Christopher Langner is a markets columnist for Bloomberg Gadfly. He previously covered corporate finance for Bloomberg News, and has written for Reuters/IFR, Forbes, the Wall Street Journal and Mergermarket.

China is going green, at least as far as bonds are concerned. Or is it?

On Tuesday, in a speech at a forum in Shanghai, deputy governor of the People's Bank of China Yi Gang said China will work to set up a more complete green finance system by 2020. It's unclear exactly what Yi meant, but he's right to say the country needs a more wholesome framework.

This year China has issued $17.4 billion of so-called green bonds, which require proceeds to be used for environmentally friendly purposes, making it the biggest global source of the securities. The country has gone from nothing two years ago to accounting for 41 percent of the market. As always, when China starts doing something, it quickly warrants superlatives.

Two years ago China didn't have green bonds. In 2016, 41 percent of these securities were issued there
Source: Bloomberg

As always with China, though, the numbers need to be taken with a degree of skepticism. Almost all of the debentures were sold to local investors and don't always meet the same standards as green bonds sold in Western markets. A simple example: Clean-coal power stations qualify for green status in the nation, something that would probably cause portfolio managers in London or New York to cringe.

Sure, providing less dirty coal energy may be an improvement worthy of supporting, but to call such bonds green is a stretch. 

The PBOC announcement, however, is promising. It signals that officials are aware their approach needs to be fine-tuned. And while Western investors still shy away from Chinese environmental notes, steps are being taken to bring the market up to par.

Germany's development bank KfW, one of the oldest sellers of green bonds, is looking at the possibility of issuing securities in the yuan market. That would establish a nice playbook for Chinese issuers on how to use the cash raised in a more appropriate manner. Then, perhaps, global investors may look at buying in Shanghai. 

China, of all places, needs a developed green bond market. But until it stops attaching an "environmentally friendly" label to projects that don't deserve it, the country will continue to get a black mark from investors.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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