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China in Focus: Green energy transition continues to gather pace

30 Nov 2023

Key takeaways

  • Services demand continues to lead China’s economic recovery although headwinds persist in the property sector
  • Significant progress on decarbonisation has been made but more policy incentives are needed to achieve climate goals

China data review (October 2023) [@source-wind-hsbc]

  • Retail sales climbed to 7.6% y-o-y in October (from 5.5% in September). Consumption continues to be the driving force for the recovery this year, boosted by services-related consumption (+19% year-to-date) which have grown far faster than overall retail spending. Restaurant and catering sales were particularly strong in October, rising 17.1% y-o-y on the back of a historical record in crosscity travel during the Golden Week holiday.
  • Industrial production rose 4.6% y-o-y in October, a reflection of stronger domestic demand given the ongoing slump in exports demand. The main drivers stemmed from transportation (+10.8% y-o-y) and higher-end technology manufacturing activities, such as electrical machinery (+9.8% y-o-y). This follows on the back of ongoing policy support for new growth areas to promote more technology development and manufacturing upgrading.
  • Fixed Asset Investment slowed to 1.2% y-o-y in October with the property sector remaining the key drag on growth. New home sales fell 12%, property investment dropped 11.3%, and new housing starts declined 20.4% y-o-y, pointing to further weakness in the outlook. However, infrastructure investment remained relatively buoyant, rising 8.3%, on the back of the near record high issuance of government bonds in October.
  • CPI inflation fell into contractionary territory again, dropping 0.2% y-o-y. This was in large part due to a sharper decline in food prices which contributed to a 0.75ppt decrease in the reading. Core CPI held steady in m-o-m terms but edged down modestly to 0.6% y-o-y. Meanwhile, PPI inflation dropped further, to -2.6% y-o-y, although it was unchanged m-o-m. Producers saw lower global commodity prices while end-demand remained relatively weak.
  • Exports fell 6.4% y-o-y in October as external demand remained soft. The weakness by country was still broad-based, and exports to the US and the EU, where more end-demand stems from, remained in the doldrums despite a weak base. Imports, however, showed a surprise bump in October, rising 3.0% y-o-y on the back of broadening domestic consumption and increasing imports of construction-related materials given the ongoing infrastructure push.

Green energy transition continues at pace

China’s green transition remains a priority

China’s transition towards a greener economy remains a priority, even as the economy faces a number of cyclical and structural headwinds. One of the reasons for this has been a shift in mentality among many stakeholders from viewing the green transformation as solely a cost to recognising it as a source of opportunities. Meanwhile, policymakers remain committed to its dual carbon goals of reaching peak carbon emissions by 2030 and carbon neutrality by 2060.

Green financing taking off

Green financing is set to double in the next five years

All of this means we estimate China’s total green financing will more than double to reach over 15% of its total social financing (TSF), a broad measure of credit, in the next five yearsThat should help to offset a structural decline in property and traditional infrastructure spending. In particular, green lending – which makes up the bulk of current green financing – has risen by about 40% y-o-y since the beginning of 2022. If the current pace were to be sustained, this would lead to an increase in green lending by over RMB8trn this year.

Green bonds are another growing source of funding, although in contrast to other economies, China’s green bond issuance is still a relatively small share of green financing. However, this looks set to improve as there have been several developments in recent years that will help to facilitate further bond issuance.

Encouraging progress

Renewable energy capacity is ramping up

It is important to note that while the future looks promising with regard to China’s green transition, significant progress has already been made over the past three years. For instance, China has made aggressive plans for renewable energy and aims to phase out coal plants gradually. Its installed capacity of renewable energy increased from 650m kilowatts to more than 1.2bn kilowatts by the end of 2022, accounting for 47.3% of the country’s total installed power generation capacity and surpassing coal power (43.8%) for the first time in history.

Source: Wind, CBI, HSBC, *Green bonds are accumulated issuance
Source:, HSBC

Meanwhile, China’s share of clean energy (i.e. such as solar, wind, nuclear, hydro, and biomass) consumption has increased from 20.8% to 25.5% over the past five years, with energy consumption per unit of GDP decreasing by 8.1% during this period.

And aside from public-led capacity investment, China is pushing for increased green consumption. More policies are being rolled out aimed at increasing sales of green smart appliances, new electric vehicles, and green building materials in the countryside. Sales and exports of new energy products have also become bright spots for China’s economy in recent years.

More policies to incentivise the transition

More incentives needed for the private sector

To accelerate China’s green transformation from here, we believe the government needs to not just ramp up policy support but also incentivise the private sector more. Policies that clarify “green” activities and outline transition finance industries can help ensure sufficient funding is available for heavy emitters to reduce their carbon footprints, while progress on carbon trading will incentivise faster decarbonisation. Opening up more channels for private sector funding in primary markets can also help to increase funding and support innovation in green technology.

Source: Refinitiv Eikon
Note: *Past performance is not an indication of future returns. As of market close 15 November 2023. Source: Refinitiv Eikon
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Disclosure appendix

Additional disclosures

1. This report is dated as at 17 November 2023.

2. All market data included in this report are dated as at close 16 November 2023, unless a different date and/or a specific time of day is indicated in the report.

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