Energy Musings - February 27, 2026
China's global economic position forces analysts to sift through its data, policies, and actions to predict the future. They may be missing emerging structural weaknesses.
China: Energy Strategy And Geopolitics
Earlier this week, the New York Energy Forum held a webinar addressing China’s role in the global energy market in 2026. The real title for the webinar was: “China’s Clean Energy Dominance Likely Continues Through 2026, but Inventory Policy and Sheer Economic Size Pose Puzzles Ahead.” There were presentations by three Chinese economic and energy experts, followed by a vigorous discussion of the issues China is wrestling with. The webinar was not recorded and was conducted under Chatham House rules, meaning I cannot attribute any statements to a particular speaker. However, two of the presenters used charts in their presentations, which we will selectively use to illustrate several key points they made.
China is an enigma. Its economy has been the primary driver of global economic growth and energy consumption for the past quarter-century. Growth was ignited when President Bill Clinton proposed that China join the World Trade Organization in the late 1990s. The opportunity for China to emerge on the world stage required significant reforms of domestic policies regarding tariffs and intellectual property rights. WTO membership in late 2001 marked a significant acceleration in its GDP growth. However, as the following chart shows, China’s global economic importance increased steadily from 2001; however, it is now declining, having peaked in 2021.
China’s weakening economy will hurt its future.
The decline in China’s share of the global economy suggests structural economic weaknesses, including that its industrial strategy has created dominant global industries that are now unprofitable. China’s population is huge, but the prime working-age population is shrinking. Overall, China’s population is peaking and will eventually shrink, eventually losing its status as the world’s largest to India.
Surprisingly, China is also lacking in energy and raw materials, which are important for it to become a world economic powerhouse. The nation’s oil industry has never been significant globally. The result is that China must import vast amounts of crude oil. The electrification of China’s vehicle fleet has been driven by the government’s goal of becoming the dominant manufacturer of electric vehicles. The effort has also contributed to a decline in the country’s gasoline and diesel consumption. However, the industry’s lack of profitability has forced the government to reduce subsidies, thereby slowing EV sales. That means China will retain a meaningful share of its vehicle fleet that runs on fossil fuels for many years.
Chinese leaders have been fearful of their dependence on imported oil. Therefore, reducing consumption on one hand has been matched by building a massive strategic storage to avoid becoming crippled by geopolitical events that cut off access to oil suppliers. While consumption is not growing, imports are rising as the plan is to add another 40-50 million barrels of storage.
The only energy fuel China has in sufficient volume is coal. China appears to be sending mixed messages with its huge investments in renewable energy, while also continuing to build more coal-fired power plants. One webinar speaker said, “China is a coal economy. And it will remain that way for many years to come.” This is despite the push for renewable energy. The following chart shows that renewable generating capacity is growing rapidly. However, coal, natural gas, nuclear, and hydro are producing much larger shares of power output than their share of generating capacity would suggest.
China’s electricity is and will remain coal-based.
It is also interesting to note that China relies on imports of critical raw materials, especially copper and lithium, both of which are essential for its renewable energy industry. China dominates global refining of raw materials, which are mined elsewhere and shipped to and from Chinese plants. By controlling the metals refining businesses, China has ready access to supplies to offset those domestic raw materials in short supply.
China decided to ride the global push for renewable energy by aggressively building manufacturing capacity for solar panels, wind turbines, and electric vehicles. With access to cheap labor and the necessary raw materials, China became a significant factor in these industries. Having the backing of the government meant the capital needed for plants was readily available and cheap, as these investments were in furtherance of the government’s industrial policy.
The dominance of these Chinese equipment suppliers is now creating a problem as the sentiment behind green energy, supported by subsidies, is waning. According to the webinar presenters, many of these plants are operating at 30% utilization or less. That means they are unprofitable. What can China do to minimize the financial cost of these underutilized plants? Very little.
A structural weakness in China’s economy and industrial policy.
Rysted’s forecast for installed solar capacity shows a 25% drop from 2025 to 2026. Although growth returns, after five years, installed capacity is slightly higher than in 2023 but lower than in 2024 and 2026. The projected decline, followed by a slow increase, will alter the pace of growth in China’s installed solar capacity, which helps explain why the presenters believe coal will be the key fuel powering the nation’s electricity grid. It will also impact the pace of solar capacity growth, given China’s importance in the total.
An interesting chart shows how the world’s share of electricity in final energy demand has grown steadily from 2000 to 2025. The chart also shows the world without China, and then China, alone. We were struck by the fact that the increase in the world market share has slowed recently. From 2000 to 2010, the share increased by 2%, then by 3% in the next decade, but only by 1% in the most recent five years. Based on the earlier solar forecast, it is difficult to see the growth matching that of the prior decade. That will be true for China’s growth, too.
China’s electrification is slowing due to structural challenges.
We were also intrigued by comments suggesting that China was shocked by the Russia-Ukraine war. Leaders had assumed the war would be won quickly by Russia. Instead, the war is entering its fourth year. Russia’s performance has prompted China to reassess its military strength. They know their military is weaker than the U.S. military. Therefore, Chinese officials suggested that the government needs to reach an accommodation with the U.S. Maybe they even need to strike a deal involving greater trade that would benefit both countries. It was suggested that there could be an agreement allowing Chinese and Taiwanese individuals to travel, live, and work anywhere in the two nations without fear of discrimination.
The China enigma makes forecasting energy demand a challenge. However, China’s structural weaknesses may indicate a less rosy outlook for renewable energy.