While private Chinese investment into Australia seriously lags, there are unparalleled opportunities for Australia-China collaboration in zero-emissions industries – if we get the policy settings right.

A new report by independent think tank Climate Energy Finance (CEF), Green capital tsunami: China’s >$100 bn outbound cleantech investment since 2023 turbocharges global energy transition, calculates that Chinese firms have committed >US$100bn in outbound foreign investment since 2023. This has spanned decarbonisation sectors including solar, wind, batteries, grid, new energy vehicles (NEV), hydro and green hydrogen, as China’s world-leading corporates increasingly “go global”.

This historically unprecedented investment program encompasses Europe, greater Asia, Africa and South America, as investment into North America is undermined by increasingly adverse China-specific rules.

Investment into Australia, on the other hand, has been exceptionally weak relative to the rest of the world, meaning Australia risks forgoing its massive strategic opportunity to co-invest with China – our #1 resources trading partner – on decarbonisation. This topic was high on the agenda of Federal Treasurer Jim Chalmers’ talks last week with Chinese leaders.

Full executive summary, Recommendations, and tables of top investments globally and into Australia

David Olsson, Australia China Business Council President and author of the report’s foreward said:

“This report makes it clear: we are at a pivotal moment where Australia’s relationship with China can either unlock vast opportunities or see them slip away to other regions.

China’s leadership in cleantech offers us a chance not only to secure investment but to collaborate on addressing climate challenges. The time to act is now. We have the resources and capability, but if we don’t create the right environment to attract these technologies and solutions, those investments will go elsewhere.

Our shared ambition to leader the global energy transition should drive Australia and China to explore new frontiers of cooperation. By aligning our strengths in cleantech and renewable energy, we can confront the challenges of climate change together and unlock immense opportunities for both our economies.”

Co-author Xuyang Dong, CEF China energy policy analyst, said:

“China’s outbound investment into the clean energy sector globally is showing a dramatic increase, accompanied with price drops in cleantech thanks to China’s massive scaling up of manufacturing.

These two investment trends are rapidly changing the global energy market landscape. They are making renewable energy more cost-effective than traditional fossil fuels, enhancing energy security by decoupling the reliance of power systems on volatile imported oil and gas supply chains, including in the Global South, accelerating the global energy transition race.

With China’s massive investment into R&D producing world-leading cutting-edge technologies in clean energy, establishing partnerships with China has become more important than ever. When Chinese firms build a production facility elsewhere, it brings its technology, expertise, capital, experience, as well as opportunities for expanding local labor markets and boosting other nations’ domestic energy transition.

Australia should work actively with China, transforming our historic dig-and-ship economy in order to not be left behind in the global race-to-top on energy transition. Joint ventures with China have enormous potential to boost Australia’s decarbonisation trajectory.

This partnership potential between Australia and China is also important for the emerging markets and developing economies (EDMEs) in the Asian and Indo-Pacific region. With China’s capital and technology, and Australia’s soft power and expertise in the markets across the region, the two great nations with abundant resources in this part of the world can help neighboring countries catch up with other wealthy nations on decarbonisation of their energy systems and economies, critical to the global effort to address climate change.”

CEF Director and report lead author Tim Buckley, a former MD of Citigroup, said:

“It is clear that China leads the world in deploying a simply staggering 22GW per month of new renewable energy capacity since the start of 2023. And with new energy vehicles hitting a record high 54% share of total passenger vehicle sales in China in the month of August 2024, the implications are profound – with China as a nation probably reaching peak emissions this year, six years early.

CEF’s new analysis shows another globally profound trend in the making. There is growing hard evidence that China has responded to the escalating US and EU trade barriers against it by embracing the Paris Agreement commitment for world-leading countries to help the Global South access new zero-emissions investment opportunities.

This report tracks over 130 major cleantech transactions since the start of 2023 that demonstrate a geopolitical pivot. China is not just exporting its world leading cleantech manufacturing capacity surplus. China is increasingly exporting its technology, engineering, supply chain and financing capacities to create a win-win-win for the world.

A win for emerging markets in the South desperate for manufacturing investment, new infrastructure and technology access, all supporting valuable jobs. A win for China to expand its global market reach, often in partnership with domestic cleantech champions. A win for the planet as countries from Saudi Arabia to Hungary and Brazil to Uzbekistan embrace zero-emissions industries of the future.

And potentially a win for Australia if we grasp the opportunity to co-invest onshore with the world’s decarbonisation superpower, and pivot to secure our economic prosperity as a zero-emissions trade and investment leader.”

The report finds:

• Australia’s current posture disincentives Chinese private investors, with private Chinese investment into Australia at a multi-decade low at only US$613m in 2023. Chinese capital is increasingly going elsewhere.
• There are immense opportunities for private Chinese co-investment here in clean energy infrastructure, onshore value-adding of energy transition materials such as critical minerals and strategic metals like green iron – our #1 clean export opportunity – as well as cleantech supply chain manufacturing, with appropriate foreign ownership limits to mitigate risks.
• China’s accelerating investment into strategic critical minerals supply chains globally and its overwhelmingly dominant buying power has driven price deflation impacting key Australian commodity exports (e.g. critical minerals), justifying a calibrated domestic national interest response (see recommendation 3 below).

The report recommends that the Australian Federal Government:

1. As a strategic national-interest priority, clarify the rules of engagement with the Foreign Investment Review Board, so that Chinese firms looking to co-invest are incentivised by transparent, stable, welcoming investment policy frameworks and guidelines;
2. Improve and streamline engagement by tasking federal and state investment bodies to communicate FIRB rules to prospective Chinese investors, assisting them with market entry strategies;
3. Establish a strategic critical minerals reserve trading fund to underwrite new investment in mining and extraction and protect Australia’s national interests;
4. Strongly advocate for an Asian Carbon Border Adjustment Mechanism (CBAM) – a green premium price signal to accelerate investment into renewables-powered processing of Australia’s energy transition materials (e.g. green iron), helping foster collaboration with China.

Further background:

CEF’S new report finds that China’s green capital tsunami is profoundly expanding and reshaping the global energy transition and geopolitics, delivering a global decarbonisation net positive as nations, including Australia, race to tackle climate change and align their energy security, national security and economic prosperity objectives.

China leads the world on R&D, investment, innovation, manufacturing, deployment and exports of cleantech by an astonishing margin, investing more than double the US or the EU into cleantech.

This, coupled with its massive buildout of domestic manufacturing capabilities, has led to ‘overcapacity’ of cleantech production, triggering staggering price deflation: solar module prices are -60% year on year (yoy), batteries -50% yoy, and lithium -80% from its recent peak, with significant global impacts:

• A reconfiguration of global trade dynamics and rising geopolitical tensions, including US sanctions against China’s cleantech exports and increasing tariffs from the EU to Turkey to India to Brazil. The US has imposed a 40% tariff on Chinese solar modules and 100% on EVs to protect onshore industry and domestic interests, as it accuses China of flooding global markets.
• An opportunity to convert ‘overcapacity’ of cleantech from China – which CEF argues can be reframed as under-deployment – into increased demand via a faster rollout of decarbonisation technologies across the globe, including in emerging and developing economies (EMDE) in the Global South, both addressing climate change and enabling nations to secure their energy independence.
• Enormous potential for bi- and multilateral partnerships and collaborations, including with Australia, on innovating and building emerging future-facing energy transition industries, as nations leverage Chinese capital, tech leadership and expertise in localised contexts to value-add domestically to mutual benefit.
• Increasing momentum in Chinese cleantech investment into economies worldwide, including, in addition to the Global South, greater Asia, Africa and Central and Eastern Europe, as China leverages its financial and technological clean energy statecraft to navigate a complex and challenging international trade and diplomatic landscape, including trade sanctions against it.