Key green finance policies to build China’s trillion-yuan water-savings industry

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By Dong Liang Shen, Cecilia Tortajada and Asit Biswas

By 2027, China’s water-saving industry scale is set to hit 1 trillion yuan. This article explore how the nation’s innovative fusion of green finance & policy is overcoming financing bottlenecks & what the world can take from its playbook.

A water-saving industry not only enhances water resource utilization efficiency but also significantly reduces energy consumption and greenhouse gas emissions, achieving synergistic effects of pollution reduction and carbon mitigation. Developing this industry serves as a critical strategic pathway for addressing climate change and realizing China’s “Dual Carbon” goals.

In recent years, China has introduced a series of regulations and policies to institutionally incentivize financial institutions to prioritize water-saving industries within green finance frameworks, thereby driving sectoral growth through green financial instruments. According to the Guidelines on Accelerating the Development of Water-saving Industries jointly issued by the National Development and Reform Commission (NDRC), the Ministry of Water Resources, and three other ministries, “by 2027, the scale of China’s water-saving industry is projected to reach one trillion yuan, initially establishing a market-oriented, innovation-driven development pattern integrating businesses, academia, and end-users”. Through multi-tiered and comprehensive financial support, China is progressively aligning green finance policies with water conservation objectives, propelling the water-saving industry into a phase of rapid development.

Legal foundations for green finance: enabling high-quality growth of the water-saving industry

In March 2024, Article 39 of the Water Conservation Regulations promulgated by the State Council explicitly stipulates: “The state encourages financial institutions to provide diversified water-saving financial services and guides them to increase financing support for water-saving projects. The state encourages and guides social capital to participate in the construction and operation of water-saving projects in accordance with market principles and laws, while safeguarding their legitimate rights and interests.”

This marks national-level legal mandate for financial institutions to support the water-saving industry, underscoring China’s strong commitment to leveraging green finance for sectoral advancement. By legally defining the roles and responsibilities of financial institutions and social capital in water conservation, this regulation enhances the predictability and stability of financial support while institutionalizing diversified funding channels. This legal framework has catalyzed innovation in water-saving financial products and accelerated the industry’s high-quality development.

Inter-ministerial policy coordination. Advancing green finance for water conservation

To implement Water Conservation Regulations, in July 2024, five ministries including the NDRC and the Ministry of Water Resources jointly issued the Guidelines on Accelerating the Development of Water-saving Industries, emphasizing “strengthening fiscal, tax, and financial support.”

Key measures include promoting “Water-saving loans,” exploring collateral models based on water abstraction rights and pollution discharge rights and expanding credit support for water-saving enterprises. Eligible businesses are encouraged to raise capital through green bonds. This policy signals China’s entry into a “policy + finance” dual-drive era for the water-saving industry. Green finance support operates at three levels: credit innovation (e.g., Water-saving Loans and rights-based collateral), direct financing (e.g., green bonds), and fiscal incentives, forming a multi-tiered, market-oriented funding system.

Notably, the piloting of water abstraction and pollution rights collateral address financing challenges for asset-light water-saving enterprises while promoting market-based allocation of water resources, synergizing with carbon trading and green electricity mechanisms. However, challenges persist: long payback periods for water-saving projects necessitate risk-sharing mechanisms to incentivize financial institutions, and fragmented environmental right markets require accelerated national standardization. Integrating ESG (Environmental, Social, and Governance) criteria to incorporate water-saving benefits into corporate green ratings could further channel social capital into this sector.

Banking innovations in green finance: empowering the water-saving ecosystem

Bank of China’s Green Finance Practices

In April 2024, the Ministry of Water Resources and Bank of China (BOC) jointly issued the Guidelines on Financial Support for High-quality Development of Water-saving Industries outlining preferential policies across three dimensions: optimized credit support, enhanced financial services, and integrated financing solutions.

BOC has pledged over RMB 200 billion in targeted financing for key water-saving sectors, offering loan terms of up to 45 years for major national water conservancy projects. Capital ratio requirements are set at 20%, with a further 5% reduction for socially vital water infrastructure projects. BOC actively diversifies financing channels through bond issuance, equity investments, financial leasing, and advisory services, while participating in Real Estate Investment Trusts (REITs) pilot programs to revitalize existing assets and expand water-related investments.

BOC focuses on nine priority areas: agricultural water efficiency (e.g., irrigation upgrades, rural water conservation); industrial water reduction (e.g., high-water-consumption sector reforms, wastewater recycling); counties and cities water loss reduction (e.g., leak detection, water-efficient city initiatives); unconventional water utilization (e.g., reclaimed water, rainwater harvesting); contract-based water management models; water-saving technology R&D; low-consumption business development; digitalized water service systems; local water infrastructure projects.

Following the guidelines, BOC branches have tailored solutions to local needs. For instance, in January 2025, BOC’s Qingshan Branch launched Hubei Province’s first “Water-saving Loan” (RMB 57 million) for the Qingshan North Lake Basin Reclaimed Water Utilization Project (Phase I), supplying reclaimed water to industrial users and supporting Wuhan’ Similarly, BOC’s Hebei Branch adopted a “one business, one strategy” approach to customize loan packages for water-saving businesses.

Synergized efforts by other major banks

China Development Bank (CDB) . As a policy bank, CDB prioritizes mega-projects like the South-North Water Diversion and irrigation upgrades, while advancing water-saving technologies through green credit and international partnerships.

Agricultural Bank of China (ABC) . It focused on rural areas, ABC promotes “Water-saving Loans” for efficient irrigation and integrates water conservation into rural revitalization programmes.

Industrial and Commercial Bank of China (ICBC) . It supports tech innovators (e.g., seawater desalination, smart meters) via green bonds and ESG investments, while aiding SMEs through supply chain finance.

China Construction Bank (CCB) . It leverages digital platforms for smart water management, engages in Public-Private Partnerships (PPP) for urban pipeline upgrades, and funds membrane technology R&D through eco-focused funds.

Under policy coordination, these banks employ green finance tools (e.g., carbon-neutral bonds, sector-specific loans) to mobilize social capital, establishing a full-chain support system spanning infrastructure, agricultural water-saving, and technological innovation.

Outcomes and Future Directions

According to the China Water Conservation Report (2023), by 2023, 17 provinces – including Hebei, Shanxi, and Jiangsu – had launched “Water-saving Loan” programs, financing 1,953 projects with RMB 74.83 billion. Ten provinces (including Hebei, Inner Mongolia, These practices exemplify the integration of green finance with water governance, underpinning China’s water-efficient society goals. At the 2025 National Water Resources Conference, Minister of Water Resources Li Guoying reaffirmed plans to expand “Water-saving Loans” and explore water ecological asset collateralization.

A trillion-yuan vision for China’s water-saving industry hinges on the innovative fusion of green finance and market mechanisms. From the Water Conservation Regulations to inter-ministerial guidelines, and from BOC’s RMB 200 billion commitments to differentiated practices across major banks, the “policy + finance” dual engine is overcoming sectoral financing bottlenecks. A tripartite model – laws setting the tone, policies building the stage, and banks driving implementation – has created a closed-loop financing ecosystem.

Innovations like Water-saving Loans, environmental rights collateral, and green bond expansion are channeling capital into agricultural efficiency, industrial recycling, and urban infrastructure, while ESG standards steer investments toward cutting-edge technologies and unconventional water use. The interplay of regulatory rigor and market flexibility has activated private capital participation and streamlined asset lifecycle management via REITs and PPP models.

Looking ahead, three dimensions demand sustained inventions . First, national unification of environmental rights markets (e.g., water abstraction/pollution rights) to transform water-saving benefits into tradable financial assets. Second, multi-layered risk mitigation mechanisms (e.g., fiscal subsidies, insurance safeguards) to address long-term project risks. Third, global green finance collaboration to align water-saving standards with Belt and Road infrastructure, exporting Chinese solutions.

As policy tools evolve and financial innovations develop further, China’s water-saving industry will not only safeguard national water security but also pioneer a new global paradigm for water governance – a sustainable, economically viable model contributing to global climate resilience.

Dong Liang Shen , Visiting Scholar at the University of Glasgow, Focus areas: water marketization, water rights, water pricing, water resource taxes and fees, water conservancy construction funds, etc. Email : weibolu9@sina.com.cn. Cecilia Tortajada  is a leading international authority on urban water and wastewater management. She currently focuses on ensuring water future in terms of food, energy and environmental governance and ensuring water security through coordinated policies, which include water and natural resources management and water reuse. Asit K. Biswas is a leading authority on water, environment and development-related issues. He has been an advisor and confidant to Presidents, PMs and Ministers of 19 countries, six Heads of UN Agencies, two Secretary-Generals of OECD and several heads of IGOs and MNCs.

This article was published by CHINA WATER RISK, May 22, 2025.

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