Green transition is the topic of the time in the west.
Both the United States, United Kingdom and European Union have pushed renewable energy, electric vehicles and net zero at the top of their agendas in the last five years, with resolutions made at COP28 tripling down upon commitments made during the Paris agreement further exemplifying this global transition. Despite this global initiative being largely diplomatically led by the west, the real victor in this transition is China. China has become the Green Dragon”, a manufacturing powerhouse supplying the vast majority of the world’s newfound demand for renewables, furthering its economic growth and increasing global reliance on Chinese trade in the backdrop of the US-China trade war. By accepting China as the green economy hegemon the west would be left at the mercy of Beijing, becoming reliant on Chinese technology to build and maintain a net zero economy. In this article our analysts assess the extent of Chinese dominance of the green industrial sector, the consequences of said dominance and policy options that could be explored by western governments to mitigate the resulting political and economic risks.
Seven years ago, Elon Musk stated at the National Governors Association that China’s environmental policies were “way ahead of the US” with their mandate for renewable energy and EVs “far exceeding the United States” and being the “most aggressive proponent on Earth”. In 2024 this truth is clearer than ever.
China accounts for about 80% of total solar global module manufacturing capacity. The world installed 417 GW of solar generation last year, almost twice as much as in 2022. China accounted for more than half of that, adding more in one year than the entire solar generation capacity of the US. Similarly China has by far the world's biggest wind turbine production capacity, or 60% of 163 gigawatts (GW) in 2023, says Brussels-based industry association Global Wind Energy Council. Production capacity in Europe and the United States, by contrast, stood at 19% and 9% respectively. Reports find that the amount of wind and solar power under construction in China is now nearly twice as much as the rest of the world combined. Clean-energy investment rose 40% year-on-year to 6.3tn yuan ($890bn), with the growth accounting for all of the investment growth across the Chinese economy in 2023, a total which is almost as large as total global investments in fossil fuel supply in 2023 – and similar to the GDP of Switzerland or Turkey. Clean-energy sectors, as a result, were the largest driver of China’ economic growth overall, accounting for 40% of the expansion of GDP in 2023 and without the growth from clean-energy sectors, China’s GDP would have missed the government’s growth target of “around 5%”, rising by only 3.0% instead of 5.2%.
In contrast, solar and wind energy manufacturing with the EU is on a sharp decline. Formerly the global leader in solar cells and wind turbines, both industries are struggling to compete with the low manufacturing cost and massive government subsidies provided by China, resulting in mass layoffs and company closure. Germany’s largest solar manufacturer, Meyer Burger, produced its last module, a spokesperson for the company told POLITICO, after a lack of public support from Brussels and Berlin. The company is in the process of laying off its 500 workers. Similarly European market share in Wind Turbine installation has declined from 55% to 42% in 2022, while China’s rose from 37% to 55% inflicting billions in losses on its leading wind power players, including Denmark’s Vestas and German-owned Siemens Gamesa, forcing them into drastic cost cuts. China’s open-door opportunity to provide its renewable energy production products to Europe has thus been fatal to European renewables manufacturing something which now the EU is scrambling to rectify. The EU wishes to reduce its dependence on China by increasing its solar manufacturing capacity to 30 gigawatts by 2030 in the backdrop of hitting net zero by 2050. However the EU now relies on China for over 80 percent of its solar energy imports, a figure which is following suit in the wind turbine industry also, indicating that the EU will be unable to achieve net zero without the use of Chinese imports which are far cheaper than EU domestically produced products.
Similarly in the US the domestic renewable energy industry is struggling to compete with the influx of Chinese alternatives. According to Reuters, Chinese companies will have at least 20 gigawatts' worth of yearly solar panel production capacity in the US within the next year, enough to serve around half the US market. Meanwhile US manufacturer Convalt is struggling to bring online a 10 GW capacity factory in upstate New York in 2022, as progress halted last year when global panel prices plunged 50% to levels below Convalt's production cost. The situation is so dire that solar panel companies have begun lobbying the US International Trade Commission to consider a request to impose new tariffs on some solar imports. The wind turbine industry in the US is also facing similar challenges. The cost of chinese wind turbine production is now ⅕ of the US domestic alternative making them far more attractive to new wind farm developers. The Biden administration’s attempt to create support for clean energy via the promise of jobs in their 2022 Inflation Reduction Act has thus failed. Without significant subsidies and potentially tariffs on the import of Chinese green energy equipment, the US will struggle to begin to compete with Chinese manufacturers.
Solar and wind energy is just the tip of the iceberg however when it comes to Chinese dominance of manufacturing products required for net zero. China is also the global leader in Lithium-Ion batteries and their dependent product Electric Vehicles (EVs). Currently China produces 86% of Lithium-Ion batteries and around two thirds of EVs globally. The demand for lithium-ion batteries has increased with the demand for net-zero and sustainability initiatives, with global requirements projected to increase from 700 GWh in 2022 to approximately 4.7 TWh by 2030. The two largest contributors to this increased demand are energy storage for renewable energy and EVs to meet net-zero initiative targets. The nature of most renewable energy is a dependence on natural conditions, namely weather, forcing the creation of large-scale battery farms to store excess energy to be utilised in peak times. This demonstrates China’s dominance over the three largest manufacturing aspects necessary to achieve green economies, forcing nations to cooperate with China on trade to meet their targets. However the rise of China’s EV industry has been a fairly recent one.
By 2030, it’s expected that up to 90% of passenger car sales in certain countries will be EVs. Initiatives like Europe's “Fit for 55” program, the US Inflation Reduction Act, and the 2035 EU ban on internal combustion engine vehicles underline a global regulatory shift towards sustainability. India’s scheme for the faster adoption of hybrid and electric vehicles is also a crucial driver. China has been a darkhorse player when it comes to the EV market, with it historically being dominated by the US, Germany and Korea. However, the rise of BYD, China’s largest EV company, has created a global brand for the Chinese EV industry to cement itself as a major exporter. In 2019 BYD sold only 409,421 units, while in 2023 they sold 3,024,417, a 739% increase in the last four years. 242,765 units were exported outside of China to over 70 countries on six continents, a 34.2% increase over 2022. This explosion in sales is in large part to significant Chinese government subsidies and the increase in global EV demand. Previous estimates of Chinese subsidies by the Kiel Institute for the World Economy suggested BYD received $2.1bn in 2022 alone, according to public filings. BYD has also benefited heavily from China's generous electric car grants allowing them to see record high profits domestically which they have been able to use to expand into other global markets. However, we should not discredit BYD’s technological innovations in the EV space. BYD’s Blade Battery, introduced in 2020, showcased the company’s commitment to innovation, featuring increased battery density, new safety features and improved efficiency. These factors also contributed to an increase in export sales and consumer trust in western markets which are sceptical of EV safety and the quality of Chinese manufacturing. The opening of a flagship BYD showroom in Mayfair, London next to the likes of Rolls Royce, Bentley, Ferrari and Lotus also reflects a concerted effort to create a truly global and trustworthy brand out of BYD to contest the likes of Tesla and Hyundai-Kia. In addition, BYD’s lower price point as a result of their vertical integration strategy, which allows for cost-effective production and control over the supply chain, makes it a necessary competitor for western markets which are trying to promote new EV sales, despite their relatively high cost to the average consumer. It also appears BYD is prepared for potential tariffs as Matthias Schmidt, a Berlin-based EV analyst reports that BYD’s “ambitious pricing” is “presumably designed to soak up any rise in European tariff increases”.
The rise of the Chinese “Green Dragon” has major geopolitical consequences.
The first of which is a diminished US presence in the South China Sea. The TRA (Taiwan Relations Act) signed in 1979 committed US support to Taiwan and acts as one of the main obstacles impeding a Chinese takeover of the island. If China were to launch an invasion the US would come under serious pressure to honour the TRA. It is also important to note how the US relies heavily on Taiwan for its semiconductor production. It is commonly believed in Taiwan that as long as TSMC (Taiwan’s largest semiconductor manufacturer) remains active, the US will continue its support. The relationship between Taiwan and the US is a complex one that serves both the economic and geopolitical security interests of both countries. However, with pressure to appease a voter base seeking net-zero by 2050, a Kamala Harris led administration would be forced to place the TRA into serious jeopardy. China’s dominance over the renewable energy market has left the US increasingly reliant on China for renewable products. Therefore, in order for Harris to deliver on her promise of achieving net-zero, it is essential that an ongoing trade war is not escalated with China. A Chinese trade embargo could cause detrimental damage to Harris' ambitions of a net-zero America. If Harris were to win the US election, her administration would be immediately placed into a ‘rock and a hard place’ situation. A choice must be made between the continued support of Taiwan and the attached trade value, or, pursuing her promise to achieve net-zero by 2050. A failure to achieve either is likely to lose voter faith
The second consequence to note is China’s ability to enforce influence over developing countries. Developing economies are also moving towards renewable energy, partly due to UN charters but also to create energy independence. In 2023 imports of Chinese solar panels into South Africa more than doubled, witnessing an increase of 187%. This trend is likely to continue as China further stands out as the main player in renewable energy products. As the second and third world transition towards renewable energy the non-renewable suppliers must be replaced. A large majority of companies supplying oil and gas to the developing world are western and consequently China is able to inflict significant damage onto EU and US companies with influence in the developing world. China has the opportunity to utilise its dominance over renewable products and capitalise on a global push towards renewable energy. This heavy reliance on China for renewable energy forces developing countries into accepting Chinese favourable trade policies. By further increasing its influence in the developing world, China’s ‘Green Dragon’ not only achieves trade growth, but also cripples western competition and influence in the process.
A third consequence worth mentioning is the impact of Chinese goods being used as a backdoor and/or military asset inside the western powers. The 2024 Lebanon pager explosions demonstrate the effectiveness of compromised consumer goods in achieving military aims and causing economic and psychological damage. The event is the first of its kind on the major global stage and has not gone unnoticed. In the days following the attack the US Commerce Department proposed prohibiting key Chinese software and hardware in connected vehicles on American roads due to national security concerns, a move that would effectively bar Chinese cars and trucks from the US market. The fear that Chinese consumer goods could be used as a weapon against the American people and economy through purposeful destruction or immobilisation of said consumer goods is a very credible threat now more so than ever.
The Chinese Green Dragon does see some obstacles to overcome however, primarily in the form of changing political leadership and subsequent policies. A Trump presidency where he avows to leave the Paris climate agreement and rejuvenate the US coal, oil and gas industry could seriously delay the rise of the global renewables market, giving the US and EU valuable time to source alternatives domestically or in other more amicable nations. Trump was quoted at the RNC on June 18th 2024 vowing to end "The Green New Scam” and the “electric vehicle mandate on day one”. He goes on to justify his policy decision as one to “save the US auto industry from complete obliteration” from “big factories being built across the border in Mexico by China”. BYD announced a few days after the speech that it planned to create another 10000 jobs in Mexico with the opening of another manufacturing plant. Trump and his advisors seem very aware of the threat of Chinese manufacturing destroying domestic competitors and thus could cause a problem for the Chinese green industry as they aim to prevent Chinese products from competing.
A similar trend can be observed in the EU where more right leaning anti-climate parties are seeing success, from the RF in France to AfD in Germany. A green transition is a costly one to the average consumer, the lack of a large used electric car market means buying new is often necessary and the decline of reliance on fossil fuels means that energy costs can increase in peak times when production is low due to weather conditions. This will inform a lot of voters as to which candidates and policies they support as the biggest motivator in democracy is almost always financial over ideological. A Trump victory in the US election will surely galvanise this sentiment as if the US pulls out of the Paris climate agreement we are sure to see other countries follow. This isn’t the only threat in the EU to Chinese dominance. In July 2024 Brussels announced a new wave of tariffs upon individual chinese EVs manufacturers which range from 17.4% to 37.6%, which is on top of a 10% duty that was already in place for all electric cars imported from China. This is set to make Chinese EVs less financially competitive with European EV manufacturers thus incentivising buying domestically produced vehicles over Chinese ones. However BYD, while on the lower end of this spectrum at 17.4%, announced a few days later that they were building a $1 billion USD manufacturing plant in Turkey for their vehicles. Turkey is in a tariff free agreement with the EU meaning effectively the tariffs are useless as the plant is set to manufacture 150,000 vehicles a year, enough to meet current European demand. The EU currently has no clear answer for this as its years of free trade policies and agreements are not easily undone and the bloated bureaucracy of Brussels struggles to produce subsidies and tariffs fast enough.
The greatest threat China’s green industry faces is not abroad but rather domestic. Years of subsidies has allowed China to get ahead in manufacturing vital products and components for a green economy while also increasing domestic demand. However, overcapacity in the solar and wind turbine sector has resulted in it relying on exports more than ever before, a sector which is now in jeopardy due to potential tariffs and could see a number of companies collapse if they cannot sell their stock. In the EV market China has already ended its purchase subsidies for EV consumers at the end of 2022, a trend which will likely continue to be followed by slashing subsidies and tax breaks for EV manufacturers. This could make conditions difficult for Chinese manufacturers whose domestic sales make up around 90% of their revenue as lowered government support not only impacts the number of domestic consumers but also their bottom line directly. For now however China continues to support its manufacturers in the green sector and any major change to this fact is just pure speculation.
In light of the 2024 Lebanon pager attack also the US commerce Department proposal to prohibit Chinese software and hardware in vehicles on US roads could also be another major barrier to Chinese EV and green economy development in the US market with other aligned nations potentially following suit with similar policies under the justification of national security. This is a trend we have seen before following changes in unconventional warfare and terrorism, most notably being the fundamental changes to the aviation industry following 9/11.
With the Chinese being in such a dominant position when it comes to the transition to a green economy, aside from increased tariffs and escalating trade conflict, what can the US and EU do to get ahead again? Our analysts propose a few courses of action:
- Firstly, supporting Hydrogen energy. Hydrogen has been the black sheep of the renewable energy market, largely being discredited as “too dangerous” with references to the Hindenburg disaster frequently being made. Despite this clean hydrogen demand is projected to increase to between 125 and 585 Mtpa by 2050. The biggest advances in this industry are currently being made in Japan and South Korea. Japan has been innovating with the hydrogen fuel cell with Toyota unveiling a new hydrogen car in June, providing a strong green alternative to EVs. I personally also had the pleasure of meeting Dr XYZ in South Korea who has produced a new hydrogen production plant which is 10x more efficient and 1/20th of the price of the next current market best. Dr XYZ is nominated currently for a nobel prize and is set to launch his facilities commercially within the next year. It is worth noting however that again on this front China is also ahead, seeking to be Dr XYZ’s first customer. That being said however, policy makers in the US and EU could certainly ensure that the west becomes ahead in hydrogen energy through supporting the preexisting Japanese and South Korean companies of which they are already major non-NATO allies. It is also worth noting that the west also has leading innovators in hydrogen energy. Companies such as Bloom Energy Corporation, FuelCell Energy and Powercell are all global leaders in the hydrogen market totalling billions of dollars in revenue. Policy makers should be looking to subsidise these companies and ensure they get ahead in the global export market before China is able to catch up and potentially undercut them. Cementing early brand power should not be underestimated as the failure of Chinese alternatives to displace western tech products and machinery despite the quality being almost equal demonstrates with primary examples being Apple, Bosch and Samsung.
- A second option would be ditching the green energy initiatives all together forcing China’s hedge on global green economy transition and thus demand for its product against them. This option could see many Chinese manufacturers collapse as demand and sentiment around their products significantly decrease as well as cost the Chinese government money as they fail to see a return on investment of their significant subsidies and support for the industry. While this is unlikely to happen and includes many risks it is a decisive option which could be on the cards in the advent of a Trump presidency.
- A third perhaps less impactful option would be to begin supporting and expanding net-zero public transport options built domestically in the west. This would negate the need for people to own their own EVs as they would be able to complete their daily commutes without needing their own vehicle. In cases where a personal vehicle is needed we could see implementation of temporary rental schemes. Companies like Zipcar already facilitate this and government schemes such as London’s Santander or “Boris” bikes which allow individuals to rent vehicles at their convenience and an expansion and support of these companies and schemes could aid in reducing the necessity of new EV sales. This would create jobs domestically in the green economy industry while also crippling the export sales of Chinese EVs.
In conclusion China’s dominance and position as the world’s supplier for the transition to a green economy is unlikely to change. The climate crisis is already a key divisive political issue and policies and agreements are already in place to enact the transition meaning it is unlikely we see U-turns on these policies. The west still can cause China serious issues through tariffs and policy changes as well as getting ahead in the hydrogen energy sector but it would require a concerted effort over years and likely across ideologically different governments. For now the Chinese Green Dragon is here to stay and is likely to become the victor of the global green transition, aiding in the culmination of Xi Jinping Thought’s Ninth and Thirteenth commitments: “To coexist well with nature with energy conservation and environmental protection policies and contribute to global ecological safety.” and “To establish a common destiny between the Chinese people and other peoples around the world with a peaceful international environment.” respectively.
