What China's transition means

The preceding chapters show that China is progressively rebasing a large and complex industrial economy on a cleaner, electric foundation, with clean electricity starting to take over functions once performed by fossil fuels across generation, system balancing and the wider economy. The legacy fossil-fuel system is registering the shift: coal generation is stalling across a growing number of provinces, fossil-fuel use is flattening across a widening set of industrial sectors, and the first changes are visible even in heavy industry.

As China’s transition approaches the more demanding phase of “building while breaking,” sustaining it will take continued expansion of clean electricity, deeper integration across the real economy and careful management of the economic fallout for coal-dependent regions. New market rules, regulatory incentives and institutional arrangements will need to be tested and refined as they go, and short-term fluctuations in renewable capacity additions and investment are likely to remain part of the picture.

The high-level policy commitment to peaking carbon emissions, along with oil and coal consumption, before 2030 is firmly in place, and as Chapter 2 showed, economic self-interest now reinforces it. Cutting dependence on fossil-fuel imports, building new export industries and drawing investment into clean-energy supply chains have begun to reshape where China’s growth comes from. The further this advances, the more that growth becomes tied to deepening the transition, including into the new industries it can unlock.

The significance of this shift does not stop at China’s borders. It is reshaping the context within which others weigh their energy choices: what energy security can look like in an era of geopolitical shocks (Section 3.1), how much economic growth and deeper industrialisation still depend on fossil fuels (Section 3.2), and where global fossil-fuel demand is now heading (Section 3.3).

For decades, thinking around energy security centred around managing market risk — price spikes, supply gluts, demand swings — even as geopolitical shocks occasionally intruded. The tools developed to manage them, including diversifying suppliers, holding strategic reserves, and maintaining spare capacity, were mainly built for that market-driven world.

When supply disruptions are increasingly driven by conflict, the contest over critical chokepoints, and the deliberate use of energy as an instrument of leverage, managing market exposure alone is not sufficient. Reserves and diversified suppliers can cushion a shock, but they cannot address its source, because no country can reliably manage geopolitical risk. The more durable approach is not to manage exposure to fossil-fuel volatility but to reduce that exposure altogether.

China’s Hormuz exposure is the largest of any economy in absolute terms. It imports roughly as much through the strait as India, South Korea and Japan combined. In relative terms, the strait accounts for a smaller share of China’s oil imports than it does for those three countries. But that share is still over half, and because it sits on top of a far larger import base, the absolute volume at risk is greater.

Despite this, China’s exposure to a Hormuz disruption looks more contained than the raw import volumes suggest. Part of this rests on conventional tools such as diversified suppliers and large strategic reserves. But China’s rapid transport electrification adds a further layer of resilience, by reducing the volume of oil its economy needs in the first place.

The effect is already measurable. In 2024, EV adoption displaced an estimated 0.43 million barrels a day of gasoline use, up from about 0.10 million barrels a day in 2020 — around 12% of gasoline used that year (3.6 mb/d). With China targeting an EV stock share of 30% by 2030, more than double the 14% reached in 2025, the oil the economy needs would continue to fall. That known, declining trend is itself a source of resilience, one that strategic reserves and diversified suppliers, which only cushion a shock, cannot offer. And it is not unique to China: for any economy dependent on imported fossil fuels, the energy transition offers an expanding layer of energy security in a global market where the old tools increasingly fall short.

Fossil-heavy development looks like the proven path for good reason. It was the route followed by the Western industrialised economies, and later by Japan, China and a few others. Coal, oil and gas powered the factories, transport networks, heavy industries and cities that drove export-led growth.

Few economies embody that model’s success more fully than China. Its fossil-fuelled industrialisation supported decades of unprecedented economic expansion. It therefore had strong reasons to remain anchored to the system that delivered its rise. Instead, as earlier chapters have shown, China is now working to rebase more of its industrial growth on a cleaner electric foundation.

The pattern is visible in the long-run data. Since 1990, China’s economy has grown steadily, accompanied by a rapid rise in electricity use. Meanwhile, fossil-fuel consumption, after climbing steeply through the 2000s, has flattened over the past decade or so. GDP growth, in other words, has increasingly moved in step with electricity use, even as its link to fossil-fuel consumption weakens.

Decoupling is not unique to China. In many developed economies, industrial fossil-fuel use per capita has fallen relative to industrial value-added per capita – most sharply in the United Kingdom, more gradually in Japan and Germany. But in those cases, industrial value-added per capita has stayed broadly flat. The United States sits somewhat apart. Its industrial value-added per capita has risen modestly since 1995, while fossil-fuel use per capita has held roughly level rather than falling. What makes China’s case especially relevant for developing countries is that it decouples while its industry is still expanding quickly: industrial value-added per capita keeps climbing, even as fossil-fuel use per capita has fallen back from its early-2010s high.

This decoupling is far from complete. But what matters most at this stage is the direction of travel, which so far shows little sign of reversing. And its implication for other developing countries is significant. It challenges a long-held assumption that fossil-intensive industrialisation is the inevitable price of development, and suggests instead that growth and decarbonisation can, increasingly, be pursued together.

For much of this century, China has been the single largest driver of global oil and coal demand growth. Between 2000 and 2025, it accounted for roughly half of the entire global increase in oil demand, and for more than 90% of the growth in coal demand. That is now changing. China’s oil and coal demand growth has slowed markedly in recent years, driven by the rapid growth of clean electricity and end-use electrification. As set out in the latest Five-Year Energy Plan, oil and coal consumption are expected to peak by 2030, and electrification is set to reach 35%, up from about 30% in 2025.

This marks a turning point for global markets, with significant implications for fossil-fuel exporting economies. For oil, the shift is already visible. China’s gasoline demand has begun to edge down as electric vehicles displace petrol and diesel, and industry estimates it could fall around 5.5% in 2026. Coal might seem a different case, since China meets most of its coal needs from domestic production, so a peak in Chinese demand could be assumed to matter little to exporters. But that overlooks scale. In absolute terms, China is the world’s largest coal importer, buying roughly 550 million tonnes in 2024 — around a third of all internationally traded coal.

For economies whose public budgets and development plans rest on fossil-fuel export revenues, then, a peak in Chinese demand would substantially weaken the assumption on which fossil-fuel investment has long rested: that demand will keep climbing.

Overall, China’s energy system is still like a ship being repowered at sea, where much of the harder work described in this report is still underway. What will confirm whether this course holds is not any single milestone, but whether the signs traced through this report keep extending: coal generation continuing to stall in more provinces, fossil-fuel use turning down rather than merely flattening in heavy industry, and the economic case for the transition continuing to outweigh the cost of the fossil-fuel system it is replacing. If it does, the significance will reach far beyond this one ship.