What’s the issue?

We estimate green investment once again largely offset real estate’s drag on China's GDP growth in 2024. Renewable energy investment remains a dominant driver of fixed asset investment, with record additions of 275 gigawatts (GW) of solar capacity and 80 GW of wind capacity in 2024.

However, signs of overcapacity are emerging in upstream sectors. While investment in electric vehicle manufacturing moderated, the estimated contribution from solar and battery manufacturing swung sharply last year – from a strong tailwind to a -0.6% detractor on growth (down two percentage points) – reflecting substantial overcapacity. This excess supply is beginning to compress margins and, in some cases, is encouraging adverse corporate behaviours, such as booking revenue early through ‘zero mileage’ EV sales (vehicles sold but not yet driven).

Key questions are: can China’s green momentum continue to support growth or is it at risk of becoming a hindrance? And what will it mean for investors?

What are the investment risks and opportunities?

Despite the current challenges, the long-term outlook is encouraging.

Rising demand is set to drive further investment in energy grid infrastructure and next-generation technologies. China’s electrification is advancing rapidly across all sectors, outpacing Europe and the US, supported by increased demand from the growing middle class and energy security priorities. This includes technologies like industrial electric heating and household air cooling.

One notable development is the expanding role of water conservation in supporting China’s growth. In 2024, China introduced its first national-level water conservation regulations, setting water usage quotas for multiple activities. These efforts are critical as climate risks such as droughts and floods intensify. We’ll closely monitor whether water conservancy investment continues to bolster economic growth.

Three additional themes could further underpin China’s green investment story.

And then there are the 'future materials' – lithium, graphite, cobalt, nickel, gallium and germanium. These are integral to technologies such as EVs, batteries, microchips, solar panels, and fibre optics. Once again, China has an embarrassment of riches. It is the world’s largest producer of graphite and rare earth elements, and dominates the refining of lithium, cobalt and nickel¹. It also controls over 98% of global gallium production and around 60% of germanium, both of which are critical for semiconductors and high-performance electronics². As the world races to electrify transport and decarbonise energy, these materials will only grow in strategic importance – as will China’s leverage.

Which companies are leading the charge?

First up: Contemporary Amperex Technology (CATL). It is the global leader in lithium batteries for EVs and energy storage, commanding over 37% of the global market in 2023. Its dominance stems from a deeply integrated value chain with Chinese suppliers, giving it a cost advantage that’s tough to beat. Add to that its manufacturing edge – driving down equipment costs through efficiency and yield – and a brand that’s become synonymous with reliability.

As China’s EV market matures, CATL’s growth story is shifting overseas. Europe is a key battleground, where its market share is poised to climb from 35% today to potentially 40–50% in the near future.

Next, we have NARI Technology. A powerhouse in grid equipment, NARI’s portfolio spans grid dispatch systems, ultra-high voltage DC transmission valves, and grid telecoms. This puts it at the heart of China’s push to modernise its electricity grid.

Moreover, global mining firms – particularly those exposed to the future-facing minerals critical to the green energy transition – are key suppliers in China’s green growth story. Pure-play copper producers such as Freeport-McMoRan are benefiting from rising demand amid persistent supply constraints. Larger, more diversified players like Rio Tinto are also vital contributors, supplying the raw materials essential to building the green infrastructure of tomorrow.

The list doesn’t stop there. China is home to a growing ecosystem of companies leading the green charge:

Together, these firms illustrate the breadth and depth of China’s green industrial base – from upstream resource extraction to downstream clean tech innovation.

Final thoughts…

Fears of a green investment bubble in China are overstated. Structural shifts – from electrification and water conservation to mineral demand and emerging market exports – continue to power the country’s sustainability revolution. These trends are not only reshaping China’s economy today but are likely to define its trajectory for the next decade and beyond.

For investors, the message is clear: China's green transition may face growing pains, but it remains one of the most compelling long-term opportunities in global markets.

Companies are selected for illustrative purposes only to demonstrate the investment management style described herein and not as an investment recommendation or indication of future performance.