China’s clean energy sectors were the biggest drivers of its GDP growth in 2023: CREA

China’s clean energy sectors were the biggest drivers of its GDP growth in 2023: CREA

China’s clean energy sectors were the biggest drivers of its GDP growth in 2023: CREA

Sectors related to clean energy were the biggest contributors to China’s economic growth in 2023, accounting for around 40 per cent of China’s GDP expansion last year, which analysts say is a “major pivot” in the world’s second-biggest economy.

China invested an estimated 6.3 trillion yuan (US$890 billion) in clean energy in 2023, a 40 per cent year-on-year increase, an amount equivalent to the global investment in fossil fuels last year, according to an analysis published by the Helsinki-based Centre for Research on Energy and Clean Air (CREA).

“China’s reliance on the clean technology sectors to drive growth and achieve key economic targets boosts their economic and political importance. It could also support an accelerated energy transition,” the researchers said in the report.

Investments in China grew by just 1.5 trillion yuan in 2023 overall with sectors such as real estate witnessing a decline in investments, clean energy sectors, including renewables, nuclear power, electricity grids, energy storage, electric vehicles (EVs) and railways, accounted for all of the investment growth across the Chinese economy, the report said.

Photo shows maintenance personnel driving trough the solar panels and wind turbines of Wind, Solar and Fishing Base in Dongtai near Yancheng, Jiangsu province, China. Photo: EPA-EFE

Including the value of goods and services, clean-energy sectors contributed 11.4 trillion yuan to the Chinese economy in 2023, up 30 per cent year-on-year and representing 40 per cent of the country’s GDP expansion, CREA’s analysis of official figures, industry data, and analyst reports showed.

The boom in clean-energy investments, particularly in solar power, electric vehicles (EVs) and batteries, came as China’s real-estate sector, once the country’s key economic driver, shrank for the second year in a row. Without the contribution of clean energy sectors, China’s GDP would have missed the government’s growth target of around 5 per cent, rising by only 3 per cent instead of 5.2 per cent, according to CREA.

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The shift in investment flows towards clean-energy sectors is a result of not just China’s energy focus and its climate efforts, but also changes in its broader economic and industrial policy, the researchers said.

However, they warned that China’s clean-energy investment growth and its investment-driven economic model cannot continue indefinitely, as overcapacity and weakening profitability could hinder the clean-energy industry’s healthy development.

The EV industry also faces intense domestic competition, and there are risks of headwinds in the overseas market following the European Union’s decision to impose tariffs targeting China-made EVs and the enactment of the United States Inflation Reduction Act, which seeks to reduce reliance on China to support its own EV supply chain.

In 2023, China commissioned as much solar PV capacity as the entire world did in 2022, while its wind turbine capacity also grew by 66 per cent year on year, according to data released by the International Energy Agency (IEA) last week. The country currently accounts for almost 60 per cent of new renewable capacity that is expected to become operational globally by 2028, and is seen accelerating the expansion of its renewable capacity, according to IEA.

Even if the frenetic expansion pace of 2023 is not repeated, the investment in clean energy and the value of the economic output of the clean energy sectors are expected to continue to grow this year, according to Lauri Myllyvirta, lead analyst at CREA.

“There is still a lot of investment in the pipeline,” he said. “Even as the demand for clean energy technology grows, it seems inevitable that the manufacturing overcapacity issue will worsen as more production capacity comes online rapidly.”

The oversupply provides a tailwind for end users and helps in China’s energy transition, as it will continue to push down prices, but it also means more manufacturers and investors in the clean energy sectors will suffer from weakening profitability, he said.

However, there is still enormous “undercapacity” in the clean electricity and transport sectors, as China still has a long way to go in delivering its goal of sourcing 80 per cent of its total energy mix from non-fossil fuel by 2060, the year the country aims to achieve net-zero greenhouse gas emissions.

“The major investment that China has made into manufacturing capacity should be an additional motivation to ensure healthy growth of the domestic market for clean electricity, grid-connected batteries, electric vehicles and other essential technology of the zero-carbon energy system,” said Myllyvirta.

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