Can #China Lead the Fight on #ClimateChange? With Roland Berger’s Denis Depoux

Starting from a mountain of coal. Coal used to represent more than 80% of electricity generation only 10 or 15 years ago. Now it's only 65%, and it's roughly half of primary energy use in China. So it looks like it's only 20% less, but it's a huge decrease in coal consumption. Of course, there's still a lot to do, and setting that ambition will require a very strong acceleration of the decarbonization of the Chinese economy. But I think it's a very serious ambition. Now, whether it can be met, the jury is out and will be out for the next 40 years, or at least for the next 10 to 20 years. Then we'll see if the trajectory gets there. But frankly, many countries are doing similar pledges, a lot of them by 2050. So, given the starting position of China, it's very difficult, but on the other hand, there are many reasons why China can actually achieve that target.

Hi Martina, very happy to be with you.

Well, I think it's achieved using everything. That's also a big difference between China and other economies. The first thing is, it's a planned economy, so when the government is planning something, they mean it. They achieve it or they don't, but at least they mean it seriously, and they're setting out the resources and the levers to achieve this. There's also discipline in execution, more now than in the past two decades. How to achieve that target? It's certainly further accelerating renewable energy power generation, but China is already the biggest in the world with 750 gigawatts of renewable energies, including hydro. It's still adding a lot more every year, but today it's only a fraction of its electricity production. It's adding more nuclear, which is challenging due to public opinion in China, which has been colder after the Fukushima accident. Even though the track record of Chinese nuclear power generation is excellent safety-wise, there is concern and a need for education. It's also challenging to find new sites; the government rules out nuclear plants inside the country, so it has to be coastal. Finding sites in a dense environment is not easy.

Yes, timing is quite good. We're expecting the energy side of the 14th five-year plan sometime next year, probably towards the autumn. Everyone is planning and modeling how this can work, how much renewable energy, how much energy saving. Energy saving has huge potential in China because most buildings are not properly insulated. The good news is there are still a lot of new buildings being built, and they can be immediately built with the best standards, unlike in more mature economies. China has a territorial advantage; it can develop what we can call carbon sinks, using vegetation and primary forest to capture carbon and offset emissions. This will continue and accelerate, which is difficult in Western Europe due to density. So there is a territorial advantage for China, and until the autumn of next year, the government is setting clearer targets for renewable energy production. People are talking about doubling solar generation and almost doubling wind power production in China, which is massive.

Yes, it's a big debate. A lot of people are starting to say that with China's pledge, maybe it's a good time to ban new coal-fired power stations. There are still probably 200 gigawatts planned, which is huge—twice the installed capacity of France—in the next five to ten years. That's not very realistic because over three million people depend on those plants or the coal sector, which is also for chemicals, not just power generation. You can't simply write it off, and that's where the planned economy has an advantage. China has pledged to become carbon neutral by 2060.

Yeah, we see a lot more than before, that's for sure. It's heavily supported by policy. 20% by 2025 is probably quite ambitious. Our market models are just 5 million new energy vehicles on the road by 2025, which is a bit less than this 20% target, but still a massive increase. Today it's one million per year, so going from one to five is a massive increase. What will support this is policy, subsidies or incentives to buy those cars, and now availability of products. We have in China domestic new players like NIO or XPeng that are developing products not seen elsewhere. Tesla is also a player, and I have a slight bias because Tesla was founded by an alumnus of Roland Berger. It's a lot of innovation, not only subsidies and government support. It's not only Chinese domestic producers; the joint ventures with Western car manufacturers also have a lot of electric vehicles coming to China, which will be attractive.

The jury is still out. For the luxury segment, I think market shares will not move dramatically because there is a premium image of Daimler and others. But there is certainly a challenge for the lower-end segments because Chinese car manufacturers are getting better and better. They will come with more modern products, not only about electrification but also driving assistance and connectivity of the car. The ability for foreign players to succeed depends on commanding the basics like the power train, which is shifting to electricity. The competition is shifting to something where there is a level playing field to start with. So the jury is still out on whether there is really a level playing field.

Well, it's a long-standing claim, and it has improved because most formal restrictions like equity caps on JVs or market access restrictions have been removed or are scheduled to be removed in the next two years. So the level playing field will be there in due time. Of course, it's not always easy; there is what the central government says and then local regulations and licensing, which can be painful. So I would say the level playing field is not bad in the automotive industry.

Yeah, well, it's getting there. The level of integration of platforms here is a lot more convincing than in the West. The GAFA are powerful in the West, but in a way, it's a separate world. In China, when you're on WeChat, you can stay there for the rest of the day; it's commanding everything and integrating more and more, including services from competitors. From a historic perspective, the Chinese economic system was based on the unit, where everybody does one thing all day. The West is now much more in a block system, needing to break barriers for better interconnection.

Thank you, Martina. It's a pleasure. I hope it won't take too long until we see each other, not by 2060 hopefully.