THE surge in green investment in China continues to bolster growth, offsetting the drag from the beleaguered property sector. This pivot is essential to meet global climate targets but it also heightens geopolitical tensions, with headwinds from EV (electric vehicle) consolidation and excess battery capacity looming.
In 2024, green investment once again underpinned Chinese growth, driven by carbon reduction goals, energy security, and a push to lead in green technology. This surge included a record 275 gigawatt (GW) of new solar and 80 GW of wind capacity added, making renewable energy the largest driver of fixed asset investment for the second consecutive year. Investment in water conservation and environmental management also contributed significantly.
Conversely, investment in EV manufacturing moderated, and the contribution from solar and battery manufacturing swung from a strong tailwind to a headwind, reflecting substantial overcapacity.
Peering through the smog
China’s abrupt green pivot since 2023 partly reflects a need to counter the drag from real estate, but it also aligns with the country’s climate targets. As electrification continues at pace, China is likely to have already reached peak emissions or will achieve it very soon, well ahead of its stated 2030 target.
China’s announced “dual control” system for carbon emissions focuses on energy intensity and total emissions, with non-binding targets for absolute emissions until 2030. Details on the targets for its National Determined Contribution related to its Paris Agreement commitments, expected in the coming months, could be unambitious.
Despite this, there is a good chance these objectives will be reached early, as has been the case with China’s renewable agenda. However, emissions reduction will likely remain limited in this decade, as China continues to build coal power plants. The risk of stranded assets and subsidisation of coal power appear to be costs the authorities are willing to pay to guarantee energy security and manage renewable production variability.
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China’s industry craves power
China’s electricity consumption and generation capacity surpassed those of the US and the Eurozone combined in 2024, reflecting its energy-intensive manufacturing sector. Industries like semiconductors, aluminium, nickel refining and data centres require vast amounts of electricity. Renewable energy production also demands significant power, with polysilicon needing four times more energy per tonne than aluminium and 150 times more than steel.
The International Energy Agency (IEA) estimates that manufacturing green products alone accounts for 16 per cent of total electricity growth.
More broadly, China is witnessing dramatic electrification.
China’s domestic EV adoption has slowed, but long-term electrification of transport will require greater grid capacity as oil powers fewer cars. Rising living standards and temperatures are increasing household electricity use, particularly for air conditioning and electric heating. This suggests solid fundamentals for grid expansion, with potential for exporting excess capacity to neighbouring countries.
Green light, red light
A key question is whether China’s green drive can continue to support growth or turn into a headwind. Investment from EV manufacturing moderated in 2024, and significant consolidation is expected, which could weigh on automotive sector investment over the next few years. Excess capacity in battery manufacturing, which dragged on whole-economy FAI (fixed asset investment) in 2024, may worsen as developed markets reduce reliance on China.
Bloomberg NEF tracks 6.8 TWh (terawatt-hour) of annual battery manufacturing capacity for the end of 2025, with China alone accounting for nearly 5 TWh . Industry reports suggest CATL, the largest Chinese manufacturer, is operating at 60 per cent capacity, with smaller firms at 20 to 30 per cent. Industry standards aimed at culling low-quality capacity will likely amplify consolidation pressures.
The renewable energy rollout must continue to gather pace to support gross domestic product growth in 2025 and beyond. Data to February shows little sign of slowing down, and China may lean more heavily on green investment to counter the trade war with the US. However, China is changing the pricing system for new wind and solar projects from June, moving from fixed prices benchmarked on coal power prices to competitive auctions, which could slow the rollout.
The good news is that investment in grid and ancillary infrastructure could still support growth, even if renewable energy capacity stabilises or eases. China likely needs more ultra-high voltage (+800 kV) power lines to move renewable power from the West to the East, and investments in energy storage, such as solar, battery, and pumped hydro, will be crucial to keep the electricity system operating smoothly.
CarbonBrief noted that storage infrastructure under construction rose to 189 GW (+13 per cent) in 2024, while energy storage was included as an aim for the first time in the government work report presented at the “Two Sessions” .
Unsustainable surge in sustainable investment?
China’s push into green investment in 2023 and 2024 was remarkable. The number of EVs manufactured has almost doubled since 2022 to over 13 million, while surging investment in renewables means that more than half of China’s electricity generation capacity is green. However, the pivot away from real estate and into green investment raises the question of whether China is swapping one unsustainable form of investment for another.
Assessing the time horizons over which different aspects of green investment could support or weigh on growth is complicated. Some aspects of green investment are already dragging on the economy, while others may curtail investment soon. Considering a longer time horizon, the potential for EVs to rise from their current 20 per cent share to a much larger proportion of China’s auto fleet suggests green investment in transportation could still be a significant driver of growth.
We have little visibility on the Chinese Communist Party’s plans for investment in renewable power over the long run. China smashed through its 2030 target of 1,200 GW of solar and wind capacity, reaching 1,400 GW in 2024. The latest IEA Renewables 2024 report forecasts 4,800 GW of renewable energy capacity by 2030, more than triple its 2023 level. If correct, that would imply the renewable rollout would provide a strong near-term growth boost, as the installation of new capacity could still accelerate.
Our latest modelling work is more cautious, suggesting that such a fast pace of renewable capacity expansion would exceed fundamental demand. Regardless of the timescale and ambitions, the pivot towards renewable energy – which requires a greater amount of capacity to be installed relative to thermal power – suggests substantial expansion is the new norm. This modelling also assumes that coal-fired power capacity may continue to expand modestly over the next five to 10 years.
At some stage, the renewables’ rollout will need to slow, but grid capacity and ancillary infrastructure needs will still have to catch up, providing more long-lasting support to growth. The IEA World Energy Investment report expects investment into grid and storage to almost triple. If correct, green investment should continue to support growth over the coming years.
Robert Gilhooly is senior emerging market economist and Alexandre Popa is sustainable investment analyst, Aberdeen Investments