Is China Undoing Decades Of Work On Green Transition?

For years, for all the credit China got for the sharp drop in prices for renewable energy and electric vehicles, one felt even that wasn’t always appreciated enough. People don’t realise that the price of solar has dropped by over 90% over the past decade and more, almost wholly due to Chinese manufacturing. That has led to the kind of ramp up that was neither anticipated or projected worldwide, converting skeptics, supporting faster roll-outs , and in China’s own case, achieving 2030 targets in 2024 itself. The goodwill the country earned, harvested ably by President Xi Jinping at international fora, was out there to see. China has the biggest votary of global trade, promising to be the dependable supplier of choice for most.

It’s a story that one was hoping to see repeat itself in EVs, where battery costs have been on a similar slide down in the past two years, with more breakthrough innovations in the pipeline in sodium ion, solid state and other technologies. Now, it seems China has chosen to pull back.

The recent export restrictions on rare earth magnets—critical for electric vehicles, wind turbines, and other clean technologies—have raised concerns about supply chain stability from that country. Especially at a time when dependence on China was close to 90% for most countries. Add to that the scare around security issues on solar inverters, and you have the beginnings of a wall of mistrust again.

These restrictions, which require special export licenses and end-user certificates now, have already disrupted industries reliant on rare earth elements. It has sent countries scrambling for alternative arrangements. India, for instance, is exploring partnerships with Vietnam, Indonesia, Japan, the US, and Russia to mitigate the impact. While China will blame the US for these actions, the impact has been felt by much more than the US economy.

While this shift towards self-reliance may eventually strengthen global supply chains, in the short term, it could slow down the green transition. Companies will need time to develop domestic processing capabilities or find alternative materials, which could lead to production delays and increased costs. The auto industry, particularly the EV sector, is already feeling the pressure, with manufacturers struggling to secure stable supplies. IF EV production outside China does come to a halt as some fear, then it will certainly not mean more sales for Chinese EVs in these markets. For a country that has set up almost all its manufacturing with an eye on global markets and not just domestic markets, these are strange moves indeed.

For China, it will simply mean trust levels drop down further, as more and more countries acknowledge the risks of being too dependent on the dragon for any commodity or product. The Chinese had a choice that could have made this realisation less painful, drawn out the scramble for alternatives over a longer period of time, and even strengthened relationships with smaller partners. In going for the measures it has, it risks slowing down the green transition, allowing the return of tariff walls in more markets s they seek to nurture domestic players, and most importantly, make buyers wary of future deals, raising the costs for all involved. Has it thought through the price of this? Time will tell.