China's central bank said it is working together with local governments to develop five new green finance pilot zones, an initiative that will help fund the country's fight against pollution－which some analysts have estimated will cost over 3 trillion yuan ($440 billion) annually in investment.

The central bank said a State Council executive meeting earlier in the month approved a plan for setting up the five green finance pilot zones in Zhejiang, Guangdong, Guizhou and Jiangxi provinces, as well as in the Xinjiang Uygur autonomous region. The zones are designated regions where financial institutions will be given incentives to issue loans to and fund environmentally-friendly industry.

People's Bank of China Vice-Governor Chen Yulu said they were considering two new methods to encourage financial institutions to participate in the construction of the new pilot zones.

"We will regard green credit assets with qualified ratings as collateral, a move to encourage banks to issue green loans," Chen said.

"The other method is to put financial institutions' green credit performance evaluations into the Macro Prudential Assessment system, which is also an important stimulus for financial institutions."

Chen added that the PBOC will support and encourage green finance products and service innovation in the pilot zones. Short-term green investment projects can rely on credit, and medium and long-term ones with steady cash flow can consider issuing bonds, he said.

The bank will also step up the pace of perfecting a green finance mechanism, including setting up standards for green credit and green bonds as well as building a green credit system.

Chen said the pilot zones have been selected in eastern, central and western areas that are at different stages of economic and social development.

"The cities of Huzhou and Quzhou in Zhejiang province, for example, will focus on industrial transformation," said Chen.

"Guizhou province will take advantage of its green resources to develop green finance in key areas of modern agriculture, clean energy and big data," the vice-governor added.

Guizhou is active in the process and its government put forward a plan for developing green finance and promoting green resource capitalization at the start of 2016.

In April last year, Gui'an New District in Guizhou province applied tor be a green finance pilot area. In November, the Guizhou government released a guideline to support financial institutions developing their green finance business and encouraging green companies to go public.

By the end of last year, Guizhou province had supported 836 energy conservation and environmental protection projects and the loan balance totaled 140.1 billion yuan ($20.6 billion). Among them, the Guiyang branch of the Industrial Bank issued green loans totaling 12 billion yuan.

Li Yao, director of Guizhou government's finance office, said they will largely promote green companies going public, issuing green bonds and developing green industry funds.

Lu Zhengwei, chief economist of the Industrial Bank Co Ltd, said each of the five regions has its own conditions while building a green finance system. Local governments can work with financial institutions to explore innovative mechanisms in the pilot zones.

"China's green finance will proceed more easily with experience in innovation learned in pilot zones," he said.