This is an extract from a recent report “Energy Technology Perspectives 2024” by IEA. This extract specifically focuses on China.
China aims to move from being primarily a manufacturer of energy-intensive commodities to a high value added producer, with innovation at the core of its development strategies, such as the “Made in China 2025” initiative. This approach aims to boost competitiveness by improving technological manufacturing capabilities and reducing reliance on imported technology. Three decades ago, China adopted an export-led development model known as the “Great International Circulation Strategy”, which culminated in China joining the World Trade Organization in 2001. However, the 2008-09 global crisis exposed China’s vulnerability to the volatility of international trade: when trade contracted, China’s exports fell by almost 20% and its growth rate slowed. Since then, the government has tried to rebalance growth by leveraging the country’s vast domestic market, notably through the “Dual Circulation Strategy” it launched in 2020. China’s manufacturing sector has continued to expand, partly in response to the Belt and Road Initiative (BRI), which addresses infrastructure needs in other countries. However, China has more recently announced a shift to focus on smaller projects in order to limit large-scale overseas spending and to address the growing reluctance of countries to receive foreign investment in critical infrastructure.
The growth of the Chinese economy has begun to slow in recent years as its economy matures and population growth stagnates. In all these scenarios, industry value added grows at an average rate of 2.5% per year during 2024-35, but this represents a marked slowdown compared with the recent past; it averaged about 6% between 2010 and 2023 and more than 10% between 2000 and 2010. China’s construction boom, underpinned by steel, cement and other manufacturing industries, continues to level off, as manufacturing shifts towards higher value added sectors, including the “new three” clean technologies (EVs, batteries and solar PV), other electronics, machinery and transport equipment.
As a result, China’s share of global industry value added looks to have already plateaued and to remain at around 24% by 2035, with other countries at an earlier stage of industrialisation, including India, Indonesia and other Southeast Asian countries, taking a larger share of the growth in manufacturing output. China’s economic development model has relied to a significant degree on export-oriented manufacturing. China is a net exporter of many categories of products and maintains a large trade surplus for goods, totalling more than USD 850 billion in 2022.
The prospects for China’s export-oriented clean energy technology industries hinge to a large degree on policies in China as well as the rest of the world to encourage both the deployment of those technologies and the development of domestic manufacturing capabilities. In general, those countries that are heavily dependent on imports are already taking action to reduce reliance on China and other foreign suppliers by stimulating domestic investment with the aim of enhancing energy security and stimulating economic activity. The strength and impact of those policies – covering the broad spectrum of energy, climate and economic development – on the demand for Chinese technologies in the medium term differs markedly between the STEPS and APS, and across technologies. In the former scenario, China’s exports continue to play a central role in meeting the needs of the rest of the world, underpinned by low production costs thanks to large economies of scale and a high degree of supply chain integration. The APS paints a more mixed picture, with faster growth in global demand leading to increases in China’s exports for certain technologies, but for others, the impact of other countries’ policies to develop their own manufacturing capacities is to reduce the need for Chinese exports relative to the STEPS, particularly after 2030.
EVs and batteries
China’s EV industry has boomed in recent years, driven mainly by the domestic market. In 2023, only around 10% of total Chinese production was exported, mostly to Europe (amounting to around 600 000 vehicles) and other Asian countries (almost 200 000 vehicles). EVs sales made up 18% of the global new car market in 2023 and global sales continued to grow over the first half of 2024, in particular in China. Competition between carmakers is strong, however, and has led to aggressive price reductions and thinner margins; in 2023, more than 60% of all EVs sold in China were cheaper than their ICE counterpart. The Chinese industry is expected to remain largely focused on the domestic market in the near future, but is looking to expand export sales in order to increase utilisation rates at newly built factories and boost cashflow. It is also investing in EV manufacturing in other countries, benefiting from the highly integrated EV supply chain that involves cheap batteries that are produced in China and can easily be shipped elsewhere. Chinese EV manufacturers are likely to increasingly compete with EV and ICE carmakers in overseas markets, including Europe, which could make EVs more affordable. The prospects for Chinese exports of EVs and the batteries used to make them depend mainly on the policies of the importing countries. In both the STEPS and APS, China focuses on exporting electric cars – the higher value part of the supply chain – all incorporating batteries produced domestically and leveraging the highly competitive industrial battery ecosystem built in China over the past 15 years.
The picture for batteries is a little different. Thanks to investments around the world in new battery cell production and growing exports of EVs produced in China, Chinese battery exports more than triple between 2023 and 2030 in the STEPS and increase fourfold in the APS. Given that battery demand in China grows faster than that, the share of Chinese batteries being exported steadily decreases from about 20% in 2023 to around 15% in the STEPS and 18% in the APS by 2035. Export shares are higher in the APS than in STEPS because of higher demand in regions without a strong battery industry. It is unlikely that domestic demand and export would be sufficient to absorb all of the planned increase in China’s battery cell manufacturing capacity, including all preliminary projects, before 2030.
Solar PV
China’s lead in solar PV manufacturing is greater than for all the other clean energy technologies considered here. At least 80% of the world’s manufacturing capacity is located in China for all the segments of the solar PV supply chain, from PV-grade polysilicon production (mostly with capacity in the interior provinces) to the manufacturing of modules (mainly in the central coastal provinces). In the case of wafers, this concentration exceeds 95%. Even in the case of polysilicon production, China now holds a 92% share of global output – up from just two-thirds in 2018 – thanks to recent large investments in new plants, with several megaprojects of up to 120 000 tonnes being brought online and others with capacity of 250 000 tonnes in the pipeline. The bulk of China’s output of solar PV still goes to meet domestic needs. Deployment of new solar PV modules reached 260 GW in 2023, over 60% of the world total, boosting the country’s total installed capacity by almost two-thirds. China’s solar PV industry is highly vertically integrated, so most solar PV exports today are in the form of modules rather than intermediate products such as wafers and cells. In 2023, around 55% of modules exports went to EU member states, a quarter to Brazil, India, Australia and New Zealand, and most of the rest to Japan, the Middle East and Africa. In total, solar PV module exports accounted for around 40% of China’s production. The recent surge in manufacturing capacity in China has outstripped domestic demand, pushing manufacturers to seek to boost exports. In late 2023, this led to fierce competition among Chinese firms and a slump in international prices, which in turn led to a significant amount of module stockpiling in export markets.
It is estimated that, if the recent import trend continues, PV module inventories could remain at three times the installations expected in 2024 in the European Union, and double those of the United States by the end of 2024. As with EVs, the outlook for Chinese solar PV exports is very much dependent on policies to both drive the deployment of new capacity and develop new manufacturing capabilities in the rest of the world. Trade policies, including tariffs and NTMs to restrict imports, will be of particular importance, given the highly competitive nature of China’s solar PV industry. China remains the largest producer of solar PV modules to 2035 in both the STEPS and the APS, though the level of China’s exports varies as production from other regions, like Southeast Asia, India and the United States scales up – particularly over the rest of the current decade. The 2023 production and exports considerably exceeded the needs for global PV installations and were absorbed by inventories, however, in the long run global production will tend to follow the respective demand. In the STEPS, exports fall by around 60% between 2023 and 2030, as large amounts of new production capacity currently under construction or at the planning stage come online in some of the major import markets globally, notably the United States and India. By contrast, Chinese module exports fall by less than a quarter over the same period in the APS, as demand in China’s export markets outpaces the expansion of manufacturing capacity. Global demand for solar PV modules outside China increases by over 250 GW over 2023-30 (over 150 GW more than in the STEPS), with China capturing about 65 GW of this increase. The decline in exports to the European Union are partly offset by higher shipments to other regions, especially the Middle East and Africa.
Wind turbines
China’s wind turbine manufacturing industry serves mainly its massive and growing domestic market. Installations of wind capacity have grown exponentially over the last 5 years at an average annual rate of growth of 30%, with installed capacity reaching over 440 GW at the end of 2023. Total sales of wind turbines in China, all of which were supplied by domestic manufacturers, reached nearly 80 GW – about 20 GW up on the year before. This surge in demand was anticipated, with the leading manufacturers investing heavily in new production facilities. In 2023, exports accounted for about 12% of China’s output of nacelles and 6% of blades. Those exports represented about half of all nacelles and 16% of blades traded inter-regionally. There are areas in the supply chain where Chinese turbine manufacturers still depend on foreign expertise and materials. For instance, the country depends on imported design software, testing platforms and wind resource measurement technologies, rather than fully utilising domestic capabilities. In addition, critical components such as bearings for large wind turbines, converters, and carbon fibre are partly sourced abroad, mainly for quality reasons.
The recent rapid expansion of Chinese turbine manufacturing capacity has led to intense competition, causing Chinese turbine prices to fall to around USD 300 million/GW on average in 2023. This contrasts with trends in other parts of the world, where prices have tended to rise as a result of higher raw material or other input prices. The prices of Chinese turbines sold outside of China are now around 30% lower than those of turbines made by companies from Europe and the United States, but still nearly double the prices they are sold for inside China. Consequently, turbines made by Chinese OEMs have become more attractive to wind farm developers in other parts of the world, where turbines were traditionally procured from western companies. Until recently, securing financing for wind parks using Chinese technology has been difficult due to inadequate information on the track record of its performance outside China. Chinese exports of nacelles and blades are set to increase significantly over the next decade or so. Based on recent announcements of capacity expansions and projected demand in China and overseas, exports of nacelles more than triple by 2030 in the STEPS, accounting for close to 35% of China’s total output. Export markets are fairly diversified, with significant shares going to Europe and to other Asia Pacific countries.
Steel
China is a net exporter of steel products today, though the volume of exports is small relative to domestic production. Exports of steel products amounted to over 94 Mt in 2023, compared with nearly 1 billion tonnes of total crude steel production. On a net basis, the country imported virtually no iron or scrap, but was by far the world’s largest importer of iron ore. Iron ore imports from Australia and Brazil alone, which totalled almost 1 billion tonnes, accounted for around 15-20% of the total tonnage of goods traded via bulk carriers. Iron and steel production in China peaked in 2020 and is set to continue on a shallow downward path over the next decade or so as the country’s construction boom comes to end, falling slightly faster in the APS than in the STEPS thanks to faster material efficiency gains, including through lightweighting, life extensions and increased re-use of steel products. Net steel exports decline slightly to 2030 in both the STEPS and APS, and they continue to account for a modest share of total production. The overwhelming dynamic in China’s steel industry in the coming years will be the decommissioning of hundreds of megatonnes of blast furnace capacity. This is in response to lower demand and a rapid increase in the availability of scrap from its domestic building, infrastructure and vehicle stocks that were built up rapidly from the turn of the millennium and will progressively reach the end of their lives.
Aluminium
China is the world’s biggest aluminium producer and consumer, accounting for 60% of primary production (from bauxite), 50% of global output of aluminium (including that produced from scrap) and 49% of global demand. It has been a net importer of unwrought aluminium ingots since around 2020, despite rising domestic production. China is the largest importer of bauxite globally, with imports of over 135 Mt in 2023, accounting for 83% of the global total. Guinea is the main supplier, with more than 80% of its exports going to China. This trade route accounts for approximately 50% of the global trade in bauxite. China is also the world’s largest exporter of semi-finished and finished products made from aluminium. These exports have been the subject of a series of trade disputes, with several countries accusing China of unfairly subsiding its aluminium industry, leading to artificially low prices for its exports and undermining the health of their domestic industries. Primary aluminium production in China is often co-located with coal power generation. These plants, which are often captive (i.e. used and managed by the industrial site for their own use), provide a low-cost, but highly emissions-intensive source of electricity. It is estimated that around 70% of the electricity used to power aluminium smelters in 2023 in China was based on coal, compared with 3% in North America and 1% in Europe.
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