Chinese Firms Pour Billions Into Green-Energy Tsunami
Some analysts say outbound investment push is a win for decarbonization, others fear it is simply flooding the West
Chinese companies are pouring billions into clean-energy technology in an investment push some analysts say is a win for decarbonization. But the “green tsunami” also faces geopolitical barriers as China’s trade tensions with the West mount.
The political reality of having Chinese companies take the lead in the climate-change fight seems daunting, but the environmental benefits could outweigh political concerns, the analysts say.
“China’s growing domination of cleantech manufacturing and export supply chains is clearly a geopolitical issue the U.S. and the Western world can’t continue to ignore,” said Tim Buckley and Annemarie Jonson at Sydney-based think tank Climate Energy Finance.
“It is far from a secure, sustainable position for any country to dominate 80% to 90% of global market supply of anything,” they told The Wall Street Journal after CEF released a report on the surge in China’s outbound foreign direct investment into clean energy.
However the reality, according to Buckley, director and founder of CEF, is that China’s leadership in research and development, innovation, manufacturing and export in almost every sector of decarbonization technology means it is now in that dominant position in battery materials and solar manufacturing.
And it is quickly moving into pole position in other clean-technology spaces as well, including electric vehicles.
The report comes at a time of growing tensions between China and the West as the U.S. imposes sweeping trade tariffs on Beijing in a bid to protect its local industries from what it views as unfair competition.
CEF estimates that Chinese companies have committed more than $100 billion in outbound foreign direct investment since 2023, marking what it says is a pivot in how the country directs its green funds.
Chinese corporations are taking their traditionally domestically focused investment and deployment of energy-transition technologies global, the think tank said in the report published this week.
However, these cleantech initiatives face increasingly unfriendly reception abroad.
“Rising anti-China sentiment fanned by domestic political rivalries in the U.S. is undermining the willingness of Chinese firms to build new factories in the U.S., and their ability to deliver those investments they do propose,” Buckley and Jonson said.
They pointed as an example to battery maker Gotion High Tech, which has been trying to build a multibillion-dollar lithium battery-components manufacturing plant in Michigan. The effort has faced stiff resistance from locals and lawmakers.
China’s development model has tended to create overcapacity in fields policymakers deem to be strategically important, drawing criticism from those who say the practice has given it an unfair advantage in industries like electric vehicles. The clean-energy industry has been a top priority for Beijing, forming part of the economic growth drivers dubbed the “new productive forces” as it looks to pivot away from traditional engines of growth like the property sector to revitalize its economy.
Global clean-energy investments surged from $248 billion in 2014 to $745 billion in 2023, research firm and consultancy Rystad Energy calculates. During that time, China has deployed more clean-energy technologies than all other countries combined, it said in a recent analysis.
“In most fields of clean energy, China is now either at or near the technology frontier,” said Anders Hove, senior research fellow at the Oxford Institute for Energy Studies, an independent research institute based in the U.K.
The push has drawn criticism from the West. The U.S., Canada and the European Union have been raising tariffs on China-made goods like electric vehicles, in a bid to protect against what officials see as unfair competition. Beijing has defended its industrial policies, saying they are in line with the principles of a market economy.
Concerns about China’s dominance in renewables could have a silver lining, analysts say, and there are lessons to be learned for those who want to catch up.
While China’s success in clean energy is indeed due in part to state support, narratives fixated on an uneven playing field created by government subsidies are simplistic, Hove wrote in a research paper published in July. Such views overlook factors like the role of entrepreneurship and the importance of industrial clusters, he said. These Silicon Valley-like concentrations of businesses played a key role in scaling up China’s clean-energy manufacturing, spurring innovation and lower costs.
“While policy and subsidies encouraged entrepreneurs, risk-taking and business innovation fed back into the design of such policy, rather than just following the government’s lead,” Hove said. Talent, human capital and entrepreneurs were instrumental, he said.
China’s leadership in the renewable equipment manufacturing scene highlights more of an operational risk than a geopolitical risk, said David Thoo, a senior analyst at BMI, a unit of Fitch Solutions. Since the bulk of such equipment is made there—for example over 80% of all solar-manufacturing equipment—there is potential for delays in renewable power projects worldwide if supply chains are disrupted.
From what BMI has observed, the expansion plans of Chinese clean-energy firms, mainly solar equipment makers, in Western markets are limited. They are mostly setting up in Southeast Asia, Thoo said. However, if the main goal of such facilities is to manufacture equipment for export to the U.S. or markets with high tariffs, they will face challenges, he said.
“With the rise of protectionist policies and funding schemes to encourage domestic manufacturing of renewable equipment, we may see some sorts of ‘trade alliances’ that aim to reduce China’s dominance,” he said.
From a decarbonization point of view, China’s aggressiveness in clean energy seems to have a silver lining.
The scale of China’s investment has had a profound impact on the global energy transition, creating a ripple effect by pressuring other countries to develop their own cleantech manufacturing capacity, said Lars Nitter Havro, head of energy macro at Rystad Energy.
“The results are clear: As China ramped up its cleantech investments, the rest of the world followed in quick succession,” he wrote in a commentary.
As other regions catch up, China’s investment lead could narrow and may fade entirely by 2027, Havro said.
Until then, tackling the climate crisis may need to take precedence over trade concerns, some analysts say.
China’s progress in reducing the costs of producing batteries and solar panels supports more rapid decarbonization globally, and should also help competitors make faster progress as well, said Albert Park, chief economist at the Asian Development Bank.
“Supply chain diversification does not require tariffs,” he said.
While recognizing the need to maintain fair competition in trade, given the global urgency of meeting the climate challenge, ADB encourages all countries to reduce barriers to trade in environmental goods and services as much as possible.
China has delivered the goods, but trade barriers are making cost-competitive, cutting-edge clean technologies less accessible, said Buckley and Jonson at Climate Energy Finance, calling for a market-driven, pragmatic approach to the global energy transition that goes beyond geopolitical rivalries.
“In our view, China’s cleantech overcapacity—the ‘flooding’ of the market the U.S. has criticized—is more appropriately framed as under-deployment. It is the world’s great decarbonization opportunity,” they said.