China’s clean energy sector: A growth motor

Like many of us, I’m trying to adopt clean energy sources where practicable. But cost can be an issue, particularly where upfront investment is needed (e.g. through purchases of solar panels, batteries or electric vehicles). So I see why the current pushback against clean energy, in the U.S. and elsewhere, is often focused on its apparent cost and economic impact.

But, when we move from the level of an individual to an overall economy, I think that we need to take a different perspective. And I don’t just mean that we need to consider the long-term benefits of clean energy to the environment and thus economic sustainability. We also need to understand the overall impact that clean energy sectors can have, in the short term, on a country’s economic growth.

The recent experience of China shows that clean energy need not be a drag on economic growth: it can be a positive. Recent analysis by the Centre for Research on Energy and Clean Air (CREA) for Carbon Brief spells out in detail just how important Chinese clean energy was to overall Chinese economic performance in 2025.

China’s officially-reported GDP growth was 5.0% in 2025. But without the clean energy sector, the CREA analysis reckons, Chinese growth would have been just 3.5%. My reading of World Bank data suggests that, if you exclude the pandemic years of 2020 and 2022, this would have been the lowest annual Chinese GDP growth rate since 1976.

Other CREA data confirms the importance of clean energy for the Chinese economy. The clean energy sector’s growth accelerated from 12% in 2024 to 18% in 2025. Clean energy accounts for more than 90% of the net rise in investment in 2025. China’s clean energy economy is, on its own, roughly equivalent to the entire output of Brazil or Canada, making it the 8th largest “economy” in the world.

The clean energy sector, of course, encompasses a wide range of activities. CREA analysis of the 2022-2025 period shows that, while solar remains an important clean energy sector, the importance of electric vehicles and batteries has been growing. In total, this “new three” generated two-thirds of clean energy value-added in 2025.

Figure: China’s clean-energy economy has nearly doubled in size in just three years

Source: CREA analysis for CREA

Other data in the CREA analysis helps put the clean energy sector in context. Investments in clean energy in 2025 were four times those in fossil fuel extraction and (still very important) coal power.

Taking a different perspective, the CREA reckons China’s clean energy domestic market (value terms) is still more important than clean energy exports.

The success of China’s clean energy sector is to be lauded. But it also raises questions around how the sector can or should be managed in coming years. The issue is that when any economic sector (sustainable or not) gets to a certain size, it stops being just a recipient of government policy: instead, it starts to determine overall macroeconomic policy and growth.

China’s policy approach to clean energy is complex. One recent policy preoccupation has been to deal with overcapacity and “irrational” price competition in the solar panels sector. (A prime example of what is often referred to as “involution” or “neijuan” in the Chinese context: a situation where domestic firms engage in intense competition, often manifest through price wars and overproduction, with little gain either to them or the overall economy.) Chinese investment in the solar-panel sector fell in 2025 for the second consecutive year, and this could be taken as evidence of policy success in combatting such “involution” – or it could be a sign of brutal price competition discouraging firms from making necessary investment.

The targets around clean energy in China’s new five-year plan (2026-2031) are relatively modest and may be beaten without much effort. But if China really is “betting big” on the clean energy sector – as the US appears to be doing with artificial intelligence – to what extent will current levels of financial support for clean energy, from both central and local governments, need to be sustained? Again, there do seem to be some attempts at policy rationalisation in successful clean energy sectors. Note, for example, China’s decision in January this year to completely remove VAT export rebates on most solar panels this April and to scale down and then remove such rebates on battery exports by the start of next year. This policy tweaking may be seen as one way to consolidate the sector and favour higher value-added production.

Another big question is whether China’s clean energy successes will create new vulnerabilities, both domestic and external. Obvious external vulnerabilities include a further ratcheting up of tariffs on China’s clean energy exports (e.g., the US and EU tariffs on imports of Chinese solar panels), something that Chinese policy modifications (e.g., the removal of VAT rebates on production) seem unlikely to stop. However, the developed economies’ growing dependence on China for many forms of clean energy technology means that there is likely to be a limit to developed economy trade interventions.

At a domestic level, there is a risk that China creates vulnerability by simply committing large amounts of resources to a clean energy technology that proves to be technologically or commercially unviable (or is superseded by better new technology), with the result that the associated investment has to be written off. But the sheer range of China’s clean energy technology means that one clean energy sector failure seems unlikely to be economically destabilising for the overall Chinese economy. Whatever happens, clean energy now appears central to the future development of the Chinese economy.

China’s global dominance in many clean energy technologies obviously makes it an outlier in this sort of analysis. In other economies, clean energy is unlikely to have such a positive immediate impact on growth. But, even so, China’s experience suggests we need a rather subtler discussion of the likely economic impact of clean energy: simple “positive” or “negative” political narratives don’t capture the complexities involved.

This article is also published on LinkedIn. illuminem Voices is a democratic space presenting the thoughts and opinions of leading Sustainability & Energy writers, their opinions do not necessarily represent those of illuminem.

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