Top of main content

China in Focus: China’s evolving energy mix

29 May 2023

Key takeaways

  • Consumption, particularly services, continues to fuel China’s economic recovery

  • Looking ahead, China’s renewable energy transition is well underway with the adoption of ‘green’ hydrogen set to rise

China data review (April 2023)1

  • China’s activity in April showed that the recovery momentum seen in consumption has not yet spilled over to broader economic activity. The consumption revival was held up by the strong services recovery, but the manufacturing and property sectors weakened.

  • Retail sales rose by 18.4% y-o-y as the revival in consumption continued to lead the way, helped in part by the increased demand ahead of the Labour Day Holidays. Catering sales saw a rebound to 44% y-o-y, while other discretionary items and those related to going out more also saw an ongoing pick-up (e.g. clothing and jewellery sales all rose by over 30% y-o-y).

  • Relatedly, the services production index picked up to 13.5% y-o-y in April (from 9.2% in May) as the rotation continued to services consumption from goods consumption, the latter of which was boosted during the pandemic. This will likely keep demand for downstream consumer goods relatively more subdued in the coming months.

  • Fixed Asset Investment growth slowed to 4.7% year-to-date y-o-y, dragged down by a deeper contraction in property investment (-7.2% y-o-y in April), while manufacturing investment (+5.3% y-o-y in April) also showed some slowdown in momentum. However, ongoing policy support for infrastructure investment (+11.5% y-o-y in April) provided a modest cushion.

  • China’s trade flows saw a divergence in flows between exports and imports.Exports maintained strong positive growth of 8.5% y-o-y in April, helped by a low base, while imports saw a deeper contraction of 7.9% y-o-y as the domestic revival has yet to fully broaden out with property investment still in contraction.

  • CPI inflation fell to its lowest reading in over two years, rising by 0.1% y-o-y in April, given weaker food and fuel prices. Core CPI inflation remained steady, however, as demand for services consumption picked up. Meanwhile, PPI inflation sank deeper into deflation, falling 3.6% y-o-y, dragged down by a fall in global commodity prices and ongoing weakness in the property sector.

Thematic article: China’s evolving energy mix

China’s clean energy transition is important for global climate targets

As the world’s largest consumer of energy, the largest producer and consumer of coal, and the largest emitter of carbon dioxide, China’s transition towards clean energy is important for achieving global climate goals. The country aims to achieve peak CO2 emissions by 2030,carbon neutrality by 2060, and to increase the share of non-fossil fuels in its energy mix to 25% by 2030. Its energy transition, therefore, presents significant opportunities for investors looking to capitalise on the growing demand for renewable energy sources and storage systems.

The good and bad of green tech

Wind and solar installations may pick up

The expansion of renewable energy and related sectors is well underway. We expect to see a pick-up in wind and solar installations on the back of recent bidding activity. The acceleration in renewable energy subsidies should also improve utility companies’ appetite to expand, while lower turbine and module costs should support industry profitability. Some investors, however,have been considering the risk of trade tariffs and the potential for independent supply chains in developed markets, but we believe value in much of the renewable energy utility space is still solid in China.

Energy security still a concern

Energy security and climate ambition need balance

As tight fuel supply and geopolitical tensions keep oil and gas prices above historical levels,China needs to strike a balance between energy security and its climate ambitions. The country’s growing but unstable renewable power supply also requires support from additional baseload power to minimise disruptions from extreme weather. This could lead to more fossil fuel and nuclear power investment in the near term. However, the government’s focus on renewables remains, with grid investment and energy storage in focus during the transition away from fossil fuels – the ‘green’ solution for energy security.

Bridging the gap in the medium term

Sustainable fuel and smart grids are work in progress

The quest for decarbonisation can be segmented into ‘solved’ and ‘unsolved’ problems. The ‘solved’ problems include adoption, scale economics and competitiveness. ‘Partly solved’ or ‘unsolved’ problems relate to technology, where we have a broad sense of potential solutions, but there are significant challenges. For China, this includes sustainable fuel, smart grids, and the recycling of renewable equipment. The connection of renewables to the grid, for example, leads to unstable power supply, resulting in a mismatch of supply and demand, which requires IT systems to achieve load shedding.

Rapid expansion of ‘green’ hydrogen

‘Green’ hydrogen is on the cusp of wide adoption

‘Green’ hydrogen, a pure form of hydrogen produced via renewable energy sources, which emits no carbon dioxide when converted into electricity, is on the cusp of becoming far more widely adopted in China as costs tumble. This is being driven by falling costs of electrolysers, equipment that splits water to make hydrogen, and solar energy. We expect the average number of annual electrolyser system installations in China to dramatically increase in the coming years, driven by the next batch of mass green hydrogen projects that will likely be completed in 2024.

Source: Refinitiv Eikon
* Past performance is not an indication of future returns Source: Refinitiv Eikon. As of 23 May 2023 market close.

Related Insights

  • Services demand continues to lead China’s economic recovery although headwinds persist...[21 Nov]

  • China’s economic recovery accelerated in Q3, as the consumption-led recovery continued to broaden out...[27 Oct]

Recovery momentum continued to ease while services and related consumption remained the...[4 Aug]

Slowing exports and wobbly demand in China are curtailing growth across Asia...[7 Jul]

Disclosure appendix

Additional disclosures


1.  This report is dated as at  29 May 2023.

2.  All market data included in this report are dated as at close 26 May 2023, unless a different date and/or a specific time of day is indicated in the report. 

3.  HSBC has procedures in place to identify and manage any potential conflicts of interest that arise in connection with its Research business. HSBC's analysts and its other staff who are involved in the preparation and dissemination of Research operate and have a management reporting line independent of HSBC's Investment Banking business. Information Barrier procedures are in place between the Investment Banking, Principal Trading, and Research businesses to ensure that any confidential and/or price sensitive information is handled in an appropriate manner.

4.  You are not permitted to use, for reference, any data in this document for the purpose of (i) determining the interest payable, or other sums due, under loan agreements or under other financial contracts or instruments, (ii) determining the price at which a financial instrument may be bought or sold or traded or redeemed, or the value of a financial instrument, and/or (iii) measuring the performance of a financial instrument or of an investment fund.


This document is prepared by The Hongkong and Shanghai Banking Corporation Limited (‘HBAP’), 1 Queen’s Road Central, Hong Kong. HBAP is incorporated in Hong Kong and is part of the HSBC Group. This document is distributed by HSBC Bank Canada, HSBC Bank (China) Company Limited, HSBC Continental Europe, HBAP, HSBC Bank (Singapore) Limited, HSBC Bank (Taiwan) Limited, HSBC Bank Malaysia Berhad (127776-V) / HSBC Amanah Malaysia Berhad (807705-X), The Hongkong and Shanghai Banking Corporation Limited, India, HSBC Bank Middle East Limited, HSBC UK Bank plc, HSBC Bank plc, Jersey Branch, and HSBC Bank plc, Guernsey Branch (collectively, the “Distributors”) to their respective clients. This document is for general circulation and information purposes only. This document is not prepared with any particular customers or purposes in mind and does not take into account any investment objectives, financial situation or personal circumstances or needs of any particular customer. HBAP has prepared this document based on publicly available information at the time of preparation from sources it believes to be reliable but it has not independently verified such information. The contents of this document are subject to change without notice. HBAP and the Distributors are not responsible for any loss, damage or other consequences of any kind that you may incur or suffer as a result of, arising from or relating to your use of or reliance on this document. HBAP and the Distributors give no guarantee, representation or warranty as to the accuracy, timeliness or completeness of this document. This document is not investment advice or recommendation nor is it intended to sell investments or services or solicit purchases or subscriptions for them. You should not use or rely on this document in making any investment decision. HBAP and the Distributors are not responsible for such use or reliance by you. You should consult your professional advisor in your jurisdiction if you have any questions regarding the contents of this document. You should not reproduce or further distribute the contents of this document to any person or entity, whether in whole or in part, for any purpose. This document may not be distributed to any jurisdiction where its distribution is unlawful.


The following statement is only applicable to HSBC Bank (Taiwan) Limited with regard to how the publication is distributed to its customers: HSBC Bank (Taiwan) Limited (“the Bank”) shall fulfill the fiduciary duty act as a reasonable person once in exercising offering/conducting ordinary care in offering trust services/ business. However, the Bank disclaims any guaranty on the management or operation performance of the trust business.


The following statement is only applicable to by HSBC Bank Australia with regard to how the publication is distributed to its customers: This document is distributed by HSBC Bank Australia Limited ABN 48 006 434 162, AFSL/ACL 232595 (HBAU). HBAP has a Sydney Branch ARBN 117 925 970 AFSL 301737.The statements contained in this document are general in nature and do not constitute investment research or a recommendation, or a statement of opinion (financial product advice) to buy or sell investments. This document has not taken into account your personal objectives, financial situation and needs. Because of that, before acting on the document you should consider its appropriateness to you, with regard to your objectives, financial situation, and needs.


© Copyright 2023. The Hongkong and Shanghai Banking Corporation Limited, ALL RIGHTS RESERVED.


No part of this document may be reproduced, stored in a retrieval system, or transmitted, on any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior written permission of The Hongkong and Shanghai Banking Corporation Limited.


1.  Source: Wind, HSBC