This assignment is a take-home essay assignment of 2 questions, 2 pages each

China’s renewable energy development: policy, industry and business perspectives

Christopher M. Dent*

East Asian Studies, University of Leeds, Leeds, UK

China has been at the forefront of the recent global expansion of renewable energy (RE) activity. This study examines how the country has achieved its position as the world’s largest producer and exporter of RE products, and biggest power generator from renewables. More specifically, it explores the main motives driving RE development in China, how this is embedded in broader new development thinking on realising ‘ecological civilization’ goals, evolving government policies on strategic planning on renewables and the complex multi-layered landscape of China’s RE business where various types of state-owned enterprises collaborate and compete among each other alongside a now large number of private companies, especially in equipment manufacturing.

Keywords: China; ecological modernization; low carbon development; renewable energy; state-owned enterprise; strategy industry theory

1. Introduction

1.1. Background

The rapid expansion of renewable energy (RE) in China since over the last decade is of

some considerable significance for understanding current and possible future thinking

on the country’s economic, social and business development. Over time the Chinese

government has afforded greater strategic priority to developing renewables as an

energy sector and industry for three main reasons. First, China faces serious energy

security challenges, as burgeoning industrial-based development and rising material

demands of business and society have intensified pressures on domestic energy reserves

and raised dependency on foreign energy sources. China is now consequently one of

the world’s largest energy importers. Second, RE technologies are being promoted for

important environmental and welfare imperatives. High carbon economic activity is

causing acute pollution and other environmental problems in the country,

correspondingly leading to adverse social welfare effects. The ability of renewables

to produce cleaner energy makes them a vital part of the solution to this problem and

addressing climate change risk. Third, RE sectors such as solar and wind are viewed as

important emerging strategic industries by the Chinese government, forming part of its

push to make the country an ‘innovation hub’ economy as envisioned in the 12th Five-

Year Plan (FYP) (2011–2015). Relatedly, RE is a core element of the country’s new

low(er) carbon development strategies and efforts on sustainable development

generally.

RE development in China should thus not be considered in isolation of broader

development processes, strategies and contexts in which it is embedded. Thinking on

q 2014 Taylor & Francis

*Email: [email protected]

Asia Pacific Business Review, 2015

Vol. 21, No. 1, 26–43, http://dx.doi.org/10.1080/13602381.2014.939892

China’s RE development also combines ideas from ecological modernization theory

(EMT) and strategic industry theory. This applies to both government policy and business

practice. The landscape of China’s RE business across different industry value-chains is

characterized by dynamic entrepreneurism, inter-sectoral connections, a dense mix of

state-owned enterprises (SOEs) and private sector companies, intensifying competition

and fast expanding production capacity. The relationship between government and

business here is a complex and complicated one, yet this is to be expected in a large fast-

growing economy where the state is proactively supporting the development of dynamic

industries such as wind and solar energy.

1.2. Research methods and questions

Research undertaken for this work is of a qualitative political economy nature, drawing

upon various types of analytical and information sources over a 2-year period from

October 2011 to November 2013. The empirical work is set within a theoretical–

conceptual framework later defined in this study that helps provide deeper explanations on

both the causes and consequences of China’s RE development. The analysis addresses a

number of research questions. It begins by asking what RE is and why is it so important?

These are the main research questions we have chosen, rather than straight hypotheses.

Theoretical explanations for the rise of RE are considered, and also what have been the

main motives behind China’s RE development. It also explores whether the Chinese

government is pursuing a unique RE policy and strategy, and how this may be different to

other countries. In addition, what different patterns of Chinese business development have

occurred in the country’s RE industries and what are the key issues arising in state–

business relationships here? Furthermore, what are some of the impacts that China is

making globally on RE business and industries?

2. China and the global development of RE

2.1. What is RE and why is it important?

RE is derived from replenishable natural processes, sources or phenomena, such as wind,

solar, geothermal, hydropower, tidal and biological matter. They are ‘renewable’ because

in actual or theoretical terms they can provide inexhaustible supplies of energy to meet the

needs of humankind. In contrast, fossil fuels (coal, oil and natural gas) and nuclear (based

on uranium) are non-renewable because their energy sources are ultimately exhaustible.

Today, we often refer to renewables in terms of their technological applications, among

the most common being wind turbines, solar photovoltaic (PV) modules or panels, tidal

barrages, biofuels and so on. These can vary enormously in terms of scale, for example

from small solar PV cells that generate a few watts of electricity to power electronic

devices such as calculators to huge hydropower plants such as China’s 22.5 GW capacity

Three Gorges Dam, the world’s largest power station. RE is arguably the main element of

a broader green energy cluster of technologies that additionally includes energy efficiency

and saving, electric vehicles, fuel cells and other eco-industry sectors.

RE technologies provide critically important options for China in meeting various

development challenges that lie ahead but nevertheless come with their own

environmental and socio-economic costs. The most controversial of all has been the

construction of numerous large hydroelectric dams that have caused destruction to local

eco-systems and the relocation of millions of Chinese from their homes. The future

development of large-scale tidal barrages could have similar adverse effects. More

Asia Pacific Business Review 27

generally, RE systems are in some way materially based, and require industrial processes

to produce installation equipment. Consequently, no RE technology is completely carbon

neutral, or in an absolute pure sense completely ‘renewable’ as most of the materials on

which they depend are depletable. Emissions from biomass and biofuel combustion can

cause their own environmental problems. Some RE installations also require large areas of

uninhabited space, such as wind farms and solar parks, presenting certain environmental,

economic and spatial constraints. Notwithstanding these points, the ability of renewables

to produce much cleaner and safer energy than fossil fuels or nuclear makes them essential

to decarbonizing economic activity, securing long-term energy futures, achieving

sustainable development and tackling climate change. This is especially relevant to China

given the country’s closely related economic, energy and environmental challenges it

faces domestically and its impacts in these areas globally.

2.2. The global rise of renewables

RE technologies have long been used by societies and civilizations around the world. In

the modern era, hydroelectric dams have long been the dominant form of RE installations

generating utility-scale electricity, these dating back to the late nineteenth and early

twentieth centuries. Although the inclusion of hydropower in the renewables category

remains controversial due to the adverse ecological and socio-economic effects caused by

large-scale dams locally, most analysts still consider it as a valid RE sector, not least

because of the recent growth of small-scale hydropower which is far less impactful. Other

types of modern RE technology have been developed, many of which have been scaled up

into mainstream industries (e.g. wind and solar) while others have remained low-level

power producers such as geothermal, tidal and concentrating solar power, with some still

largely experimental, such as wave energy.

It was not until the early 2000s that significant growth and development in renewables

generally began as new RE technologies became gradually scaled up and approached

commercialization. Wind, solar and bioenergy deserve special mention here, and

electricity generation is arguably where renewables have made the biggest impact on

global energy systems. Worldwide RE power capacity has risen from 931 GW in 2005 to

1473 GW by 2012, which represents 26.0% of global total, leading in addition to a rising

share of global electricity generation output from 15.6% to 21.7%. As Table 1 indicates,

hydropower accounted for 16.5% of global electricity generation in 2012, this being

around three-quarters of the total renewables contribution. From 2005 to 2012, wind

power installed capacity has increased from 59.0 to 282.6 GW, and solar PV from 5.4 to

102.1 GW, the two fastest growing RE sectors. In terms of global primary energy demand,

renewables accounted for 19.0% of the total in 2011, with traditional biomass being the

most prominent RE sector (9.3%) and primarily related to cooking and heating in remote

areas of developing countries.

China has been at the forefront of this global expansion of RE. For a number of years,

its power generation capacity has been far greater than any other nation, having almost

tripled from 122 GW in 2005 to reach 341 GW by 2012: the next ranked countries that year

were the USA (164 GW), Germany (76 GW), India (67 GW) and Japan (59 GW).

Admittedly, China’s dominant position owes much to a large and still expanding

hydropower programme, yet even if this sector was excluded, China would still be ranked

first globally with 92 GW and the USA second with 86 GW (REN21 2013). Furthermore,

China has been responsible for adding around 40% of new additions to global RE capacity

since the late 2000s (REN21 2006, 2013).

28 C.M. Dent

T a b le

1 .

C h in a ’s

R E p ro fi le .

In st a ll e d c a p a c it y , M W

2 0 0 5

2 0 0 6

2 0 0 7

2 0 0 8

2 0 0 9

2 0 1 0

2 0 1 1

2 0 1 2

G lo b a l in st a ll e d

c a p a c it y ,

M W

(2 0 1 2 )

C h in a %

sh a re

o f

g lo b a l to ta l

S e c to r ta rg e ts

P o w e r g e n e ra ti o n

H y d ro p o w e ra

1 1 7 ,3 9 0

1 3 0 ,2 9 0

1 4 8 ,2 3 0

1 7 2 ,6 0 0

1 9 6 ,2 9 0

2 1 6 ,0 6 0

2 3 2 ,9 8 0

2 4 8 ,9 0 0

9 9 0 ,0 0 0

2 5 .1

3 2 5 G W , in c .

4 1 G W

p u m p e d

st o ra g e (2 0 1 5 );

4 3 0 G W

(2 0 2 0 )

W in d

1 0 6 0

2 5 9 9

5 9 1 2

1 2 ,2 1 0

2 5 ,8 1 0

4 4 ,7 3 3

6 2 ,6 3 4

7 5 ,3 7 4

2 8 2 ,5 8 7

2 6 .7

1 0 0 G W , in c . 5 G W

o ff sh o re

(2 0 1 5 );

2 0 0 G W

b , in c .

3 0 G W

o ff sh o re

(2 0 2 0 )

S o la r P V

0 8 0

1 0 0

1 4 5

3 7 3

8 9 3

3 0 9 3

8 3 0 0

1 0 2 ,1 5 6

8 .1

3 9 G W

(2 0 1 5 );

4 7 G W

(2 0 2 0 )

B io m a ss

2 0 0 0

2 5 0 0

3 0 0 0

3 2 7 0

4 6 0 0

5 5 0 0

7 0 0 0

8 0 0 0

8 3 ,0 0 0

9 .6

1 3 G W

(2 0 1 5 );

3 0 G W

(2 0 2 0 )

G e o th e rm

a l

2 4

2 4

2 4

2 4

2 4

2 4

2 4

2 4

1 1 ,7 0 0

0 .2

1 1 0 – 1 2 0 M W

(2 0 1 5 ) g e o th e rm

a l

a n d ti d a l; 5 0 M W

o c e a n (2 0 1 5 )

O c e a n (t id a l a n d

w a v e )

3 3

3 3

3 3

3 3

5 2 7

0 .6

C o n c e n tr a ti n g so la r

p o w e r (C S P )

0 0

0 0

0 0

0 0

2 5 5 0

0 .0

1 G W

(2 0 1 5 );

3 G W

(2 0 2 0 )

R E to ta l

1 2 0 ,4 7 7

1 3 5 ,4 9 6

1 5 7 ,2 6 9

1 8 8 ,2 5 2

2 2 7 ,1 0 0

2 6 7 ,2 1 3

3 0 5 ,7 3 4

3 4 0 ,6 0 1

1 ,4 7 2 ,5 2 0

2 3 .1

N o n -f o ss il fu e l (i n c .

n u c le a r) : p ri m a ry

e n e rg y 1 1 .4 %

(2 0 1 5 ), 1 5 %

(2 0 2 0 ); e le c tr ic it y

g e n e ra ti o n c a p a c it y

3 0 %

(2 0 1 5 )

(C o n ti n u e d )

Asia Pacific Business Review 29

T a b le

1 – c o n ti n u e d

In st a ll e d c a p a c it y , M W

2 0 0 5

2 0 0 6

2 0 0 7

2 0 0 8

2 0 0 9

2 0 1 0

2 0 1 1

2 0 1 2

G lo b a l in st a ll e d

c a p a c it y ,

M W

(2 0 1 2 )

C h in a %

sh a re

o f

g lo b a l to ta l

S e c to r ta rg e ts

% sh a re

to ta l

in st a ll e d c a p a c it y

2 3 .0

2 2 .0

2 2 .0

2 3 .0

2 5 .0

2 6 .0

2 8 .5

2 9 .6

% sh a re

to ta l p o w e r

o u tp u t g e n e ra te d

1 6 .0

1 5 .0

1 5 .0

1 7 .0

1 7 .0

1 8 .0

1 6 .0

2 0 .0

N u c le a r

6 8 5 0

6 8 5 0

8 8 5 0

8 8 5 0

9 0 8 0

1 0 ,8 2 0

1 2 ,5 7 0

1 3 ,8 0 0

3 6 4 ,0 7 8

3 .8

4 0 G W

(2 0 1 5 );

5 8 G W

(2 0 2 0 )

% sh a re

to ta l

in st a ll e d c a p a c it y

1 .3

1 .1

1 .2

1 .1

1 .0

1 .1

1 .2

1 .2

O th e r e n e rg y p ro d u c ti o n

S o la r w a te r h e a te rs

(m il li o n m

2 )

8 0 .0

9 0 .0

1 0 8 .0

1 3 6 .0

1 6 0 .0

1 8 5 .0

2 1 7 .4

2 5 7 .7

4 0 0 m il li o n m

2

(2 0 1 5 )

B io g a s u se rs

(m il li o n h o u se -

h o ld s)

1 8 .1

2 1 .8

2 6 .2

3 0 .5

3 5 .1

3 9 .0

4 3 .0

– 5 0 m il li o n h o u se -

h o ld s (2 0 1 5 )

S o li d b io m a ss

(1 0 0 0 to n n e s)

0 0

3 0

1 0 0 0

2 0 0 0

3 0 0 0

3 5 0 0

6 0 0 0

1 0 m il li o n to n n e s

(2 0 1 1 – 2 0 1 5 )

B io e th a n o l (1 0 0 0

to n n e s)

1 0 2 0

1 0 2 0

1 2 9 0

1 5 8 0

1 7 2 0

1 8 6 0

1 9 0 0

2 0 0 0

4 m il li o n to n n e s

(2 0 1 1 – 2 0 1 5 )

B io d ie se l (1 0 0 0

to n n e s)

5 0

5 0

1 0 0

3 0 0

5 0 0

5 0 0

4 0 0

5 0 0

1 m il li o n to n n e s

(2 0 1 1 – 2 0 1 5 )

S o u rc e s: B P (2 0 1 3 ), C N R E C (2 0 1 3 ), E P IA

(2 0 1 3 ), G W E C (2 0 1 3 ), R E N 2 1 (2 0 1 3 ).

a In c lu d e s p u m p e d st o ra g e . G e n e ra l: d a ta so u rc e fi g u re s d if fe r fo r C h in a ’s in st a ll e d w in d , so la r P V a n d g e o th e rm

a l e n e rg y c a p a c it y . T h e a u th o r h a s c h o se n to

u se

in te rn a ti o n a l so u rc e d

d a ta

fr o m

in te rn a ti o n a l se c to ra l a n d o th e r o rg a n iz a ti o n s (G

W E C , E P IA

, R E N 2 1 , B P ) fo r th e se

se c to rs

fo r in te rn a ti o n a l c o m p a ra ti v e re a so n s o v e r C h in e se

n a ti o n a l d a ta , w h ic h is

g e n e ra ll y b e li e v e d to

u n d e r- e st im

a te

c a p a c it y le v e ls

b U n o ffi c ia l g o v e rn m e n t ta rg e t.

30 C.M. Dent

2.3. Theoretical explanations

Much of the academic literature examining the recent growth of renewables is located in

energy science–engineering fields where development is studied from primarily a

technical perspective and focused on new technological advances. Social science

explanations on the subject from the relevant disciplines of political economy, business

studies and sociology have tended to explain the rise of renewables from one of two main

theoretical approaches, both of which situate RE development in broader development

contexts.

The first of these is EMT, which first emerged in the early 1980s (Huber 1982; Jänicke

1984). This essentially is premised on the idea that sustainable development can be achieved

through continual reform, modification and adaptation of existing economic and business

structures. As York and Rosa (2003) succinctly summarize: ‘Central to [ecological

modernization theory] EMT is the view that . . . industrialization, technological

development, economic growth, and capitalism are not only potentially compatible with

ecological sustainability but also may be key drivers of environmental reform’ (p. 274).

From this perspective, RE is viewed as providing technical solutions to sustainable

development challenges facing humanity. Despite criticisms made of EMT for prescribing

incremental rather than revolutionary change, it remains the dominant discourse among key

decision-makers in both government and business circles regarding environment-related

policies. An important reason for this is the appealing economic case it makes on how

companies can increase profitability by pursuing green corporate strategies, through for

instance improving material efficiency and waste management, and exploiting the emerging

market potential of environmentally friendly products such as renewables (Christoff 1996;

Jänicke 1988). EMT postulates that economic and business growth is reconcilable with

resolving environmental problems, and firms can generate financial gains through adopting

new environmental technologies and practices (Langhelle 2000; Weale 1992).

Founded on closely related theories of industrial policy, strategic trade and state

capacity, strategic industry theory is the second broad social sciences approach that can

explain RE development. It essentially concerns the state’s promotion of industries

deemed essential to the nation’s long-term economic security, welfare and prosperity. The

theory’s main premises are based on public good and externality arguments. While the

market mechanism can account for the ‘private’ and purely price-determined costs and

benefits arising from economic transactions, it can fail to capture their external ‘social’

costs and benefits. Public actions undertaken by the state are thus required in such

circumstances to both minimize negative externalities and properly capture or optimize

positive externalities. Thus, state policies and investments in RE installations and

technologies will reduce carbon emissions, lead to cleaner air and mitigate society’s

supply risk dependency on exhaustible fossil fuel resources. These state actions constitute

the provision of public goods where the market (i.e. private enterprise) alone is unable to

independently and sufficiently deliver these welfare-enhancing outcomes, and more

broadly placing the economy and society on track to a lower carbon future. Left purely to

the market, many RE sectors would not become technologically developed enough or

adequately commercialized to compete on price with fossil fuel-generated energy.

Strategic industry theory further makes a case for state support towards covering the

proportionately high initial capital costs (e.g. infrastructure and new technology research)

arising at the early development stage of emerging strategic industries with significant futures

based on the expectation of substantial long-term returns on this state investment for the

economy and public welfare (Lall 2003; Rodrik 2004, 2007; Schmitz 2007). The theory has

Asia Pacific Business Review 31

had a particularly strong influence on development thinking in China and other East Asian

states, as clearly demonstrated in their macro-development plans in which fostering emerging

strategic industries constitutes a core programmatic element. Where the government seeks

more direct involvement in strategic industry development, it will form new or encourage

existing SOEs to play an active part in meeting plan objectives. In addition, the government

will look to develop close relationships with business enterprises generally through using a

comprehensive range of policy mechanisms. Ecological modernization also highlights the

importance of state policies and institutions in helping markets and paths of economic

development evolve towards more environmentally friendly outcomes.

2.4. China’s RE development

2.4.1. Power generation and energy production overview

As Table 1 shows, hydropower has clearly dominated China’s RE development over time,

this being broadly consistent though with international norms. The government has targets

to increase power capacity levels in this essentially state-run industry to 325 GW by 2015

under the 12th FYP, and then to 430 GW by 2020 under its medium to long-term RE

strategy. This is primarily based on the further construction of large hydroelectric dams,

the country’s programme for which is the world’s largest (IHA 2013). Meanwhile, China’s

installed wind energy capacity industry has expanded dramatically since the mid-2000s to

reach 75.4 GW by 2012, and further rapid growth is planned in accordance with

government targets. The country’s fastest growing sector, however, is solar PV, increasing

over 100-fold since 2006 to reach 8.3 GW by 2012. China’s biomass power generation

sector has meanwhile experienced steady growth, rising to 8.0 GW installed capacity by

the same year. These four sectors – hydropower, wind, solar PV and biomass – are

responsible for virtually all the country’s power generation from renewables. A further

four sectors make an extremely minor contribution: geothermal is a relatively mature

technology industry that has grown very slowly worldwide. Tidal energy and

concentrating solar power are both still infant micro-sectors but with considerable

potential for future market and industry growth. As indicated earlier, wave energy

technology remains at the experimental stage with no installed capacity yet worldwide.

Even in these very small sectors the Chinese government has set relatively ambitious

targets for future development, as it has for all RE sectors (Table 1). Together, all RE

sectors accounted for 29.6% of China’s electricity generation capacity by 2012, a share of

the total that has gradually risen since the late 2000s.

National power generation capacity in total has increased almost 10-fold over the last

two decades or so, from 126.6 GW in 1990 to 1150.5 GW by 2012, and most of this can be

attributed to a rapidly growing coal power sector. This contributed to 758.0 GW (66.0%)

of total generation capacity in 2012, three times that of hydropower, while the fast growing

gas sector had reached 38.1 GW. Under the 12th FYP period (2011–2015) there is a

programme to develop 16 large coal-power bases in the north and north-west provinces,

where the bulk of China’s coal deposits are situated, which will increase coal power

capacity by 33% by 2015 (Yang and Cui 2012).

2.4.2. Main motive factors for China

There have been three main motives that have driven the expansion of RE in China, the

first being important environmental and welfare imperatives. High carbon economic

activity is causing acute pollution and other environmental problems in the country,

32 C.M. Dent

correspondingly leading to adverse social welfare effects. China overtook the USA in

2006 as the world’s biggest carbon dioxide (CO2) emitter. Latest available figures show

that by 2009 China’s annual CO2 emissions level was estimated at 7687 million tonnes,

around a quarter of the global total. This has been principally driven by the country’s

burgeoning demand for fossil fuel energy that is thought to have increased between five

and sixfold since 1990 (Zhao and Yin 2011). Two key points should be made here. A

significant degree of China’s energy demand derives from the carbon-intensive

manufacturing operations of foreign investor firms that have been relocated from their

originating countries (mainly from Europe, Japan and North America), thus helping them

reduce their own carbon emissions. This carbon-intensive activity hosted by China serves

the world market: foreign-invested enterprises account for around 60–70% of the

country’s exports. One could therefore argue that China’s high carbon emission levels are

as much a product of global capitalism as national economic development. Furthermore,

China’s energy demand is in a functional relationship with realising important domestic

policy goals. Many communities in the nation’s more remote interior provinces either have

inadequate electricity supply or none at all. Strengthening the national grid in these areas is

integral to achieving the Chinese government’s overarching twin socio-economic

objectives of closing income gaps within the country and lifting further hundreds of

millions of its people out of poverty. The provision of key welfare services (health,

education and utilities such as freshwater supply) all depend on electricity supply, whether

grid-connected or off-grid generated. In sum, China’s power needs over the next few

decades will be far greater than any other nation.

Rising fossil fuel consumption is nevertheless causing significant environmental and

welfare degradation in China. The government’s ambitious strategy for expanding coal-

power capacity locks the country into a high emissions trajectory for decades to come, unless

both clean coal and carbon capture and storage technologies make considerable advances in

the future. Chinese cities are already among the world’s most polluted. The China Council

for International Cooperation on Environment and Development (2012) reported that in the

year 2000 almost 300 people per million population were dying in China due to high

emission particulate levels, the world’s highest rate, and this was expected to rise to almost

900 per million by 2030, placing the country even further ahead of other parts of the world.

Many parts of China are also highly vulnerable to the climate change risks of extreme

weather and rising sea levels. The nation’s burgeoning middle class is correspondingly

becoming more politically vocal about quality of life issues, such as pollution abatement.

The second main motive behind China’s push for renewables is energy security, which

can be understood generally as addressing supply risk, price risk and environmental risk,

this last aspect has already been discussed above. In relation to the first two risk types,

sustained high growth rates in energy demand are rapidly depleting China’s own fossil fuel

deposits. It is the world’s second largest oil and coal importer, and the fourth largest

importer of liquefied natural gas (BP 2013; Yang and Cui 2012). Concerning nuclear, the

country possesses only an estimated 1% of global uranium reserves, currently maintains a

65% import dependency on the mineral and has seen its uranium import levels triple from

2009 to 2011. Analysts expect China to overtake the USA as the world’s largest uranium

importer by 2020 (Massot and Chen 2013). Although its energy import dependency ratio

overall is not high by most international comparisons (9% in 2010), this is set to rise

inexorably in the future, consequently making China more susceptible to the vicissitudes

of foreign supply sources (Dent 2013). This is potentially further compounded by

volatility in international prices for oil, gas and coal. Renewables have the advantage of

being inherently indigenous energy sources, thus providing a long-term solution to foreign

Asia Pacific Business Review 33

energy supply risk. Although some RE sectors are prone to occasional spikes in

commodity price levels (e.g. polysilicon and solar PV cell manufacturing), they have been

historically less exposed to price risk than fossil fuel sectors. The third main motive can be

linked directly to strategic industry theory. Renewables are seen by China and most other

countries as emerging strategic industries. The rationale for government support of their

development was previously made.

3. China’s RE policies and strategies

3.1. Renewables as part of a new development approach

RE development in China cannot be considered in isolation of the broader development

processes, strategies and contexts in which it is embedded. The government’s more

substantial promotion of RE and national business growth of RE sectors over the last

decade or so has occurred during a phase when China’s leaders have adopted new

approaches and thinking on national economic and social development generally

(CCICED 2009a, 2009b, 2010, 2011, 2012; NDRC 2006, 2007, 2011). Soon after

assuming power, President Hu Jintao proclaimed that the ‘scientific development concept’

would form the new ideological basis for China’s future economic and social

development, formally ratified into the national constitution at the 17th Party Congress

in October 2007. One of its core aims was to foster a resource-saving and environment-

friendly ‘harmonious society’, and ‘developing the economy in a more balanced manner,

paying less attention to gross domestic product (GDP) growth per se and more attention to

such things as the ecological costs of the headlong rush for development’ (Fewsmith 2008,

88). This new vision for China’s development connected especially with the first identified

motive (environmental and sustainable development imperatives) driving the promotion

of RE, and the government’s FYPs and associated strategic development programmes

reflected this shift towards more qualitative development objectives.

The 11th FYP (2006–2010) was the first to do so, and it was also during this time that

ideas on ecological modernization were beginning to influence Chinese policy-makers. In

the year 2007, three key inter-related events reflected new development thinking in China:

the Chinese Academy of Sciences published its inaugural China Modernization Report

2007: Study on Ecological Modernization and the government launched its first National

Climate Change Strategy as well as its Medium and Long-Term Development Plan for

Renewable Energy, also the first of its kind and that introduced a substantive strategic

industry development programme for renewables. The convergence of ecological

modernization and strategic industry thinking was even more clearly evident in the

overarching aims of the current 12th FYP (2011–2015). As well as aiming to achieve

more equitable income growth, promote domestic consumption, improve social

infrastructures and strengthen China’s innovatory capabilities, a prime focus of the 12th

FYP was to promote lower carbon development (NDRC 2011). The stronger ecological

modernization approach to China’s future development was re-affirmed at the 18th Party

Congress held in November 2012 when Hu Jintao announced the goal of building an

‘ecological civilization’ and ‘achieve lasting and sustainable development of the Chinese

nation’ (address to the 18th Party Congress, 8 November 2012).

3.2. Is China’s approach to RE development different?

By early 2013, 127 countries worldwide had introduced RE policy support mechanisms

(up from just 55 countries in 2005), and 138 countries had set defined RE targets. RE

34 C.M. Dent

policy instruments come in various forms but may be generally categorized as follows:

. Regulatory mandates: establishing legally binding requirements on firms to undertake particular action, such as renewable portfolio standards (RPSs).

. Direct financial support: such as state subsidies, grants, loans and capital investment in RE sector plants and infrastructure.

. Market-based instruments: adapting or using the market mechanism to provide a variety of different financial incentive measures, for example tax incentives, feed-in

tariff (FiT) systems, competitive bidding and tradable permits.

Considerable convergence has occurred internationally around the utilization of

similar policy instruments, such as FiTs where the government offers price-based

incentives to individuals and companies to install and operate RE equipment. By early

2013, 71 countries and 28 sub-national states around the world had enacted FiT legislation,

where in China it has proved a significant spur to business growth and investment in

renewables from small to larger scale installations. China is also among the 22 countries to

have introduced RPSs that mandate energy suppliers to source minimum quota levels of

electricity generation from RE systems.

Developed economies and larger emerging economies, such as China, tend to have

comprehensive RE policies that include a mix of regulatory mandate, direct financial

support and market-based mechanisms. The application and balance of these will depend

on the development stage of the RE sector in question and the prevailing political economy

of the country. Generally speaking, market-liberal country governments unsurprisingly

have a special predilection for market-based instruments, whereas more state-directed

economy governments have more frequently deployed direct financial support policies.

The latter is not just relevant to China but also to many other East Asian economies with

strong state capacity traditions (e.g. South Korea and Malaysia) and where SOEs play an

important role in the energy sector. East Asian states have additionally demonstrated a

proclivity for substantive strategic long-term planning on RE development, this being

arguably more evident in the region than any other (Dent 2012). What makes China most

notably different, though, from all other countries is the absolute scale on which its

policies, strategies and investment (both public and private) are facilitating RE

development, particularly regarding installed capacity and equipment manufacture, and in

the prospective future on efficiency performance and techno-innovation. The relationship

between government and business in China’s RE industries is also rather uniquely

complex due to the sheer density of state and corporate actors, the burgeoning expansion

of business activity and issues of policy co-ordination involving multiple state agencies.

China’s hydropower policies date back many decades but it was not until the 1990s

that the government started to pursue a multi-sector RE policy. The 1995 China Electric

Power Act was the country’s first legislation to call for the promotion of renewables

generally. This was soon followed by the first specific RE policy landmark with full legal

status, the 1996 brightness programme, located in the 9th FYP (1996–2000) and based on

approximately US$1.2 billion public investment to install hydropower, solar PV and wind

energy facilities in over 1000 townships and villages in rural communities. Soon

thereafter, a series of direct financial support measures were introduced in the 10th FYP

(2001–2005) period. The 10th FYP proclaimed that production capacities in the wind,

solar and geothermal energy sectors should be increased but did not set specific

development targets (NDRC 2001; NREL 2004). These came later when renewables

became priority emerging strategic industries. The 2003 Wind Power Concession

Programme included plans to create up 20 large wind farms of 100–200 MW capacity and

Asia Pacific Business Review 35

the National Development and Reform Commission (NDRC) correspondingly set China’s

first national target of reaching 20 GW of wind energy capacity by 2020.

The introduction of the renewable energy law in 2006 at the eve of the 11th FYP

proved critical to expanding and diversifying renewables development. It created a far

more robust legislative basis for business investment and established national standards

for RE technologies and production (NEB 2008). This was complemented by the medium

and long-term development plan for RE, implemented from September 2007. The plan set

out China’s ambitious targets for multi-sector RE development to 2020 and backed up

with US$263 billion of public investment. Even greater government stimulus was

provided in the 12th FYP (2011–2015) that included a RMB4 trillion (US$610 billion)-

funded programme to promote seven strategic emerging industries (SEIs) for ‘clean’

development and a ‘new industry base’, namely: new energy, new generation information

and communications technology, energy-saving and environment protection, biotechnol-

ogy, high-end equipment, new materials and alternative energy cars. Renewables are

specified as a key component of the ‘new energy’ SEI sector that in addition included

nuclear power. Under the SEI programme, China plans to enhance its new technological

and innovation capabilities in wind energy and solar PV as part of a broader strategy of

transforming China from a ‘world factory’ into an ‘innovative hub’ economy. The 2012

energy policy white paper reaffirmed the government’s commitment to vigorously

develop renewables as ‘a key strategic measure for promoting the multiple and clean

development of energy, and fostering emerging industries of strategic importance’ (State

Council of China 2012, 11).

In the 12th FYP period to date, China’s RE policy has intensified with an increasing

number of initiatives and regulations introduced in order to keep pace with business and

industry growth, and deal with challenges arising from it (CNREC 2013). These include

problems arising with gaps in grid connectivity and other infrastructural bottlenecks,

establishing up-to-date technical standards, co-ordinating central and local government

policies concerning regional RE business development, and establishing clearer

demarcations of responsibility among various actors in different RE systems. It is beyond

the scope of this study to explore these issues in great detail but some will be examined in

the discussions that follow on state-business relationships in China’s RE industries.

4. Discussion

4.1. Overview

From the early 2000s to early 2010s, China has made the transition from being a net

importer of RE products to the world’s largest manufacturer and exporter of them, and the

largest investor in RE plant development. In addition to its dominant position in the global

hydropower industry, the country now produces around two-thirds of solar PV equipment

(up from just 5% in 2004), four-fifths of solar water heaters and almost half of wind

turbines worldwide (EPIA 2013; REN21 2013; GWEC 2013). The burgeoning growth of

national RE production and installed generation capacity has been driven by rising public

and private sector investment. In 2005, China invested US$5.8 billion in RE rising to US

$66.6 billion by 2012, almost twice that for the USA (US$36.4 billion) and not far behind

Europe’s combined figure of US$79.9 billion (REN21 2013).

China’s SOEs play a very active role in national RE development. These can be

generally categorized as large-scale central government-administered corporations or

smaller local government-owned companies serving the energy needs of city

municipalities and individual provinces. Examples of the former include the two

36 C.M. Dent

state-owned grid companies that monopolize China’s electricity grids, the government’s

five power generation companies (e.g. Guodian, Huadian) and national energy

companies, e.g. Sinopec and SinoHydro. Naturally, both SOE types have close

relationships with governing state agencies responsible for central and local government

RE policy, although they can exercise high degrees of corporate autonomy and moreover

compete among each other. Just as RE sectors vary significantly from each other, so

there are many differences in the types of enterprises and markets that exist across them.

Broadly speaking, an energy industry value-chain can be divided into the following

elements, upstream to downstream:

. Fuel source explorers or surveyors

. Equipment manufacturers (including upstream suppliers)

. Source or plant developers

. Energy infrastructure providers

. Plant or system maintainers

. Retail market suppliers

Table 2 provides a comparative overview of how these differ across fossil fuel, nuclear

and RE sectors, also indicating the mix of Chinese public and private sector enterprises

that exist in each part of the matrix. As indicated, SOEs dominate along the whole value-

chain of China’s ‘incumbent’ fossil fuel, nuclear and hydropower sectors and many RE

industry aspects. Li (2013) reports that by 2011 there were some 700 SOEs involved, for

example in wind farm plant development. The country’s five government power

generation companies alone were responsible for installing 57.0% of wind energy

generation and local SOEs another 22.4%. This contrasted with just 4.6% for China’s

private wind farm developers, 1.3% for foreign firms and 14.7% for foreign joint venture

projects. A similar situation exists at the plant development level in the biomass power

generation industry. However, the solar PV industry is different due to its highly

‘distributed’ nature (i.e. multitudinous building-integrated installations) that has allowed a

growing number of private sector firms over time to enter various aspects of the value-

chain. The wider deployment of micro-scale RE technology applications generally – roof-

top PV, small wind turbines, biomass boilers, pico-hydro devices, etc – has created

‘prosumer’ individuals and organizations (including firms) that both produce and consume

their own generated electricity and thermal power by and large independently, thus

diminishing the need for energy supply companies. However, despite the rapid growth of

PV prosumers in China, utility-scale solar park capacity has grown even faster and is now

presenting opportunities for energy SOEs to become market players here also (IEA 2013).

In general, the country’s established energy SOEs with roots in fossil fuels, nuclear and

hydropower have simply diversified into wind, solar, biomass and other renewables by

applying their economies of scope advantages of existing technical expertise and assets to

these new emerging power sectors. China’s public and private sector enterprises have in

addition become more vertically integrated up and down industry value-chains. Some

illustrative examples of the above points are as follows:

. Deploying its marine engineering expertise, national oil company CNOOC has developed offshore wind projects, as well on onshore wind farms, biomass

generation plants and biofuel production. Other major state-owned oil companies,

Sinopec and CNPC, have too become scaled up biofuel producers.

. Hydropower SOEs SinoHydro Group, and HydroChina Corporation and China Three Gorges Corporation have engaged in wind farm development, the latter two

Asia Pacific Business Review 37

T a b le

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38 C.M. Dent

enterprises in overseas projects, e.g. in Pakistan. Shenhua Group, the world’s largest

coal company, and China Guangdong Nuclear Power are also among China’s major

wind farm developers.

. China’s largest wind farm developer is Longyuan Power Group, a subsidiary of power generation SOE China Guodian Corporation. Longyuan is also involved in

developing solar, biomass, geothermal and tidal energy projects.

. Sinovel, originally an SOE then turned private enterprise from 2011, is China’s largest wind turbine manufacturer and additionally has operations in wind-field

design and planning, equipment transportation and installation, plant maintenance

and remote data analysis services.

. In June 2013, private wind turbine manufacturer Mingyang Wind Power formed a joint venture with state-owned China National Nuclear Corporation to develop wind

farm projects in Henan province.

. Hong Kong-based GCL Poly, the world’s largest producer of polysilicon, the base material for mainstream solar PV cells, has recently ventured downstream into

wafer manufacture, and is also developing the 300 MW Datong solar park that when

constructed will be the world’s largest.

In many other countries, fossil fuel companies are also major players in developing

clean energy systems. However, it is the scale on which this business diversification is

occurring in China’s energy companies that is somewhat exceptional. Their evolutionary

transformation into eventually green energy businesses, if this indeed transpires, is likely to

prove a very slow process through gradual adaptations in response to changing

technological, market and policy conditions. Yet this is consistent with the ecological

modernization approach. Government regulatory mandates will in the meantime require

Chinese companies to source more power generation from renewables. In general the

country’s larger incumbent, and mainly SOE companies have most successfully diversified

and thrived in most aspects of China’s RE industry, primarily due to economies of scale

and scope advantages, and being well positioned to benefit from state support due to close

connections with government ministries. There are additionally some interesting market

dynamics at play. For instance, wind power generators rarely compete against coal-power

generators as they are invariably the same companies. There exists intra-company

competition between old and new energy divisions, China’s hydropower companies may

take a competitive position against their fossil fuel rivals and the country’s five large state-

owned power-generating companies compete against their local-level counterparts, but as

they are all SOEs this may be considered an intra-state competition of sorts.

Indeed, intra-state competition and tensions have had a profound impact on China’s

RE business on various levels, this proceeding from governance and co-ordination

challenges involving central government, local government, SOEs and private companies.

On the retail side, competing SOEs provide the main bulk of electricity sold to consumers

(Table 2) at prices regulated locally but in accordance with centralized NDRC guidelines,

yet a significant lack of transparency persists on both price formulation and the allocation

of retail market contracts among enterprises (Lin and Purra 2012). Furthermore, as Shi

(2013, 8) observed that local governments in China were often encouraging the

development of RE plants to help meet their economic growth targets, more specifically

arguing that ‘The construction of power plants is mainly for increasing GDP rather than

meeting the demands for electrical power, leading to serious blind construction of power

plants in various areas’. Applying this to the wind energy industry, plant developer

companies such as Longyuan have built numerous wind farms that may take a

Asia Pacific Business Review 39

considerably long time before they are connected to the grid, explaining why by the early

2010s an estimated one-fifth of China’s wind power installations were in effect dormant.

Contestations over grid connectivity and market demarcations among mainly power

generation SOEs, grid infrastructure SOEs, local energy SOEs, local government and

central government have created a difficult business environment in many aspects of this

industry (GWEC 2013; Li 2013), and to some extent in the smaller solar PV power

generation sector (CPIA 2013). Notwithstanding these problems, these industries continue

to demonstrate robust growth.

Table 2 shows that the only element of the value-chain where the private sector

dominates in China’s RE industries (except hydropower) is in equipment manufacture.

Wind energy companies such as Goldwind, Sinovel, Mingyang, United Power and

Dongfang have all become key global players in their industry, as have Yingli, JA Solar,

Suntech and Trina in the PV sector. Although some of these firms once had SOE origins (e.

g. Sinovel and Goldwind), the rapid expansion of this value-chain element is a critically

important part of China’s RE development story. In 2004, the country had just 6 wind

turbine firms, rising to 40 by 2007 and to around 90 by 2011 (Li 2013). Best estimates

suggest over 400 solar PV manufacturers now operate in China (IEA 2013). There has

been a dynamic entrepreneurial response generally from the nation’s public and private

business sectors to the government’s strengthening policy support and ambitious strategic

planning on renewables. However, the rapidly increasing number of RE equipment

producers has created overcapacity problems in wind and solar PV most notably, this also

having a significant global impact. Despite that in 2012 alone around 50 solar PV

manufacturers filed for bankruptcy in China – five times the number of their European

rivals – the country continued to expand PV production capacity (9.5% growth in module

output in 2012) as surviving companies take a positive view on long-term market growth

and strong government support for the sector (CPIA 2013).

Most recently, the government has incentivized the growth of domestic PV

installations after the sharp fall in Western market demand, and state-owned banks have

also provided assistance during these upheavals, for instance lending the nation’s top 10

PV firms a combined US$20 billion in 2012 (REN21 2013). Current structural changes

are likely to make China’s solar PV manufacturing industry far more concentrated, as

small-scale producers either go bust or are taken over, and SOEs also extend their

interests into this value-chain element (Solidiance 2013). We may additionally expect

greater further vertical integration in China’s wind and solar PV sectors as enterprises

seek to diversify and consolidate their competitive positions. Here we see a

convergence of interest between the Chinese government and energy companies

towards achieving yet greater scale advantages in both power generation and equipment

manufacture, making China even more price competitive in international markets.

Western criticism of the Chinese government’s strategic industry support of its RE

enterprises has led to intensifying trade disputes over solar PV equipment and wind

turbines in particular. On the other hand, downstream firms in these industries worldwide

(e.g. installation and maintenance companies) have welcomed China’s mass production of

affordable RE goods, and have lobbied against the application of US and EU trade

restrictions on Chinese imports. Whatever transpires on the trade diplomacy front, Chinese

government and companies share a similar strategic vision of strengthening domestic

techno-innovatory capacity in RE industries. This is consistent with the 12th FYP’s core

development objective of transforming the country into an ‘innovative hub’ economy, and

Chinese company strategies of competing increasingly on technological terms and not just

price.

40 C.M. Dent

5. Conclusions

The environmental and welfare costs of China’s high carbon activity are mounting. In

acknowledgement of this, the government has endeavoured to establish a new

development approach influenced by ecological modernization thinking that seeks to

reconcile these core objectives. This has combined with strategic industry theory ideas on

state proactivity on supporting the development of renewables as key emerging industries

of the future. Over time, the Chinese government has gradually strengthened its RE

policies and strategies that are in turn embedded in larger policies and strategies that aim to

foster greener, cleaner economic and business development. It has been shown how

various types of SOEs still dominate most aspects of China’s RE industries. This has made

it often difficult to identify where the demarcations of state and business lie. One could

make a case for considering SOEs themselves as a form of policy instrument, or at least an

extension of China’s RE policy. Yet intense business competition also exists among these

public enterprises. Overall, China’s RE business landscape is highly complex, and can be

generally characterized by dynamic public and private sector entrepreneurism, strong

inter-sectoral connections that extend to fossil fuel and nuclear power industries, a dense

mix of SOEs and private companies, intensifying business competition at multiple levels,

and fast expanding production capacity based on optimistic expectations on future

industry growth.

Notwithstanding the country’s notable achievements on RE development to date, both

the Chinese government and business face some difficult challenges ahead. We have only

been able to touch upon those facing policy-makers in particular, namely grid connectivity

problems and other infrastructural bottlenecks, establishing up-to-date technical standards,

co-ordinating central and local government policy concerning regional RE business

development, and establishing clearer demarcations of responsibility among various

actors in different RE systems. The government’s future targets on renewables

development may look impressive in absolute terms (e.g. 430 GW hydropower and

200 GW wind by 2020) by direct international comparison. However, given that the

country’s energy system is growing fast on most fronts, the real challenge will be to raise

renewables’ relative share of national energy generation and consumption. Many nations

have set the goal of renewables contributing around 15–30% of the nation’s total

electricity generation or total energy mix by 2020 (REN21 2013). China’s present targets

on electricity generation from non-hydro renewables especially are not that remarkable by

comparison. For Chinese business in the international market context, the two main

challenges will be how to address the protectionism of foreign trade partners and to

improve domestic techno-innovatory capacity. The first of these challenges will naturally

depend largely on factors beyond Chinese company control, specifically how foreign firms

and governments respond to the perceived competitive threats China’s RE industries pose.

Regarding the second, with strong state support aimed at transforming the country into an

‘innovation hub’ economy – for example through the 12th FYP’s SEIs programme –

backed by considerable levels of domestic business investment, Chinese companies are

already making significant advances on techno-innovation in wind, solar and other RE

sectors. This represents another area where China can make increasingly important

contributions to global RE development in the future.

Notes on contributor

Christopher M. Dent is Professor of East Asia’s International Political Economy, East Asian Studies, University of Leeds. He has acted as a consultant advisor to the British, Australian, Chilean, German

Asia Pacific Business Review 41

and US Governments, as well as the Asian Development Bank, European Commission, ASEAN Secretariat and APEC Secretariat.

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