At its core

the push for carbon peaks and carbon neutrality will drive changes in the investment logic of financial markets and generate more investment opportunities. We believe that, for equity investment, the future is focused on the new energy sector, which benefits from demand, and the traditional sector, which benefits from supply contraction. The core logic of the latter is that in the process of technological transformation, carbon quotas will become its value added asset, this is also the biggest expected gap in the market; for Bond Investment, carbon-neutral promotion is expected to have limited short-term impact on traditional industry credit bonds, but long-term positive traditional industry technology transformation leading, by "carbon-neutral" power, green bonds will usher in new opportunities, the scale of issuance and trading will be further expanded. Although Green Derivatives are still in the early stages of development, the Guangzhou Futures Exchange was formally approved to set up early this year, it is expected to create new opportunities and investment space for the development of carbon finance and even the whole green derivatives in China.

Stocks: the Promotion of Carbon Peak and carbon neutral will directly benefit the equity market investment opportunities of the two sectors, benefiting from the demand-driven new energy industry and the technological transformation of the traditional industries with shrinking supply, there are new energy-related industries, such as photovoltaic, wind power and ultra-high voltage, and there are investment opportunities for enterprises with strong capacity for environmental protection and technological innovation in traditional industries, with the former benefiting from demand pull and the latter from supply contraction. In the first category, the energy producing end is mainly the gradual substitution of wind power and photoelectric power for the traditional energy generation, the energy transportation end is mainly the ultra-high voltage transportation and the laying of the power grid, and the energy consuming end focuses on the related industry chain of the new energy automobile. For the second category, the current round of carbon-neutral environmental governance is conducive to the existing traditional industry leading enterprises to continue to promote environmental protection technology and capacity upgrading, in the process of technological transformation, carbon quotas will become their value-added assets, such as power, coal, natural gas and steel, chemical, building materials and other industries. BONDS: "carbon-neutral" power, green bonds usher in new opportunities, carbon-neutral promotion of traditional industry credit is expected to have limited short-term impact, but long-term benefits of traditional industry leading technological transformation, the same process of carbon quota value-added logic. China's Green Bond Market will usher in new opportunities, China's Green Bond Market Development began at the end of 2015, a late start but rapid development. By the end of 2020, China has issued about 1.2 trillion yuan of green bonds, second only to the United States in scale, with 813.2 billion yuan of green bonds in stock, ranking second in the world. At present, the Enterprise Green Bond Financing scale is still far less than green loans, the future development space is still large. As an important tool of green financing, green bonds can provide more stable financing for enterprises to make environment-friendly transformation, and also provide investors who pay attention to ESG standards with more investment objectives. In the future, there will be a large market space for green derivatives. At present, China's carbon market is dominated by spot transactions. Carbon financial derivatives are mainly carried out on the basis of various carbon emission rights exchanges. The main varieties include carbon forward, carbon options, carbon swaps, etc. , but the trading scale is still small, the system is still not standardized, compared with the overseas more mature carbon market trading mainly in derivatives, China's Green Derivatives Development still has greater room for improvement. Local exchanges in China are also experimenting with various types of green derivatives, but carbon finance is still in a sporadic pilot state, regional development is not balanced, and there is a lack of a systematic carbon financial market, therefore, it can not effectively meet the carbon asset management needs of emission control enterprises. However, there has been a breakthrough in the construction of China's carbon financial market recently. On January 22 this year, with the approval of the State Council, the China Securities Regulatory Commission officially approved the establishment of the Guangzhou Futures Exchange. We expect that, the national carbon financial derivative market will start from a broad period, and the unified trading place and standardized contract will create new opportunities and investment space for the development of carbon financial and even the whole green derivative.

Other products of the green financial system will also have more room for development. The green financial system refers to green development through green credit, green bonds, green stock index and related products, fund, Green Insurance, carbon finance and other financial instruments and related policies to support the economic transition to green institutional arrangements. At present, relevant green funds have been gradually set up in China, Green Trust, Green Insurance and green lease are at the initial stage of development, and the trading of environmental rights and interests, such as carbon emission rights, water rights, emission rights and energy use rights, is also gradually developing and improving, we expect that with the promotion of Carbon Neutrality, China's green financial system will gradually improve, and will provide investors with more international trading systems, richer trading products, and more transparent trading data, related products will have more market space. The push for peak and carbon neutrality will drive a change in the investment logic of financial markets and generate more investment opportunities. We analyze potential investment opportunities in stocks, bonds, derivatives, and other areas. For stocks, the future will be focused on new energy sectors that benefit from demand, and traditional industries that benefit from shrinking supply. For Bonds, which are carbon neutral, there will be new opportunities for green bonds, the scale of issuance and trading will be further expanded. Although Green Derivatives are still in the early stages of development, the Guangzhou Futures Exchange was formally approved to set up early this year, it is expected to create new opportunities and investment space for the development of carbon finance and even the whole green derivatives in China.

1. Stock Investment: the Promotion of Carbon Peak and carbon neutral will directly benefit the equity market investment opportunities of the two categories of industries, benefiting from the demand-driven new energy industry and the technological transformation of the traditional industries with shrinking supply, there are new energy-related industries, such as photovoltaic, wind power and ultra-high voltage, and there are investment opportunities for enterprises with strong capacity for environmental protection and technological innovation in traditional industries, with the former benefiting from demand pull and the latter from supply contraction. 1.1. From a demand-driven perspective, investment opportunities are concentrated in new energy sectors where demand is surging, benefiting from a demand-driven new energy sector. The development of new energy is the key to reducing carbon emissions and promoting carbon neutrality. The new energy industry can be divided into three stages from upstream to downstream: Energy Production, energy transportation and energy consumption, the energy production end is mainly the gradual substitution of wind power and photoelectric power for the traditional energy power generation, the energy transport end is mainly the ultra-high voltage transport and the laying of power grid, and the energy consumption end focuses on the related industry chain of new energy vehicles. NEW ENERGY PRODUCTION END: Photovoltaic and wind power, new energy production end, the main alternative to traditional energy power generation for wind power and photovoltaic, investment focus on photovoltaic, wind power equipment manufacturing and other areas. The photovoltaic industry has developed rapidly in recent years. According to the forecast of the China Photovoltaic Industry Association, DURING THE "14th five-year plan" period, the average annual installed scale of new photovoltaic units in China is generally estimated to be 70 million kilowatts, and the optimistic forecast is 90 million kilowatts, in 2020, China will add 48.2 million kilowatts of photovoltaic units, and the new growth rate will be about 45% to 86% . According to estimates by the Tsinghua Energy Transformation Center, to achieve "Carbon Neutrality" in China, the per capita PV is about 5 ~ 10 kilowatts, requiring about 8.58 billion kilowatts of PV resources. As of the second quarter of 2020, China's photovoltaic installed capacity of 210 million kilowatts, in order to meet the 2060 photovoltaic installed capacity demand, supply needs to increase at least 40 times the current. Wind power investment is expected to be more efficient and larger in scale on the basis of removing the disordered capacity and solving the problem of abandoned wind. According to data from the National Energy Administration, in 2020, the capacity of full-calibre wind power generating equipment was 281.53 million kilowatts, up 34.6 percent year-on-year, accounting for 12.8 percent of the total capacity of full-calibre wind power generating equipment; the capacity of new equipment was 71.67 million kilowatts, up 178.7 percent year-on-year; With the gradual increase of wind power investment and the improvement of wind power utilization rate, the wind power field is expected to achieve higher scale growth in the future, and there will be more investment opportunities in the field of wind power machine manufacturing. The huge installed demand of PV and wind power will drive the development of pv upstream and downstream industry chain. From the point of view of photovoltaic and wind power industry, silicon material, single crystal polycrystalline battery, wind power blade, wind power generator and control system will drive the development of related raw material and special equipment industry.

1.1.1. New Energy Transport Terminal: UHV POWER GRID, New Energy Transport terminal, should pay attention to the layout of the UHV power grid. China's energy resources and demand reverse distribution, showing regional imbalance, more than 80% of the energy resources in China's western and northern regions, more than 70% of the energy consumption concentrated in the central and eastern regions, promoting the long-distance transmission and national distribution of energy resources is the key to speed up the construction of Energy Internet, among which the layout of ultra-high voltage power grid is the final solution to the long-distance transmission of resources. Ultra-high voltage power grid ensures the large-scale development and utilization of clean energy, and provides strategic guarantee for accelerating energy transformation, optimizing resource allocation and achieving energy conservation and emission reduction. At present, China is in a new round of ultra-high voltage investment and development peak period. The course of UHV transmission line construction in China, it can be divided into four stages: the first peak stage (2006-2008)(2011-2013) , the second peak stage (2014-2016) and the third peak stage (2018) . In 2018, China approved and started construction on five key UHV projects with an investment of 65.8 billion yuan. In 2019, China approved and started construction on two key UHV projects with an investment of 55.3 billion yuan. Investment progress of ultra-high voltage projects in China has accelerated since 2020. According to the White Paper on the development of UHV industry and investment opportunities in the "new infrastructure" , seven key UHV projects are planned to be approved and started in 2020, with investment reaching 91.9 billion yuan, an increase of 66.18 percent year-on-year. According to the State Grid spokesman, the current state grid UHV construction project investment of 181.1 billion yuan, a significant increase over the 2021.

1.1.2. NEW ENERGY CONSUMPTION END: New Energy automobile industry chain, new energy consumption end, focusing on the new energy automobile industry chain of various related industries. Including upstream aluminum, lithium, cobalt, nickel, Non-ferrous metal and graphite; the Middle Pole, Negative Pole, diaphragm, electrolyte four kinds of battery material production, as well as the power lithium battery production; Downstream new energy vehicle manufacturing industry, charging post charging station Operation Support and Industrial Interconnection, networking, 5g vehicle network communication industry. Non-ferrous metal: In the distribution of copper demand in China's lower reaches, the proportion of new energy power generation and new energy vehicle transportation industry is about 40% and 10% , and the amount of copper used in new energy vehicles is far greater than that in traditional fuel vehicles, with the large-scale popularization of new energy vehicles in the future, the demand of upstream copper mine and refined copper processing will increase greatly; lithium battery is the main demand of lithium mine terminal, which is used in electric vehicles, energy storage and other fields, as the demand for new energy vehicles increases, the demand for lithium is expected to further increase; nickel is also used in the new energy battery industry, mainly from the demand for nickel sulfate from the ternary batteries in the new energy automobile industry chain, in the future, with the popularization and rapid development of new energy vehicles, the proportion of battery consumption will increase greatly, and the demand for nickel will increase greatly. Battery Material Production and battery production: The upstream material end of the new energy vehicle can be divided into four parts: positive material, negative material, electrolyte, diaphragm, the components of the core device in the middle reaches are mainly composed of five parts: battery, electric control, Motor, electronic and electrical appliances, and conventional components. The power battery accounts for the highest proportion of the whole vehicle cost, and is also a new energy vehicle, key components that distinguish them from conventional cars. At present, with the downstream of new energy vehicle demand surge, power lithium battery industry has continued to show high prosperity. In the future, the power battery production area will further expand the market scale, large enterprises will play the technological advantage, scale effect, brand effect, in the market competition to occupy a favorable position. Regarding the construction of charging piles for new energy vehicles: The market demand for new energy vehicles and the construction demand for charging piles are mutually reinforcing, and the construction of charging piles is the key to restrict the demand for new energy vehicles, the surge in demand for new energy vehicles will, in turn, accelerate the construction of charging poles. In the past few years, the construction of charging pile in China mainly depends on the government's policy support and subsidies, and public transit charging is the largest market segment. With the market-oriented and product-oriented improvement in the field of new energy vehicles, the increase in sales of new energy private cars and the gradual decline in government subsidies, more private enterprises in the new energy vehicle industry will be deployed to operate charging posts, such as charging pile manufacturers, power battery manufacturers, downstream vehicle companies may also self-layout public piles. More investment opportunities can be expected in this area in the future. In the field of 5G vehicle networking and Communication: the role of the new energy vehicle industry is not only to save energy and reduce emissions, but also to play an important role in the realization of vehicle networking, intelligent transportation and smart cities in the future, and is an important link in the construction of new infrastructure, it's also an important part of the Industrial Internet. The outline of the 14th five-year Plan emphasizes: "We should actively and steadily develop the industrial internet and the Automobile Internet. ". To put in place a global system of communications, navigation and remote-sensing space infrastructure with global coverage and efficient operation, and accelerate the digitalization of traditional infrastructure such as transport, energy and municipal services." Tesla has distributed the field of remote control and driverless on a large scale, and the major constraints to the development of various automobile manufacturers in the digital field are the level of technology and research and development, future 5G, vehicle networking, communications and other areas are expected to continue to have investment opportunities.

1.2. From the perspective of supply contraction, the technological transformation of traditional industries has benefited from supply contraction, traditional power, coal, natural gas and other energy sectors as well as high energy-consuming steel, chemical industry, building materials industry will also have investment opportunities. We believe that this round of carbon-neutral environmental governance will put an end to the supply-clearing process in the industry since the outbreak, concentration is expected to remain relatively high in high-carbon-emitting building materials (cement, glass) , steel, chemicals and upstream fuel coal. Under the impact of the epidemic in 2020, the aggregation effect of each industry is quite remarkable, and the rise of industry concentration is widespread. This round of carbon-neutral environmental governance is conducive to the existing leading enterprises to continue to promote environmental technology and capacity upgrading, and with the end of supply and demand and follow-up changes in the relationship between supply and demand, good leading enterprises profit restoration. The process of carbon-neutral promotion is also the process of speeding up the merger and integration of the traditional industries and improving their concentration. The Matthew effect is obvious, and the industry with large scale and high technology level takes the lead in transforming and upgrading. On the one hand, the industry scale effect will be more significant in the future: the traditional industry smes are constrained by the constraints of carbon emissions, production constraints, poor profitability, the future is facing a phase-out, mergers and acquisitions; But the leading enterprises benefit from the scale superiority, may carry on the merger and integration further, expands the market share continuously, presents "the remnant is the king" the situation. On the other hand, in the future, the transformation and upgrading of traditional steel industry will rely more on technological progress and R & D level The decarbonization of cement production needs the replacement of limestone clinker and the innovation of technology, and the reconstruction of construction industry needs the help of heat pump, electrification, geothermal energy and other fields In addition, various traditional industries are now using ICT and Industrial Internet technologies to achieve carbon emission reduction. All of the above technical means, for the head enterprises, have obvious advantages in transition, but for small and medium-sized enterprises, it is an unreachable "cost peak" , therefore, the head of each industry in the future will occupy more development advantages, take the lead to achieve transformation and upgrading, seize more market share. From the point of view of carbon right, the quota will become the value-added asset after the traditional industry enterprises finish the environmental protection technical reform. As more and more industries are brought into the control of carbon emission, the competitive advantage of the enterprises with strong ability of environmental protection technology reform becomes more and more prominent. After the environmental protection technical transformation, the enterprises will produce less carbon dioxide emissions when producing the same amount of output, and the free initial allocation of carbon emission quota is highly related to the historical emission data of the enterprises, therefore, the enterprises that have previously carried out their own environmental protection technical reform will have extra carbon emission quotas to sell after they are brought into the scope of carbon emission control, and will gain certain economic benefits by acting as a seller in the carbon trading market. 2. Bond Investment: "carbon-neutral" power, green bonds usher in new opportunities

2.1. It is expected that the short-term impact of carbon neutral promotion on traditional industries'credit debts will be limited, but in the long run it will be beneficial to traditional industries'technological innovation. It is expected that the short-term impact of carbon neutral promotion on traditional industries'credit debts will be limited, but the long-term good traditional industry technology reform leading. The short-term logic comes from many sources. The negative factors are capacity shutdown and output reduction. The advantage factor is the financial resources to the technical transformation leading concentration, the profession concentration degree enhances the good tradition electric power, the coal, the Iron and steel, the chemical industry, the building material profession technical transformation leading credit debt performance. In addition to the logic of carbon neutrality, the 2021 needs to focus on the credit default problems of individual high quality private and state owned enterprises in a credit contraction environment throughout the year, in which the risks of traditional industries are relatively greater. Overall, the impact of Carbon Neutrality on traditional industry credit is relatively small. Take, for example, the short-term disturbance of carbon neutrality. On March 19, the Leading Group on air pollution prevention and control in Tangshan issued the "notice on submission of measures for limiting production and reducing emissions by enterprises in the steel industry" . The implementation period was from March 20 to December 31, the proportion of emission reduction is 30%-50% , and the policy intensity is strong. After the release of the document, the steel industry credit spreads volatility is small, maintain high volatility. We believe that after the Yongmei incident last year, market sentiment is still not completely calm, add carbon-neutral environment under the uncertainty of enterprise output contraction, the market on the traditional industry risk sentiment is still conservative, credit spreads narrow probability is not big. In the long run, similar to the investment logic of the equity market, in the process of technological transformation, carbon quotas will become its value-added assets, improve its fundamentals and its ability to pay its debts, and make good use of the credit of the leading enterprises in the technological transformation of traditional industries, this is what we suggest the market core expected poor. Compared with the new energy industry, the carbon right advantage of the traditional industry technological transformation leading to its credit debt may have both configuration and transaction value. The big trend is that in the process of clearing up the industry and increasing the concentration degree, all resources are concentrated to the leading, will enable it to play the scale superiority more effectively.

2.2. New Opportunities for green bonds, as defined in the circular of the People's Bank of China, the Development and Reform Commission and the Securities and Futures Commission of July 8,2020 on the publication of the catalogue of Green Bond Support Projects (2020 edition)(draft for comments) , green bonds are funds raised for the purpose of providing partial or full financing or refinancing for new or existing green industries, green projects or green economy activities that meet the specified conditions, security issued in accordance with legal procedures and repaid by agreement. In 2007, the European Investment Bank issued the world's first green bond. In May 2014, CGNWPC issued a carbon bond similar to the green bond. In July 2015, Xinjiang goldwind technology issued a $300 million green bond on the Hong Kong Stock Exchange, the first green bond issued by a Chinese enterprise; in October 2015, agricultural bank issued its first green financial bond on the London Stock Exchange. China's green bond market started a little late, but the green bond system framework has been initially established. On September 22,2015, the Central Bank issued notice no. 39 of 2015, announcing for the first time that "research banks and enterprises will issue green bonds" , to clarify the definition criteria and issuance process of green financial bonds, and to issue a catalogue of Green Bond Support Projects, which has received wide attention and recognition from international organizations. Furthermore, on December 31,2015, the NDRC issued guidelines on green bond issuance, regulate the issue of green corporate bonds. Since then, the relevant system has continued to improve. In July 2020, the National Development and Reform Commission of the People's Bank of China jointly released the Green Bond Support Program Catalogue (2020 edition)(draft for soliciting comments) , compared with the 2015 edition, the biggest change was the removal of clean fossil energy projects to bring them closer to international standards, a hallmark of the country's further standardization of its green bond system. In recent years, China's green bond market is developing rapidly under the environment of accelerating the construction of ecological civilization. First, the issue of a larger scale, up to the end of 2020, China has issued a total of about 1.2 trillion yuan of green bonds, the size of the second only to the United States, the world. Second, the issuance period is long, about 90% of the issuance period are more than 3 years. Third, the effect of supporting environmental improvement is remarkable. According to the Central Bank's preliminary calculation, the projects to which green bond funds are raised each year can save about 50 million tons of standard coal, equivalent to reducing carbon dioxide emissions by more than 100 million tons. China's green bond products already cover a variety of financial bonds, debt financing instruments, corporate bonds, corporate bonds, etc. . Issuers now cover various types of banking institutions and entity departments, etc. , also has initially formed a diversified ESG concept of the investment community. Structurally, financial institutions used their influence to actively play a leading role in the initial stage of green bond issuance, and later, as more and more enterprises strengthened green manufacturing, clean energy and sewage treatment, the scale of enterprises issuing green bonds is increasing gradually. Specifically, when green bonds were first launched in 2016, green finance bonds accounted for 74.8% of the total, which was the absolute dominant share, but by 2020 they had fallen sharply to 11.4% , corporate bonds and corporate bonds have become the main types of green bond issuance, accounting for 33.3% and 21.7% respectively, and the proportion of medium-term notes and asset-backed securities has gradually increased. From 2016 to 2020, the share of the financial sector fell from 77.6 per cent to 19 per cent, the share of industrial companies rose from 8.1 per cent to 53.4 per cent, and the share of utilities companies rose from 12.8 per cent to 23.7 per cent. Carbon neutral bond opens a new round of green bond product innovation prologue. On February 7 this year, the country's first six carbon-neutral bonds were successfully issued in the inter-bank bond market, with a total issuance size of 6.4 billion yuan, the issuers are China Southern Power Grid, state power investment group, Three Gorges Group, Sichuan Airport Group, Huaneng international and Yalong River hydropower. It is the first time in the world that a "carbon neutral" label of green bond products. Compared with ordinary green bonds, carbon neutral bonds focus more on the low carbon emission reduction benefits of investing in projects. According to the traders'Association's circular on clarifying the mechanism of carbon neutral debt, carbon neutral debt raising funds shall be exclusively used for green projects such as clean energy, clean transportation, sustainable construction, low carbon industrial transformation, etc. , the introduction of carbon-neutral bonds has further enriched the system of green bond products. As an important tool of green financing, green bonds can provide more stable financing for enterprises to make environment-friendly transformation, and also provide investors who pay attention to ESG standards with more investment objectives. On the one hand, green bonds are generally highly rated, and there are many financial support policies such as interest discount, issuance subsidies and green business incentives of local governments, which also help to improve the credit level and investment returns of green bonds. On the other hand, the Central Bank has included green bond allocation in the relevant assessment of financial institutions, including green bonds into the scope of eligible collateral, further enhancing its attractiveness as an investment product. On July 21,2020, the People's Bank of China issued a notice on Printing and distributing the green financial performance evaluation plan for deposit-taking financial institutions in the banking industry (draft for soliciting opinions) , the biggest change is to include "Green Bond Holdings" into the green financial business evaluation quantitative indicators, its weight and the previous "green loan balance" equal, green financial performance evaluation results will be included in the performance evaluation of financial institutions. In addition, the Central Bank of China has included the green bonds whose credit rating is not lower than Aa into the scope of eligible collateral for monetary policy instruments, which is helpful to enhance the investment and holding demand of green bonds by financial institutions. In addition, China is gradually improving the basic system of green bonds. At present, one of the main problems of green bond in China is that the standard of green industry is not unified with the international standard. In response, the list of green bond support projects (2020 edition)(consultation draft) , jointly released by the National Development and Reform Commission and the Securities and Futures Commission of the People's Bank of China in July 2020, deleted the clean use of fossil energy projects and actively aligned them with international standards, obviously the policy strives to solve the obstacle of the development of green bond in our country step by step. In addition, China is working with the EU to develop a common standard for china-eu green finance, which will further promote the unification of domestic and foreign green bond standards, and attract foreign ESG investors to distribute China's green bonds.

3. Green derivative future has bigger market space 3.1. The market for green derivatives has a big future. The guiding opinions on building a green financial system, issued by the People's Bank of China and other ministries and departments in 2016, put forward the orderly development of carbon financial products and derivatives such as carbon forwards, carbon swaps, carbon options, Carbon Leasing, carbon bonds, carbon Securitization and carbon funds, exploring options for carbon emissions trading. Green derivatives help stimulate trading, promote price discovery of environmental rights such as carbon emission rights, provide companies with tools for environmental rights risk management, and provide investment institutions with more financial products. However, China's carbon market is dominated by spot transactions, the degree of financial is still not high, and the development of derivatives market is not standardized enough. At present, China's carbon financial derivatives are mainly carried out on the basis of various carbon emission right exchanges. The main varieties include carbon forward, carbon options, carbon swaps, etc. . However, the trading scale is still small and the system is still not standardized. Compared with overseas carbon markets, which are more mature, in China, the development of green derivative products still has a great room for improvement. On the one hand, local exchanges in China are also experimenting with various types of green derivatives. Taking Shanghai as an example, since 2014, Shanghai has launched carbon quotas and other innovative businesses such as carbon borrowing, repurchase, pledge and trust, january 2017 Shanghai online carbon quota forward products, Shanghai has become the country's largest carbon emissions trading market. But on the other hand, there is a regional division among China's regional exchanges, which limits the scale of carbon financial products. At present, the regulatory system of carbon trading market is still not perfect, so the development is relatively slow, the common problems of each exchange are the few kinds of trading, the small scale, the lack of trading system and the incomplete disclosure of relevant trading data. Because carbon finance is still in a sporadic pilot state, regional development is uneven, the lack of a systematic carbon financial market, it can not effectively meet the carbon asset management needs of emission control enterprises. In addition, the specialized investor group is not developed, the carbon finance development also lacks the specialized long-term financial support. Internationally, EU ETS, established in 2005, is the largest carbon market in the world, and its spot trading mainly includes EU emission allowances (Eua) and certified emission reductions (cers) . One of the most important lessons to be learned from the EU carbon market is that the development of the carbon derivatives market and the carbon spot market go hand in hand. Both the European climate exchange (ECX) and the European Energy Exchange (EEX) launched futures and options trading of EUA and cers to provide hedging and risk management tools at the start of the carbon market in 2005. The coordinated development of futures and spot markets not only provides risk control tools for emission control enterprises and financial institutions involved in carbon trading, but also provides clear and effective price expectations for the market and promotes market liquidity, we believe that this can provide a useful reference for the development of China's carbon financial market. However, the recent construction of China's carbon financial market also has a new breakthrough. In 2019, "Guangdong, Hong Kong and Macao Bay Area Development Planning Outline" proposed "to study the establishment of carbon emissions as the first variety of innovative futures exchange. On May 14,2020, the People's Bank of China and other four ministries issued "opinions on financial support for the construction of the Guangdong-hong Kong-macao Bay area, " in which "promoting green financial cooperation in the guangdong-hong kong-macao Bay area" mentioned "studying the establishment of the Guangzhou Futures Exchange" ; On October 9,2020, Guangzhou Futures Exchange was set up. On January 22 this year, with the approval of the State Council, the China Securities Regulatory Commission formally approved the establishment of the Guangzhou Futures Exchange. We expect that the national carbon financial derivatives market will start from a broad period, and the unified trading place and standardized contract will create new opportunities and investment space for the development of carbon financial and even the whole green derivatives in China.

3.2. Other products of green financial system will have more development space, besides green derivatives, there are other related areas of our green financial system worthy of attention. In August 2016, the People's Bank of China and other seven ministries jointly issued the guiding opinions on building a green financial system, which set up an institutional framework for the development of China's green financial system. Specifically, green finance refers to economic activities that support environmental improvement, climate change response and resource conservation and efficient use, that is to environmental protection, energy saving, clean energy, green transportation, green building and other areas of project financing, project operation, risk management and other financial services provided. Green financial system refers to the institutional arrangements that support the transition to green economy through green credit, Green Bond, green stock index and related products, Green Development Fund, Green Insurance, carbon finance and other financial instruments and related policies. Green credit is one of the earliest and fastest developing green financial products in China. As early as 1995, the People's Bank of China issued the circular on implementing credit policies and strengthening environmental protection work, to support the protection of ecological resources and prevention and control of pollution as one of the factors to be taken into account in bank loans. In 2012, the former China Banking Regulatory Commission issued "Green Credit Guidelines" , which set out detailed provisions on the construction of green credit system, process management and information disclosure for banks. In 2013, the former China Banking Regulatory Commission formulated the "Green Credit Statistical System" ; in 2018, the People's Bank of China issued the "notice of the People's Bank of China on establishing a special statistical system for green loans, " establishing a green credit-related statistical system. In July 2020, the CBRC issued the "special statistical system on green financing" , further expanding the scope of statistics from green credit to green financing. The People's Bank of China has released quarterly green loan data since 2018. According to statistics from the Central Bank, the balance of green loans in China increased from 8.23 trillion yuan to 11.95 trillion yuan between 2018 and 2020, ranking first in the world in terms of stock size by the end of 2020. In 2018, the balance of green loans for the transportation, storage and postal industries, the production and supply of electricity, heat, gas and water was 3.66 trillion yuan and 2.61 trillion yuan respectively, and by the end of 2020 the balances of the two industries were 3.62 trillion yuan and 3.51 trillion yuan respectively, together, the two sectors account for about two-thirds of green lending.

Green Fund to be established gradually. On July 15,2020, the National Green Development Fund was established, which is China's first National Green Investment Fund. The investors include the Ministry of Finance, local finance of provinces and cities along the Yangtze economic belt, some financial institutions and relevant enterprises, etc. , the initial total amount of 88.5 billion yuan, as the state-level government investment fund to focus on investment in the atmosphere, water, soil, solid waste pollution control and other external environmental areas. In addition, relevant provinces and cities have also established local green industry funds, and private capital and international organizations have also participated in setting up green development funds, such as the Green Silk Road Fund, china-us Green Fund and other market-oriented green funds have also invested more green industry projects; there are also more green investment securities investment funds on the secondary market. Green Trust, Green Insurance and green leasing are still in the initial stage of development. On Green trusts, according to the China Trust Industry Association, the Green Trust's total assets under management was 335.46 billion yuan at the end of 2019, with 832 projects remaining, more than seven times and more than three times as many as in 2013, respectively, at the end of 2019, China's "Green Trust Guidelines" issued on the implementation of green trust business, internal control management and other norms. In the field of green insurance, the environmental pollution liability insurance is the main type of green insurance in China. At present, 31 provinces, autonomous regions and municipalities have carried out the pilot of compulsory environmental pollution liability insurance. In May 2018, the Ministry of Ecological Environment deliberated and adopted in principle the administrative measures on compulsory liability insurance for environmental pollution (draft) , and the 14th five-year plan also proposed the introduction of compulsory liability insurance for environmental pollution in high-risk sectors. In addition, some insurance companies have also developed new types of insurance such as forest insurance, long term quality insurance for photovoltaics components, and green building performance liability insurance. However, on the whole, China's green insurance is still facing problems such as low enthusiasm of the main body and non-uniform rates. This will also be an important policy reform direction for the development of green insurance in the future, in order to make it better play the role of premium rate adjustment mechanism. The trading of environmental rights and interests, such as carbon emission rights, water rights, emission rights and energy rights, has gradually developed and improved. Since 2011, China has been piloting a carbon emission trading system (ETS) in seven provinces and cities, including Beijing and Shenzhen, to control and reduce greenhouse gas emissions using market-based mechanisms. Subsequently, in December 2017, the National Development and Reform Commission released the National Carbon Emission trading market construction plan (power generation industry) , which is a milestone event in the development of China's carbon market. In February, the regulations on carbon emission trading (trial implementation) came into effect. The structure of the National Carbon Trading market has been defined, and the national carbon emission trading market will be launched by the end of June, the Ministry of Ecology and environment shall be responsible for the construction of the national carbon emission trading market, formulate policies and technical norms for the national carbon emission trading and related activities, and manage, supervise and guide the National Carbon Emission trading and related activities. On the use of energy rights, Zhejiang, Fujian, Henan and Sichuan started to carry out trials of paid use and trading of energy rights in 2016, and relevant trading platforms in the four places started operation in 2019. In general, other products of green financial system such as green insurance and green trust are still in the initial stage of development, but with the promotion of carbon neutrality, the related market will have more market space. In February of this year, the State Council issued the guiding opinions on accelerating the establishment and improvement of a green low-carbon circular development economic system, which mentioned the vigorous development of green finance. In order to achieve the goal of carbon peak and carbon neutralization, the People's Bank of China has initially established the green financial development policy of "three functions" and "five pillars" . The "three functions" mainly refers to the three functions of financial resources allocation, risk management and market pricing to support green development. In order to give full play to the "three functions" , it is necessary to further improve the "five pillars" of green financial system. One is to improve the standard system of green finance. Second, strengthen the supervision of financial institutions and information disclosure requirements. Third, gradually improve the incentive and restraint mechanism. Fourth, continuously enrich green financial products and market system. Fifth, actively expand the international cooperation space of green finance. We believe that with the gradual improvement of China's green financial system, it will provide investors with a more international trading system, richer trading products, and more transparent trading data, in order to improve the breadth and depth of green financial market. 

Source: Li Chao team, Zheshang macro