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Credit Suisse sees a $20 trillion opportunity in China's carbon neutrality goal

China's road to carbon neutrality could generate potential investments worth up to 130 trillion yuan, or $20 trillion, according to Credit Suisse.

The country may need to invest between 100 trillion yuan and 130 trillion yuan in green projects over the next 30 years to achieve its goal of net-zero emissions by 2060, according to Credit Suisse analysts speaking at a Sept. 29 webinar.

"China has a political leadership that can execute, and it has now really clearly pivoted towards decarbonizing its economy. And we think that that pivot there for them represents a massive investment opportunity," said David Murphy, Credit Suisse's head of China Quantitative Insight, the Swiss lender's data-driven intelligence content. "China is, to my mind at least, clearly the most important country in the move towards decarbonization."

China's pledge to become carbon neutral in 40 years was first announced by President Xi Jinping in 2020, and the nation's commitment to reducing emissions has since repeatedly been iterated by the government. That pledge is already being tested as the government's recent efforts to cut power consumption threatens production and economic recovery. Power curbs enforced by government officials in major industrial hubs in Guangdong and Jiangsu provinces have affected industries, including companies that supply to Apple Inc., threatening to further disrupt strained global supply chains for semiconductors and other vital goods, The Wall Street Journal reported Sept. 28.

The world's biggest greenhouse gas emitter has been increasingly vocal on its green agenda on the international stage, although experts have remained skeptical about execution and how China will change its domestic consumption of harmful energy sources, such as coal.

The world's most populous country produces about 28% of global carbon emissions, Murphy noted. It also produces more than half of the world's steel, cement and aluminum, and accounts for about half of global coal, copper and nickel consumption, indicating that China has "a vastly disproportionate amount of the world's heavy industry."

Meaningful contribution

Over the next 10 years, the shift toward decarbonization will add about 0.6% to GDP growth in China, a meaningful percentage, as the economy's average growth rate has slowed in recent years, Credit Suisse estimates.

However, the decarbonization efforts could pose the risk of a potential debt crisis from the premature closure of coal mines, steel mills and coal-fired power generators, Murphy said. China's coal-fired power generation units, on average, have only operated for just 12 years, compared with their typical lifespan of 30 years, Murphy said.

New energy vehicles, or NEVs, and renewable energy will be major beneficiaries in China's decarbonization efforts, Credit Suisse said. The auto industry, which contributes 4% to China's GDP and 10% to employment, holds strategic importance in the economy.

"Chinese government policy support for the adoption of NEVs has been strong," said Edmond Huang, Credit Suisse's head of China/Hong Kong securities research. "The NEV market is expected to create a level playing field for Chinese auto companies to fulfill a more prominent role in the global auto industry."

China is also well placed to benefit from global green trends, given its dominance in the renewable energy supply chains, such as in solar, wind, electric vehicles and battery, Huang said. The country may also export these renewable energy technologies globally to help other countries achieve their carbon neutrality goals, he added.

The financial industry in China may also see a rise in green loans, Huang said, as banks and insurance companies continue to hone in on green finance. Lenders such as Bank of China Ltd. have also decided to stop financial coal mining and coal power plants starting October.

"At this point, [the proportion of green finance in banks and insurance companies] is still quite small, given that the total size of the banks has remained big, but over time I think they will play a much bigger role down the road," Huang said.

As of Sept. 28, US$1 was equivalent to 6.46 yuan.