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Carbon neutrality will bring China another development miracle, and a strong public-private partnership is pivotal

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Employees work on the production line of electric vehicle (EV) battery manufacturer Octillion in Hefei, Anhui province, China March 30, 2021. Picture taken March 30, 2021. REUTERS/Aly Song

Public-private partnerships, as seen in the development of the EV industry, will be key to China achieving carbon neutrality. Image: REUTERS/Aly Song

Zhu Min
Vice-Chairman, China Center for International Economic Exchanges (CCIEE)
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Davos Agenda

This article is part of: Annual Meeting of the New Champions
  • China plans to go carbon neutral before 2060, prompting heated debate over whether to prioritize economic growth or action on climate change.
  • Carbon neutrality is the solution to sustain China's growth and could mark an defining moment that enables the country to maintain its economic 'miracle'.
  • Embracing a development paradigm shift, and stronger cooperation between public and private partners, can help set a model for emerging markets.

Ever since China announced it will go carbon neutral before 2060 three years ago, there’s been a heated debate over whether to prioritize economic growth or climate action.

Few, however, address how long-term values will surpass short-term losses. Even fewer have discussed how this climate pledge could prompt a shift of our deep-rooted values embedded in our current development paradigm.

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Here’s my answer: carbon neutrality is, in fact, the solution to sustain China’s growth. It marks an epoch-making moment that positions the country to maintain its development momentum, or miracle, and economic growth over the last four decades.

And this feat can only be elevated further if we put the concept of a “paradigm shift” at the very heart.

Carbon neutrality needs a development paradigm shift

Earlier this year, during the World Economic Forum’s annual gathering in Davos, then Chinese Vice Premier Liu He mentioned in his special address the paradigm shift for green development.

This concept, previously proposed by experts including Nicholas Stern and myself in a report released in last December, posits that carbon neutrality necessitates a profound shift from the current development model marked by the industrial revolution's unsustainable nature to a paradigm centred on sustainability.

In addition to ongoing efforts towards individual goals like energy transition, industry decarbonization and nature restoration, this notion calls for a systematic examination of our deeply ingrained values and developmental approaches. It scrutinizes the purpose of development, the definition of wellbeing and the methods we employ to produce.

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The report addresses those question marks by outlining some guiding principles for the paradigm shift. Yet more importantly, it spotlights China's strengths that enable it to secure a leading role in this shift and serve as a model for other developing countries.

These include the Chinese government's capacity to coordinate systemic change, its vast domestic market and growth potential, its current advantage in green technology, and the role of digitalization.

While these all these factors are vital in facilitating a paradigm shift, they need to be supported with a robust public-private partnership.

The shift needs a stronger public-private partnerships

The government undoubtedly plays a critical role, especially in China, where it functions not only as a regulator but also as a key market player. Although policies inform and incentivize decision-makers in the market, it needs to work closely with the market participants.

Companies are the emitters, yet they also serve as a driving force for innovative solutions to decarbonize themselves and our future. Some companies and industries have already taken the lead in the global green race.

For instance, China, which hosts most of the world's major photovoltaic manufacturers, has been a worldwide leader in green finance for years, and boasts state-owned energy businesses that are boldly investing in renewables.

And the two can work together to catalyse technological breakthroughs and foster innovative business models, ensuring a streamlined and effective paradigm shift.

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History can advise.

China’s electric vehicle (EV) market has boomed over the last decade, throughout which we saw financial subsidies, loans, tax breaks, land use policies, procurement contracts and incentivizing policies to customers – you may get a car licence plate sooner if you choose an EV over a petrol vehicle, for example.

During this period, we also witnessed the chemistry between those government efforts and entrepreneurial endeavours from the private sector.

For instance, the battery is a key requirement for any EV, and Chinese battery manufacturers are championing lithium iron phosphate (LFP) batteries worldwide. These are much safer and cheaper than other counterparts widely used in the West, yet they were initially not the top choice due to its lower energy density and poor performance in low temperatures.

The public-private partnership in this success story contributes to China’s leading position in this game. By pairing the government’s vision with entrepreneurship, such partnerships brings to life to many of the strengths and advantages that China has to hand.

Three pillars for a stronger partnership

Looking ahead to the next four decades, an even stronger public-private partnership is essential for effectively adapting to the new paradigm shift. We expect this partnership to be efficient, complementary dynamic and systemic. Three elements will be crucial.

Innovative policy tools play a pivotal role. From China’s past successful green stories, including the EV industry, policies ensure the market players sufficient incentives. In this partnership, governments need to give a spotlight to public tools of high business relevance.

Preferential taxation, financial subsidization, public procurement, land use agreements, talent re-skilling and other innovative incentives must be employed. Corporate actions can feed into policymaking to improve incentive mechanisms, and mutual feedback ensures efficiency.

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Furthermore, a macro-management framework for zero-carbon finance is urgently required to secure a successful shift. In last decade, China has been leading the race of financing for the green transition. By the end of 2022, China ranked first in outstanding green loans with CNY 15 trillion ($2,088 trillion), and second in green bonds with CNY 1.1 trillion ($153 trillion).

The paradigm shift will further require more innovative financing tools in the market to decarbonize the whole-of-economy transition, especially for hard-to-abate sectors. The partnership can facilitate the mobilization of financing from various sources such as public capital, private investment and philanthropic giving.

Just as importantly, technology is where policy and finance are mostly intertwined, and where the private sector can especially take the lead. Government fosters an affirmative environment of technological innovation for private players.

It can even establish a carbon-neutral technology bank to use public capital to leverage private and philanthropic investment in innovation. And the latter needs to build further on their entrepreneurial mindset, and rethink risks as opportunities to delve deeper into diverse technology pathways to carbon neutrality.

Public-private dialogues as the starting point

With the three pillars in place, the ever-stronger public-private partnership will hold the torch and illuminate the way forward for the green paradigm shift. Discussions to strengthen this partnership can commence at this year's Annual Meeting of the New Champions in Tianjin, which promises to be an eagerly anticipated moment for dialogue, innovation and partnership.

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    The timing of these discussions is opportune. China's 2060 carbon neutrality pledge presents a unique opportunity to shift away from the traditional development model rooted in its industrial revolution.

    The green paradigm and move towards carbon neutrality necessitates stronger cooperation between the public and private sectors, calling for innovation and partnership and setting a model for more emerging markets. Indeed, the conversation is under way.

    A version of this article also appeared on the Yicai Global website.

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