For the beleaguered solar stock sector and the handful of funds that own those names, there’s finally some good news.
China has announced plans to cut greenhouse gas emissions by 7%-10% from peak levels by 2035. This is the first time the country has committed to an absolute emissions target. In a video address to the United Nations, President Xi Jinping also said that China would boost wind and solar capacity sixfold from 2020 levels and increase the share of non-fossil fuels to more than 30% of total energy consumption.
China accounts for 30% of global greenhouse gas emissions, partly because it relies so heavily on coal. But growth in renewables has surged, leading some to believe the country’s emissions may have already peaked. So while some dismissed the announcement, Henry Greene, a strategist at KraneShares, which manages funds devoted to China and climate investment, calls it significant.
“China’s carbon emissions likely peaked in 2024,” says Greene. “This was already faster than expected, as the government had set a target of reaching peak emissions at some point before 2030. From now on, the challenge will be to reduce emissions substantially. To give such a specific range of the rate of reductions before 2035 suggests the leadership has a real plan in place.”
David Brand, founder of New Forests, a large sustainable forestry investment manager, says, “They’ve had such an extraordinary growth of solar industry and their EV industry that it’s outstripped any of the projections that people have made. That is part of what everyone is now recognizing. The rollout of renewable energy, particularly solar, means the cost has come down tenfold in 10 years. It’s cheaper than coal and natural gas, and if you get the battery storage link, all the projections we had 10 years ago have been thrown out.”
Stocks That Could Benefit From China's Emissions Cuts
How Will China Cut Emissions?
Greater efficiency in manufacturing and more efficient green power generation will help. For example, China is building a new hydroelectric dam on the Yarlung Zangbo River in Tibet. Greene notes the dam will generate 300 billion kilowatt hours of power annually, which is triple the output of the Three Gorges Dam and more power annually than all of the United Kingdom. “This dam is projected to reduce emissions in China by 3% annually, so they may need only to figure out the remaining 4%-7% of the reduction,” Greene says.
China will also accelerate its voluntary carbon market and carbon certificates, which companies can trade to offset their own emissions. “With the increase in terms of focus on emissions reduction from intensity to absolute emission levels, more and more industries will come under the purview of the emissions trading scheme,” says Kathlyn Collins, head of responsible investing and stewardship at Matthews Asia. “In the past, the types of projects allowed to generate these credits were mainly solar and wind. Now, other types of credits may come to the fore, such as reforestation.
Who Benefits from China’s Emissions Cuts?
According to Collins, the main beneficiaries will be battery storage systems, grid infrastructure upgrading, smart grid metering, energy management systems, environmental consulting, monitoring compliance, and of course the continued buildout of renewables and lean power.
Among other publicly traded equities, these beneficiaries include China’s renewable energy suppliers and component makers. For example, related companies in Matthews’ portfolio include Sungrow Power Supply 300274 CH, which makes solar inverters, and battery company CATL 300750 CH. Greene says other beneficiaries include China Yangtze Power 600900 CH, which could distribute power generated by the new dam, and Longyuan Power 001289 CH, a leading provider of wind energy.
Funds that could benefit include KraneShares MSCI China Clean Technology Index ETF KGRN, Invesco Solar ETF TAN, and iShares Global Clean Energy ETF ICLN. The last two are globally diversified.
Funds That Could Benefit From China's Emissions Cuts
The Outlook for Chinese Solar Stocks
“The new target represents a big step forward compared with the previous 2030 goal. While the 2030 target focused solely on carbon dioxide, the 2035 target expands to cover all greenhouse gases,” says Morningstar analyst Cheng Wang, who covers the solar industry. He notes that the solar and wind installation target seems conservative, given how much solar and wind China has already installed.
Wang says that recently, overcapacity has driven down solar prices and pressured profit margins. The solar industry’s current production capacity for some components, such as polysilicon, wafers, cells, and modules, is more than double the projected demand by 2025. He expects the imbalance “to persist through 2028, gradually easing as demand grows and supply consolidates.” Over the long run, however, Wang believes profitability will improve as Beijing limits production and reduces subsidies for unprofitable companies. “These measures are expected to gradually weed out weaker players, making room for stronger companies,” he says.
3 Undervalued China Solar Stocks
Jinko Solar
- Fair Value Estimate: CNY 8.00
- Morningstar Rating: ★★★★
- Economic Moat: None
- Morningstar Uncertainty Rating: High
Jinko Solar JKS was China’s largest solar module manufacturer by value of global shipments in 2024. The stock trades at a 33% discount to Morningstar’s fair value estimate. Morningstar’s Wang recently reduced the stock’s valuation to account for deteriorating profits in 2025 and 2026. According to them, 2025 is expected to be the lowest point for the company, while the medium- and long-term outlook remains positive.
JA Solar Technology
- Fair Value Estimate: CNY 15.90
- Morningstar Rating: ★★★★
- Economic Moat: None
- Morningstar Uncertainty Rating: High
JA Solar 0024569 CH shares trade at a 19% discount to Morningstar’s fair value estimate. First-half earnings were worse than forecast, with Wang expecting a further deterioration in the second half of the year.
Trina Solar
- Fair Value Estimate: CNY 22.90
- Morningstar Rating: ★★★★
- Economic Moat: None
- Morningstar Uncertainty Rating: High
Shares in Trina Solar 688599 CH, one of China’s largest solar module manufacturers, trade at a 27% discount to Morningstar’s fair value estimate. Although short-term challenges persist, Wang sees positive signs, with the company generating positive operating cash flow in the first half of the year.
Francesco Lavecchia contributed to this story.
