China’s dominance in solar cells, lithium batteries, and EVs – and the broader renewables supply chain – is clear. China was prescient in subsidising its renewables industries early on, and has now built a large competitive advantage, constantly innovating even in the face of export restrictions.
However, debt has continued to rise as a share of GDP: with the PPI & CPI in deflation and house prices still falling, the real value of debts is rising, curbing consumption. There is little to suggest there will be a material shift in the balance of GDP, away from investment towards consumption and services. If anything, there is a doubling down on high value-added manufacturing, and the export-led growth model. Banks have shifted lending towards manufacturing.
Strong growth in the ‘key three’ sectors – EVs, solar, batteries – is providing an offset to China’s property woes. But overinvestment in renewables threatens further downward pressure on prices and a profits squeeze. This will lead to a retaliatory backlash from countries struggling to compete with China in key manufacturing sectors. Trade tensions will grow. Indeed, it is not possible for China to continue growing at its current pace, and maintain its share of manufacturing output, without increasing its share of global trade too. This is the fault line at the heart of China’s strategy. Western governments want to reduce their reliance on Chinese imports and supply chains, not increase them.
The world would have better chance of reaching its renewable energy targets faster if cheaper Chinese EVs, batteries and solar were embraced. But the geopolitical backdrop is not conducive to this. The outlook for peace, and for nations working together to tackle climate change, does not look promising. Trump’s strong showing in the Iowa caucus yesterday – with immigration rising to the top of concerns amongst voters – is a reminder of the risk that progress on climate change may easily be discarded to pay lip service to protectionist and anti-immigrant rhetoric.
