China's Electrification Mirage

The vast bulk of China's electricity production still comes from fossil fuels

At any point in time, there’s various themes in markets. Those are often based in fact, but markets invariably tend to get ahead of themselves. It feels that way with artificial intelligence, where I’ll temper my enthusiasm until the autocomplete function on my iPhone stops making rudimentary mistakes. It also feels like some of this is going on with all the chatter about China electrification. There’s no doubt that China in recent years built impressive transmission infrastructure, but what matters at the end of the day is power generation, which still overwhelmingly comes from fossil fuels. All the power lines in the world don’t make you sustainable or energy independent if you’re still having to import and burn tons of fossil fuels. To my mind, the hype far exceeds reality where China electrification is concerned.

The chart above breaks down China’s electricity generation into its sources: (i) thermal plants (blue), which use fossil fuels to produce steam to power a turbine and generate electricity; (ii) hydro power (red); (iii) nuclear (orange); (iv) wind (purple); and (v) solar (gray). It’s true that solar and wind are growing in importance, but let’s keep things in perspective. Their shares in total electricity generation were five and nine percent, respectively, in October 2025 versus 67 percent from thermal power. Maybe China is electrifying, but what matters is where this power comes from and that’s still overwhelmingly from fossil fuels.

There does look to be a ramp up in electricity generation in the last few months of data, but even that is mostly from thermal power plans and not wind or solar. The chart above shows the growth contributions of various power sources on a quarter-over-quarter basis. Much of the ramp up in electricity production is due to thermal and isn’t based on renewable energy. I don’t mean to diminish the extensive build out of China’s transmission infrastructure. But - in the end - what matters is where the electricity comes from and it’s from the same old fossil fuels as before.