Posted inESG

Opportunities in China’s carbon neutral plan

Credit Suisse expects investment to pour into China green technology and infrastructure during the next three decades.
Mans hand inserting charger plug into electric car in green environment background. New energy vehicle, NEV is being loaded with electricity power. Ecology, modern day cars

The firm believes China’s ambitious decarbonisation roadmap to achieve net zero emissions by 2060 can generate potential investments of RMB100trn ($15.5trn) to RMB130trn, priming China for “technology independence and leadership in key sectors”.

“China is on the right track to turn to non-fossil fuels and promote energy-saving technologies to reduce import dependency,” Edmond Huang, head of China/Hong Kong securities research at Credit Suisse, told a webinar.

Renewable energy, such as wind and solar, are the bright spots for the country in terms of energy independence, even though their contribution is relatively small in the overall energy mix at present. China’s accumulated renewable capacity, with both solar and wind included, continues to expand, reaching 536GW by 2020, accounting for 37% of total global renewable capacity.

China has demonstrated the weight of its commitment by placing the carbon neutrality agenda on par with other key national programmes as policy priorities over the next decade, according to Huang.

China has geared up investments in “new infrastructure”, such as 5G networks, internet data centres and electric vehicle (EV) charging stations. Based on Credit Suisse’s estimates, China’s annual GDP growth will be boosted by between 37 and 43 basis points over the 30-year period because of these investments, he said.

China is well placed to benefit from global “green trends”, given its dominance in the solar, wind and EV/battery supply chains. Chinese suppliers now control over 80% of the effective capacity in most of the segments across the global solar supply chain, while Chinese wind turbine makers had 45% of the global market share in 2019.

EV future

According to industry data and Credit Suisse’s estimates, in 2020, Chinese companies accounted for 42.2% of EV sales and 48.3% of EV battery installation globally. While these large shares of the global market may trend down over time with other countries building their own capacities to reduce reliance on China, the strong global demand will likely see China’s exports of green products continue to grow over the next few decades, according to Huang.

The auto industry is strategic for China’s economy because of its 4% GDP contribution and 10% employment contribution. Compared with internal combustion engine (ICE) cars, new energy vehicles (NEV) are expected to cut CO₂ emissions by 35% during their lifecycle. China is already the world’s largest NEV market with a 38% global market share and the highest NEV sales volume, according to Credit Suisse.

“Within the transportation sector, we foresee NEV and renewable energy as the major beneficiaries of the replacement of traditional ICE cars and fossil fuels,” said Huang.

Looking ahead, Credit Suisse forecasts a 25% ten-year compound annual growth rate in China’s NEV volume and a 43% NEV penetration rate by 2030. The NEV market is expected to create a level playing field for Chinese auto companies to attain a more prominent role in the global auto industry.

Emerging domestic demand, policy support and a plentiful supply of capital should enable China to catch up and aid its ambition to become a leading innovator in green technologies, according to Huang.

Part of the Mark Allen Group.