Investors can generally ignore goals that world leaders promise the U.N. General Assembly they will achieve 40 years from now. Chinese President
’s recent pledge to make his country carbon neutral by 2060 is an exception.
The scope of Xi’s ambition, in a country that still gets two-thirds of its power from coal, is breathtaking. Follow-up documents from a Tsinghua University think tank estimate China will have to spend $15 trillion on green transformation, increasing solar power six times and wind more than three times.
But these aims are underpinned by achievements. From a standing start 10 years ago, China has created seven of the world’s top 10 solar module manufacturers, says Xiaojing Sun, who follows the sector for consultant Wood Mackenzie.
These upstarts have largely wiped out European competitors on price, while high U.S. import tariffs have failed to stimulate a domestic industry. “The Chinese have been very good at leveraging other countries’ subsidies to sell into those markets,” says Louis Schwartz, CEO of consultant China Strategies. China is less dominant, but still a top player, in the race to build electric vehicles and their all-important batteries.
Buying the relevant Chinese stocks is another question, however. A lot of good news is already baked in, especially for solar producers, after recent price surges. Shares of industry leader
(ticker: JKS) have nearly doubled this year, and No. 2
JA Solar Technology
(002459.China) more than tripled, on expectations of a global green reboot after Covid-19 and a potential election victory for environmentally minded U.S. Democrats. “I can see pockets where companies have become expensive on a short-term basis,” says Will Riley, who manages Guinness Asset Management’s Global Energy fund.
The headlong growth of renewable energy leaves companies challenged to keep up with technology and calibrate investment to demand, Sun adds. “The solar components you buy now could be outdated in six months,” she says. “The large players are always in a frenzy to expand their capacity.”
Investors are nonetheless picking stocks they bet can survive the industry tumult and grow quickly for decades to come. Guinness’ Riley favors
Daqo New Energy
(DQ), a low-cost producer of raw material polysilicon;
Xinyi Solar Holdings
(968. Hong Kong), which has a pole position in solar glass; and
(CSIQ), a more vertically integrated player that, despite its name, operates mostly in China.
He’s also bullish on wind-power producers like
China Longyuan Power Group
(916.Hong Kong) and
China Suntien Green Energy
(956.Hong Kong), whose stocks haven’t yet caught the solar updraft. “Wind is attractively valued at the moment,” he says.
David Halpert, chief investment officer of Prince Street Capital Management, finds green China too expensive, as a rule. But he makes an exception for electric-vehicle battery maker
Contemporary Amperex Technology
“CATL has built a truly world-class position, sort of like Tesla in the U.S.,” he says. In fact, reports that it will supply batteries to the Chinese version of Tesla’s Model 3 have already doubled its shares this year.
What no one seriously doubts is that China will march rapidly toward its 2060 carbon-neutrality target. Aside from the pull of more technical supremacy, Xi and colleagues feel the push from a population disgusted by pollution.
“Corruption and environmental degradation were the two main popular grievances when Xi took power,” Wood Mackenzie’s Sun says. Xi hasn’t forgotten.