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China’s Direction Between Growth and Climate

China says it has started to drive decarbonization in the country since 2020. The goal is to reach maximum emissions by 2025 and to be completely CO2-free by 2060. A big part of this movement is the electrification of road transport. Demand for combustion vehicles fell last year, while sales of electric vehicles rose to a record 2.91 million vehicles. In line with this, crude oil imports declined last year for the first time in two decades. According to Chinese data, 513 million tons of crude oil were imported last year, a decrease of 5.4% compared to the previous year. If the trend continues, we will probably have already reached the peak of crude oil imports. However, some argue that the import downturn is also due to the COVID lockdowns in the country. In addition, there were various travel restrictions.

Thus, crude oil is not the biggest challenge for China, as other main sectors for CO2 emissions in the country are steel and aluminum production. China is the main producer of aluminum and also the largest market. It is difficult to imagine that the Chinese government will reduce aluminum production in the near future, but attempts will be made to take appropriate measures to prevent overproduction. Electricity caps have been lifted to encourage producers to produce less surplus. In addition, there has recently been an increased reliance on aluminum imports to passively reduce domestic production. Last year, a record 3.21 million tons of aluminum were imported.

In steel production, however, the situation is different. Here, the Chinese government has taken active measures to avoid overproduction. Steel production has been cut and imports have been increased. This could hit iron ore producers especially hard since China buys about 70% of the world’s iron ore.

Another important sector that generates high emissions is cement production. Here, the focus is on the construction sector, which has suffered greatly in recent times. It remains to be seen how the real estate giants in the country around Evergrande will be positioned in the next few years. The construction industry is one of the main sectors driving Chinese growth. These are also important customers for cement, steel, and aluminum. If the construction industry suffers a setback, these sectors will also feel the impact.

Whether China will safeguard the climate at the expense of economic growth remains to be seen. Especially since coal production in the country is running at record levels. In 2021, Chinese coal mines produced 4.07 billion tons of coal, up 4.7% from the previous year. In December alone, 384 million tons were reportedly produced, up 7.2% year-on-year. The Chinese government has instructed its coal mines to maximize production following energy supply shortages in many regions. In addition, there are differences with Australia, which was one of the main coal suppliers. Here, however, both sides seem to be open again to talk, according to reports from the Chinese side.

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