China’s coal consumption and recent construction of coal-fired plants make plenty of headlines. However, the country’s Belt Road Initiative highlights Beijing’s commitments to reducing pollution and boosting adoption of renewable energy.
There are related investment implications that signal opportunity with exchange traded funds such as the KraneShares MSCI China Clean Technology ETF (KGRN). KGRN, which turned six years old last month, is a relevant play on Chinese equities. The Chinese government wants to increase green energy to 35% of consumed power by 2030.
KGRN is also pertinent regarding the Belt Road Initiative. That plan was unveiled a decade ago. Since then, energy has represented a majority of the construction and infrastructure investments made. Most those efforts have centered on fossil fuels, but that tide is turning. This potentially brings with it long-term benefits for KGRN.
Belt Road Initiative Could Boost KGRN
Just over two years ago in a speech made before the UN General Assembly, Chinese President Xi Jinping said his country won’t back construction of new coal-fired plants in other nations in which it actively invests. He noted that China plans to support green energy plans in other countries.
“Data from the Green Finance and Development Center, at Fudan University in Shanghai, suggests that this may finally be happening,” reported Tom Baxter for EnergyPost.eu. “In the first half of this year, investments and contract signings for solar and wind power projects accounted for nearly 42% of Chinese engagement in the overseas energy sector, compared to 26% in the whole of 2022 and 15% in 2021. In terms of value, engagement in solar and wind grew slightly compared to the first half of 2022 off the back of an uptick in construction contracts. Coal projects saw zero investment, while gas and oil projects accounted for around 22% of each.”
Perhaps adding to the long-term appeal of KGRN is that some Chinese energy companies that invest in other countries are waking up to the fact that it’s more efficient to do business with the private sector. Likewise, companies in those countries find it more appealing to deal with more nimble Chinese firms.
Moreover, increasing global adoption of solar power could be a boost for some KGRN holdings. China is in excess of that form of renewable energy and is attempting to lift solar exports.
“Despite the complexities of transitioning to cleaner energy investments overseas, exports of solar components manufactured in China are soaring. In the first half of 2023, they increased 13% compared to the same period last year, according to Chinese customs’ data, one of very few bright spots amid China’s current economic travails,” according to EnergyPost.
For more news, information, and analysis, visit the Climate Insights Channel.