The focus on state subsidies as the primary reason for China’s success in electric vehicles and other clean energy industries is overly simplistic, Anders Hove, a senior research fellow at the Oxford Institute for Energy Studies, argues in a new paper published by the British think tank.
A more nuanced perspective considers the role that comprehensive policy support has played in this success, including investment signals, R&D spending and the development of integrated industrial clusters, Hove argues. He also points to the role of innovation in China’s growing dominance in clean energy, including at the process level, and how much that has been driven by entrepreneurship and risk-taking, too.
There are lessons here for countries and companies wishing to compete with China in the clean energy space, Hove writes in the executive summary:
For countries and companies looking to engage and/or compete with China, it is important to recognize that competing in wind, solar PV, batteries, and EVs requires process-level innovation, which in turn requires mastery of, and ongoing interaction with, the entire supply chain. While basic R&D spending and top-notch universities will remain important, the benefits of such research may not always flow into the hands of domestic players. China’s EV, battery, and solar firms are able to innovate and scale up output quickly in part because of the important role of vertical integration and manufacturing clusters. Vertical integration and clustering appears to benefit the type of innovation — namely, in manufacturing and related processes — that yields a competitive advantage in these fields.
Hove also warns countries and companies against thinking that only advanced economies support human capital and entrepreneurship, or underestimating the role this plays in China’s clean energy success:
Related to this, human capital and entrepreneurship have also been important, and their development in China has been both linked to and facilitated by an industrial base in clean energy technology fields. This runs against the historic perception that developing experienced human capital and entrepreneurs is a strength found only in advanced economies, or that China’s advantage relies on attracting prominent firms that rely on low-cost, imported components.
“Clean energy innovation in China: fact and fiction, and implications for the future,” By Anders Hove, oxford Institute for Energy Studies, July 4, 2024.
Download the full paper, originally published by the Oxford Institute for Energy Studies on July 4, 2024.
Publisher’s note: The contents of this paper are the authors’ sole responsibility. They do not necessarily represent the views of the Oxford Institute for Energy Studies or any of its Members.
