China’s new energy sector has been experiencing rapid growth in recent years, both in production and export. This surge is not accidental but is driven by a combination of global demand for carbon reduction, the role of subsidies, and China’s competitive advantages. Let’s delve into the three key reasons behind China’s leading position in the global new energy market.
Global Demand for Carbon Reduction
The expansion of China’s new energy production is primarily fueled by the worldwide demand for carbon reduction. According to the International Energy Agency (IEA), if countries meet their emission reduction commitments, by 2030 the annual global demand for new energy vehicles and lithium batteries will exceed 70 million units and 6,600 gigawatt-hours (GWh), respectively. This represents a 5.5 and 4.9-fold increase over the global output in 2023. To meet this demand, average annual growth rates of at least 25.5% for new energy vehicles and 27.5% for lithium batteries are required from 2024 to 2030.
Similarly, the International Renewable Energy Agency (IRENA) reports that to achieve global temperature control goals, the cumulative installed capacity of photovoltaic power generation needs to reach at least 5,200 gigawatts (GW) by 2030. This necessitates an average annual growth rate of 18.4% in cumulative installed photovoltaic capacity, with an average annual addition of over 515 GW from 2024 to 2030—roughly equivalent to China’s current photovoltaic cell production.
The substantial demand arising from global carbon reduction efforts propels the expansion of China’s new energy production, positioning it at the forefront of meeting these global needs.
The Role of Subsidies
Contrary to some perceptions, subsidies in the new energy industry are not unique to China and do not singularly provide a competitive advantage. Countries worldwide are implementing extensive subsidies to promote their domestic new energy industries as part of their climate change mitigation strategies.
In 2022, the United States passed the Inflation Reduction Act, planning to spend $391 billion by 2031 to subsidize clean power production and transportation. The subsidies for new energy vehicles now require that vehicles be assembled in North America, and key battery minerals must be sourced from the U.S. or countries with free trade agreements with the U.S.
Japan has been providing subsidies for electric and clean diesel vehicles since 2008, while Germany began offering universal subsidies for new energy vehicle sales in May 2016. Despite reductions, Germany’s subsidy still stands at $3,200 per vehicle in 2024.
China implemented a subsidy policy for new energy vehicles in 2013, which was officially phased out in 2023. Moreover, China’s subsidy intensity was not high compared to other countries, with subsidies less than $2,000 per vehicle before withdrawal.
Competitive Advantages of China’s New Energy Industry
China’s export advantage in new energy products stems from technological advancements, economies of scale, and a comprehensive industrial chain.
Technological progress has significantly reduced production costs and improved efficiency, particularly in the photovoltaic field. This has made solar power generation more competitive compared to coal-fired power generation, accelerating the adoption of solar energy globally, especially in middle-income and low-income countries.
The vast market scale and rapid technological updates in China’s new energy sector have provided significant opportunities for research and development. Chinese automotive companies leverage the extensive consumer market and diverse vehicle usage environments to develop competitive technologies for new energy vehicles.
Additionally, China benefits from a comprehensive supply chain in the photovoltaic and lithium battery industries. This integrated industrial chain enhances production efficiency and competitiveness, supported by advanced infrastructure and favorable policy environments.
Conclusion
China’s leading position in the new energy sector is the result of global demand for carbon reduction, subsidy practices that are common internationally, and solid industrial advantages. This growth not only contributes to global and domestic green transformation but also fosters new drivers for China’s economic development.
Reference(s):
Three reasons behind China's leading position in new energy sector
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