This study examines the asymmetric impact of climate policy uncertainty (CPU) under heterogeneous stock market conditions in the Chinese stock market. The study adopted two econometrics techniques of panel generalized autoregressive condition heteroscedasticity and panel quantiles via moment models. The results show that the markets’ response to CPU is homogeneous and varies across bearish, normal, and bullish conditions. The findings established that CPU is a risk factor, and its pricing is asymmetric as it depends on market conditions. The results also suggest that CPU is one of the predictors of future returns, but the forecast may be largely driven by market conditions. The study further shows how market’s response to CPU varies which often complicates prediction as the direction of response is determined by the market’s condition.