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China’s Old Economic Model Is Breaking. Its Replacement Might Be Green.

On the fall of Chinese real estate and the rise of Chinese renewables

Xi Jinping.
Heatmap Illustration/Getty Images

The news coming out of China is grim. A narrative is taking hold that China’s decades-long growth boom is imploding. Fascinating debates about why things have fallen apart are already emerging. Given China’s gargantuan presence in global emissions, what does this portend for the fight against climate change?

First, it’s important to right-size concerns about what is happening in China. For all the Sturm und Drang, most economists expect to see the country’s economy grow around 3% to 5% this year. China is far more likely to muddle through than implode, but the direction of that muddling is important. Will China retreat into some autarkic Mordor powered by coal or become something else, perhaps a beachhead of a clean electrified future?

What is happening?

China’s economy rise from utter destitution in the 1970s to global powerhouse is fascinating and complicated. One helpful, if oversimplified, way to understand it is that the country has relied on two growth models: exports and investment. Chinese workers made products for the world and built up the country’s cities and infrastructure.

However, as China has grown larger and richer, these models have sputtered. In terms of exports, growth can be hard to come by as lands unconquered by Chinese-made goods are few and far between.

Investments, similarly, have run into difficulties as a mechanism for growth. A common refrain is that there are now simply too many empty apartments in too many distant locales, too many bridges to nowhere, and too many airports that no one wants to fly to. But that goes a bit too far.

While there are certainly apartments ringing the outside of smaller cities in the country’s poorer interior provinces that will likely never be desirable locales in which to live, China’s problem isn’t that it's overbuilt, but that too many apartments are being held empty as speculative investments. As rich Chinese struggled to put their money on Wall Street (largely thanks to Beijing’s capital controls), they invested in what had been seen as the safest domestic investment available: real estate. The upshot is that now there are simultaneously populations desperate to acquire housing and empty apartments snapped up by the rich hoping that they’ll be able to sell them later at a profit.

This conundrum is well-known but difficult to resolve. Chinese President Xi Jinping has intoned for years that “housing is for living not for speculation,” and during COVID initiated policies – the three red lines – intentionally attempted a controlled, limited implosion of the sector. And the Chinese government appears to be following through.

Whether that suggests economic confidence or weakness remains to be seen. While the underlying policy decisions on real estate suggest the former, some others broadcast the latter, like the fact that China has started to hide data about youth unemployment. Other signals of weakness seem likely to continue — such as the decline of semiconductors in part due to pressure on the sector from U.S. policy actions.

Electrify everything

We can see more evidence of China muddling through in the key area of electricity, which is key to greening China and the world. China’s electricity data have shown reasonable if not robust growth over the course of the year at 5.2%.

It’s not all due to decarbonization. Some of the increased electricity usage is arising from additional residential and commercial air conditioning, as many people purchased AC units after last year’s heat waves and are finding that they enjoy its cool comforts.

Despite the slowdown of real estate construction, the steel and cement sectors — both heavy polluters — have also not shrunk as much as some may have predicted. Steel exports have surged to over 43.5 million tons, up 31% in the first half of the year compared with 2022. But steel is also used in other products that point to what looks like a new growth engine for the country: electric vehicles and renewable energy.

New energy vehicle production (including EVs but also plug-in hybrids) is up 33% from last year, to over 4.35 million vehicles through July. For reference, total EV sales in the U.S. last year were under one million. And while the overall export data from China looks grim, vehicle exports are positively booming, particularly to Southeast Asia and Latin America. In an act that might resonate in the decades to come as a symbol of the changing landscape, a global leader in EVs, China’s BYD, recently purchased an abandoned Ford factory in the Brazilian state of Bahia where it will produce EVs for that market.

But while the EV market is taking off, solar power and specifically Chinese solar is eating the world. The research group BNEF updated its expectations for global solar deployment to 392 GW for the year, fully 55% bigger than the previous record from last year (252 GW). More impressive is that over 200 GW of that number they expect to take place in China. Already in the first seven months of the year over 97 GW have been installed, including 19 GW in July alone. The production of solar panels is skyrocketing as well, at 276 GW through July, up a staggering 56% from last year.

Renewable energy investment is also reaching absurd heights. Like with many other records in the energy transition, there’s a category for China and one for the rest of the world. BNEF estimates $358 billion was invested in the first half of this year, of which China saw $177 billion in investments, with solar dominating.

The political scientist Deborah Seligsohn wrote a fascinating account of a recent visit to China, arguing that a vision of what our electrified future might look like is present in some Chinese cities today: electric high-speed rail, electric subways, electric two wheelers, electric delivery vehicles – all increasingly charged by renewable energy.

It’s clear that the China of the past is breaking, but far from auguring imminent collapse there are glimmers that what is emerging in its wake is green.

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Jeremy Wallace profile image

Jeremy Wallace

Jeremy Wallace is a Professor of Government at Cornell University. He writes on authoritarianism focusing on China, cities, statistics, and climate change. His most recent book is Seeking Truth and Hiding Facts: Information, Ideology, and Authoritarianism in China.


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