Do energy shocks accelerate green credit? Evidence from Chinese banks in the Asian energy transition

This study examines how energy uncertainty shapes green credit allocation in China, a major Asian economy where banks play a central role in financing the low-carbon transition. Against the backdrop of rising energy-market volatility, geopolitical disruptions, and growing pressure to strengthen energy security, the paper investigates whether energy uncertainty constrains bank lending or encourages a reallocation of credit toward greener activities. To strengthen identification, the empirical strategy combines fixed-effects estimation with an instrumental-variable approach using geopolitical risk and dynamic panel GMM estimators, allowing endogeneity and persistence in green credit behavior to be addressed from complementary angles. Using a balanced panel of Chinese commercial banks, the results indicate that energy uncertainty significantly increases banks’ green credit ratios, suggesting that banks respond to energy shocks by reallocating credit toward environmentally sustainable sectors rather than uniformly reducing lending. This effect persists during energy shocks and periods of increased demand for green projects, indicating that the response is stronger among market-oriented banks, including joint-stock and city commercial banks, which appear more flexible in adjusting their loan portfolios. The study offers important implications for Asian economies seeking to align financial stability, energy security, and sustainable development objectives.