China’s role in accelerating the global energy transition through green supply chains and trade
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As the world’s largest trading nation, China holds a dominant position in global green manufacturing, particularly through the development of the so-called ‘new three’ clean energy technologies – that is, electric vehicles, lithium-ion batteries and solar panels.
There are tremendous opportunities for emerging markets and developing countries to improve their integration into global supply chains for clean energy technologies by leveraging intra-regional trade that boosts their manufacturing competitiveness and exports of higher-value-added products.
This policy insight seeks to evaluate China’s role in supply chains for renewable energy technologies, and how the country can support the energy transition in other countries, particularly those in the Association of Southeast Asian Nations (ASEAN) region and the Belt and Road Initiative (BRI).
Key messages
- The transition to a zero-emissions and climate-resilient economy requires the supply of transition critical materials (TCMs) to support the deployment of clean energy technologies. If the geopolitical implications of the race for TCMs are not managed well, they could slow down the pace of the transition.
- China’s success in green manufacturing is primarily driven by government policies and it dominates the market for clean energy technologies.
- Concerns have been expressed about the potential implications of China’s control over supply chains for TCMs through its domestic and overseas investments.
- International coordination of global supply chains is important to strengthen their resilience to external shocks, reducing the risk of disruption to international trade, and to spur on technological innovation.
- Strengthening cooperation between China and members of ASEAN, which are collectively China’s biggest trading partner, is important to accelerate a just energy transition, including through the ASEAN-initiated Regional Comprehensive Economic Partnership, the world’s largest free trade agreement.
- The ‘greening’ of China’s export finance and trade and supply finance could encourage domestic renewable energy companies to increase their investments in the ASEAN region.
- The scaling up of China’s overseas investments through the BRI could play a significant role in the development of supply chains for renewable energy technology in ASEAN countries.
- China could work with the G7 to speed up the transition in ASEAN countries. It could also join the Coalition of Trade Ministers for Climate to encourage ASEAN countries to become members and demonstrate that it recognises the importance of trade policy in promoting a just energy transition.
- However, financing for renewable energy remains a major challenge because of insufficient policy and financial support from domestic government agencies and banks.