Posted on February 19, 2025
In the Chinese zodiac, the snake is often seen as a symbol of transformation. As the Year of the Snake gets underway, and we move deeper into the so-called ‘Asian Century’, China continues to evolve as an increasingly influential player on the global stage. Despite ongoing economic woes and weak sentiment, we see long-term strategic opportunities within Chinese equities, particularly in its booming offshore wind sector, which could prove vital to international decarbonisation efforts.
The Asian powerhouse already accounts for nearly one-third of the world’s installed renewable energy capacity1. It is a clear global leader in both solar capacity and electric vehicle adoption.
The country has invested heavily in renewable energy infrastructure, with substantial government support and incentives driving the growth of the sector2. This includes significant investments in research and development, which have led to technological advancements and cost reductions in renewable energy technologies.
According to the International Energy Agency, China is on track to produce half the world’s renewables by 20303. The superpower’s role in achieving global net zero targets is pivotal, especially given its status as the world’s largest emitter of greenhouse gases4 and its significant influence on global energy markets.
Chinese authorities have set ambitious targets to peak carbon emissions by 2030 and achieve carbon neutrality by 2060 as part of its broader strategy to transition to a more sustainable and environmentally friendly economy. Through these commitments, China aims to significantly reduce its carbon footprint and lead global efforts in combating climate change.
“China currently produces more than 80% of the solar modules5 and more than 50% of the wind turbines in the world, and has a mature and complete ecosystem from component suppliers to assemblers,” says Valentina Luo, Research Analyst, Asia Pacific Equities.
“And because most of these supply chain companies are listed, we have very accurate and timely information on the competitive landscape of the industry, in terms of where the profits are and where competition is most intense,” Luo explains. “This is where we think developed market investors lack visibility or have an information lag.”
Making waves in offshore wind
China is making waves in the offshore wind energy industry. In 2023, the country commissioned 6.3 gigawatts of offshore wind development, leading the world for a sixth year in a row, accounting for nearly 60% of total additions to the sector worldwide, and bringing its own total offshore wind installations to 38GW capacity – 11% higher than Europe6 and underscoring China’s dominance in this field.
In regional terms, Europe lost its title as the world’s largest offshore wind market in 2022, but remains the global leader in floating wind installation capacity.
Wind-generated power is at the forefront of global net zero ambitions. The 2023 COP28 climate summit, held in the United Arab Emirates, adopted an historic target to triple renewable energy capacity by 2030 in order to accelerate the transition to a cleaner, more sustainable energy model.
The wind energy industry is at a “pivotal moment”, according to the Global Wind Energy Council. There is a strong global consensus among policymakers and international institutions that an acceleration of installations is necessary for net zero targets to be met, highlighting the critical role of wind energy in achieving a sustainable future.
In the spotlight: Zhongtian
China’s Zhongtian Technology Group has emerged as a significant player in the offshore wind industry, reflecting the broader trend of China’s increasing investment in renewable energy.
The company, which has a diversified portfolio spanning telecommunications, power transmission, and renewable energy, has strategically positioned itself to capitalise on the growing offshore wind sector.
“Unlike many other sectors, offshore wind cable is an industry with a very high entry barrier dominated by three players only including Zhongtian,” Luo says. The other two key competitors are Prysmian and Furukawa Electric.
Offshore wind farms are often at least 20km away from coasts. The undersea cables that connect the turbines need to be highly resistant to pressure, salinity and temperature changes.
“Any damages will lead to huge consequences and losses, meaning operators are reluctant to use new suppliers’ cables and tend to choose established suppliers with long track records, even if that means prices are a bit higher,” Luo explains.
“This allows incumbents like Zhongtian to maintain relatively high pricing power and high market share, and is why we chose to invest in this area in the first place, but also remain convicted in times when the market questioned the sustainability of Zhongtian’s high margins.”
Long-term potential
Recently, the market has been unsettled by the slow progress of several projects, leading to concerns about the overall development outlook for offshore wind in China. We believe this perspective is short-sighted, as we remain confident in China’s long-term potential.
For context, China’s coastline can support a capacity of an estimated 6000GW, yet only a small portion has been developed to date. By 2050, China’s offshore wind capacity could reach 1500GW7.
“Our research indicates that the delays are primarily due to regulatory issues involving approvals from local authorities, and these projects are gradually moving forward,” Luo deliberates. “In fact, due to the backlog of projects, we anticipate Zhongtian’s offshore wind segment to grow by 60% in 2025.”
Meanwhile, the company has successfully mitigated the slowdown in this segment by rapidly expanding other business areas, including its onshore (grid) cable business and overseas sales.
Looking ahead, these two business lines are expected to contribute significantly to Zhongtian’s earnings growth, with a projected 30% compound annual growth rate (CAGR) over 2024-20268. This suggests considerable upside potential, especially given that the stock is trading at 12 times FY25 P/E, while its peers are trading at higher multiples in the high teens or above. We believe this discrepancy is largely due to the market’s focus on near-term growth, overlooking the long-term market potential and the strong competitive advantages of established players.
Admittedly, there is a risk that offshore wind projects, which are located in near-coastal areas, could face national security concerns. If these concerns take precedence over the energy transition for the Chinese government, progress on offshore wind could indeed be slow. Nevertheless, the stock’s low-teens P/E ratio and solid balance sheet, with a net cash position, provide a reasonable margin of safety in our view.
Harnessing the ongoing growth in renewables
Now Trump 2.0 is underway – and a second Trump presidency could prove more radical than the first, with any escalating trade war potentially impacting the cost and supply chain of materials and technologies needed for offshore wind projects in China. Nevertheless, offshore wind energy is a megatrend that is here to stay.
We believe Zhongtian is well-placed to harness ongoing growth in this segment of renewables. Its investment potential in the offshore wind industry is substantial. The company’s technical expertise, strategic partnerships, supportive policy environment, and strong financial performance collectively position it as a formidable player in the global offshore wind market.
As the demand for renewable energy continues to rise, Zhongtian’s strategic investments and innovative capabilities are likely to yield significant returns, contributing to the global transition towards sustainable energy solutions. Investors looking for possible opportunities in China’s renewable energy sector would do well to consider Zhongtian as a promising candidate with considerable growth potential in the offshore wind industry.
