China’s Green Economy in Action and What Does This Mean for Foreign Investors?

In the face of the attendant repercussions of climate change such as more extreme weather events (drought, heatwaves, cyclones) and decrease in agricultural productivity leading to food insecurity, many countries have pledged to shift towards a greener economy.

China is no exception either and is in fact, leading the world in the deployment and investment in renewable energy. China is currently the world’s largest producer of wind and solar energy, as well as the largest domestic investor in renewable energy. As of 2017, China owns five of the world’s six largest solar-module manufacturing companies and is the world’s largest wind turbine manufacturer. Furthermore, as outlined in the 14th Five Year Plan period (2021-2025), China intends to raise new-energy installed capacity to more than 50% of its total installed power generation capacity to meet its goal of achieving carbon neutrality by 2060.

Additionally, China seeks to expand international cooperation in tackling global climate change. China invests in renewable energy projects in countries and regions along the Belt and Road Initiative (BRI), has its hydropower projects distributed to various countries, and provides over 70% of PV equipment in the international market. According to BRICS New Development Banks, China also leads by investing in international renewable energy products, giving its first round of loan-term green loans for clean energy projects funding.

China’s commitment to transition into a greener economy can be attributed to the following reasons:

Health and economic incentive

Transitioning to renewable energy serves as a solution to tackle China’s air and water pollution. According to the National People’s Congress’ (NPC) Environment Committee, fossil fuel energy production contributes to 90% of the country’s sulfur dioxide emissions. Furthermore, according to RAND Corporation, in 2012, air pollution cost China approximately $535 billion in losses due to decrease in labour productivity, amounting to 6.5% of China’s GDP. Therefore, China’s move to invest heavily in renewable energy and decrease reliance on fossil fuel has both health and economic advantages.

Ecological and geopolitical incentives

There exists a global consensus on the urgent need for countries to shift towards a greener economy, with multilateral environmental agreements put in place to provide a guideline and overall framework of environmental laws and conventions to be agreed upon by participatory countries. Under these agreements, strategies can be implemented on a national scale to tackle the root cause of climate change - enhanced greenhouse effect, focusing on reducing carbon emissions while increasing carbon sinks and efficiency, often via top-down approaches. Therefore, with China being the world’s leading emitter of greenhouse gases, China’s commitment to greener energy production is critical for the international commitment of peaking carbon dioxide emissions by 2030.

Furthermore, by reducing reliance on fossil fuels and developing its own renewable energy sources, China can mitigate geopolitical tensions by making itself less reliant on unstable regions for energy security. This is a strategic move since the availability of wind and sunlight exceeds that of fossil fuels, allowing China to eventually be self-reliant when domestically-produced renewable energy makes up majority of its energy mix.

What does this shift towards a greener economy mean for foreign investors looking to invest in China? Despite, the high market share of domestic companies in China’s renewable energy market, there still exists strategic benefits in investing in China’s green energy and cooperating with the Chinese in R&D of new-energy technologies. Chinese energy sector prioritizes innovative, advanced technologies., with quality playing a bigger importance in boosting competitiveness as compared to price. China is developing a green bond market to finance the new-energy sector, with US$15.7 billion worth of green bonds being sold in Q1 of 2021. Additionally, green energy related ETFs have outperformed other broad-based ETFs, with seven out of the ten best performing ETFs to be green energy themed products in the first half of 2021, according to Wind Info data.

In conclusion, the renewable energy sector is definitely one investors should pay attention to given its large development potential. If your company has an innovative technology which you think will benefit the Chinese renewable energy sector, feel free to contact us at info@summeratlantic.com for a free evaluation of your company’s technological potential in the Chinese market. Summer Atlantic Capital is committed to providing tailored solutions to address the challenges of foreign companies seeking to enter the Chinese market as well as maximise your company’s shareholder value.

Thank you for reading and we look forward to working with you!