Top of main content
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: Gov.cn, 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
Log on to Internet Banking and check your investments performance
Take your financial health check and that will help you to understand your needs, make and achieve your financial plan

Related Insights

China's economic recovery accelerated in Q3, as the consumption-led recovery... [Oct 27]
ASEAN exports remain under pressure amidst weak global demand, with few signs of... [9 Oct]
As anticipated, the Fed kept the policy rates range unchanged at 5.25-5.5% at the Septembe... [26 Sep]
Recovery momentum continued to ease while services... [11 Sep]

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.

3. HSBC has procedures in place to identify and manage any potential conflicts of interest that arise in connection with its Research business. HSBC's analysts and its other staff who are involved in the preparation and dissemination of Research operate and have a management reporting line independent of HSBC's Investment Banking business. Information Barrier procedures are in place between the Investment Banking, Principal Trading, and Research businesses to ensure that any confidential and/or price sensitive information is handled in an appropriate manner.

4. You are not permitted to use, for reference, any data in this document for the purpose of (i) determining the interest payable, or other sums due, under loan agreements or under other financial contracts or instruments, (ii) determining the price at which a financial instrument may be bought or sold or traded or redeemed, or the value of a financial instrument, and/or (iii) measuring the performance of a financial instrument or of an investment fund.

Disclaimer

This document is prepared by The Hongkong and Shanghai Banking Corporation Limited (‘HBAP’), 1 Queen’s Road Central, Hong Kong. HBAP is incorporated in Hong Kong and is part of the HSBC Group. This document is distributed by HSBC Bank Canada, HSBC Continental Europe, HBAP, HSBC Bank (Singapore) Limited, HSBC Bank (Taiwan) Limited, HSBC Bank Malaysia Berhad (198401015221 (127776-V))/HSBC Amanah Malaysia Berhad (200801006421 (807705-X)), The Hongkong and Shanghai Banking Corporation Limited, India (HSBC India), HSBC Bank Middle East Limited, HSBC UK Bank plc, HSBC Bank plc, Jersey Branch, and HSBC Bank plc, Guernsey Branch, HSBC Private Bank (Suisse) SA, HSBC Private Bank (Suisse) SA DIFC Branch, HSBC Private Bank Suisse SA, South Africa Representative Office, HSBC Financial Services (Lebanon) SAL, HSBC Private banking (Luxembourg) SA and The Hongkong and Shanghai Banking Corporation Limited (collectively, the “Distributors”) to their respective clients. This document is for general circulation and information purposes only. This document is not prepared with any particular customers or purposes in mind and does not take into account any investment objectives, financial situation or personal circumstances or needs of any particular customer. HBAP has prepared this document based on publicly available information at the time of preparation from sources it believes to be reliable but it has not independently verified such information. The contents of this document are subject to change without notice. HBAP and the Distributors are not responsible for any loss, damage or other consequences of any kind that you may incur or suffer as a result of, arising from or relating to your use of or reliance on this document. HBAP and the Distributors give no guarantee, representation or warranty as to the accuracy, timeliness or completeness of this document. This document is not investment advice or recommendation nor is it intended to sell investments or services or solicit purchases or subscriptions for them. You should not use or rely on this document in making any investment decision. HBAP and the Distributors are not responsible for such use or reliance by you. You should consult your professional advisor in your jurisdiction if you have any questions regarding the contents of this document. You should not reproduce or further distribute the contents of this document to any person or entity, whether in whole or in part, for any purpose. This document may not be distributed to any jurisdiction where its distribution is unlawful.

The following statement is only applicable to HSBC Bank (Taiwan) Limited with regard to how the publication is distributed to its customers: HSBC Bank (Taiwan) Limited (“the Bank”) shall fulfill the fiduciary duty act as a reasonable person once in exercising offering/conducting ordinary care in offering trust services/business. However, the Bank disclaims any guaranty on the management or operation performance of the trust business.

The following statement is only applicable to by HSBC Bank Australia with regard to how the publication is distributed to its customers: This document is distributed by HSBC Bank Australia Limited ABN 48 006 434 162, AFSL/ACL 232595 (HBAU). HBAP has a Sydney Branch ARBN 117 925 970 AFSL 301737.The statements contained in this document are general in nature and do not constitute investment research or a recommendation, or a statement of opinion (financial product advice) to buy or sell investments. This document has not taken into account your personal objectives, financial situation and needs. Because of that, before acting on the document you should consider its appropriateness to you, with regard to your objectives, financial situation, and needs.

Important Information about the Hongkong and Shanghai Banking Corporation Limited, India (“HSBC India”)

HSBC India is a branch of The Hongkong and Shanghai Banking Corporation Limited. HSBC India is a distributor of mutual funds and referrer of investment products from third party entities registered and regulated in India. HSBC India does not distribute investment products to those persons who are either the citizens or residents of United States of America (USA), Canada, Australia or New Zealand or any other jurisdiction where such distribution would be contrary to law or regulation.

Mainland China

In mainland China, this document is distributed by HSBC Bank (China) Company Limited (“HBCN”) and HSBC FinTech Services (Shanghai) Company Limited to its customers for general reference only. This document is not, and is not intended to be, for the purpose of providing securities and futures investment advisory services or financial information services, or promoting or selling any wealth management product. This document provides all content and information solely on an "as-is/as-available" basis. You SHOULD consult your own professional adviser if you have any questions regarding this document.

The material contained in this document is for general information purposes only and does not constitute investment research or advice or a recommendation to buy or sell investments. Some of the statements contained in this document may be considered forward looking statements which provide current expectations or forecasts of future events. Such forward looking statements are not guarantees of future performance or events and involve risks and uncertainties. Actual results may differ materially from those described in such forward-looking statements as a result of various factors. HSBC India does not undertake any obligation to update the forward-looking statements contained herein, or to update the reasons why actual results could differ from those projected in the forward-looking statements. Investments are subject to market risk, read all investment related documents carefully.

© Copyright 2024. The Hongkong and Shanghai Banking Corporation Limited, ALL RIGHTS RESERVED.

No part of this document may be reproduced, stored in a retrieval system, or transmitted, on any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior written permission of The Hongkong and Shanghai Banking Corporation Limited.

Important information on sustainable investing

“Sustainable investments” include investment approaches or instruments which consider environmental, social, governance and/or other sustainability factors (collectively, “sustainability”) to varying degrees. Certain instruments we include within this category may be in the process of changing to deliver sustainability outcomes.

There is no guarantee that sustainable investments will produce returns similar to those which don’t consider these factors. Sustainable investments may diverge from traditional market benchmarks.

In addition, there is no standard definition of, or measurement criteria for sustainable investments, or the impact of sustainable investments (“sustainability impact”). Sustainable investment and sustainability impact measurement criteria are (a) highly subjective and (b) may vary significantly across and within sectors.

HSBC may rely on measurement criteria devised and/or reported by third party providers or issuers. HSBC does not always conduct its own specific due diligence in relation to measurement criteria. There is no guarantee: (a) that the nature of the sustainability impact or measurement criteria of an investment will be aligned with any particular investor’s sustainability goals; or (b) that the stated level or target level of sustainability impact will be achieved.

Sustainable investing is an evolving area and new regulations may come into effect which may affect how an investment is categorised or labelled. An investment which is considered to fulfil sustainable criteria today may not meet those criteria at some point in the future.

Notes