China's economy expanded 5.4% year-on-year in Q1 2025, but traditional energy's role in fueling growth continues to wane.
Investment: Green Power Drives Energy Capex, Outpacing GDP Growth
Energy investment rose 12.9% YoY in January-February alone, significantly outstripping GDP growth. Renewables were the key driver. By end-March, wind and solar photovoltaic (PV) installations increased 17.2% and 43.4% YoY, respectively. For the first time, combined wind and solar PV capacity surpassed thermal power, following a structural shift where new energy overtook coal in total power capacity at the end of 2024. Non-fossil fuels now account for 59.1% of total installed capacity, up 4.3 percentage points from a year ago.
Traditional Energy Consumption Declines as Substitution Accelerates
Substitution of fossil fuels is extending downstream. In Q1 2025, China's gasoline and diesel demand dropped 3.3% and 7.8% YoY, respectively, while crude throughput fell 5%. Transport fuel demand is shifting amid structural changes in logistics.
Q1 economic growth was largely driven by industrial production and exports, boosting freight activity. Heavy-duty truck (HDT) mileage rose 3.4%, but diesel trucks' mileage share fell from 88% in Q1 2023 to 76% in January-March 2025. In contrast, LNG trucks accounted for 23%-25% of the total HDT mileage, up from around 21% recorded in late 2024.
Gasoline demand was further hit by surging electric vehicle (EV) adoption. Passenger EV retail sales jumped 36.6% YoY in Q1, with March penetration rebounding to 51.1% - far ahead of overall passenger vehicle growth (+6%).
End-Use Electrification Reshapes Energy Consumption Mix
Rising demand for clean power is driving a new energy demand structure. China traded nearly 2 trillion green electricity certificates (GECs) in Q1, which is about one-third of the total traded over the past eight years. Non-fossil fuels' share in total energy consumption rose by 1.5 percentage points YoY.
Renewables are lifting upstream electricity supply. In Q1, renewable power generation rose 16% YoY, led by solar (+19.5%) and wind (+9.3%). Coal-fired power declined 4.7%, dragging on coal demand. Mysteel data showed national coal inventories at 55 surveyed ports hit a 2025 high as of April 18.
Outlook for Q2 2025
Market expectations are diverging: Morgan Stanley and the IMF revised China's 2025 growth outlook upward in March. But after the escalation of tariff tensions in April, UBS and Goldman Sachs downgraded forecasts, with UBS warning growth could fall to 3.4% if trade frictions persist.
GL Consulting data shows that consumption, investment, and net exports contributed 52%, 9%, and 39% to Q1 GDP, respectively - suggesting domestic demand remains the main anchor. But further support may be needed:
Stimulus for domestic consumption: As exports slow, authorities may boost subsidies for EVs and green appliances to support domestic demand.
Increased infrastructure spending: Fiscal expansion is expected to offset export volatility and sustain investment momentum.
In April, GL Consulting published a special edition of China (Energy Transition) Policy Perspective Spotlight - U.S.-China Tariff War Hits Ethane and LPG Hardest, Spurs Uptick in Naphtha Demand, analyzing the key impacts of the latest U.S.-China tariff escalation.
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