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For decades, China-watchers have labelled the country’s massive state-owned enterprises as “dinosaurs” that inefficiently soaked up precious state resources for mixed economic gain.

But now there is evidence that a green pivot by some of China’s biggest energy SOEs is helping Beijing achieve its goal of moving towards energy independence while extending the country’s lead in clean technologies.

As a result of SOEs channelling capital expenditure towards clean technologies, China has increased the share of renewable electricity generation capacity — mostly solar, wind and hydro — to about 50 per cent in 2023, from 38 per cent in 2019 and 29 per cent in 2013, according to the Shanghai-based consultancy Rystad Energy.

According to a recent analysis by analyst Xuyang Dong of Climate Energy Finance, a new Australian think-tank, China is on track to exceed Beijing’s target for a 50 per cent boost in the installed capacity of renewable energy generation over the period of the state’s 14th five-year plan, from 2021 to 2025.

While European and US politicians complain about Beijing’s generous state support for manufacturing of clean tech products, Dong points to benefits stemming from China’s centralised command and control structure as well as governance continuity.

When Beijing ordered the SOEs to pivot towards renewables, “they do it”, she said. Dong argued that among western countries, there were barriers to decarbonisation in the “myopic short-termism” of financial markets, the struggle to establish carbon pricing and policy disruptions when governments changed.

The SOEs’ renewable investment drive was sparked by President Xi Jinping’s 2020 climate pledges. China is the world’s biggest emitter of greenhouse gases, responsible for about 30 per cent of the global total, but has promised to reach peak CO₂ emissions by 2030. The country has also pledged to achieve a level of net zero emissions by 2060.

China’s SOEs are a core pillar of the world’s second-biggest economy, accounting for 66 per cent of gross domestic product in 2023, Tsinghua University public policy experts Zhang Fang and Zuo Jialu wrote in February. And in energy, size matters. The SOEs have the resources and backing to develop at scale China’s best wind and solar resources in the remote north-west, areas where smaller private sector groups have struggled to operate. 

Another feature of Chinese policymaking is that leaders’ publicly stated targets are seldom missed. The investment drive in renewable energy, coupled with China’s rapid transport electrification, means many international experts now forecast that China’s emissions peak will probably occur sooner than 2030. 

And the implications of this green turn by China’s SOEs go beyond the high-level climate targets. Whereas once the groups were known for being deeply conservative, they are investing more in new, unproven technology, including start-ups. “They are actually on the edge of trying out new technologies and putting those into commercial use,” said Yicong Zhu, senior renewables and power analyst at Rystad Energy.

This is boosting private sector research and development efforts at a time of capital market weakness, and means that China is well placed to extend its global lead across key clean technologies. In one example cited by CEF, the China State Shipbuilding Corporation is developing the largest prototype offshore wind turbine in the world, with the rotor 260 metres high and powering about 40,000 households.

While Xi’s climate promises meant the SOEs had little choice but to join the green transition, there are signs that groups are finding the move is increasingly good business. Last year, Zhu and colleagues delved into the financial performance of 14 electricity generators over three years to the end of 2022, finding that new renewable energy was more profitable for the groups than relying on coal and gas.

Still, as Zhang and Zuo from Tsinghua point out, across the SOE sector opacity remains a problem. “Very few” SOEs publicly disclose their exact emissions data. And coal was still responsible for about 60 per cent of the country’s actual generated electricity in 2023. Simeng Deng, also of Rystad, says that providing secure electricity supply and avoiding blackouts remains paramount. “Reliability is the most important thing. They don’t want to make their portfolios too risky,” she says. Still, she adds: “Don’t call them dinosaurs anymore.”

edward.white@ft.com

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