China's Energy Transition: How Renewables and Coal Are Reshaping Crude Oil Demand

China's energy transition is no longer a distant promise but a present-day reality, reshaping global crude oil demand and redefining capital flows in energy markets. By 2025, the interplay between rapid renewable energy deployment, persistent coal reliance, and electrification has created a complex web of winners and losers for investors. The strategic reallocation of capital—from oil to renewables, and even back to coal in some cases—reflects the tension between China's climate commitments and its economic imperatives. For investors, understanding these dynamics is critical to navigating a market where policy, technology, and geopolitics collide.

The Rise of Renewables: A Game Changer

China's renewable energy capacity has surged past expectations, with wind and solar installations reaching 1,400 GW by 2024—six years ahead of its 2030 target. This growth has been fueled by a combination of state-led planning, private sector innovation, and global demand for clean technology. The “new three” sectors—electric vehicles (EVs), batteries, and solar power—now contribute over 10% of China's GDP, with combined investment and sales hitting $1.9 trillion in 2024.

The solar sector alone accounts for 80% of global panel production, while wind turbines and EVs dominate 60% and 75% of the world market, respectively. These industries are not just domestic success stories; they are export powerhouses. China's dominance in the supply chain for renewables means that even as global oil demand plateaus, its clean energy firms are capturing market share. For investors, this suggests that exposure to Chinese renewable tech companies—such as LONGi Green Energy or BYD (002594.SZ)—could offer long-term growth, despite near-term volatility from policy shifts or trade tensions.

Coal's Unlikely Resurgence

Despite its climate pledges, China's coal use remains stubbornly high. In 2024, coal accounted for 62% of its electricity generation, with new coal plant approvals hitting a decade-high 100 GW. This paradox is driven by two factors: energy security and economic pragmatism. While renewables grow, they still lack the flexibility to meet peak demand, especially in industrial and residential sectors. Moreover, China's young coal fleet is highly efficient and cost-competitive, making it harder to phase out than in older economies.

The government's revised energy intensity calculations—excluding renewables and fossil fuel feedstocks—have also masked the true scale of coal's role. For now, coal remains a stabilizer in China's energy mix, and investors in coal producers like China Shenhua Energy (601088.SS) or Yankuang Energy (600187.SS) may benefit from short-term demand. However, the long-term outlook is bleak: coal's share in electricity generation is projected to fall to 50% by 2030 as renewables and gas expand.

Electrification and the Decline of Oil Demand

China's transportation sector is the most visible casualty of the energy transition. In 2024, EVs accounted for 50% of car sales, displacing over 1 million barrels of oil per day. The shift to battery-electric and hydrogen-powered trucks is accelerating, with electric heavy-duty trucks reaching 8.9% of sales by mid-2025.

The implications for crude oil demand are stark. Combustion-based fuel use in 2024 was 2.5% below 2021 levels, and the International Energy Agency projects further declines. While petrochemical feedstock demand is rising—driven by new plastics and chemical plants—this growth is unlikely to offset the drop in transport fuels. For oil majors like Sinopec (600028.SS) and CNOOC (0883.HK), the challenge is clear: diversify into renewables or risk obsolescence.

Capital Reallocation: Winners and Losers

The reallocation of capital is perhaps the most telling sign of China's energy transition. In 2025, energy investment in renewables and grid infrastructure hit $625 billion—double 2015 levels—while coal and oil investments totaled $54 billion. This shift is not just about dollars; it reflects a broader strategic pivot.

• Winners:
• Renewables and EVs: Companies like CATL (300750.SZ), the world's largest battery manufacturer, and state-backed grid operators (e.g., State Grid, 60000.SH) are set to benefit from infrastructure spending.
• Green Finance: The “Green Belt and Road” initiative is driving investments in overseas solar and wind projects, offering opportunities in emerging markets.

• Gas: Despite its limitations, gas is expected to bridge the gap between coal and renewables, with projects in Saudi Arabia and Nigeria attracting Chinese capital.

• Losers:

• Oil and Coal Exports: Chinese investments in Russian oil and Middle Eastern gas projects are increasingly exposed to geopolitical risks, including U.S. sanctions and ESG pressures.
• Legacy Firms: Oil refiners and coal miners that fail to adapt may see declining valuations as demand shifts.

Investment Advice: Balancing Risk and Opportunity

For investors, the key is to balance exposure to China's energy transition with its structural challenges. Here's how:
1. Prioritize Renewable Tech and EVs: Long-term growth is concentrated in solar, wind, and battery manufacturing. However, watch for trade disputes and overcapacity risks.
2. Diversify Geographically: While China leads in renewables, its Belt and Road projects in Africa and Southeast Asia offer high-growth but high-risk opportunities.
3. Avoid Overexposure to Coal: Coal's role is shrinking, and stranded asset risks are rising. If investing in coal, focus on companies with clear decarbonization plans.
4. Monitor Policy Shifts: China's 15th Five-Year Plan (2026–2030) will likely tighten emissions targets. Stay attuned to regulatory changes in the power sector and industrial decarbonization.

Conclusion: A Tipping Point

China's energy transition is at a tipping point. While renewables are reshaping crude oil demand and capital flows, coal remains a drag on progress. For investors, the path forward lies in aligning with the winners—clean tech, grid modernization, and gas—and hedging against the losers. As the world's largest energy consumer, China's choices will not only determine its own carbon future but also shape global energy markets for decades to come.