Across the world, energy investments are gradually shifting towards renewables as part of commitments to curb global warming. In this trend, China is seen as both a climate hero and a climate criminal – the country is simultaneously by far the largest investor in both renewable energy and coal power (IEA, June, 2021). As China’s global role expands, its energy investments have an increasing impact outside its borders. However, there is a significant difference in the proportion of fossil fuels and renewables in China’s domestic energy development, and in its overseas energy investments. China invests in both renewables and fossil power generation domestically, but a clear majority of its investment is in clean energy. Yet, overseas, fossil fuel power generation comprises the majority of Chinese investment (Fudan University, February 2). According to a recent study by the authors, an often overlooked reason for this disparity is the nature of the Chinese financial system. This highlights the need for Chinese government intervention to align energy investment with the goals of the Paris Agreement.  This discrepancy is also particularly notable as Chinese President Xi Jinping stipulated in his September 2021 UN General Assembly address that China would cease construction of new coal power plants overseas, but did not provide a timeline for doing so (State Council Information Office. October 27, 2021; CGTN, September 22, 2021).
The current misalignment is a major concern as China is rapidly expanding its influence in global infrastructure investments through the Belt and Road Initiative (BRI), but has displayed little ambition to bring its overseas investments in line with the Paris Agreement (Belt and Road Forum, April 10, 2017). In order to limit global warming to well below 2°C, countries will have to surpass their current nationally determined contributions (NDC). Moreover, as the largest emitter of greenhouse gases in the world, accounting for about 27% of the global total, the actions that China takes on the climate will influence not only global success in limiting emissions, but can also serve as a model for other emerging economies (Rhodium Group, May 6, 2021).
Chinese Domestic and Overseas Energy Investments
China dominated renewable energy investment between 2010 and 2019, amounting to $818 billion total, exceeding for example, the combined sum of European countries. Since 2010, China is cumulatively the largest renewable energy investor despite a downturn from $145.9 billion in 2017 to $91.2 billion in 2018, when the phase-out of solar subsidies deterred investment (Renewables 21, October 4, 2020). Compared with the scale of its domestic investments in renewable energies, Chinese investments overseas are still at a very early stage. China’s global energy finance from policy banks is dominated by fossil fuels (70%,) whereas renewables (excluding hydro) only represent 2% of investment (Boston University, April 21). Furthermore, the trend of mainly financing fossil fuels persists across Chinese energy investments from commercial banks, the Silk Road Fund, State Owned Enterprises (SOEs), and private companies. In fact, renewables only make up the largest proportion of financing from the private sector.
Recently published research collects statistics on this issue to shows that while China performs better than the global average domestically, it performs significantly worse than average overseas.  As shown in table 1, it is notable that Chinese domestic investment is 85% in renewables, while the overseas percentage is only 34%. If we further exclude medium and large hydropower, which is neither considered green nor renewable by many current definitions these figures are 77% and 22%, respectively.
Table 1. 2019 investment proportions in power generation and energy supply in fossil and renewable energy across sectors and geographies (Source: Authors calculations based on data from numerous sources )
|Fossil / renewable split||Fossil / renewable split (w/o hydro)|
|Global||480||25 / 75 %||36 / 64 %|
|Chinese domestic||122||15 / 85 %||23 / 77 %|
|21.3||66 / 34 %||78 / 22 %|
Chinese fossil fuel companies are SOEs, and renewables companies are private
Renewable energy projects already have difficult financing terms given their higher initial construction costs. In comparison, a coal-fired power plant is cheaper to build, but expensive to run as it requires continuous coal supply. In addition, a specific barrier to Chinese renewable energy companies is the lack of support from financial institutions (Greenovation Hub, April 6, 2020). It turns out that an indirect but underlying reason for this problem is that Chinese financial institutions favor state-owned enterprises (SOEs) over private companies.
For historical reasons, Chinese fossil fuel technologies and assets are primarily controlled by SOEs. On the contrary, renewable energy are largely in the hands of private companies. This situation is summarized in table 2 below. For example, the largest Chinese wind power companies, Goldwind, Envision, and Mingyang, are all primarily privately owned. Similarly, the largest Chinese solar companies, Jinko, JA Solar, and Trina Solar, are also private. On the other hand, the largest fossil fuel companies are state-owned including China National Petroleum Corporation (CNPC) China Energy Investment, Sinopec, and Power Construction Corporation of China (see CNPC, Sinopec 2020 Annual Reports). As the Chinese financial system has a strong favoritism towards SOEs, this translates into favoritism for fossil fuel companies. There is little indication of this changing under Xi, who has overseen initiatives to create ““stronger, better and bigger” SOEs through large-scale mergers and spinoffs (South China Morning Post, November 3, 2020).
Table 2. Ownership structure of leading wind turbine, solar PV, and fossil fuel companies in China (Source: Authors’ calculations based on data from numerous sources )
|Sector||Firm||Global market share (2018)||Type||Government ownership|
|Wind turbine||Goldwind||13.8%||Public||43.33% (Three Gorges New Energy)|
|Mingyang||5.2%||Public||7.3% (ICBC Int. Investment)|
|Longyuan Power||(24%)||Public||57,25% (China Energy Investment)|
|Solar PV||Jinko Solar||12.8%||Public||–|
|Longi Green Energy Technology||8.1%||Public||–|
|Consolidated revenue (2018)|
|Fossil fuels||China National Petroleum Corporation||$340 bn||SOE||81% (China National Petroleum Corporation (State-owned Assets Supervision and Administration Commission-SASAC)|
|Sinopec Group||$314 bn||SOE||70% (Sinopec Group (SASAC))|
|China National Offshore Oil||$22 bn||SOE||64,44% (China National Offshore Oil Corporation (SASAC))|
|China Energy Investment*||$76 bn||SOE||100% (SASAC)|
|State Power Investment Corporation Limited||$30.1 bn||SOE||100% (SASAC)|
|China Huadian||$30.3 bn||SOE||100% (SASAC)|
|Power Construction Corporation of China||$53.8 bn||SOE||100% (SASAC)|
|China National Coal Group||$17.6bn||SOE||100% (SASAC)|
The disparities outlined above mean that when, for example, both PowerChina and Goldwind seek to undertake an energy generation project outside China, PowerChina is likely to gain greater support from Chinese financial institutions. As a result, PowerChina can undertake projects at cheaper cost, which translates into greater resources for new projects. Exacerbating this effect is that as China’s national energy strategies begin to favor renewables, the fossil fuel SOEs end up with an excess capacity that drives them to search for new projects abroad. These often overseen circumstances are key factors in the different proportions of renewables and fossil fuels in China’s domestic and overseas investments.
A Top-Down Solution to a Top-Down Problem
The Chinese government fostered this favoritism towards SOEs in the financial system and hence has the ability to change the system. What needs to be done is, in fact, technically simple. Liberalizing the system by reducing state interference in financial decisions would allow Chinese financial institutions to make market-based decisions. As with Western counterparts, Chinese financial institutions would see a strong for-profit case for renewables. However, while technically feasible, this change is politically difficult. The Chinese government intends to continue controlling the direction of the economy, and reducing fossil fuel financing would require SOEs to lay off employees.
If carrying out such a systematic change proves too difficult, the Chinese government also has more targeted tools available. Xi’s pledge to stop building coal plants abroad is a step in the right direction, but is insufficient as most overseas energy projects are in the oil and gas sector. A number of further practical actions could be taken. The Chinese policy banks, which make up the majority of overseas energy financing, could be required to stop investing in coal projects, as is increasingly the case for development banks across the world (China Dialogue, June 8, 2021). Furthermore, the Chinese commercial banks could provide incentives for green investment, like scaling up the recently implemented central banking policies giving the banks higher interest rates on their central bank deposits if they are green (Climate Policy, June 9, 2020). In addition, the government could prompt SOEs themselves to invest more in renewables. Some already have high renewable proportions, such as the State Power Investment Corporation, which uses about 56% renewable energy, but such companies are the minority (PV Magazine, January 19, 2021). Relatedly, the government can reshape the strategy of Sinosure, which insures most Chinese overseas projects (Sinosure). Options include placing stringent quotas on maximum coal exposure as well as on minimum proportions allocated to green energy. An additional option often discussed is for Sinosure to require projects to use an independent third party to carry out high-standard environmental and social impact assessments.
A more complicated area is the role of smaller banks in overseas development financing. While Chinese domestic renewable energy projects are financed by the four large banks, smaller banks also play a role. However, the smaller banks provide very limited overseas financing. Conversely, as fossil fuel SOEs are mainly financed by the large commercial banks domestically, they can also rely on these relationships to expand their overseas operations. Consequently, if relying on existing relations were possible for smaller banks investing in renewable energy, international expansion would be substantially smoother. However, CBIRC policies that require smaller banks to meet stringent governance and management standards inhibit their operational ambitions. These standards include securing the approval of the Central Bank’s State Administration of Foreign Exchange (SAFE) to transfer money across borders and to use foreign currencies (SAFE). These impediments are exacerbated by smaller banks being subject to a higher cost of capital than the big four, particularly internationally, in addition to the costs of establishing overseas branches (the big four’s branches have been active abroad for many years) (US-China Economic and Security Review Commission, May 27, 2020). Regulators could reduce barriers and actively encourage overseas lending while obliging Sinosure to cover this lending in order to reduce smaller banks’ risk exposure. While local banks are small in comparison to the four main state-owned Chinese commercial banks, they are large by international standards and certainly mature enough to manage international loan portfolios.
Insufficient attention has been paid to the underlying issue of the Chinese financial system’s preference for SOEs in favoring fossil fuel over renewable energy investments abroad. Although China is the world’s largest investor in renewable energy, the country’s overseas energy investments are primarily in fossil fuels. This is problematic as it slows transition towards low-carbon development trajectories to meet the 1.5-degree warming target of the Paris Agreement, especially as China is a leader in renewable energy technology.
Mathias Lund Larsen is senior research consultant at the International Institute of Green Finance at the Central University of Finance and Economics, Beijing and dual PhD fellow at Copenhagen Business School and the Chinese Academy of Sciences.
Lars Oehler holds a PhD from Copenhagen Business School and the Chinese Academy of Sciences and currently works for a European development finance institution.
 Mathias Lund Larsen, Lars Oehler, “Clean at home, polluting abroad: the role of the Chinese financial system’s differential treatment of state-owned and private enterprises,” Climate Policy, February 24, 2021, https://www.tandfonline.com/doi/full/10.1080/14693062.2022.2040409?src=
 China Electricity Council. (2020). Power Industry Statistics 2019. www.http://english.cec.org.cn; Dong, W., & Ye, Q. (2018). Utility of renewable energy in China’s low-carbon transition. Brookings. www.brookings.edu; Gallagher, K. P. (2022). China’s global energy finance. Global Development Policy Center, Boston University; IEA. (2021). World Energy Investment 2020. https://www.iea.org; Zhou, L., Gilbert, S., Wang, Y., Cabré, M. M., & Gallagher, K. P. (2018). Moving the Green belt and road initiative: From words to actions. World Resources Institute and Global Development Policy Center.
 Wang, T. (2019). Global solar companies based on market share of PV cell and module shipments 2018. https://www.statista.com; GWEC. (2020). Global Wind report: Annual market update 2020. Global Wind Energy Council.Corporate annual reports of each company listed, as available on their respective websites.