Good morning, ladies and gentlemen. It is a real pleasure to participate in this Economic Summit today.
This year’s China Development Forum really comes at a time when the near-term prospects for China’s economic recovery are very positive, and that is a good place to start the conversation from. The strong economic recovery is in fact a great opportunity to accelerate reforms and actions to foster green development and green growth.
China has already made great strides to reduce the rate of natural asset depletion and environmental damage in the recent years. Compared to just a decade ago, in China, growth is requiring less energy, less minerals, and less water than it did just 10 years ago. So we are going in the right direction. It also results in lower carbon emissions and air pollution per unit of output than it did ten years ago. But to achieve the ambitious goals that China has set for itself to become carbon neutral by 2060, China would need to do more and would need to start sooner.
China’s green transition will require a very fundamental restructuring of the whole economy. The energy sector, industry, the transport system, cities, and the land use patterns will all need to change in very fundamental ways.
China, I would say, is well positioned to turn this fundamental transformation into an economic opportunity and to really catalyze climate action to unlock new sources of growth, new sources of job creation, and new sources of innovation.
I will talk about five points specifically.
First, China has a very large domestic market and very strong manufacturing capabilities. Many low-carbon technologies, including wind and battery storage, exhibit increasing returns to scale in innovation, in manufacturing, and in operation. This offers China a comparative advantage relative to other smaller countries. The progressive deployment of low-carbon technologies in China can push down prices overall, reducing abatement costs. And that is achievable because of its scale.
The second point is that, beyond China’s own domestic market, there is an opportunity to scale up exports of low-carbon products. 85% of the world’s population today and 90% of global GDP are now in countries that have made commitments to achieve carbon neutrality. So the market is actually larger than China’s.
Third, China is rapidly building green innovation capacity. The country accounted for 24% of global energy R&D spending in 2019 already. China’s start-ups have attracted more than a third of global early-stage energy venture capital over the past 5 years alone. Growth in climate change-related patents has also accelerated in China, especially in low-carbon information and communications technology, in buildings, and solar power. However, low-carbon patenting accounts for only 5 percent of all patenting inventions, leaving room for China to catch up to advanced countries where that share is higher.
From a historical perspective, China’s innovation policy has been particularly successful in driving competition that reduces the manufacturing costs of existing technologies, for example, wind and solar energy and energy storage.
However, for China to attain its dual carbon objectives—and more broadly, for the world to achieve the Paris climate targets — this will require technologies such as green hydrogen, carbon capture, usage, and storage. And all these technologies require more design-intensive research and innovation, and really breakthrough innovations. What does this mean? It means that China needs to switch its research facilities and production from quantity to quality. Because that is what we need in terms of breakthrough innovation.
The fourth point, at 47% of GDP, China has one of the highest domestic savings rates in the world. This can be mobilized to finance green investment. World Bank estimates suggest that decarbonization will require massive green infrastructure investments. In the power and transport sectors alone, we estimate US$14-17 trillion of investment between now and 2060. This is about 1% of China’s GDP during that same period.
China is already becoming a leader in green finance – our previous speakers spoke a little bit about this already, and the largest green bond and credit markets in the world. As of 2021, China’s major banks had lent US$2.3 trillion in green loans, and the outstanding green bonds exceeded US$250 billion. This looks like a large number, but green assets still account for a small share of China’s financial market. 8% of total loans are green and green bonds are only 1% of total bonds. So there’s space to grow in this market, and the green equity market in particular, early-stage risk capital is very limited. Going back to the research and breakthrough innovation, that early-stage investment is very much needed. So this is an area of opportunity for also product innovation in the financial market, and there is a significant opportunity for growth.
Fifth, we project that the transition to carbon neutrality in China will result in more job gains than job losses. This is a very important point. China already has today 54 million green jobs and more than four million jobs in renewable energy alone. In the green economy, the job gains will be in higher-skilled areas, higher-productivity industries compared to the job losses that will be in lower-productivity activities. So we also expect that the job gains will be in more urban and coastal areas while the losses in more interior areas, and that will have to be managed because the opportunities are significant but mobility has to be supported. A large part of China’s existing carbon-intensive capital stock may become obsolete. That is something that the sooner we start addressing, the better. For example, 40 percent of coal-fired power plants have been built in the last ten years, and some of these assets will need to be retired early, and it is really worth thinking about whether it is time to stop building them. Jobs in polluting industries will also be lost. And 10-15 percent of China’s jobs are in high-carbon sectors.
Let me conclude by making a few points on the labor side. To adjust to this transformation, China will need a more mobile labor force. Workers will need equal retirement and other social benefits wherever they work, and they will need to be able to carry these benefits across provinces. They will also need strong foundational skills that can be transferred, and they will need retraining programs.
Now, ladies and gentlemen, China has successfully managed rapid structural transformation and development in the past decades. We have seen a tremendous progress transforming China from a low-income country to the world’s second largest economy. I am confident that this green transformation is well within reach.