China set to become world’s largest supplier of energy transition equipment

Decarbonization goals will transform manufacturing and energy sectors in China, set to become the world’s largest supplier of energy transition equipment

Producing 70% of the world’s solar panels and 40% of wind turbines, China’s new solar power installations account for 37% of the global total (2020), cumulative wind power capacity grew 35% from last year, and new electric car sales grew by 170%

The following is an extract from an article in the South China Morning Post.

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Decarbonization goals will transform manufacturing and energy sectors in China

The recent power outages and forced production stoppages in many parts of China may suggest a bumpy road ahead for its carbon goals. But observers should not confuse the clumsy local implementation of environmental goals with an absence of conviction at a national level.

Beijing is serious about reaching its goals of peak carbon by 2030 and carbon neutrality by 2060. It sees the move towards being a low-carbon society as a driver of a radical upgrading of its manufacturing and energy sectors.

It is intended to open new avenues for investment as growth slows in traditional areas such as real estate and fixed-asset investment. In short, China appears clear-eyed in pursuing decarbonisation for the sake of its long-term interests.

Decarbonization of Industry | Viridis

Indeed, the rest of the world should understand the importance of China’s participation in solving the problem of global warming. China is not only the world’s fastest-growing large economy; it is top-heavy with heavy industry.

For example, it produces considerably more than half the world’s crude steel, cement and aluminium, and accounts for around half of global coal, copper and nickel consumption. This dominance is, in part, a consequence of the rest of the world outsourcing so much of its manufacturing to China.

To that extent, consumers everywhere own a share of China’s carbon emissions – last year, to take just a few examples, 88 per cent of the world’s mobile phones, 82 per cent of air conditioners and 70 per cent of TVs were made in China.

All of the above underpins the country’s position as the world’s largest emitter of greenhouse gases.

The promise of a new investment driver is not a shallow one. Chinese think tanks estimate the shift to decarbonisation will generate 100 trillion-130 trillion yuan (US$15.6 trillion-US$20.3 trillion) in investment in the coming decades, adding around 0.6 per cent to gross domestic product growth annually for the next decade. Those are meaningful percentages, especially as China’s GDP growth numbers slow.

Some of that investment will pour into already booming sectors such as solar, new energy vehicles and wind power, the building blocks of China’s carbon reduction drive.

Take solar modules, where China dominates the global supply chain by producing around 70 per cent of the world’s output. New solar power installations in China accounted for 37 per cent of the global total last year, up from just 2 per cent in 2009.

In the next few years, China is expected to install 60-100 gigawatts of solar power annually. This would roughly amount to three to five times the generating capacity of the Three Gorges Dam, the world’s largest hydropower plant.

And, as all major economies come under increased pressure to raise the share of green energy they use, China’s solar exports, leveraging the scale of its domestic market, are set to grow strongly. Exports may rise by 20 per cent this year alone, according to industry contacts.

China is planning provincial quotas for clean energy ...

In wind power, China’s cumulative capacity is growing at 35 per cent year on year, while the country holds about a 40 per cent share of the wind turbine market globally.

New energy vehicle (NEV) sales are booming in China, up 170 per cent year on year, to the end of September. China accounted for over 40 per cent of NEV sales globally, as of the first half of the year.

It is worth noting that, not that long ago, all three of these sectors were niche industries heavily reliant on government subsidies. Today, not only have they grown substantially, and for the most part stand on their own feet, they also offer a long runway of future growth for Chinese manufacturing.

The COP26 climate meeting in Glasgow is likely to produce a plethora of pledges from the leading industrial nations and others to invest even more in green energy. China plans to supply much of the equipment to meet these goals.

Conversely, many traditional industries such as steel and cement are nearing peak production. This year, China’s National Development and Reform Commission seeks to limit steel production to the same volume as last year, while major steel mills expect China’s total steel output to peak around the middle of the decade.

In addition, Beijing has for years mandated that the amount of energy used per unit of industrial output be steadily trimmed. Steel and cement production, and now increasingly other high-energy-consuming industries such as chemicals, are the focus of the central government’s capacity curtailment.

SOURCE: South China Morning Post,  29.10.2021

Author: David Murphy is a managing director and head of China Quantitative Insight (CQi) at Credit Suisse. Previously, Mr Murphy led CLSA’s China Reality Research (CRR) group, which he co-founded in July 2005 to provide grass-roots economic insights on China. In 1995, Mr Murphy moved to Beijing where he built a career in journalism and wrote for numerous regional and international publications. He is a graduate of Trinity College Dublin.

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