere and the standardization work in regional cooperation.

Despite the many advantages, cooperation in green finance is still facing some headwind. There are some noteworthy obstacles including the difficulty caused by differences in the legal, fiscal and taxation systems;,the natural hindrance to the free flow of (green) finance in three different regions and a general lack of comprehensive policy design. Besides that, there are significant differences in green standards between Hong Kong and Macao and the nine cities of the Pearl River Delta.

Furthermore, cooperation is currently constrained by unhealthy competition between cities within the region and is stressed by external economic challenges such as the trade war and the slowdown of domestic growth.

To overcome these challenges, a couple of issues should be addressed in order to lay out a foundation to foster green finance cooperation.

According to different industrial resource and geographic characteristics of various regions in the Great Bay Area, we suggest that all cities in this area make the best use of their respective advantages and aim for synergic effect. To further explain, the combination of Hong Kong as the international green financial center and Guangzhou as the national green financial reform and innovation pilot zone could act as the dual core driving force, forming a green finance cooperation platform for the entire area.

Hong Kong, Macao, Shenzhen and Guangzhou should focus on building green financing service districts. Foshan, Dongguan, Jiangmen and Zhongshan, which are manufacturing-focused cities, should aim at building green industrial clusters. Zhuhai, Huizhou, Zhaoqing and other cities that have rich natural resources and good ecological conditions should focus on building green city demonstration districts. Hong Kong should take full advantage of its position as an international financial center and transform itself into an “international green finance cener”. Considering Macao's advantage in developing unique financial products in recent years, it’s possible to build Macao into a “demonstrative green financial exchange platform between China and Portuguese-speaking countries”, a “green financing leasing platform”, or/and a “green lottery trading market platform”.

Shenzhen has the potential to be a “green financial technology innovation center”, since it enjoys the status of the national science and technology innovation center. Guangzhou could act as the “Green Finance Center of the Greater Bay Area”. The Huadu district of Guangzhou, as the green financial reform pilot zone of Guangzhou city, should fully push the construction of the National Green Finance Demonstration zone.

Rapid improvement is needed for the organizational leadership system of green finance cooperation in the Greater Bay Area. The establishment of a task force, which is supported by China’s financial management commissions and relevant government departments from Guangdong, Hong Kong and Macao, is badly needed.

Other necessary steps are building a daily work mechanism to promote cooperation in the Greater Bay Area, promoting the three governments to negotiate and sign the "Guangdong, Hong Kong and Macao Green Financial Cooperation Agreement" and clarifying the communication channels, discussing cooperation plans, and settling on problem-solving procedures.

Under the framework of financial supervision cooperation, the financial supervision commissions of Guangdong, Hong Kong and Macao should accelerate the establishment of regulatory and self-regulatory mechanisms for green finance and connect and coordinate mechanisms between Closer Economic Partners hip Agreement and the construction of the Greater Bay Area and the free trade zone.

Meanwhile, it's of vital importance to create a set of green finance standards that are in line with the current national conditions and are benchmarked to international standards. To do so, the first step is to build an information-sharing platform that covers all areas from green credit, green bonds, green insurance and green funds to carbon finance, environmental information and green industries. Furthermore, a relevant credit information-sharing mechanism among enterprises and a credit supervision system should be put onto ground.

It’s necessary to set clear administrative enforcement and criminal justice entities in this area. In addition, a compensation mechanism for environmental damage should be built by clarifying responsibility, monitoring, evaluating, supervising and the usage of policy incentives. We also suggest setting up an ecological compensation fund for “red-line”ecological conservation areas.

The Greater Bay Area should make full use of the academic resources of the central cities by setting the discipline of green finance, promoting joint training of green finance professionals across the three regions and attracting more talents from domestic and international platforms to join the green finance cooperation.

Wang Yao is director general at the International Institute of Green Finance, Central University of Finance and Economics. The author is president of National School of Development at Peking University. The views expressed do not necessarily reflect those of China Watch.

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