BiGS Actionable Intelligence:
BOSTON — When President Xi Jinping announced China’s ambitious climate strategy in 2020, the world took notice. The country pledged to achieve net zero emissions by 2060, a remarkable feat for a nation that grew from a predominantly rural and poor country into the world’s second-largest economy thanks to rapid industrialization.
Now there is growing evidence that China will not only hit its target but beat it.
“China cannot only achieve carbon neutrality by 2060, but it may even be able to reach this target earlier,” Wang Shi, a prominent Chinese businessman and environmental advocate, told The BiGS Fix.
Wang, the founder and honorary chairman of Vanke, the second largest real estate company in China and a leading presence in the industry, spoke to BiGS after an event at Harvard Business School. He attributed his bullish view on China’s environmental plans to two factors. First, the country’s economic growth rate has slowed, which means China will require less energy in the coming decades. Second, foreign manufacturers have been shifting their operations away from China, which means the country’s emissions rate could drop.
But he also said this: when China says it will cut emissions, it does it.
“Based on past experience, once China makes a commitment, it follows through,” he said. “China has shown that it is capable of achieving what it promises.”
The stakes are high. China is the world’s biggest polluter and consumer of fossil fuels. So, hitting its net-zero pledge is crucial for the world to meet the goals of the Paris Agreement: limit global warming to below 2°C (preferably to 1.5°C) above pre-industrial levels. China’s efforts are also especially important because the United States pulled out of the treaty January 20, the day Donald Trump was inaugurated for his second term.
Slower economic growth means less carbon emissions
China owes its rapid growth over the past two decades to its export-based economy, using factories to produce lower-cost goods for international consumers. Since China opened its economy in 1978, yearly GDP growth has averaged more than 9% a year, according to the World Bank Group. In 2007, GDP growth was an attention-getting 14.2%.
But those factories required huge amounts of oil and coal, damaging the environment. China eventually recognized that path was not sustainable, said Jim Matheson, a senior lecturer at Harvard Business School who spent several years working in China.
“China needs more energy,” he said. “But they also realize the medium- to long-term health impact of fossil fuels. People will get sick from the pollution. It would violate the social contract between the government and the public.”
So, the country has been transitioning to a more service-oriented economy, one that also emphasized high tech innovation like artificial intelligence and clean energy, Matheson said.
As China transitions from its industrial-based economy, its GDP growth has slowed, along with its consumption of fossil fuels. From 2007 to 2015, annual economic growth has slowed to single digits, and the rate of increase in energy demand has also slowed, according to the U.S. Energy Information Administration. The World Bank Group projects that China’s growth will slow to 4.5% this year and 4% in 2026, from 5% in 2024.
China’s economic slowdown means a corresponding decline in fossil fuel demand, Wang said. As a result, the country can hit peak energy use by 2030 and achieve carbon neutrality before 2060.
“If the economy continues to grow at an average rate of 6%, achieving carbon neutrality by 2060 would be very difficult,” Wang said. “However, we are now seeing that China's economic transition makes it clear that maintaining a consistent 6% growth rate is becoming more difficult. The overall growth rate is slowing down.”
“That means that energy consumption is gradually stabilizing rather than continuing to increase,” he said. “It is clear that China can reach its carbon peaking goal before 2030.”
Foreign factories pulling out of China
Another factor that might help China beat its climate goals is that foreign companies have been relocating their factories out of the country in recent years.
The global pandemic, which severely disrupted global supply chains, prompted companies to bring operations closer to home, a practice called “nearshoring.” Political and economic tensions between the United States and China have also forced companies to diversify their operations away from China.
“Rising geopolitical tensions, pandemic-related disruptions, and tariffs concerns are prompting multinationals to reassess their reliance on China,” according to a report by J.P. Morgan Asset Management. “Many are adopting a ‘China+1’ strategy or favoring nations with stable political ties and proximity to key markets.”
For example, India has launched an initiative to attract multinational companies. Called “Made in India,” the program cut corporate taxes for new manufacturing firms and will make a $2 trillion investment in infrastructure.
Developing southeastern Asian nations like Vietnam, Thailand, and Indonesia are also benefitting from increased trade and investments. Last year, the American Chamber of Commerce in China released a report showing that 41% of its members were considering relocating from China to developing Asian countries, compared to 29% in its previous survey, according to an analysis by J.P. Morgan Asset Management.
The net effect of companies moving their factories out of China will be lower carbon emissions not just for China but also the countries that will host these operations, Wang said.
“China has already implemented many effective measures and policies to reduce carbon emissions,” Wang said. “So, even as manufacturing shifts abroad, there is a responsibility to ensure that the carbon reduction measures and technologies that were successfully applied in China are also transferred to those other countries.”
“We are already very clear that not only in China, but internationally, especially in Southeast Asian countries where manufacturing has moved, carbon emissions and carbon neutrality must follow international standards,” he said. “Thus, if China can successfully reduce carbon emissions, Chinese manufacturing exported abroad should be held to the same standards.”
Despite Wang’s optimism, many experts say China still has a lot of work to do if it wants to meet or beat its carbon neutrality goal by 2060.
Researchers at Tsinghua University in Beijing and at the University of California San Diego released a study that estimates China will have to build eight to 10 times more wind and solar power installations than existed in 2022, not to mention a lot more transmission lines.
The country also needs to reform its land use policies, allowing for a more coordinated, national approach instead of deferring to local governments. That’s because 80% of solar power and 55% of wind power will have to be built within 100 miles of major population centers.
But Matheson said China is quite skilled at executing and scaling large national projects.
“I would not bet against them,” Matheson said.