China should take a gradual approach pulling back financing to high-emission industries in order to avoid credit risks, state bank chiefs said Saturday.

Financial institutions need to support coal and steel companies to upgrade their technology to reduce emissions, even as they stop financing any further expansion of capacity, said Zhou Xuedong, executive vice president at China Development Bank, at a panel during the International Finance Forum in Beijing.

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“These [high-emission] industries have significant outstanding credit, and an exit of financing that’s too fast could lead to the deterioration of bank assets,” said Zhou. “This is a gradual process.”

China has pledged to become carbon neutral by 2060, which would require a drastic shift from fossil fuel to renewable energy. This has raised the question of how the financial sector can contribute to this goal without risking financial stability.

A hasty withdrawal of financing to coal companies would result in losses for both the companies and the banks that have lent to them, said Liu Jin, president of Bank of China, at the same panel. Banks should provide financing to companies’ green transformation as they pull back credit support, he said.

— With assistance by John Liu, Qizi Sun, and Yujing Liu

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