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China’s energy transformation: Experiences and outlook

Ligang Song and Yixiao Zhou

The Chinese economy experienced several major transformations following rural reforms in the late 1970s. They include the rise of township and village enterprises in the 1980s, the expansion of the private sector in the decades that followed and, importantly, China’s energy transformation: a broad move towards a cleaner, low-carbon and innovation-driven economy, underpinned by significant energy sector reform and investment. This has become a central pillar of China’s next stage of development and a key driver of its growing global influence.

Historically, China’s rapid industrialisation and urbanisation were supported by a heavy reliance on fossil fuels, particularly coal. In 2010, coal accounted for more than 70 per cent of China’s total energy consumption, making the country the largest producer and consumer of coal as well as the world’s top carbon emitter (IEA 2022). As the world’s largest energy consumer and emitter, China has responded to international calls for climate action by adopting an ambitious national strategy. The commitment to reach carbon peak before 2030 and carbon neutrality before 2060 has catalysed a sweeping overhaul of its energy system. Yet, this transformation is not limited to decarbonisation. It embodies a broader structural reorientation from fossil fuel reliance to diversified energy supply, from scale expansion to quality upgrading and from addressing energy scarcity to enhancing energy efficiency and security. At the same time, China’s energy transition is tightly intertwined with its digital transformation, as the rollout of smart grids, intelligent transport systems and low-carbon industrial platforms reinforces the complementarities between green and digital technologies.

Since 2010, China has made remarkable progress in its clean energy transition. It has built the world’s largest green electricity system and launched the largest national carbon emissions trading market. The share of non-fossil sources in the country’s installed power capacity continues to grow steadily, supported by the rapid deployment of solar photovoltaics, wind power, electric vehicles (EVs) and energy storage systems. This has taken place at a pace and scale unmatched globally. For example, the share of Chinese-made EVs in new EV sales globally rose from less than 10 per cent in 2010 to more than 60 per cent in 2024. Likewise, China’s share of global renewable electricity capacity increased from less than 20 per cent in 2010 to more than 40 per cent by 2024, highlighting its expanding leadership in global clean energy infrastructure (Figure 1.1).

This energy transformation has profound implications for the rest of the world as well. Chinese firms now play a central role in the global production and export of green technologies. They are leading participants in key segments such as solar panels, wind turbines, lithium-ion batteries and EV components, serving as critical suppliers within the global clean energy value chain. By 2021, China’s share in all the manufacturing stages of solar panels (such as polysilicon, ingots, wafers, cells and modules) exceeded 80 per cent (IEA 2022). In the meantime, China has expanded its green infrastructure footprint abroad, particularly in developing and emerging economies, through initiatives such as the Belt and Road Initiative (BRI). These developments have contributed to significant reductions in the global cost of renewable energy technologies and have provided crucial support for countries seeking to improve energy access and accelerate their own transitions to low-carbon energy systems.

Figure 1.1: China’s share in global renewable energy capacity and EV sales, 2010–24 (per cent)

Notes: ‘EV’ includes both battery electric vehicles and plug-in hybrid electric vehicles. Renewable capacity share refers to China’s share of total global installed renewable electricity generation capacity.

Sources: Authors’ construction from data in CEIC Database (www.ceicdata.com/en) and International Energy Agency (www.iea.org/data-and-statistics).

China’s growing role in green energy is unfolding amid an increasingly complex global environment marked by geopolitical tensions and shifts in trade policy. What was once viewed primarily as a technical and economic transition is now increasingly shaped by broader strategic considerations. Several advanced economies are pursuing policies aimed at strengthening domestic clean energy industries, including efforts to re-establish manufacturing bases, implement export controls and introduce tighter regulations on foreign investment. These trends raise concerns about the potential fragmentation of global supply chains, limitations on technological exchange and a weakening of multilateral cooperation at a time when collective action is critical to advance the global energy transition.

Despite these challenges, China’s energy transformation provides a valuable example of how coordinated policy efforts, targeted innovation and sustained industrial development can support progress towards decarbonisation. This experience also highlights the important contribution that developing countries can make to the evolution of global energy governance, provided that international cooperation frameworks remain accessible, balanced and sufficiently supported by financial and technical resources.

In this overview, we will explore China’s energy transformation by examining its domestic achievements, the industrial and technological foundations of the transition and the country’s expanding role in the global green economy. It also considers the challenges arising from shifting geopolitical dynamics and outlines strategic directions for deepening international cooperation in the years ahead.

Achievements and structural shifts

China’s energy transformation has delivered major structural changes in both energy production and energy consumption. Through large-scale investments, long-term planning and ambitious policy targets, China is shifting away from coal dominance towards a more diverse and cleaner energy mix.

By the end of 2024, China’s installed capacity for non-fossil energy sources—including wind, solar, hydro, nuclear and biomass—had surpassed 1.8 billion kilowatts (1.8 terawatts), making up more than 56 per cent of the country’s total installed power generation capacity (State Council 2025). This shift is also visible in power consumption patterns: non-fossil sources accounted for about 40 per cent of electricity consumed in 2023. At the same time, more than 80 per cent of public buses now run on new energy, reflecting growing electrification in the transport sector. The EV market has expanded rapidly, with the share of EVs in total new car sales rising from less than 5 per cent in 2020 to more than 45 per cent in 2023, supported by industrial policy and strong domestic demand.

Figure 1.2: Trends in coal and renewable energy shares of China’s primary energy consumption, 2010–23 (per cent)

Source: Authors’ construction using 2024 data from the Energy Institute (www.energyinst.org/statistical-review/resources-and-data-downloads).

China’s primary energy structure is also becoming cleaner. The share of coal in total primary energy consumption dropped to 55.3 per cent in 2023—more than 12 percentage points lower than a decade earlier. In contrast, clean energy sources made up 16.2 per cent of primary energy consumption—up from 7.6 per cent in 2010 (Figure 1.2). Energy efficiency has improved significantly as well. Between 2006 and 2023, energy consumption per unit of GDP decreased by 43.8 per cent, indicating that economic growth has become less dependent on energy use.

China now operates the largest green electricity system in the world and has launched a national carbon Emissions Trading System, which is currently the largest by volume of emissions covered. This market-based approach is expected to play a growing role in promoting emission reductions. Together, these outcomes show that China’s energy system is moving towards being cleaner, more efficient and increasingly electrified.

Drivers of the energy transition

China’s energy transformation is closely tied to its domestic technological and industrial capabilities. Over the past decade, an extensive ecosystem of low-carbon technologies has developed in the economy. Sustained public investment and growing manufacturing scale have enabled rapid deployment of renewable energy across the economy and laid the foundation for structural decarbonisation.

At the centre of this transformation are three strategic sectors often referred to as the ‘new trio’ or ‘new three’: solar photovoltaic manufacturing, lithium-ion battery production and EVs. These industries have benefited from early public policy support and increasing technological sophistication. Additionally, the rapid cost declines in wind and solar energy reflect China’s industrial capability. Between 2013 and 2023, the average cost of producing wind turbines and solar panels fell by 60 and 80 per cent, respectively, largely due to improvements in manufacturing efficiency, supply chain coordination and localised innovation. This cost efficiency is also reflected in China’s consistently lower installed cost of onshore wind power compared with the global average over the past two decades (Figure 1.3).

Figure 1.3: Trends in global and Chinese onshore wind installation costs

Source: Zhang et al. (2024).

Policy frameworks have played an instrumental role in scaling up this technological progress. China has made clear commitments to renewable energy and carbon neutrality, setting ambitious targets that accelerate demand for advanced energy storage solutions. It aims to achieve the peak of carbon dioxide emissions by 2030 and carbon neutrality by 2060. To achieve these goals, the Chinese Government has introduced a comprehensive set of policies, including national renewable energy targets, mandatory integration requirements for energy storage in new projects, subsidies for clean energy technologies and preferential taxes and credits for renewable energy firms (Afshan et al. 2024). In addition, regulatory support such as grid priority access for renewables, renewable portfolio standards and capacity auctions has helped to guide investment and coordinate industrial upgrading. These measures are complemented by innovation-driven initiatives embedded in successive five-year plans, which promote sector-wide alignment across electricity, transport and digital infrastructure systems.

China in the global green economy

China’s energy transformation is not only reshaping its domestic landscape but also has far-reaching influence on the global green economy. Through large-scale implementation of renewable technologies, leadership in clean energy manufacturing and active international engagement, China has become a central player in global efforts to accelerate the transition to low-carbon energy systems.

Leadership in green manufacturing and export capacity

China has emerged as the world’s largest producer and exporter of core green technologies. As of 2023, it accounted for more than 80 per cent of global photovoltaic (PV) module production and 70 per cent of wind power equipment, with exports reaching more than 200 countries and regions (State Council 2024). This is reflected in Figure 1.4, which shows that China’s solar PV export volume tripled between 2017 and 2023. At the same time, the average export price of PV modules has steadily declined, falling from more than US$0.35 per watt in 2017 to below US$0.15 per watt by early 2024.

Figure 1.4: Solar PV export volumes

Source: Authors’ construction using data from EMBER Energy (ember-energy.org/data/).

Figure 1.5: Installed energy storage capacity by country

Source: Authors’ construction using data from the Energy Institute (www.energyinst.org/statistical-review).

These contributions have made renewable energy technologies more accessible and affordable worldwide, particularly benefiting emerging and developing economies seeking to expand electricity access. In 2023, China led global renewable energy employment, with 7.4 million jobs, or 46 per cent of the global total, highlighting the country’s role in anchoring the industrial base for the green transition (IRENA 2024).

Beyond its export volume, China’s prominence in global supply chains is increasingly accompanied by its influence in shaping international standards, especially in energy storage, battery manufacturing and solar technology. With a 48.6 per cent share of the global energy storage market in 2023, and domestic storage capacity reaching 27.1 gigawatts (GW), China is now able to help define global norms and technical specifications in this fast-evolving sector (Figure 1.5).

The projection that China’s cumulative new energy storage capacity could reach between 221 gigawatts and 300 gigawatts by 2030 indicates even stronger growth in the sector over the coming years (Yang 2025). As technologies become increasingly commercialised and scale-driven cost reductions persist, China is well positioned to remain a leading supplier of next-generation low-carbon solutions, ranging from grid-scale batteries and smart inverters to electric mobility platforms.

Enabling the global energy transition

Beyond manufacturing, China is actively shaping green infrastructure development across developing countries. Through initiatives such as the BRI and bilateral energy cooperation agreements, Chinese enterprises have constructed landmark renewable projects, including solar parks, wind farms and hydro plants, in more than 100 countries. For example, Chinese companies installed a record 24 gigawatts of energy capacity in BRI countries in 2024, doubling the installations recorded in 2023 (Asian Business Review 2024). These efforts have extended access to clean energy in countries such as Cuba, Ghana, Burkina Faso and Pakistan, where Chinese firms have financed, constructed and operate major solar and energy storage projects. In Cuba, for instance, China is assisting with the construction of more than 20 new solar farms as part of the country’s plan to add more than 1,000 megawatts of solar capacity in 2025 (Reuters 2025). In Pakistan, a 20.7-megawatt energy storage battery system is under development with the support of Chinese supplier CATL. This project is expected to help address grid reliability and meet peak electricity demand (Jilani 2025).

China’s growing leadership is increasingly evident in its innovation across integrated energy systems. The country has demonstrated how to effectively combine renewable energy generation with grid infrastructure, digital technologies and electrified end-use applications. Its strategic development of EVs, lithium-ion batteries and solar PV illustrates a successful model of building a vertically integrated and export-oriented green industrial ecosystem. These industries now form core components of China’s external trade and play a vital role in supporting the global transition to low-carbon energy systems.

A platform for global cooperation

Given the scientific consensus that global greenhouse gas (GHG) emissions must peak before 2025 and decline by 43 per cent by 2030 to limit global warming to 1.5ºC (IPCC 2022), China has consistently positioned itself as a partner for international cooperation on climate action. It has eliminated foreign investment restrictions in most energy sectors (except nuclear) and actively participates in global green energy governance (Reuters 2020). China’s support for South–South cooperation, including technology transfer and training initiatives, reflects its broader commitment to inclusive energy development. Research has shown that China plays a significant role in transferring clean energy technologies to developing countries, especially across sub-Saharan Africa, where Chinese firms have supported solar, hydro and grid electrification projects under concessional finance and turn-key infrastructure arrangements (Urban 2018). These initiatives are often implemented in collaboration with local governments and aim to address both energy access and capacity-building objectives. Importantly, China’s model of technology transfer places emphasis not only on hardware delivery, but also on training, institutional support and technical knowledge-sharing. This integrated approach enhances recipient countries’ ability to maintain and adapt clean energy systems independently, offering an alternative to traditional North–South development paradigms.

Headwinds and geopolitical challenges

China’s rise as a central player in the global green energy economy has coincided with mounting geopolitical tensions and structural challenges that threaten to fragment the international energy landscape. While clean energy development was once largely framed as a technical and economic issue, it has increasingly become enmeshed in strategic competition, trade disputes and questions of industrial policy.

At the heart of these tensions lies a growing wave of trade protectionism and deglobalisation. Several advanced economies have introduced policies to re-shore clean energy manufacturing and reduce reliance on foreign suppliers, particularly in technology-intensive sectors such as solar PV, wind turbines and battery production. In response to domestic political pressures and concerns about supply chain resilience, some countries have imposed tariffs, introduced subsidy schemes with localisation requirements and tightened controls on outbound investment and technology transfers. A prominent example is the European Union’s decision in June 2024 to impose countervailing duties on imports of battery electric vehicles from China. Provisional duties ranging from 17.4 per cent to 38.1 per cent were levied on selected Chinese manufacturers (EC 2024). In parallel, the United States has escalated trade restrictions targeting China’s green technology exports. In 2024, the US Government imposed steep tariffs on Chinese-made EVs, batteries, solar cells and critical minerals as part of a broader strategy to counter what it described as ‘unfair trade practices’ and bolster domestic clean energy manufacturing capacity (Sevastopulo and White 2024). These measures have significantly reshaped the competitive dynamics of the global renewable energy sector, disrupting the global supply chains that have historically underpinned rapid technology diffusion and cost reductions in the clean energy sector.

Beyond trade tensions, rising restrictions on cross-border research and development (R&D) collaboration and the tightening of intellectual property protections are also beginning to constrain the pace of global clean energy innovation. Technological advancement in renewables relies heavily on open channels for knowledge exchange, cross-border partnerships and shared standards. However, increasing geopolitical frictions, particularly between major innovation hubs such as the United States and China, have contributed to the fragmentation of global research ecosystems. According to recent studies, technological decoupling between the world’s two largest economies could significantly reduce innovation efficiency, limit spillover benefits and raise the costs of technology development globally (Jinji and Ozawa 2024; Tyers and Zhou 2024). These dynamics are especially concerning in emerging fields such as grid-scale energy storage and green hydrogen, where international collaboration remains critical to scaling deployment and reducing costs.

Policy outlook for energy transformation

China’s energy transformation stands at a pivotal moment. Having achieved remarkable progress in decarbonising its power system and advancing renewable technologies, the strategic challenge now lies in ensuring that this momentum contributes meaningfully to a broader global energy transition. As the largest producer and installer of clean energy technologies, China’s decisions will shape not only its own energy future but also the development trajectories of emerging economies and the stability of global energy markets.

As the global green transition accelerates, China faces both new responsibilities and new opportunities. Building on its domestic achievements in clean energy deployment and industrial upgrading, China is now positioned to help reshape the international landscape of sustainable trade and low-carbon development. To achieve this, a strategic pivot towards proactive, rules-based cooperation and institutional innovation will be essential.

A priority is to formulate sustainable trade policies and optimise the structure of green product exports. China’s global leadership in solar panels, wind turbines and battery technologies provides an opportunity to support energy transitions in other countries, particularly in the Global South. At the same time, it must diversify the composition of green exports beyond hardware to include digital energy services, low-carbon logistics and integrated system solutions. This would enable more value-added participation in global green value chains and reduce vulnerability to trade concentration risks.

To manage the growing complexity of global energy politics, China must also deepen multilateral, bilateral and regional cooperation frameworks. Engagement through platforms such as the G20, BRICS (Brazil, Russia, India, China and South Africa), the Association of Southeast Asian Nations Plus 3 (ASEAN+3) and the Regional Comprehensive Economic Partnership (RCEP) will be essential to safeguard open markets, align regulatory standards and ensure fair access to emerging green technologies. Strengthened diplomatic and institutional efforts will also support cooperation and coordination among major global economies, particularly on issues such as carbon border adjustments, energy security and sustainable supply chains. As noted by Song and Agarwal (2023), China’s evolving role as a leading trading nation places it in a pivotal position to help revitalise multilateral institutions and promote more inclusive, rules-based global governance, particularly in areas where trade, climate and development agendas intersect.

Domestically, further progress in advancing low-carbon regulations and aligning them with international norms will enhance China’s credibility as a partner in global climate governance. This involves strengthening emission accounting systems, developing carbon footprint methodologies and continuing the expansion of China’s national Emissions Trading System. Transparent and robust regulatory alignment will not only support climate goals but also help ease trade frictions and facilitate the flow of low-carbon goods and services. As part of this broader effort, China can also expand its imports of green products and promote market diversification. By actively sourcing high-efficiency technologies and sustainable inputs from abroad, China can accelerate domestic decarbonisation while mitigating trade tensions with key partners. A more diversified and internationally integrated green trade structure will strengthen economic resilience and reduce exposure to geopolitical risks.

A coordinated global transition will require China to strengthen international cooperation across green industrial value chains, finance and standards. This includes supporting collaborative research, joint standard setting and coordinated investment in upstream materials, logistics and recycling systems—all of which are essential for scaling next-generation technologies such as hydrogen, carbon capture and energy storage. China should deepen cooperation in green finance by expanding its leadership in green bonds, climate-related disclosure standards and blended finance mechanisms. Aligning domestic financial initiatives with global taxonomies and participating in cross-border finance platforms will help mobilise capital for green infrastructure, particularly in developing countries. In parallel, China can take a leading role in promoting international mutual recognition of green product certification and labelling. Harmonising standards with key export destinations would reduce compliance costs, facilitate trade and strengthen the credibility of Chinese green exports. Mutual recognition frameworks can also build consumer trust and lower barriers to entry for firms operating across jurisdictions, further supporting the integration of global low-carbon trade.

In the context of global development, China should continue to promote South–South cooperation for the joint development of sustainable trade. This includes sharing best practices, supporting infrastructure investment and building production capacity in low-income countries. Initiatives under the BRI framework can be further aligned with green development goals to ensure they deliver long-term sustainability benefits. In addition, strengthening capacity-building for sustainable trade and promoting coordinated development should remain long-term priorities. China can play a key role by supporting technical training, data-sharing initiatives and policy dialogue with partner countries, thereby enabling more inclusive participation in green globalisation. Coordinated development strategies that integrate trade, climate and development objectives will be essential to achieving a just and effective global energy transition.

Together, these efforts form the basis for a comprehensive international strategy that matches China’s domestic progress in green transformation. By aligning trade, regulation, finance and diplomacy with sustainability objectives, China can help shape a global economic architecture that supports low-carbon growth, technological inclusion and shared prosperity.

Structure of the book

In this volume, the authors explore the developments in China’s energy transition and thus help provide a holistic view of this issue. The book also covers some of the macroeconomic issues, such as fiscal sustainability from rising debt at the local government level, internal and external imbalances in national savings, new patterns of economic growth, trade and global value chains (GVCs) and agricultural development.

In Chapter 2, Wang, Li and Kong present an integrated framework to assess China’s energy transition towards carbon neutrality, emphasising its economic, environmental and public health impacts, as well as international spillover effects. They argue that China’s dual carbon goals—carbon peaking by 2030 and neutrality by 2060—require systemic shifts in energy production and consumption. The study introduces a two-module integrated assessment model combining macroeconomic, energy, pollution and health submodels, allowing multidimensional evaluation under different policy scenarios: a current policy scenario (CPS) and an enhanced action scenario (EAS).

Their findings suggest that the energy transition can decouple economic growth from emissions, significantly reduce emissions of carbon dioxide and non–carbon dioxide GHGs and generate substantial health co-benefits. Under the EAS, non-fossil energy could account for 82 per cent of total consumption by 2060, while cumulative net social benefits may exceed US$24.8 trillion. Export-driven spillovers from photovoltaic and wind technologies are projected to cut more than 185 gigatonnes of carbon dioxide globally by 2060. Despite high upfront costs, the long-term gains—including emission reductions, better air quality and avoided deaths—justify sustained investment. The authors urge policymakers to strengthen low-carbon pathways, enhance international cooperation and develop holistic strategies to maximise both the domestic and the global benefits of China’s green transition.

Chapter 3 explores China’s transition to a renewable electricity system in pursuit of its dual carbon goals. The authors, Yin, Liu and Wang, find that the primary hurdle is no longer the production of renewable energy but the integration of its intermittent supply—especially wind and solar—into a historically centralised, fossil-fuel–based grid. It is suggested that strategies could target three domains: supply, demand and distribution. On the supply side, energy storage technologies (especially lithium-ion batteries and hydrogen storage) and hydrogen-based fuels are critical for smoothing out generation volatility. On the demand side, smart microgrids, demand-side response, EV integration and virtual power plants enable localised energy balancing and better renewable utilisation. On the distribution side, infrastructure flexibility, digitalisation and power market reforms (for example, spot markets, green electricity trading) aim to enhance grid responsiveness. Policy efforts include a focus on improving grid capacity, system flexibility and renewable consumption rates. The authors conclude that China’s energy transition hinges on systemic coordination, digital intelligence and market innovation to absorb growing renewable output while ensuring security, economic efficiency and environmental sustainability.

In Chapter 4, Zhao, Sun, Zhang and Deng examine mechanisms for inter-industry collaboration to support China’s energy transformation, focusing on the integration of renewable energy in the transport and heating sectors. The first case study explores photovoltaic energy storage charging stations (PV–ES–CS) and analyses their economic and environmental benefits across various building types in Beijing. The findings show that hospitals offer the highest return on investment and carbon emission reductions due to consistent electricity demand that matches solar generation profiles, while residences perform the worst. The study confirms that integrated PV–ES–CS systems outperform stand-alone components in both efficiency and sustainability.

The second case study models the decarbonisation of Beijing’s heating system under three scenarios: business as usual, electricity substitution and synergistic development (SD). The SD scenario uses combined heat and power (CHP) retrofitted with renewable energy and heat pumps and achieves 100 per cent renewable energy supply for electricity and heating by 2050, eliminating fossil fuel use and carbon dioxide emissions. Although the SD scenario has the highest investment cost, it provides the best environmental performance, reducing emissions by more than 10 megatonnes through the export of excess renewable electricity. The study concludes that future system costs will be driven more by renewable infrastructure investment than by fossil fuel costs. Their policy recommendations include integrated planning, location-based incentives for PV–ES–CS and differentiated subsidies to enhance system value and accelerate the energy transition.

In Chapter 5 of the book, Li, Pham, Wang and Yang examine the dramatic rise of China’s EV industry, which is now the largest globally by production and sales. Supported by strong government policy, China surpassed 12 million EVs produced in 2024, representing 65 per cent of global EV sales. Major manufacturers such as BYD, NIO and Geely have driven innovation and international expansion, with BYD emerging as the global leader. China’s advantages lie in vertically integrated supply chains, dominance in battery production and cost efficiencies supported by widespread use of lithium iron phosphate (LFP) batteries. Charging infrastructure has rapidly expanded as well, with more than 2.7 million public charging stations across the country by 2023.

However, regional disparities remain, particularly in rural areas. Policy tools, including the Dual Credit Policy, financial subsidies, tax exemptions and non-financial incentives (such as licence plate privileges), were critical in scaling adoption. Local industrial policies fostered supply chain localisation and competition.

The authors find that, despite success, challenges include global trade barriers, technology bottlenecks (for example, battery performance, recycling) and uneven infrastructure. Rising international tariffs and the European Union’s Carbon Border Adjustment Mechanism pose additional risks. Looking forward, integrating EVs into energy systems, developing global standards and ensuring equitable access will be key. The chapter calls for targeted policy reforms to maintain momentum while addressing emerging economic, technological and social challenges.

Zhang in Chapter 6 analyses the European Union’s imposition of countervailing duties on Chinese-made EVs based on concerns about unfair subsidies and market distortion. It is revealed that China’s rapid EV export growth, driven by subsidies, industrial policy and scale advantages, has triggered trade tensions with the European Union and the United States. The European Union launched an anti-subsidy investigation in 2023, culminating in definitive duties being applied in October 2024, ranging from 7.8 per cent to 35.3 per cent depending on the manufacturer. China has disputed the findings, appealing to the World Trade Organization (WTO) and exploring negotiated solutions, including minimum pricing.

The European Union remains open to compromise, balancing industrial protection with climate goals. However, complexities in enforcing minimum pricing—due to product diversity and past failures with solar panels—make resolution difficult. Chinese automakers are responding by investing in overseas production, though challenges such as local content rules, technology transfer demands and geopolitical risks persist.

The chapter concludes that while tariffs may protect EU industries in the short term, they risk hindering the green transition and consumer access to affordable EVs. A hybrid solution—combining tariffs and price commitments—may offer a pragmatic path forward. The evolving geopolitical landscape, including potential shifts under the Trump presidency, could further influence the trajectory of EU–China EV trade relations.

China’s green finance system has evolved significantly over the past decade to support its dual carbon goals. The system, rooted in a top-down governance model, includes green credit, bonds, insurance and a national carbon market. Green loans reached RMB36.6 trillion in 2024, while green bond issuance totalled more than US$120 billion. Despite progress, challenges remain, including limited private sector participation, greenwashing risks and underdeveloped environmental, social and governance (ESG) disclosure standards.

Yue and Nedopil in Chapter 7 focus on China’s green finance system including green credit, bonds, insurance and a national carbon market. Internationally, China promotes green finance through the BRI, aligning with global standards via partnerships such as the China–EU Common Ground Taxonomy (CGT) and leadership roles in the G20 and the International Platform on Sustainable Finance (IPSF).

Future priorities include enhancing disclosure, integrating climate risk into financial regulation and leveraging digital tools such as blockchain. However, China’s simultaneous expansion of fossil fuel infrastructure raises questions about the consistency of its green finance agenda. The authors call for further research into the effectiveness of China’s green finance in achieving real emission reductions and its replicability as a global model.

In Chapter 8, Stern explores whether China is on track to peak its carbon emissions by 2030, as pledged under the Paris Agreement. By comparing data from 2019 (pre-pandemic) and 2023 (post-pandemic reopening), the analysis reveals that China’s total carbon emissions rose by 8 per cent, with power sector emissions increasing by 18 per cent. Despite significant growth in renewable energy, the use of fossil fuel—especially coal—also surged, with coal production up 26 per cent since 2019. While solar and wind power expanded, thermal power still dominated, making up more than 70 per cent of electricity generation in 2023. The slight emissions decline in early 2024 is attributed to increased hydropower from wet weather and sluggish economic activity, not structural changes. Thus, the data suggest China is not yet on a sustainable path to emissions peaking.

Stern also discusses geopolitical and economic factors, such as energy security concerns and strained international relations, which could hinder China’s climate ambitions. Although China has strong incentives to lead on climate action, including high vulnerability to climate impacts, recent trends raise doubts about meeting its 2030 and 2060 targets. Stern argues that although China has made progress in green energy, its post-pandemic trajectory indicates a more carbon-intensive path than previously expected, challenging optimistic projections of early emissions peaking.

In Chapter 9, Yao and Yu examine the rapid rise of China’s local government debt, identifying its institutional causes, economic impacts and governance challenges. Since 2009, local governments have increasingly relied on off-budget borrowing through local government financing vehicles (LGFVs) to fund infrastructure and development projects. This trend stems from fiscal decentralisation, urbanisation pressures, a unitary political system, frequent official turnover and regulatory gaps in the Budget Law.

While local debt has supported infrastructure growth and economic development, it has also led to significant fiscal risks, including repayment pressures, inefficient investments and systemic financial vulnerabilities. By 2023, off-budget debt reached RMB61.56 trillion—more than 150 per cent of official on-budget debt. The central government has responded with multiple debt-swap programs, converting risky off-budget liabilities into more transparent local government bonds.

Despite these efforts, debt continues to grow, with many LGFVs using new bonds primarily to refinance old ones. The authors propose a three-step resolution: 1) fiscal relief via central government bailouts, 2) transferring LGFV debt to asset management companies for restructuring, and 3) preventing new debt using asset balance sheets and stronger oversight. The chapter emphasises the need for transparency, accountability and structural reforms to ensure fiscal sustainability and economic stability.

Wong takes a detailed look at the growing fiscal crisis facing China’s local governments in Chapter 10. Local governments in China are responsible for more than 85 per cent of public spending and infrastructure investment. Local finances are under pressure from three key sources: long-term erosion of tax revenues, the collapse of land-based revenues and a mounting debt crisis. Although these issues appear local, they stem from systemic structural problems. Since 2015, general budget revenues have declined from 22 per cent to 16 per cent of GDP, while social spending obligations have continued to grow. Local governments have increasingly relied on land sales and off-budget borrowing through LGFVs to fund infrastructure and services. However, with the property sector downturn, land revenues have plummeted, exacerbating debt risks.

Despite reforms to legalise local borrowing and curb off-budget debt, LGFV debt has surged, reaching an estimated 84 per cent of GDP by 2024. Recent central government bailouts aim to restructure this debt but offer no relief, leaving local governments with unsustainable burdens. Wong argues that resolving the crisis requires systemic reform, including tax restructuring, rebalancing central–local fiscal responsibilities and ending reliance on infrastructure-led stimulus. Without bold action, China risks prolonged economic stagnation and declining public service quality.

Chapter 11 of the book identifies the structural causes and implications of China’s persistently high national savings and current account surpluses. Liu, Song and Zhou in this chapter argue that, since the 2000s, China’s macroeconomic imbalances have been driven by low consumption, high savings and investment-heavy growth. This growth was underpinned by demographic shifts, underdeveloped social welfare, financial repression and institutional distortions. Household savings surged due to population ageing, income uncertainty, housing costs and limited welfare coverage. Corporate savings, especially from state-owned enterprises (SOEs), rose due to monopolistic advantages and low dividend payouts. Government savings fluctuated with fiscal reforms and stimulus spending.

Investment, while high, has not matched savings, sustaining external surpluses. SOEs dominate strategic sectors, while private firms face financing constraints. Institutional factors—such as the hukou (household registration) system, factor market distortions and limited financial liberalisation—have suppressed consumption and skewed capital allocation. Exchange rate and trade policies also contributed to trade surpluses.

Looking ahead, the authors argue that population ageing, changing consumption patterns and a shrinking real estate sector are expected to reduce savings and narrow external imbalances. Rebalancing towards consumption-led growth requires structural reforms in social welfare, taxation and financial systems to enhance household welfare and ensure sustainable, inclusive development.

Chen, Ai, Wang and Sheng review in Chapter 12 China’s rural transformation over the past 50 years and its strategic relevance for developing countries in the final chapter of the book. China has achieved remarkable gains in agricultural productivity, off-farm employment and non-agricultural GDP through market-oriented reforms, infrastructure investment and technological innovation. Agricultural labour productivity rose from US$1,000 in 1970 to more than US$13,000 in 2022, while off-farm employment increased from 20 per cent to 80 per cent. These shifts reflect China’s structural transformation from an agriculture-based to a diversified economy.

In Chapter 13, Wang, Xue and Zhou ask whether China can sustain high economic growth amid structural shifts and global value chain (GVC) restructuring. After decades of rapid expansion driven by industrialisation, exports and investment, China’s growth has slowed due to demographic ageing, diminishing investment returns, rising costs and geopolitical tensions. The country is transitioning from export-led to consumption-driven growth, supported by policies such as the ‘dual circulation’ strategy. China’s role in global production has evolved from a low-cost assembler to a regional manufacturing hub. However, rising trade frictions and ‘de-Sinicisation’ efforts by the United States and Japan have reduced China’s share in their intermediate goods imports and foreign direct investment (FDI). In response, China has redirected exports through third countries such as Vietnam and Mexico and increased outward FDI to acquire advanced technologies.

The ‘new three’ industries—EVs, lithium-ion batteries and solar panels—have emerged as key growth drivers, offsetting declines in traditional sectors. These industries also foster global supply chain integration and development in resource-rich countries. However, challenges remain, including overcapacity, trade restrictions and reliance on foreign technologies. The authors conclude that, to sustain growth, China must adapt to GVC shifts, promote innovation and mitigate external risks through strategic industrial and trade policies.

The authors find that China’s success stems from market reforms supported by government investment in irrigation, R&D and infrastructure. However, challenges such as climate change, resource degradation and environmental pollution now demand a shift towards ‘new quality’ agricultural productivity, emphasising inclusiveness, fairness and sustainability. The chapter also compares China’s experience with that of other developing regions, showing that Africa lags in productivity and structural transformation. The authors argue that China’s experience, characterised by capital deepening, sustainable practices and region-specific policies, offers valuable lessons. Future reforms should focus on science and technology, market-oriented governance and tailored support for small farmers to ensure equitable and resilient rural development.

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