From scale to system: how China’s battery model is shaping clean innovation
Yanxi Zhou explains how China’s battery diffusion success has been driven by a virtuous cycle: state-backed demand created scale, scale reduced costs, and falling costs accelerated innovation while enabling early phaseout of subsidies. This provides clear lessons for other countries.
Few clean innovations are diffusing as rapidly as battery technology, a development China understands very well. In its newly published 15th Five-Year Action Plan for Carbon Peaking, China targets around 300 gigawatts of new-type energy storage by 2030, while the accompanying 15th Five-Year Plan for Constructing a New-Type Energy System explicitly commits to strengthening the competitiveness of the storage industry, curbing low-level overcapacity and exporting its technologies, systems and standards abroad.
Technology diffusion refers to the process by which new technologies are adopted and used more broadly over time. Clean innovation encompasses technologies that enable economic activity with lower greenhouse gas emissions and are capable of driving intensive economic growth. Today, the diffusion of clean technologies is accelerating, but unevenly: some technologies are being deployed at scale and at remarkable speed, but concentrated in a small number of countries and sectors. Power and transport technologies, particularly renewable energy and batteries, are diffusing fastest, having reached high levels of technical maturity and cost competitiveness. Storage and grid technologies constitute a fast-moving second tier, although deployment of smart-grid and demand-response systems remains concentrated in advanced economies.
Fast but uneven: the global diffusion of clean technology, led by batteries
Batteries stand out as the winner in the clean technology diffusion race. Dominated by lithium‑iron phosphate (LFP) and nickel-based mature battery technologies/chemistries, global lithium-ion battery deployment was five times higher in 2025 than it was in 2020. Global battery supply is driven by three major markets: electric vehicles (EVs), battery energy storage systems (BESS) (see Downstream in Figure 1), and consumer electronics. The key driver of this expansion has been the decline in overall costs, which has led to the sharpest price reductions for BESS. Growing deployment of storage systems to support renewable energy integration has further expanded global BESS capacity. In turn, larger production volumes have generated economies of scale, reducing battery and storage costs further to reinforce the cycle of diffusion.
Diffusion of clean technologies varies markedly across technological maturity and region, with four key determinants: the characteristics of the technology itself, the flow of knowledge, the ability of firms and countries to use it, and supportive policy frameworks. The pace and scale of the diffusion of upstream innovation ultimately depend on downstream adoption. Together these factors determine how costs, market mechanisms, value chain linkages, industrial policy, infrastructure, finance and political economy accelerate or constrain diffusion.
Figure 1. The lithium-ion battery supply chain
Source: Adapted from Dagong Global Credit Rating Co. Ltd
However, barriers remain
Although clean innovations are spreading faster now than in the past, there are still barriers to their implementation, including systemic infrastructure dependencies and enduring advantages enjoyed by incumbent fossil fuel systems. Weak links between research institutions and local innovation ecosystems, shortages of skilled labour and limited domestic value chain and market capacity also constrain adoption. The challenges are intensified by trade tariffs and geopolitical uncertainty, which raise costs, increase investment risk and slow down clean innovation.
BESS development is accelerating the spread of China’s battery innovations across domestic and international markets
Structural conditions on both the supply and demand sides shape the diffusion of China’s battery technologies. China leads the rapid expansion of battery manufacturing capacity in Asia and attempts to localise its deployment in Europe and the US, with its comprehensive and competitive lithium‑battery ecosystem. Moreover, continuous research and development in battery materials and chemistries, coupled with large-scale manufacturing, has enabled sustained cost reductions and reinforced China’s competitive advantage. Upstream innovation and supply are also propelled by BESS, a major growth area alongside EVs. China’s combined power and storage battery output rose from 1,096.8 gigawatt hours in 2024 to 1,755.6 gigawatt hours in 2025.
Early government subsidies for consumers and industry have helped generate strong downstream demand, which has accelerated battery uptake in China. China also continues to invest in new battery technology to support emerging applications, such as high-discharge batteries required by data centres. This has, on occasion, however, contributed to periods of oversupply, which has reduced costs but raised concerns about long-term quality and the sustainability of diffusion. Policies like the Regulatory Conditions for the Lithium-ion Battery Industry were published by the government to improve the quality and performance of batteries, while setting stricter requirements for companies entering the market. The time lag between approving new mining permits and delivering projects has also been addressed. After adjustment, the battery sector’s average capacity utilisation (i.e. the measure of how much of the sector’s productive capacity is being used) had recovered from 60% in 2024 to above 70% by mid-2025. Key raw materials for the electrolyte needed for battery production are even showing supply shortages driven by the surge in BESS.
Rising demand for BESS is being driven by the growth of renewable electricity generation, particularly in Europe, and the rapid expansion of AI data centres worldwide. High electricity prices in developing economies, such as Pakistan, a result of the current energy crisis, have also increased demand for cheap Chinese storage batteries. This early deployment has proven their economic value and accelerated the diffusion of China’s battery technologies internationally.
Europe remains the leading destination for China’s battery exports, accounting for more than 50%, followed by markets in South and Southeast Asia. Diffusion is further supported by China’s value chain advantages, which extend from resource extraction and materials processing to manufacturing and system integration. As a result of policy support, financial incentives and demand-driven economies of scale (in turn driven by initial subsidies), China’s storage system costs have fallen by around 70% in the last three years. Its share of global energy storage battery shipments exceeded 90% in 2025, with leading firms providing value-chain products and services to localise BESS diffusion (see Figure 2).
To meet growing global demand, China has streamlined its export procedures to allow coordination of related technologies (e.g. lithium‑battery, photovoltaic [PV], and EV shipments), exporting not only physical products but also the skills needed to deploy them (i.e. an integrated ‘cell + system + engineer, procure, construct [EPC]’ service). Durable diffusion is underpinned by falling system costs, with China selling a package of technical standards, engineering expertise and operational guidance as an ecosystem. The proposed lithium-ion battery assembly and manufacturing facility in Pakistan illustrates how this ecosystem-based approach is helping to extend the global reach of Chinese battery technologies.
Figure 2. China’s energy storage lithium battery shipment ranking, 2025
Source: Adapted from GGII China, February 2026
Cost competitiveness strengthened by scale, innovation and policy support
The broad lesson is that clean innovation diffuses fastest when technological progress, market demand and institutions develop in parallel, creating momentum on both the supply and demand sides of the economy.
Policy support and market formation accelerated battery adoption in China
Batteries are a ‘modular but slow to scale’ clean innovation: while diffusion is technically possible, it is constrained by system-level dependencies – power battery diffusion is bottlenecked by charging infrastructure, while storage battery diffusion depends on grid transmission. In China, policy support stimulated demand for battery technologies and created an initial market, large-scale domestic deployment drove down costs, a highly integrated supply chain strengthened competitiveness, and the export of capabilities across the value chain helped accelerate their global diffusion.
Policy frameworks have reinforced domestic battery diffusion through a top-down approach: China’s 15th Five-Year Plan for Constructing a New-Type Energy System identifies innovations in new energy, new storage and a smart grid as strategic priorities, with lithium‑ion batteries positioned as the foundational technology underpinning the transition. The 15th Five-Year Plan for the Action Plan for Carbon Peaking emphasises the entire battery lifecycle and positions battery storage as a core component of emerging zero-carbon industrial parks. The introduction of compulsory battery safety standards has further institutionalised diffusion by reducing associated risks and accelerating market uptake. These national standards have been reinforced by provincial policies, including financial support.
Public investment and industrial policy drove scale and cost reductions
Together, national and local governments have combined subsidies and various purchase-tax exemptions for end-users to increase downstream demand, with government funds directed specifically towards battery and energy innovations. Industrial plans have prioritised battery production by directing infrastructure development and streamlining permitting processes. These policies have sent a strong signal to Chinese investors and public funding bodies that battery innovation is a strategic priority, from research and development to pilot projects and commercial deployment, enabling costs to fall through economies of scale and learning-by-doing.
Localising the loop: technology, standards and value chains as diffusion channels
China’s rapid expansion of BESS has accelerated global battery diffusion in three ways: by exporting technologies, shaping technical standards, and integrating value chains across markets. Technologically, China’s leadership in affordable lithium‑ion and emerging storage technologies, such as liquid‑flow batteries and compressed‑air storage, provides proven solutions that can be replicated at scale. By promoting compatible standards and mutual recognition of technical requirements, China reduces the costs of entering new markets and supports the international spread of battery technologies through formal policy and institutional cooperation.
Leading firms such as CATL support technology diffusion through deep localisation, providing full‑lifecycle services to global markets, including capacity building and infrastructure assistance. This reveals a pathway for durable global diffusion of clean innovation: technology adoption, standards alignment, and operating practices and integration methodologies embedded in local systems. The battery example also highlights the importance of policy support, value chain integration and market formation in enabling clean innovations to be adopted widely, deployed safely and scaled up rapidly.
The author would like to thank Shantanu Singh, Maria João Pimenta and the publications team for reviewing this commentary.