China’s Green Energy Statecraft, Policy Mix and Geoeconomic Strategy

China’s approach to energy is multifaceted and ambitious. It is the undisputed global leader in the production of green transition technologies. According to the International Energy Agency (IEA) China produces approximately 75% of the world’s electric vehicles (EVs), and overtook the European Union to be the world’s largest EV exporter in 2024. Furthermore, China accounted for over 80% of battery cell production in 2025 and even higher shares for active material components in EV batteries. 

Analysis by the Center for Strategic and International studies finds that  China also dominates the solar supply chain, producing approximately 86% of final PV modules and above 90% of all critical upstream components. In material terms, China has an average market share of 70% across the refining of 19 out of 20 strategic minerals that are critical for energy technologies as well as other high-tech and defence applications. China remains the world’s largest Co2 emitter, with fossil fuel energy – particularly coals – the biggest contributor. Coal use in electricity production fell in China in 2025 for the first time since the 1970s, reflecting growing use of renewables. However, as Michal Meiden of the Oxford Institute of Energy points out, coal use remains a “ballast stone” for China’s energy mix – able to be ramped up where oil and gas supplies are under strain like in the present Straits of Hormuz crisis albeit with a substantial carbon foodprint impact.  

China’s green exports vs the US carbon double-down 

China’s clean energy context reaches beyond its borders. China’s US$220+ billion green energy and manufacturing direct investment into Southeast Asia is a bigger commitment than that of the Marshall Plan. In South Asia, Pakistan’s energy grid has transformed by Chinese solar panel and battery imports; dispersed household and business renewable panel and battery usage is challenging the fixed-plant existing power generation system. This has led to lower costs for consumers, and a significant expansion to overall generation. A green energy development playbook, underpinned by China’s supply of technology and investment, is being pursued in countries as diverse as Ethiopia and Peru. Green energy buildout can positively impact a nation’s current account position by reducing reliance on US-dollar denominated fossil imports, providing a fiscal incentive for states – particularly those in the global south – to transition quickly. The embedding of China’s green energy ‘tech stack’ is not without risk. Scholars point out that green exports are tools of statecraft or ‘geopolitical weapons’ i.e. reliance on minerals, hardware, financing, ongoing software and technical support create political and economic leverage for the exporting country. Across the Tasman, National security concerns have also been highlighted. 

The United States, by contrast, is pursuing a very different strategy. The political economist Mark Blyth describes how under President Trump the US has doubled down on its carbon industries and fossil fuel energy export comparative advantage, attempting to use cheap domestic energy (bolstered by exploration and environmental de-regulation) and tariff policy to underpinning domestic (re)industrialisation while expanding its fossil fuel exports. Indeed, the Financial Times observes that US energy exporters have had record setting benefit from the Straits of Hormuz crisis, as states in Europe and Asia seek US supply. The Trump administration has also used its recent trade and investment agreement with Japan agreeing substantial investment in US energy infrastructure, LNG, advanced fuels, grid modernisation, and mining. An expanding US energy export footprint feeds helps maintain its dollar as the central currency for global energy markets. Blyth, however, is less convinced at the long-term success of the US carbon economy strategy writ large. Solar, wind and battery storage accounted for 90% of new energy capacity in 2025 in response to AI, data center and transport needs, pointing to the efficiency and value of renewables despite Federal policy direction. Many US states retain carbon reduction targets. Blyth concludes that US carbon dominance is a ‘locally rational but globally suboptimal strategy’ as states will likely seek to substitute out US hydrocarbons, particularly if the attempts to use economic pressure to maintain export flows. This is likely to benefit China for the reasons noted above.  

China’s transition is powered by statecraft, ideas and a flexible policy mix 

Longer-term, commentators agree that China’s energy security strategy lies in doubling down on its clean energy strategy and phasing down fossil fuel use. To do so will see China continue to deploy statecraft, economic ideas, policy tools and economic institutions to ensure its green economic, security and environment goals proceed apace. The nature of China’s green statecraft and policy mix are the subject of this piece.  

A useful starting point comes from scholars of how ideas national and international policy. Ideas impact at three levels. At the ground floor are ‘first level’ ideas that encompass specific policies, instruments or ‘instruments’. China has deployed many specific policies that fall into this category. However, it is at the ‘second level’ that ideas play a critical role in determining public policy agendas. Second level ideas are ‘paradigms’ that provide the organising ideas, assumptions, mental roadmap or prescriptions for action and sense of importance for a particular policy agenda. They can become akin to the ‘software’ on which a state’s plans run. Second level ideas provide a framework for determining which ‘first level’ policies should be deployed to solve the ‘policy problem’ at hand and why they are appropriate. Third level ideas refer to an even higher level of abstraction, more general basic ideas or ‘commonsense’ logic within a polity. A substantial literature is dedicated to how policy paradigms come and go, through a complex and frequently long process of debate, deliberation, critique of existing settings and social pressure to change. This is beyond the present piece. However, the ‘first’ and ‘second’ level of policy ideas framework is useful to make sense of China’s approach to its energy transition.  

For Professor Elizabeth Thurbon at UNSW, China has adopted a policy paradigm in which the state plays a leading role in determining the shape, cadence and structure of its Green economic transformation. The state as central agent and coordinator is key, with the government guiding markets, mobilising finance, building industrial ecosystems, and using fiscal, monetary, and industrial policy levers to deliberately accelerate the shift to a low-carbon national economy and to drive forward green energy exports and diplomacy. This state-led approach builds on the developmental strategy muscle memory East Asian states used to drive export-focused industrialisation in the post-war period. 

The driving force behind this form of what she terms ‘developmental environmentalism’ comes from a commitment on the part of China’s political elites to the idea that a green transformation can tackle several significant challenges at once: ensuring energy security in a complex geostrategic environment (including China’s “Malacca dilemma”), generating and maintaining technological and industrial capacity to capture first-mover advantage, creating broad-based economic security, delivering environmental progress, and – at a higher level – securing self-reliance and maintaining political legitimacy. The green transformation paradigm is therefore the favoured playbook for tackling economic, social, and geostrategic challenges. 

China’s policy levers 

How does China’s policy paradigm translate into specific ‘first level’ policies? Mathias Larsen at Brown University's Watson Institute has mapped nine tools China deploys for green industrial development, ranked by the degree of public spending and the level of discipline imposed on private capital. Four of the most interventionist (what Larsen calls "big green state" tools) do the heaviest lifting. State-owned energy companies account for roughly half of installed renewables capacity. The People's Bank of China, which is not independent, runs green refinancing facilities offering banks 1.75 percent credit for green lending against around 3 percent for ordinary lending; banks drew down US$44 billion in the facility's first year. Industrial regulation prioritises grid uptake from renewables ahead of fossil generation, and mandatory storage rules (i.e. storage for 10% and 30% of local generation capacity) now apply in half of China's provinces. Fiscal policy operates through government guidance funds, three policy banks with combined assets larger than the World Bank Group and local government financing vehicles. Total Chinese industrial policy spending reached 1.73 percent of GDP in 2019, almost five times the equivalent share in the United States. 

Alongside these heavyweight tools, China uses instruments that work with less direct discipline on private capital: direction-setting through five-year plans, sector-specific subsidies for renewables and EVs, tax rebates and a national carbon market (the framework for which is moving towards tightening up). Direction-setting is also intensely state-driven but operates through coordination, signalling and SOE alignment rather than coercion; subsidies and tax credits incentivise rather than mandate. Larsen's conceptual point is that this combination is not ideologically inconsistent. A state with big green state institutional capacity can reach across the full spectrum of tools and use whichever fits the task. The fluidity, however, runs generally in one direction i.e.  A state without sovereign control over land and resources, without more direct monetary policy control, without a state-dominated financial system and without strategic SOEs will find it more challenging to deploy ‘big green state’ tools in similar way.  

Conclusion 

China's policy mix does not offer an easily replicable template for other states, but it does offer a real-time case study of how deliberate green statecraft and ambition can drive transformative change at speed and scale. China’s green transformation is also playing a critical role in its geopolitical and geoeconomic posture, and its ‘green promise’ is offering an alternative to the current Carbon-forward stance of the United States. For small or middle powers (like New Zealand), the task ahead is to attempt to navigate a green transition on their own terms and with eyes open i.e. working out what policies can be adopted for local conditions, what should be avoided and how to unlock the benefits of green industrial development based on state specific resource bases and limitations while and doing their best to retain strategic autonomy.  

-Asia Media Centre 

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