This Is China’s Not-So-Dirty Secret About Growth

This Is China’s Not-So-Dirty Secret About Growth
Reda Farran, CFA

16 days ago2 mins

If China seems enthusiastic about green tech, it shouldn’t come as a surprise: if not for clean energy, its economy would be a lot more lethargic.

The country’s been shoveling tons of money into its green sector in recent years, with a heavy emphasis on its “new three” industries: solar power, batteries, and EVs. To put the scale of the investment in perspective, consider this: China poured $890 billion into clean energy last year – roughly as much as the amount spent on the fossil fuel supply globally. It’s paying off at home, with the green surge providing a new lease of life to China’s investment-led economic model and helping to partially fill a massive gap left by the shrinking real estate sector.

China’s clean energy sector (orange and pink blocks) contributed a record 11.4 trillion yuan ($1.6 trillion) to China’s economic output in 2023, with the “new three” industries the biggest drivers (orange), according to the Finland-based Centre for Research on Energy and Clean Air (CREA). That meant the entire clean energy sector – an umbrella into which CREA also sweeps wind and other renewables, plus nuclear power, electricity grids, and railways – accounted for a staggering 40% of China’s economic growth last year.

Here’s how big that is: without the contribution of the clean energy sector, China’s economy would’ve grown by just 3% last year, instead of 5.2%, according to CREA’s calculations. And that would’ve left it significantly short of the government's 5% growth target at a time when concerns over the nation's economic outlook are intensifying.

The investment and its payoff have been more than just well-timed: China’s green surge may further cement the country’s dominant position in clean energy supply chains. What’s more, the unprecedented manufacturing boom it’s created has already pushed down prices of solar panels, EVs, batteries, and more. That, in turn, could encourage faster take-up of clean energy technologies around the world.

But on the flip side, China’s new dependence on the green economy could run into trouble if it ends up overproducing. Put differently, the threat of overcapacity means China’s stepped-up spending on clean energy – and its investment-driven economic model in general – can’t continue indefinitely.

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