Gavekal Technologies: New Energy

China’s latest five-year plan for energy disappointed many analysts because of its unambitious targets for scaling back fossil fuel use. This misses the point. The plan is important because for the first time, Beijing is formally committing to an energy system based mainly on non-fossil fuels, with traditional coal, oil and gas as backup stabilizers. Achieving this goal will take another couple of decades, but policymakers are already starting to look beyond brute additions of renewables capacity to the efficiency measures that will be required for success.

Tesla’s market capitalization is by far the biggest among global automakers, mainly because it has sold itself as a leader in AI—not just in cars, but for humanoid robots as well. To turn its AI vision into reality, it needs China. Its Shanghai gigafactory enabled Tesla to scale up electric vehicle production; to scale up robotaxis and humanoids, it will have to figure out how to operate in both the US and China even as the two countries wall off their AI ecosystems from each other.

Conventional wisdom has held that while China’s AI buildout is constrained by lack of access to advanced chips, the US will be slowed by the scarcity and cost of electricity. Solving the power constraint is indeed a problem: AI data centers are suddenly adding a lot of new electricity demand on a system that has not grown in two decades. But aside from building new power plants and transmission lines—a long slog—there is a lot the US can do to squeeze more juice out of the current infrastructure.

Europe fears that subsidized and efficient Chinese high-tech companies will de-industrialize the continent. But the “second China shock” is arguably even more of a threat to northeast Asia, where China’s lead in batteries, electric vehicles and solar has Tokyo and Seoul incumbents worried that machine tools, robots and displays could be next. But Japan and South Korea should be able to hang on to large and profitable chunks of their industrial bases, thanks to both technological factors and geopolitics.

Nuclear power is back in business, thanks to the AI datacenter boom and renewed worries about fossil-fuel security following the closure of the Strait of Hormuz. Despite brave talk in the US, China is at the forefront of that revival and will remain so for another decade.

As Washington discovered with semiconductors, export controls that aim to maintain a technological lead are double-edged. They may slow a rival’s catch-up, but they also incentivize the rival’s innovation and harm domestic interests. And they are hard to enforce. China is rapidly expanding its export controls to include not just rare earths but many other technologies where it has a lead. But the more controls it imposes, the more it risks choking off revenues and paths to innovation for its leading tech companies.