A faster Chinese decarbonisation

As China celebrates the year of the Ox, Ninety One portfolio managers look at what could be included in President Xi’s plans for net zero by 2060


Equity portfolio managers, Ninety One Asset Management

When President Xi committed China last September to net zero emissions by 2060, he set the world’s second-largest economy on a path towards a significantly faster decarbonisation than had been expected.

China is by far the world’s biggest emitter of carbon, accounting for 28% of the global total. Consequently, carbon neutrality will require a radical overhaul of China’s energy grid, transport system, built environment and much else besides. (With the average ruminant producing 250-500 litres of methane daily, one of the worst greenhouse gases, the ox will need to think carefully about its role in a net-zero future). That suggests enormous potential growth for the companies enabling decarbonisation, and we think creates a powerful structural-growth trend for investors to tap into.

See also: – Wind and solar opportunities as China plans to clean up its environment

Environmental-sector development is high on the agenda in the upcoming five-year plan, not least because it supports China’s national-security aspirations and ‘dual circulation’ strategy, which places more emphasis on internal production and consumption to balance export-fuelled growth. Clean technologies could help China become self-sufficient in energy, given that about 70% of the oil refined in China is imported.

We will have to wait until March for details of the plan, but targets that will drive growth for environmental-sector companies have already been announced. In mid-December, Xi declared that China will have a total of 1,200 GW of wind and solar generating capacity installed by 2030, almost triple the 2019 total.

China’s environmental industries are already substantial. The country builds twice the renewable-energy generating capacity of any other country, but this does not even cover the rate at which power demand is increasing. Should China follow through on its net-zero commitments – and one should be careful about such long-range targets – we think the opportunities for select businesses are huge.

See also: – Save the date: Live Twitter Q&A with economist Linda Scott

Don’t forget, too, that Chinese companies are major global suppliers of core technologies for renewable-energy generation (e.g., solar components), clean transport (e.g., electric-car battery components) and energy-efficient buildings and infrastructure (e.g., LEDs). According to the Climate Action Tracker, 127 countries – responsible for around 63% of emissions – are now considering or have adopted net-zero targets (that includes the US, which is yet to formally commit, as well as net-zero ‘newbies’ China, Japan and South Korea). This is creating a vast and fast-growing international market for China-made solutions that help the world avoid carbon. In reverse, select international businesses should also benefit from a faster Chinese decarbonisation.

While we see significant opportunities for investors in green sectors, in China and outside it, we urge caution. Decarbonisation is a highly disruptive process and the journey from here to net-zero, should we get there, will not be without stumbles and wrong turns. We therefore favour an active and highly selective investment approach.

This article was written by Wenchang Ma, co-portfolio manager for the All China Equity Strategy and Deirdre Cooper, co-portfolio manager for the Global Environment Strategy at Ninety One

Latest Stories