The paradox of green credit in China

The green credit policy has made remarkable achievements in energy saving, emission reduction and industrial structure optimization, however, due to the collusion between enterprises and local government, a huge gap exists between the reality and expectation in the process of policy execution. The collusion is the result of cooperative game through Nash bargaining. Banks, as agents in carrying out the green credit policy, offer preferential interest rate that influences the collusion. This paper analyzes the collusion and factors affecting its incidence on the basis of constructing the expected profit functions of both the enterprise and the local government. Meanwhile, we obtain the optimal volume of loans and offer several relevant suggestions for policy. (C) 2011 Published by Elsevier Ltd. Selection and peer-review under responsibility of RIUDS