By Joan MacNaughton
The Twentieth Party Congress in October 2022 awarded Xi Jinping an unprecedented extension of his position and power. But his reputation has since been badly dented by the ‘Zero Covid’ policy and associated lockdowns, which he had claimed as a personal triumph but which provoked widespread public unrest. This is turn led to an abrupt policy reversal, whose consequences were badly managed. While Xi’s public standing has undoubtedly been impacted, he had already consolidated his grip on the party apparatus and this is expected to tighten further at the upcoming spring meeting involving the rubber stamp parliament.
Although the lockdown reversal happened after the Congress, the official report of the proceedings contains important statements about the likely approach to the energy sector and the country’s commitment to Net Zero as well as some clues to factors likely to impact future economic performance.
A key theme was the goal of building ‘modern socialism’ from 2020 to 2035 and “building a great modern socialist country that is prosperous, strong, democratic, culturally advanced, harmonious, and beautiful” from 2035 to 2050. The emphasis on a beautiful country is a recurring theme for Xi personally, encompassing policies to reduce environmental pollution and combat climate change. The theme of security and resilience were also extremely prominent, and perhaps more so than hitherto, calling for “[m]echanisms for countering foreign sanctions, interference, and long-arm jurisdiction”. By contrast, there were fewer mentions of markets and reform, and interestingly a stress on the goal of high quality economic development as distinct from growth per se.
In terms of energy, domestic sourcing was a paramount goal. While highlighting the continuing importance of coal as the backbone of China’s energy system, the Congress committed to further development of renewables — to contribute to energy security and to advancing the country’s industrial competitiveness — as well as nuclear. The commitment to peak carbon emissions by 2030, and to attain net zero by 2060 (the ‘dual goals’) were reiterated, underpinned by the regulation of both total energy consumption and energy intensity, especially as regards fossil energy.
One persisting tension is that local officials wield considerable power and are more focused on the short term, which tends to entail more energy intensive growth, yet at national level the focus is on the longer-term picture, on what is termed ‘high quality development’, and on consistency with the dual carbon goals.
As well as the climate change consequences of delaying the phase out of coal (not unique to China), the detrimental impact on air quality is obvious: a 2021 World Bank Report estimated that early action to tax CO2 emissions could avert 1.7m deaths by 2030.
From the energy and climate perspective, a key question is whether China can continue to decouple CO2 emissions from economic growth. From 2000–2009, emissions grew by 9.4% year on year; in the following decade that was reduced to 1.1% year over year, all while the economy was growing significantly. Emissions in 2021 though were 5% up on pre-pandemic levels. Even if the country is able to re-establish emissions decoupling, and meet its overall emission goals, they are far from aligning with Net Zero: they would, rather, imply global warming of three degrees by 2100.
The picture on renewables remains rosy. Since 2010, nearly 330GW of wind power generation, and nearly 310 GW of solar, have been installed against a combined target of 1200GW by 2030. The target of 20% of 2030 car sales to be electric vehicles has already been met.
These achievements have been accompanied by the creation of world leading industries. The IEA calculates that China accounts for about 55% and 70% of wind turbine manufacturing capacity and silica based solar panels respectively; and that it dominates production at nearly every stage of the EV battery supply chain.
Whether these successes can be repeated in relation to other relevant technologies is highly debatable. China does not have an ecosystem which encourages innovation; and the continuing reluctance to loosen the grip of administrative controls suggests this is unlikely to change in the short term. It is likely still to depend on exploiting technological advances by other countries.
Semiconductors are integral to renewable energy development and deployment, but global semiconductor production is still dominated by a few corporations, none of them Chinese. And US export controls ban the export to China of cutting-edge chips, as well as chip design software, chip manufacturing equipment, and US-built components of manufacturing equipment. Moreover, the prohibitions cover exports from US firms and any company worldwide that uses US semiconductor technology, which would cover all the world’s leading chipmakers.
It is true that older chip technologies — including chips for systems such as aerospace, automotive, and infrastructure systems — may not be impacted by the latest US measures. However even though China’s existing production of renewables and automotive systems may not be affected, its ability to further develop new technologies will surely be constrained.
The Party Congress Report clearly identifies shortcomings in China’s innovation but not solutions to China’s innovation bottlenecks. Moreover nothing in the report from Congress, or Xi’s pronouncements, suggests a reduced role for SOEs — whose strength has traditionally lain in taking forward technologies once these have reached the pilot or commercial stage, rather than in early stage innovation. And institutional limitations and restrictions on private sector participation could direct investment away from user-oriented or demand-focused technologies.
Indeed, in a press release responding to a question from individual Congress attendees, China’s National Energy Administration signalled continuing caution in relation to markets with the emphasis on further development of existing markets (power, carbon and green certificates) within existing policy frameworks, with administrative controls therefore continuing to apply.
I personally doubt that Vice Premier Liu He‘s recent remarks at Davos, about further support for the private sector, and further opening to foreign investors, really do signal any marked or early reversal of current policies. For that to happen, Xi and his senior acolytes would need to conclude that their current approach is inimical to the future of the Chinese Communist Party (as became the case with the zero Covid policy). This seems unlikely.
Accordingly, while China’s existing development model may be sufficient to maintain the pace of the clean energy transition for now, it does not seem equal to the task of becoming a leader in innovating for net zero as the rest of the world ramps up. And therein lie the future constraints on its economic growth.
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