First published at Rosa-Luxemburg-Stiftung.
In the EU, the Green Deal has collapsed. By contrast, China is continuing to invest massively in ecological modernization. How did the country become a technological leader and what geopolitical tensions have resulted?
Germany’s automobile industry is in crisis, as the export-oriented growth model is eroding. Green-capitalist modernization efforts are now blocked. Meanwhile, the trade war among the “new triad competition” — the US, Europe, and China — is escalating. The tariff war is above all the expression of a rearrangement of power relations within global capitalism.
For while the West is in danger of failing to create “green capitalism”, China is managing a rapid rise in “green” technologies. The three so-called new industries — E-cars, batteries, and renewable energy — already contribute an estimated 40 percent to China’s GDP growth. China’s “green” capital dominates not only the country’s important domestic market, adding significantly to the crisis of Germany’s automobile industry, but is also pushing its way into Western markets with full force: corporations such as CATL are already producing in Europe, BYD is starting production in Hungary and is even already considering another European plant.
China shows that “green” capitalism is not dead yet. However, the reshuffling of power relations is not ending with e-cars, but reaching into the heart of “green” capitalism — the energy sector.
Shifting winds
In terms of the West, the best one can say is that the energy transition has been slow. In the US, it is true, the share of renewables — spurred on by the subsidies of the Inflation Reduction Act — has increased slightly. Nevertheless, fossil fuels and nuclear energy still represent almost 80 percent of the electricity mix.
The share of renewables has grown in Europe as well, especially through wind power. However, fossil fuels and nuclear energy still account for half of all electricity production. Investments in gas and oil infrastructure increased massively after Russia’s invasion of Ukraine, while coal phase-out has been slowed in countries like Germany or France. In addition, there is a danger of fossil backlash due to the undiminished power of fossil capital, the radicalization of conservatism, and the rise of far-right parties: Trump’s energy policy with the motto “drill, baby, drill” is focused on the promotion of domestic oil and gas production through offshore drilling and fracking, with its attendant damage to health and the environment.
But even in Germany, Chancellor Friedrich Merz of the Christian Democrats (CDU) sees wind turbines as a transitional technology, for “they are ugly and do not fit into the landscape”. Alice Weidel of the far-right Alternative für Deutschland (AfD), at her party’s congress in Riesa, added her voice to the anti-wind power chorus: “We’ll demolish all wind-power plants! Down with these windmills of shame!”
While renewables in the West are thus developing into the terrain of a (right-wing) Kulturkampf, China, as the “system rival” is unrestrained as it pushes its build-out forward, the tempo of which is unparalleled. If the global market for solar and wind energy was still dominated by the US and the EU up to the 2010s, it is now firmly in Chinese hands: in 2024, at 358 gigawatts (GW) in newly installed wind and solar energy capacity, China surpassed EU increases by a factor of five. In 2024 alone, China’s build-out surpassed the entire wind and solar energy production capacity of the US. Seven of the top ten global solar module producers and six of the top ten wind turbine producers are based in the People’s Republic. They dominate entire value chains: 85 percent of all solar cells and 60 percent of rotor blades for wind farms are made in China. This means that even if solar electricity’s share of the electricity mix in Europe increases, the solar modules themselves come from China. Value creation and profits thus stay in the People’s Republic, and the systemic rival’s “green” capital continues to expand.
“Green” party-state capitalism drives investment
How did this global market dominance emerge in such a short span of time? The investment boom in solar and wind energy is the result of the party-state capitalist model.
To be sure, the leading solar module producers (LONGi Green Energy Technology, Trina Solar, JinkoSolar) and wind-power producers (Goldwind, Envision, Windey) are predominantly private property, but they do not act free of party-state influence: wind-turbine producers such as Goldwind and Mingyang, as well as solar module producers such as LONGi, JinkoSolar, or Astronergy have established so-called party cells in their corporate headquarters, which control the companies’ strategic decisions. The Communist Party is thus institutionalized at company level and can steer central investment decisions. Moreover, the biggest energy producers — above all the “Big Five’” Huaneng Group, Huadian Group, China Energy, State Power Investment Corporation, and Datang Group — are all state property. Through them, the party state has been able to systematically steer coordinated and large-scale investments.
Pricing policy was another central driving force in renewables investments. Financed by the Renewable Energy Development Funds, the government paid generous feed-in compensations for wind (onshore from 2009, offshore from 2014) and solar electricity (from 2011). These compensations exceeded the costs of electricity production and thus guaranteed secure and predictable profits. The party-state also determined the final consumer price and the network charges for the grid operators. This reduced price volatility and produced stable, predictable profit expectations, and in so doing attracted massive investment capital that drove the rapid construction of renewable energies.
Added to this was comprehensive industrial policy support: Since the eleventh Five-Year Plan (2006–2010), the solar and wind sectors have played a central role and received massive subsidies — among other things for research and development, the installation of wind and solar parks (for example, in the “Golden Sun Programme”), and for the internationalization of the solar-module and wind-turbine producers, promoted through inexpensive loans by state-controlled commercial and development banks.
With these pricing and industrial policy measures, the party-state turned renewable energies into green “capital sinks” — large-volume investment projects in which “green” capital can be reliably and profitably reproduced. This model catapulted China to the forefront of the global solar and wind industry.
Liberalization and crisis
Nevertheless, the functioning of this “green” party-state capitalism is by no means static: starting with the 2015 electricity sector reforms, the Chinese state-class has been pursuing a policy change primarily aimed at liberalizing prices and marketizing electricity trading.
At the end of 2017, when the energy authorities assessed the deficit of the Renewable Energy Development Fund at 15.6 billion US dollars, feed-in rates and subsidies were massively cut. Electricity trading was gradually marketized, with “planned electricity sales” giving way to market mechanisms. Electricity trading was increasingly converted to medium- to long-term direct purchase agreements between producers and end customers, with prices largely negotiated autonomously.
In addition, the party-state is increasingly introducing spot markets based on the Western model. In spot markets, electricity is traded on a short-term basis. Electricity producers are exposed to high price fluctuations, with corresponding uncertainties in price and profitability trends. The system of fixed feed-in rates is also being gradually replaced by an auction system in which projects are awarded to those solar and wind power producers offering the lowest electricity production costs. Since then, electricity producers have been engaged in a relentless price war, passing on the cost pressure to solar module and wind turbine manufacturers and their suppliers.
This liberalization and marketization intensifies competition. Price and cost pressures increase immensely. The overcapacities that have been accumulating for some time now are having a major impact on prices. Prices for solar modules and wind turbines are in free fall, and the profits of the largest producers are collapsing. By the third quarter of 2024, the largest solar module producers such as LONGi, Trina Solar, and Tongwei were suffering losses. Prominent industry representatives have been calling on the party-state to take measures against price deflation and falling profits. Gao Jifan, chairman of Trina Solar, appealed to the central government to better coordinate the industry and cool down the overheated competition: “Under the current bidding prices, there is no profit across the entire supply chain, and there is no way that this is sustainable.”
The contradictions of liberalization are becoming increasingly apparent: the continuing downward spiral of prices and profits — even among the largest producers — seems to be intensifying without targeted intervention by the party-state. It remains questionable whether the industry can be profitable in the long term without government price controls, given the high level of overcapacity. Although the largest producers still have high retained earnings and cash reserves, it remains to be seen how the current profit crisis will affect the industry’s medium-term investment capacity.
Ecological contradictions
Will China's “green” party-state capitalism — despite its economic contradictions — ultimately save the world’s climate? Hardly. The flip side of state support for renewable energies is the continued promotion of fossil fuels. The “green” coexists with a persistent “brown” party-state capitalism.
This is evident in Chinese capitalism’s continued dependence on coal, as China is the world’s largest producer and consumer of coal. The number of newly approved coal-fired power plants quadrupled in 2022–2023 compared to 2016–2020. In 2024, China began construction of 94.5 GW of new coal-fired power plants — the largest annual expansion rate since 2015. This means that China alone accounted for 93 percent of all new coal-fired power plants built worldwide in 2024.
In addition to coal, China is also pushing ahead with the expansion of nuclear power: between 2014 and 2024, installed capacity tripled from 19 to 57 GW. The simultaneous expansion of renewable energies, coal, and nuclear power shows that the ecological modernization of the energy sector is not taking place as a break with the fossil fuel (and nuclear) energy regime, but as an addition to it. In a sense, coal is cannibalizing the decarbonization effect of renewables. Despite the rapid expansion of renewable energies, China's CO2 emissions continued to rise in 2024 due to high coal consumption, albeit at a slower rate.
Furthermore, “green” party-state capitalism is closely linked to extractive investments in the mining of raw materials and minerals: a significant proportion of Chinese capital flowing to the countries of the Belt and Road Initiative goes to the metal and mining industries. This includes investments in the extraction of copper, lithium, iron ore, nickel, and cobalt — key raw materials for the “green economy” (lithium-ion batteries, electric vehicles, wind turbines, solar cells). Mining takes place predominantly in (semi-)peripheral countries such as Chile, Bolivia, Indonesia, and numerous African countries. It has destructive effects on soil and water quality, biodiversity, and local ecosystems. Chinese investment in raw material extraction recently reached new record highs: in 2023 alone, a total of 19.4 billion US dollars were invested in metal and mining along the Belt and Road Initiative.
China’s exploding energy demand — itself the result of the capitalist growth imperative — thus creates fossil fuel (and nuclear) dependencies and is closely linked to the exploitation of raw materials and ecological destruction in (semi-)peripheral countries. This stands in stark contrast to the ecological necessity of seriously advancing the global energy transition and is an expression of the ecological contradictions of “green” party-state capitalism.
When your energy transition depends on your systemic rival
And how is the EU responding to China’s rise as a leading green-capitalist power? China’s dominance in one of the key sectors of “green” capitalism, Europe’s decline, and the demands of its own energy transition are creating an area of (geo-economic) tension. This is because the implementation of Europe’s environmental goals depends on technology from its “systemic rival” China — lending new impetus to the European debate on strengthening protectionist and techno-nationalist economic policies, which are primarily directed against state-driven Chinese producers and have been gaining momentum since 2019.
In the name of energy security, the EU is attempting to reduce its dependence not only on Russia (oil, gas) but also on China (solar modules, wind turbines). It is responding with a combination of protectionist foreign trade policy and industrial policy measures aimed at Chinese competitors: anti-subsidy investigations against Chinese solar module and wind turbine manufacturers and the Forced Labour Regulation are intended to restrict their access to the EU market. This strategy is flanked by vertical industrial policy: measures such as the REPowerEU plan and the Green Deal Industrial Plan provide subsidies and other investment incentives to bring “green” value chains “back to Europe”. These measures are part of a broader EU strategy to curb the rise of Chinese “green” capital, as recently reflected in the punitive tariffs imposed on Chinese electric car manufacturers.
But China is not standing idly by, either. The party-state is exploiting not only its dominance in the production of solar modules and wind turbines, but also in the extraction and processing of strategic raw materials (e.g., rare earth metals, gallium, germanium, cobalt, and lithium). The EU and the US are highly dependent on China for these raw materials, which in turn strategically exploits this dependence and is responding with export restrictions — for example, on gallium, germanium, and rare earth magnets.
The eco-imperial tensions aimed at re-territorializing “green” value chains are therefore coming to a head. The EU and the US are fighting to get or regain control of global value chains in strategic sectors from their “systemic rival” China. However, Chinese party-state capitalism has greater geo-economic power resources at its disposal: through its dominance in the production of solar modules and wind turbines and its control over strategic raw materials, China has succeeded in creating critical dependencies.
Despite its successes in expanding renewable energy capacities, even “green” party-state capitalism fails to meet the requirements of a sustainable and ecological solidarity-based energy transition. Once again, it is clear that it is ultimately the structural barriers of capitalism itself (profit motive, pressure to grow, competition between individual capitals, international competition between states) that are blocking the radical cooperative and eco-solidarity transitions we so badly need.
Philipp Köncke is a sociologist and research assistant at the University of Erfurt. This article first appeared in LuXemburg. Translated by Eric Canepa.
