China’s Clean Energy Sectors Propel Economic Growth

China’s clean energy sectors, including renewables, nuclear power, energy storage, electric vehicles (EVs), and railways, have emerged as the sole drivers of investment growth, contributing to 40% of the country’s GDP expansion in 2023, reveals a report by the Centre for Research on Energy and Clean Air (CREA). However, the report also warns of potential overcapacity and weakening profitability risks.

Key Highlights:

1. Clean Energy Dominance: According to CREA’s analysis, China invested a staggering 6.3 trillion yuan (US$890 billion) in clean energy in 2023, marking a 40% YoY increase and surpassing global investment in fossil fuels. Clean energy sectors, responsible for around 40% of China’s GDP expansion, have become the primary contributors to economic growth.
2. Economic Pivot: The report highlights a major shift in China’s economic landscape, with clean energy sectors overshadowing traditional drivers like real estate. Clean energy’s contribution to the Chinese economy in 2023 reached 11.4 trillion yuan, a 30% YoY increase.
3. GDP Target Impact: The boom in clean-energy investments compensated for the decline in the real estate sector, preventing China’s GDP from falling short of the government’s growth target. Without clean energy’s contribution, GDP would have grown by only 3%, missing the 5% target.
4. Investment Dynamics: While overall investments in China grew modestly by 1.5 trillion yuan in 2023, the clean energy sectors were the sole contributors to this growth. Analysts attribute this shift to changes in China’s economic and industrial policy, as well as the country’s focus on energy transition and climate efforts.
5. Concerns of Overcapacity: Despite the success, the report warns that the current clean-energy investment growth and China’s investment-driven economic model may face challenges in the long run. Overcapacity and weakening profitability, particularly in solar PV, wind turbines, and EV manufacturing, pose risks to sustained development.
6. Global Impact: China’s clean-energy achievements in 2023, including record-breaking solar PV installations and a 66% YoY growth in wind turbine capacity, have positioned the country as a global leader in renewables. However, domestic competition and external challenges, such as tariffs from the EU and the US Inflation Reduction Act, threaten the clean energy sector’s growth.
7. Future Outlook: While the report anticipates continued growth in clean energy investments in 2024, concerns about manufacturing overcapacity persist. The oversupply may lead to a decline in profitability, impacting manufacturers and investors in the sector. Analysts emphasize the need for sustainable growth and the importance of addressing overcapacity issues.

China’s commitment to achieving 80% non-fossil fuel in its energy mix by 2060 remains a driving force, but experts warn that managing overcapacity will be crucial for ensuring a healthy and sustainable clean energy sector in the long term.