Written by Li Shuo, Director of China Climate Hub
I visited Beijing for several weeks in June and July for a series of intensive dialogues with Chinese policymakers, advisors, corporate leaders, think tank experts, journalists, and foreign diplomats. My meetings covered a broad agenda, including China’s energy and climate strategies and industrial policy, its trade and economic relations with other nations, and its evolving view of China’s international responsibilities. Drawing on these exchanges, I offer five observations.
1. China’s economic strengths and weaknesses are strikingly visible in one sector: electric vehicles (EVs). My schedule of six to seven meetings a day in Beijing meant numerous Didi rides. For a clean tech analyst, those trips also gave me ample opportunity to observe China’s EV ecosystem up close. The variety of EV brands, positive user experience, and attractive technologies on offer in China are all well documented. Many of Beijing’s shopping malls have been repurposed as EV showrooms, showcasing China’s industrial prowess. But the sheer prominence of the sector also reflects the economy’s deep imbalances.
Following the bursting of the real estate bubble, China has struggled to identify new growth engines and appears increasingly reliant on a narrow set of sectors, including EVs, to sustain growth. But even that momentum has slowed. Passenger EV sales decelerated in June on a year-over-year basis. The service economy also remains depressed, and economic pessimism has become widespread. A contact at a leading carbon consultancy reported that most of their government contracts have dried up due to local budget constraints and that the firm has shrunk to one-third of the size it was five years ago. The NGO sector, meanwhile, is entering a period of contraction. Many organizations have frozen hiring after two decades of rapid expansion, though this retrenchment appears to be driven less by the broader economic slowdown than by funding uncertainties stemming from geopolitical tensions.
2. China’s industrial ecosystem is not only more cost-competitive but increasingly greener than production in other countries. In three separate conversations, my interlocutors pointed to new developments in China’s industrial ecosystem that are reinforcing China’s advantage: new aluminum production is relocating from coastal provinces to western China in order to leverage large-scale renewables; European chemical companies that initially moved to China for cost reasons are now finding their local production less carbon-intensive; and green iron ore production, or the processing of iron ore with minimal carbon emissions, is becoming more cost-competitive in China than in Australia, thanks to renewable energy integration. These examples all tell a larger story of how abundant, cheap green energy is beginning to fundamentally reshape China’s industrial landscape. The West’s advantage in lower-carbon production is steadily eroding while Chinese analysts expect China’s competitive lead to widen further. A presentation from a leading research agency explored a critical strategic question: What are the chances that other countries will surpass China in clean tech competitiveness, whether through incremental sector development or disruptive technological breakthroughs? The agency’s conclusion—based on detailed technology-specific analysis, supply chain mapping, and market share breakdowns—was that overtaking China in the most consequential and widely deployed low-carbon technologies is unlikely. This view is shared by a battery expert, who emphasized the accumulated engineering know-how Chinese companies have built up through years of manufacturing—expertise that is difficult to transfer and almost impossible to replicate in places lacking production capacities.
3. Economic and trade tensions, most notably between Brussels and Beijing, are likely to persist and will require fresh perspectives to manage effectively. China’s international relations experts are not optimistic about the EU-China relationship, acknowledging the direct economic competition between two parties. Some have even posed a provocative question: Will China lose the EU in the same way it lost the United States? Others have countered with the reverse: Will the EU lose China? While the relationship appears to have avoided an immediate escalation following the European Council’s mid-June meeting on China, recent interactions, including PRC Commerce Minister Wang Wentao’s visit, seem to have generated little goodwill. Both sides will almost certainly dig in ahead of the next European Council meeting in October, and Brussels will pay close attention to the September Trump-Xi meeting in the United States.
The bottom line is this: the direct conflict of economic interests between China and the EU is real and will remain a feature of the relationship. If both sides insist on rhetorical confrontation, it will generate endless friction. The danger is that these tensions may ultimately lead both sides to pursue policies that work against their own interests. Clear examples already exist. In clean tech, for instance, there is a persistent tendency to overstate the economic benefits of domestic production while underappreciating other parts of the value chain. In the solar sector, for example, installation generates more jobs than manufacturing. In the auto sector, vehicle sales and leasing, as well as an increasingly broad range of business models built around EVs, also generate substantial jobs and economic value. The broader industrialization debate could also benefit from articulating the “win.” Rather than rhetorically championing diversification or domestic production, policymakers from both sides need to specify exactly how much should be reshored, to where, at what cost, at whose expense, and on what timeline. Instead of focusing primarily on industrialization “inputs”—subsidies in the U.S. context and regulations in Europe—the expected “outputs” and “outcomes” also need to be clearly articulated. For example, how many leading companies should be in Europe, or what percentage of completely “China-free” domestic production in a given sector should be expected by 2030, and what level of subsidies or policy intervention would be required to get there?
4. The Strait of Hormuz closure has both reinforced China’s energy security strategy and prompted it to evolve. According to China’s oil experts, a combination of measures has helped to drive a sharp decline in oil imports in recent months: reducing spot and long-term purchases in response to high oil prices, suspending commercial and strategic reserve purchases, releasing reserves onto the market, imposing export controls on refined products, clearing warehouse inventories, and rapidly adopting EVs. In addition, the coal chemical sector played just a minor supporting role in reducing dependence on foreign energy supplies. The prevailing sentiment in Beijing is that this comprehensive set of measures, many of them planned and executed over years, has served China well during the current global market volatility. My Didi drivers concurred, telling me that the fuel cost of an EV is at most one-fifth that of a gasoline vehicle in Beijing and sometimes even lower. Some said they would not be in the ride-hailing business at all with a conventional vehicle. Indeed, unless one drives a gasoline car or flies frequently (a fuel surcharge was imposed earlier in the war), the Iran energy shock seems rather remote in the daily life of a Chinese citizen.
The Middle East crisis has also subtly but importantly shaped China’s thinking on energy security. An oil sector executive highlighted a shift in priorities from ensuring supply security to ensuring supply stability—the former emphasizing sufficient volumes and the latter minimizing price volatility once those volumes are secured. Another important lesson is that energy security can come from not only securing supplies but also from maintaining flexibility in demand. Compared with the significant political push from the coal industry in 2022 following the Russia-Ukraine conflict, another expert observed that the Iran crisis did not seem to trigger a similar push from the coal sector. That said, Chinese officials largely maintain their existing position on new coal power plant construction, viewing coal power as an additional source of grid flexibility and pointing to continued growth in electricity demand as industries increasingly electrify. There is little indication that they intend to curb new construction. The coal chemical sector also emerges as a clear beneficiary, now bolstered by strategic considerations that diminish the force of environmental and economic counterarguments.
5. China’s sense of international responsibility is evolving, offering new structural opportunities for environmental advocacy. Chinese experts noted that recent policy documents have taken an important step, vowing to “firmly” take the lead (从“引领”到“坚定引领”) in multilateral governance—a phrase first used in 2017 during the first Trump administration and a sign of the leadership’s resolve to take a more proactive role. China’s strategic community appears to be moving ahead of its climate community in thinking about the country’s global role. In their view, China’s expanding global interests increasingly require a more proactive international posture. This position will gradually shape downstream policy domains, including climate change, making climate responsibility an extension of China’s broader global strategy. Even conversations within the climate policy circles offer revealing insights into China’s perception of its future global role. The Chinese climate envoy and policy advisors all expressed hope that Washington would return to the UN Framework Convention and the Paris Agreement. This desire should not be dismissed as merely rhetorical. One could even ask: In an increasingly competitive relationship, why would China want the United States back in the multilateral climate system, only to face more pressure from Washington? The answer lies in a deeper shift in how China views its international climate position, particularly its cost-benefit calculus. As the world’s dominant producer of clean energy technologies, Beijing increasingly sees ambitious global climate action as advancing its own economic interests. Sustained American absence, in China’s view, weakens the global demand needed to support that commercial opportunity.
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