China's Energy Investment Strategy Under Structural Dual-Track System: Integrating Coal While Accelerating Green Power Growth

Bottom Line

This week's policies and data confirm the "structural dual-track" path of China's energy strategy: strictly controlling total fossil fuel capacity while enhancing efficiency and bargaining power through industry consolidation; and driving renewable energy expansion to a globally leading level with unprecedented investment scale. Investors should immediately adjust their portfolios, overweighting coal industry leaders benefiting from supply-side reforms (e.g., the restructured National Energy Investment Group) and leaders in the renewable energy and hydrogen industry chains with technological barriers and scale advantages.

Key Developments

1. CSRC Approves Major Coal Asset Restructuring Between Shenhua Group and China Coal Energy — A massive coal industry restructuring involving assets exceeding RMB 300 billion receives regulatory approval, aiming to create a more internationally competitive national coal leader. Portfolio Impact: This merger will substantially increase concentration and pricing power in the domestic coal industry. Investors should increase holdings in the directly benefiting restructuring entities (China Shenhua, China Coal Energy) and monitor their potential for increased dividend payouts following cash flow improvements. Simultaneously, industry consolidation will solidify the market position of a few giants, benefiting their long-term valuation. Adopt a cautious stance towards small and medium-sized, non-integrated coal enterprises.

2. China's 2025 Renewable Energy Generation Exceeds Total EU Electricity Consumption — Data from the National Energy Administration shows China's 2025 renewable energy generation reached approximately 4.0 trillion kWh, historically surpassing the total electricity consumption of the EU-27 (approx. 3.8 trillion kWh). Portfolio Impact: This is not only a scale milestone but also signifies that China's core position in the global green supply chain has extended from manufacturing to power generation. Investment should focus on leading wind and PV operators capable of consistently securing projects and grid connection quotas (e.g., Longyuan Power, China Three Gorges Renewables), as well as leading manufacturers providing critical equipment and technical solutions for the massive installed capacity. Avoid second and third-tier manufacturers with slow technological iteration and weak cost control.

3. NEA Revises and Issues "Coal Capacity Replacement Management Measures," Strictly Controlling New Capacity — The new regulations require that from 2026, all new coal capacity must be achieved through equivalent or reduced capacity replacement, and the total annual replacement scale must not exceed a specific percentage of the previous year's production. Portfolio Impact: This policy locks in the ceiling for domestic coal supply, making capacity an increasingly scarce resource. Against a backdrop of rigid demand, this will long-term support the central price level of coal and amplify the profit stability of leading enterprises derived from existing high-quality capacity. Beneficial for coal enterprises with large, modern mines. The investment logic shifts from pure cyclical speculation to asset revaluation combining "value + policy scarcity."

4. CAS Team Achieves Key Breakthrough in Artificial Photosynthesis — Developed a novel general strategy for synergistically converting carbon dioxide and water into energy under natural light, providing a potential pathway for long-term carbon conversion and clean fuel production. Portfolio Impact: Although commercialization remains distant, this is a significant bellwether for disruptive energy technology. Increase R&D tracking and early-stage positioning in frontier energy technology themes, focusing on listed companies or associated startups with substantive patent portfolios and R&D investment in areas like electrochemical synthesis, photocatalysis, and advanced energy storage. Limited short-term impact on the existing energy structure, but potentially reshaping the industrial landscape long-term.

Sector Pulse

Risk Watch

• Policy Implementation Risk — Enforcement of the new coal capacity replacement regulations may vary at the local level. Insufficient enforcement could lead to capacity control effects falling short of expectations, impacting coal supply-demand balance and price support logic. Probability: Medium. Impact: High.

• Commercialization and Iteration Risk of Technological Breakthroughs — Breakthrough technologies like artificial photosynthesis face long, costly paths from lab to large-scale industrial application and risks of rapid technological iteration. Related thematic investments may face long periods of no return or risk of technological route disruption. Probability: High. Impact: Medium.

• Geopolitical Disruptions to Energy Supply Chains — Ongoing global turbulence continues to affect trade flows and prices of key chemical feedstocks and commodities like sulfur and crude oil (as mentioned in News 19), potentially impacting costs and profits for China's downstream refining and chemical enterprises. Probability: Medium. Impact: Medium.

Outlook

Key events and indicators to monitor next week:

• NEA may release January 2026 renewable energy installed capacity data: Observe whether growth momentum is maintained in early 2026 on the high base of 2025, particularly progress in distributed PV and offshore wind.
• Monitor SASAC's further deployment regarding restructuring and integration of central energy SOEs: Following the Shenhua-China Coal restructuring, watch for SOE reform trends in other energy sectors (e.g., refining, equipment).
• Track the progress of domestic mass production of key PV materials like POE (Polyolefin Elastomer): Large-scale supply of domestic "industrial gold" (as mentioned in News 16) will directly impact PV module encapsulation costs and industry chain profit distribution.

Positioning consideration: Adopt a barbell strategy under the "dual-track" framework. Allocate one end to fossil energy consolidators benefiting from supply-side reforms with strong cash flows, and the other end to renewable energy and hydrogen leaders with strong growth certainty and technological leadership. This balances policy risks and captures opportunities from both tracks.