“China has become the center of gravity for global energy markets,” Barron’s proclaimed in September of 2020. What Barron’s didn’t know is that over the next few years global energy markets, energy trade flows, and geopolitics as we know them would be completely turned on their heads. Since 2020, the extended impact of the Covid-19 pandemic and the Russian war in Ukraine, which fueled an energy war between Russia and Europe, have rewritten the rules of energy, thrown the decarbonization movement into overdrive, and cast a pall of doubt over free trade and emphasized the vulnerabilities of global supply chains. China has suffered enormously under the weight of its own zero-Covid policy and faces years of economic recovery. But even all of these unforeseen disruptions could not interrupt the singular vision and momentum of China’s global energy growth.
In the midst of all this Chaos, Xi Jinping’s China has continued to expand its presence in global energy markets and solidify its sphere of influence in up-and-coming economies. It’s not a hostile takeover. For better or worse – more on the worse later – China has simply been outspending and out-negotiating every other country on Earth. According to recent figures from a BloombergNEF analysis, China alone was responsible for nearly half of global spending in the renewable energy sector last year, clocking in at a whopping $546 billion. That’s nearly four times the $141 billion that the U.S. spent and 2.5 times more than the European Union’s $180 billion.
Much of this cash is being spent on China’s own domestic production and manufacturing capacity, with the result that Beijing now controls a wide array of key clean energy infrastructure supply chains and rare earth minerals markets – essential components for electric vehicle batteries, solar panels, and more. “China has managed to nurture these really integrated, efficient value chains for making things like solar panels, for making things like battery cells,” Antoine Vagneur-Jones, head of trade and supply chains research at BloombergNEF, was recently quoted by Scientific American. Due to the massive head start that China has in these sectors, it’s more than likely that Beijing will continue to dominate for at least the next decade, if not longer.
On top of shoring up its own energy security and energy infrastructure manufacturing capacity, China is also busily expanding its deals and acquisitions overseas. Just this week, a Peruvian industry group reported that a major deal for a Chinese company to buy out two local power suppliers “would hand the Asian country a near monopoly over the sector in Peru, particularly in and around populous capital Lima,” Reuters reported on Tuesday. The deal, which is still awaiting regulatory approval, would be the latest in a series of Chinese acquisitions in Peru. “If approved, it would lead to a concentration of 100% of Lima’s electricity distribution market in the hands of the People’s Republic of China,” the Peruvian National Society of Industries, a chamber of private companies, was quoted by Reuters. As a result, the chamber has tapped the domestic antitrust agency, INDECOPI, to look over the deal with a critical eye.
Peru is just one of many examples of such uneven trade relationships with China. Beijing has been expanding its energy footprint (and therefore its political leverage and soft power) in emerging economies in Africa and Central Asia, among others. Chinese energy companies are also increasingly flocking to the U.S. market to cash in on clean energy incentives from the Biden administration’s Inflation Reduction Act. This is a somewhat ironic turn of events, considering that the Act was designed to help the United States catch up with China in terms of clean energy spending and development, and had previously been criticized for its protectionist and nationalist bent.
If China’s steady march toward energy dominance could not be deterred by the last few years of industry turmoil and economic setbacks, it’s hard to imagine what could stop it. Allowing too much global influence by any one major player is, of course, a major risk and a barrier to resilience in times of crisis. It also gives that player a huge amount of leverage and influence. This is concerning no matter who that entity is, but it is of particular concern in the case of an authoritarian regime which has shown through past actions that it is unafraid to use such leverage for its own political and economic gain. Walking back China’s progress in this regard won’t be easy. Indeed, making sure that the global energy economy is strong, resilient, and decentralized may be the single greatest challenge of the decarbonization era.
By Haley Zaremba for Oilprice.com
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