Can you really go green without China?

China plays a crucial role in the global energy transition, and is a leader in numerous fields. The implications are significant and manyfold for investors.

Bottom line

China's pivotal role in the global energy transition cannot be underestimated. Not only does it hold the title of the world's largest greenhouse gas emitter, but it also boasts the largest market for clean technologies and stands as a powerhouse in driving their development, innovation, and deployment.

Today, most investors underweight their exposure to Chinese companies. We hold a different opinion and firmly believe that China should not be overlooked, especially in the clean technology space where our Sustainable Future strategy currently has ~35% exposure to Chinese companies.

We anticipate that the country's reopening will gradually be factored into companies' stock performance, particularly in the second half of the year. The current lull in Chinese cleantech stocks appears to us as an enticing buy opportunity. 

Executive Summary

China: the energy king

  • China's strong economic growth has led to increased energy consumption. Its primary reliance on coal has made it the world's largest greenhouse gas emitter (nearly 30% of global GHG emissions in 2020), emphasizing the need for its participation in addressing global climate change.

  • The  country has made substantial progress in reducing energy intensity, decreasing it by over 40% between 2000 and 2020 through public policies and technological advancements.

  • Its success in achieving climate targets will have significant global implications, presenting unique opportunities for investors supporting this transition.

World’s cleantech powerhouse and biggest market

  • China leads the global race in energy transition investments, accounting for nearly half of the world's total. The country has established itself as the preeminent market for clean technologies.

  • Its dominance in clean technology extends to manufacturing, with leading positions in solar PV, wind power, EV batteries, heat pumps, and water electrolyzers.

  • China plays also a dominant role in the supply of critical minerals and metals that are crucial for clean technology production, with control over processing for minerals like nickel, lithium, cobalt, and rare earth elements, as well as production of bulk materials like steel and cement.

From manufacturer to innovator

  • China's transition from a manufacturer to an innovative frontrunner in the clean technology sector has been driven by strategic government support, extensive scale-up efforts, and a surge in patenting activity.

  • Western countries increasingly view China's dominance in clean technology manufacturing as a vulnerability, leading to a trend of onshoring production. China has responded by increasing its relevance in the value chain.

  • The country is set to lead in future clean technology innovations, especially in areas such as sodium-ion batteries, carbon nanotubes, or green hydrogen production.

China: the energy king

China’s rise as a carbon behemoth

China's strong economic growth since the late 20th century has had profound implications for the global energy landscape. With an average annual GDP growth rate of ~10% from 1980 to 2010, China transformed itself from a predominantly agricultural nation into the world's second-largest economy. This growth has been fueled by economic reforms, industrialization, urbanization, and globalization - all of which have contributed to a surge in energy consumption.

China's energy sector relies heavily on coal, accounting for nearly 60% of the country's total primary energy needs in 2020. Consequently, China has become the largest greenhouse gas (GHG) emitter worldwide, surpassing the United States. Its contribution to global CO2 emissions in 2020 stood at almost 30%, further emphasizing the importance of China's role in addressing climate change.

The correlation between China's economic expansion and energy consumption is well-established. Rapid industrialization drove a considerable increase in the demand for energy across various sectors, including manufacturing, construction, transportation, and power generation. This demand led to a rapid rise in fossil fuel consumption, particularly coal, which is a major contributor to GHG emissions. Furthermore, the increasing urbanization and rising living standards of China's growing middle class have contributed to an expanding demand for energy-intensive goods and services, further straining the country's energy resources.

The evolution of energy intensity and the shift toward cleaner Energy 

Recognizing the environmental challenges posed by its development trajectory, China has undertaken significant efforts to optimize energy consumption and reduce its carbon footprint. Energy intensity, which measures energy efficiency as the amount of energy consumed per unit of GDP, has played a critical role in this transformation.

Between 2000 and 2020, China's energy intensity decreased by over 40%, thanks to a combination of government policies, technological advancements, and shifts in economic structure. The Chinese government implemented a series of energy conservation policies, such as the Top 100/1’000/10’000 energy-consuming enterprises programs, which mandated energy efficiency improvements in key industries. Moreover, technological advancements in energy-efficient equipment and processes, combined with structural changes that prioritized less energy-intensive industries, facilitated the reduction in energy intensity.

As a result of these efforts, China has experienced a remarkable expansion in renewable energy capacity, becoming the global leader in solar and wind power installations. China's pursuit of nuclear power has also gained momentum, with several reactors under construction and plans to expand capacity further in the coming years.

Transitions take time, and despite these promising developments, coal remains the dominant energy source in China. Under its latest 14th Five-Year Plan (for the 2021-2025 period), China put a specific target of reducing its energy intensity by 13.5% and raising its non-fossil fuel share of total energy consumption from 16% in 2020 to 20% by 2025.

No climate targets can be reached without China 

The urgency of the global climate crisis must be addressed, and achieving international climate goals is only possible with China's active participation. The Paris Agreement, which aims to limit global warming to below 2 degrees Celsius above pre-industrial levels, requires comprehensive action from all major emitters, with China being the most critical player.

China has set ambitious targets, pledging to reach peak carbon emissions by 2030 and attain carbon neutrality by 2060. To meet these objectives, China will need to undergo a massive energy transition, requiring extensive investments in research, infrastructure, and innovation, thus providing numerous opportunities for investors.

Beyond domestic efforts, China's involvement in global climate initiatives is essential. As a major financier of energy projects around the world, China can significantly influence the direction of global energy investments. Through institutions such as the Asian Infrastructure Investment Bank (AIIB) and the Belt and Road Initiative (BRI), China has the potential to support the global transition to cleaner energy by financing renewable energy projects and promoting sustainable infrastructure development.

Addressing the challenge of balancing economic growth with environmental sustainability will be a critical concern for China's policymakers. The country's success in achieving its climate targets will have far-reaching implications for the world's ability to mitigate the impacts of global warming.

World’s cleantech powerhouse and biggest market

Biggest investor, biggest market

Intriguingly, while China stands as the world's top consumer of fossil fuels, it simultaneously leads the global race in clean technology investments, with nearly half of the world's total. In 2022, China's energy transition spending tallied up to $546bn, out of a global total of $1.1tn. This significant outlay predominantly flowed into renewable energy sectors, such as solar and wind, as well as electrified transportation encompassing batteries, electric vehicles, and related technologies.


Over the last decade, China has progressively established itself as the preeminent market for clean technologies. As of today, China is home to over 10 million all-electric vehicles, signifying that every second electric vehicle on the roads globally is in China. Furthermore, in terms of solar photovoltaic and wind energy installation capacity, China's share stands at an impressive 37% of the world's total.

Deeply involved in the manufacturing of clean technologies

China is not only the largest market of clean technologies; it also holds a crucial role in the manufacturing of these technologies.

The country's vast industrial capabilities, combined with robust policy support, has created an environment ripe for technological innovation and mass production, making it the global powerhouse in manufacturing of clean technologies.

Solar photovoltaic (PV) technology and electric vehicle (EV) batteries epitomize China's dominance in clean technology manufacturing.

A closer look at solar PV reveals that China's market share in the manufacturing of silica-based solar PV modules is over 70%, almost twice the country's share of global demand. Notably, all ten of the world's top suppliers of solar PV manufacturing equipment are based in China. Simultaneously, the country's leadership extends to wind power manufacturing, with Chinese companies holding over 55% of the total capacity deployed globally in 2021. As written in our 2023’s outlook, we expect China’s dominance in the wind sector to intensify, and continue its global expansion to overseas markets.

A surge in electric vehicles sales has catalyzed growth in EV battery production, a sector where China shows significant dominance. The EV battery supply chain at every stage, from battery cell production to the production of cathode and anode material, is heavily influenced by China's manufacturing prowess. The country houses two-thirds of global battery cell production and close to 90% of anode material production, demonstrating its unmatched position in this rapidly growing industry.

While the U.S. and E.U. are actively pursuing strategies to reduce their dependence on China's battery supply, the process of fully relocating every aspect of the value chain to domestic soil presents significant challenges. This endeavor requires more than just robust manufacturing capabilities; it demands a comprehensive set of specialized knowledge and skills (e.g., in the refining and processing of battery metals, the preparation of electrodes, the cell assembly, etc.). Despite the continuing trend of onshoring, we maintain that it will not completely eliminate China's role in the global market, as recently exemplified by the partnership announcement between Ford and CATL.

China's dominance extends to the production of heat pumps, an increasingly popular technology for energy-efficient heating and cooling. With nearly 40% of the global manufacturing capacity, China leads heat pump production, surpassing North America, Europe, and other regions in the Asia Pacific.

Manufacturing of water electrolyzers, essential for producing low-emission hydrogen, further demonstrates China's solid position in cleantech. The capacity to manufacture these systems currently significantly surpasses deployment, indicative of the potential for expanded production to meet future demands. While the E.U. is making concerted efforts to bolster its hydrogen market (e.g. through the creation of a European Hydrogen Bank), there remains a potential threat of China's dominance stifling competition, much like what transpired in the solar photovoltaic industry 15 years ago. 

A strong grip on critical minerals

A big topic frequently overlooked in discussions about energy transition is the crucial role of critical minerals and metals supply, which are indispensable in the production of clean technologies.

Beyond mere mining operations, the transforming of these minerals from their raw state into a form ready for use in advanced technologies involves a series of energy, capital, and skill-intensive processes that are largely concentrated in specific regions of the world.

China maintains a dominant position in this global processing market. For instance, the country controls around 30% of nickel processing (a share that expands when taking into account its partnerships with Indonesian companies), between 60-70% for lithium and cobalt, and a staggering 90% for rare earth elements (REEs).

This control extends beyond simple processing. China has developed integrated supply chains that stretch from mining and processing to manufacturing for some critical minerals. For example, neodymium, a rare earth element used extensively in the creation of permanent magnets for wind turbines and electric vehicles, is often processed and integrated into manufactured products within China.

In other cases, raw ores and concentrates are imported from abroad for processing and incorporation into domestic supply chains. Lithium, for instance, is frequently sourced from Australia, refined in China, and then used in the manufacturing of electric vehicle batteries.

Moreover, China also dominates the production of bulk materials like steel, cement, aluminum, and plastics, essential for clean energy technologies and infrastructure. For example, China accounts for more than half of the world's production of crude steel, cement, and alumina, indicating its significant influence over the materials crucial for energy transformation.

From manufacturer to innovator

When “Made-in-China” becomes “Created-in-China”

In the last few decades, China has evolved from being a simple manufacturer to an innovative frontrunner in the clean technology sector. The process was driven by strategic government support and extensive scale-up efforts. Early on, the Chinese government recognized the potential of clean technologies, backing them with policies that fostered a conducive environment for growth and innovation. This included the establishment of research institutions, the provision of funding for R&D, and the cultivation of corporate partnerships and joint ventures both domestically and abroad.

Simultaneously, China embarked on an ambitious scale-up journey, taking advantage of its robust manufacturing capabilities and broad domestic market. With the injection of resources, knowledge sharing, and the encouragement of inter-company competition, the industry saw rapid advancements.

A significant indicator of China's evolution in the clean technology space is its boom in patenting activity. Beginning with virtually zero international patents in the 1990s, China's engagement in energy patenting has since grown exponentially. This growth accelerated even more between 2000 and 2012, then again from 2015 onwards. The realm of low-carbon energy technologies, such as batteries, solar PV, and electric vehicles, witnessed a surge in patent applications, illustrating China's deepening R&D investment in the sector.


Among these, the example of solar PV technology stands out. The progression from being a manufacturer to an innovator in solar PV technology is a good illustration of China’s innovation trajectory.

China has a long history of funding solar PV research and development, dating back to the 1950s. However, the breakthrough came in the early 2000s when PV cells, co-developed by a Chinese researcher at an Australian university, started being produced by Suntech, a company owned by the researcher himself. Thanks to low manufacturing costs, ambitious scaling strategies, and the backing of a municipal government in the Jiangsu province, this initiative gave China a competitive edge in export markets.

This success encouraged other Chinese firms to follow a similar approach, attracting global companies to base their manufacturing in China to gain access to high-end technology and global value chains. With time, Chinese companies started acquiring foreign competitors and assimilated their R&D activities, further bolstering the innovation pipeline. In parallel, several Chinese companies forged partnerships with overseas universities, investing in talent acquisition programs to bring back Chinese nationals with valuable academic and professional experiences from abroad.

Competition within China intensified with the introduction of policies supporting the domestic deployment of solar PV in the 12th Five-Year Plan (2011-2015). This competition, often between companies backed by different municipalities, catalyzed remarkable manufacturing innovations, leading to significant cost reductions in the solar PV sector. Moreover, Chinese companies began to focus on next-generation PV designs, setting new efficiency records and quickly closing the gap with their international counterparts. Trina Solar, for example, made a significant breakthrough in 2016 when they set the world efficiency record of 19.9% for a laboratory version of a multi-crystalline solar module, marking a pivotal moment for solar technology efficiency. Likewise, Microquanta Semiconductor achieved an impressive record of 17.3% efficiency for a perovskite submodule in 2018. MiaSolé Hi-Tech, a company acquired by Hanergy in 2013, holds a record of 17.4% efficiency for a copper-indium-gallium-selenide (CIGS) thin film module. They continued their innovative streak by achieving further records of 18.6% for a flexible module in 2019 and 27% for a hybrid perovskite-CIGS cell in 2021.

As Chinese companies became more innovative and competitive, they gradually edged out international competition. Today, they have nearly achieved a monopoly in the production of solar cells, further solidifying China's dominating role in the global solar PV industry.

Reshoring trend 

China’s dominance in clean technology manufacturing is increasingly perceived as a vulnerability and threat by Western countries. A trend towards onshoring, or localizing manufacturing, has emerged in response to these concerns. Policymakers, particularly in the U.S., and the E.U., are eager to localize the production of clean technologies - not only for strategic resilience but also for job creation as the energy transition accelerates.

However, onshoring manufacturing doesn't come without challenges. Building new factories domestically to meet clean energy demand by 2030 would cost billions, making it a significantly more expensive endeavor than constructing similar facilities in China. Moreover, operating costs involving energy, labor, and materials could further compound these challenges. Western manufacturers may find themselves contending with Chinese competitors who can produce at a fraction of their cost.

Political supports, such as the Inflation Reduction Act (IRA) in the U.S. and the E.U.’s Critical Raw Materials Act, aim to stimulate (or impose) local production through various subsidies and policies.

The IRA includes incentives for localizing production, such as advanced manufacturing production credits that cover around a third of the battery system cost structure for U.S. battery capacity.

On the other hand, the E.U.’s Critical Raw Materials Act sets clear targets for domestic supply along the supply chain, such as: at least 10% of the E.U.’s annual consumption for extraction, 40% for processing, 15% for recycling, and no more than 65% of each strategic raw material and relevant stage of processing coming from a single third country.

The key aim of the IRA is to curb China's economic influence in the U.S., while the E.U. Critical Raw Materials Act, grounded on the European Battery Regulation (2020), is neutral towards nationality as long as production is localized and the carbon footprint is minimized.

Emphasis is on local content requirements and decarbonization to boost the onshoring of clean technologies supply chain. Both in the U.S. and Europe, these requirements will catalyze investment in onshoring, but they will also present challenges, particularly due to bottlenecks in raw materials and processing.

In China, the vertical integration of industries has been crucial for competitiveness. To replicate this, Western countries would need to build an intricate network of suppliers and maintain high factory utilization rates, among other things.

However, it is important to note that this shift towards localization does not imply a dismissal of China's role. The nation remains a key holder of advanced manufacturing knowledge, and many Western countries will need to collaborate with Chinese enterprises to some degree to develop their production capabilities. Despite the potential challenges, the onshoring trend underlines a critical point: the diversification of the clean energy supply chain is as much a strategic necessity as it is an economic one. As countries strive for greater resilience, China will likely remain a pivotal player in the global clean energy landscape.

A the forefront of future innovations

Looking ahead, we believe that China with pursue its route from being a knowledge importer to a knowledge producer. Energy innovation has now become one of the central priorities of the country’s Five-Year Plan. The government plans to focus on new technologies and strategic opportunities in global supply chains, such as low-carbon hydrogen production and use, carbon capture, utilization, and storage (CCUS), bioenergy, energy storage, advanced batteries, nuclear, and critical minerals.

In energy storage, for instance, the country is making substantial progress in next-generation technologies, such as solid-state and sodium-ion batteries. Notably, CATL, the world’s leading battery manufacturer, has made significant investments in solid-state battery technology (with solid electrolytes, featuring greater safety, higher energy density, and faster charging capabilities compared to liquid-electrolyte batteries), anticipating commercial production within a few years.

Additionally, the company recently unveiled its first generation of sodium-ion batteries. These batteries, while offering lower energy density than their lithium-ion counterparts, have significant advantages in terms of cost and resource availability, with sodium being more abundant and widely distributed than lithium. Moreover, sodium-ion batteries demonstrate superior performance in extreme temperatures, extending their suitability across a wider range of climates. Both CATL and BYD (China’s second largest battery maker) intend to bring hybrid sodium-ion and lithium-ion batteries in series-produced EVs before the end of this year.

China is also at the forefront of utilizing carbon nanotubes (CNTs) as conductive agents in battery technology. CNTs, with their high electrical conductivity and structural stability, are being employed in both cathodes and anodes to enhance the overall performance of batteries. Cnano Technology, a Chinese company, has emerged as a frontrunner in this field, pioneering the development and large-scale production of CNT-based materials for energy storage applications. By incorporating CNTs into battery electrodes, battery makers can leverage their unique properties to improve energy efficiency, increase power density, and extend battery lifespan.

In terms of green hydrogen, China is pushing forward with an ambitious plan. Sinopec, China's state-owned oil and chemical company, is undertaking the world's largest project utilizing green hydrogen for chemical production from coal. The project, located in Ordos, Inner Mongolia, with an estimated cost of $83mn, aims to produce 30'000 metric tons of green hydrogen and 240'000 metric tons of green oxygen annually.

Given China's track record in rapidly scaling production, the nation remains well-positioned to lead in the manufacturing, adoption, and innovation of numerous clean technologies.

An overlooked region, ready to rebound

Despite China's status as the largest market for cleantech and the world's leading manufacturer, it has been generally underweighted by investors, with Chinese companies in the largest cleantech-related funds/ETFs having an average exposure of only around 10%, often explained with a general "country risk".  

Indeed, the beginning of the year posed significant challenges for Chinese cleantech companies, particularly in the EV and battery space. Several factors contributed to this sluggish start. Firstly, the phasing out of the national subsidy program, which had been extended for two years, had a notable impact. Retail sales of EVs experienced weakness (+44% YoY but decelerating QoQ), resulting in inventory buildup and shorter waiting times for most models. Additionally, increased competition and price cuts exerted downward pressure on profitability throughout the supply chain, adversely affecting the industry's overall performance. Furthermore, a counter-seasonal trend of declining battery production after the Chinese New Year intensified the prevailing bearish sentiment. Nevertheless, we view the current lull in Chinese stocks as a compelling buying opportunity, and last February we did increase our exposure to the current ~35%, remaining coherent with our view. 

The expected end of battery inventory de-stocking is an encouraging development, as battery makers have provided guidance for increased production, suggesting a potential revitalization of the entire supply chain. Also, the stabilization of raw material prices should alleviate some of the margin pressures along the value chain. Supportive policies from local governments and dealer promotions have already begun to stimulate demand, reinforcing our positive outlook. As China's reopening materializes, and economic indicators continue to beat expectations, we anticipate a resurgence in real demand, driven by the overall economic recovery and increased consumer confidence. We thus maintain an optimistic outlook and anticipate a rebound to materialize in the second half of the year. 


  • Post-lockdown recovery. China’s economic recovery could drive consumer spending and foster domestic demand for clean technologies.

  • Declining raw material costs. Cheaper price of key raw materials could alleviate margin pressure of many Chinese manufacturers.

  • Technological breakthrough. Technological advancements are to improve performance and cost-effectiveness of many clean technologies.


  • Green protectionism. Rising taxes and tariffs for import of Chinese goods in Europe and the U.S. could hamper some Chinese players with high international exposure.

  • Geopolitical tensions. Geopolitical tensions, especially with Taiwan, could deteriorate investor’s sentiments towards China and impact the country’s economics.

  • Increased competition. Increased competition from other Asian countries (e.g., Korea, Japan), especially in the battery space, could put China’s leadership position at risk.

Companies mentioned in this article

Microquanta Semiconductor (Not listed); BYD (1211); CATL (300750); Cnano Technology (688116); Hanergy (Not listed); MiaSolé Hi-Tech (Not listed); Sinopec (600028); Suntech (Not listed); Trina Solar (688599)



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