Understanding financial stability through the lens of geopolitical risk in China: The influence of policy uncertainty on climate change

The global political and economic landscape is rapidly evolving, with increasing geopolitical risks and climate-related fluctuations. This study analyzes the impact of geopolitical risk, economic and trade policy uncertainty, and disaggregated financial development on greenhouse gas (GHG) emissions in China from 1997–M1 to 2024–M12, using quantile-on-quantile regression and cross-quantilogram methods. The empirical findings reveal that geopolitical risk has a mixed impact on emissions, depending on economic conditions. Also, economic policy uncertainty consistently raises emissions, similarly trade policy uncertainty is positively associated with emissions, especially at higher quantiles. Moreover, financial development generally increases emissions, with financial institutions amplifying this effect. However, financial market development reduces emissions at lower quantiles but increases them at higher ones, signifying a dual influences. To effectively tackle climate change, China should embrace a holistic policy approach that weaves together economic, financial, and geopolitical strategies. This includes adopting carbon pricing and green subsidies, steering investments through strong ESG standards, expanding access to climate finance, and deepening international cooperation to drive a just and inclusive low-carbon transition.