There’s no denying that Europe and the U.S. are making admirable strides when it comes to adoption of renewable energy and clean tech advancements. However, in dollar terms, China is the global behemoth.
In what could point to long-term opportunity with exchange traded funds such as the KraneShares MSCI China Clean Technology Index ETF (KGRN), China spent a staggering $546 billion on clean tech and renewable energy products and services last year. Putting $546 billion into context, that’s larger than market value of all but seven members of the S&P 500, based on April 12 closing prices. Multiplying Coca-Cola’s (NYSE: KO) market value results in a figure that’s several billion less than what China spent on green energy last year.
Further highlighting the allure of KGRN’s China-centric approach, China’s clean tech/renewable energy spending in 2022 represented about half the global total and was well in excess of the $320 billion allocated by Europe and U.S.
In what could be viewed as another positive for KGRN, which tracks the MSCI China IMI Environment 10/40 Index, China was a major 2022 spender when it came to low-carbon initiatives and projects.
“China also dominated in low-carbon manufacturing, accounting for more than 90 percent of the $79 billion invested in that sector last year,” reported Scientific American.
With Beijing mandating that 35% of China’s power consumption come by way of renewables by 2030, the KRGN long-ranging opportunity set is potentially compelling. Add to that, China could account for 43% of global renewable power generated in just five years, according to KraneShares.
China’s dominance on the renewable energy stage, not surprisingly, creates leadership on the export front. Said another way, the U.S., Europe, and some developing economies are heavily dependent on Chinese exports to power their renewable energy endeavors. Particularly when factoring in the coronavirus pandemic, green energy-enthusiastic countries are likely looking to diversify supply chains and onshore more renewables capacity.
However, that doesn’t imply near-term vulnerabilities for KGRN holdings. Battery manufacturing is one example of China’s renewables dominance. The country is expected to cede some market share in that industry in the years ahead, but even with that, its share is likely to remain around 70%.
“That’s partly because China plans to expand its battery manufacturing capacity, even as supply chains get built up elsewhere. There are also barriers to ramping up clean energy manufacturing in the United States, including higher costs and the challenges of developing a new sector from scratch,” according to Scientific American.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.