The long horizon
Five decades of a layered energy strategy will help China weather the Hormuz oil disruption
As the Strait of Hormuz becomes a flashpoint once again, global oil markets hold their breath. Yet beneath the daily headlines, a longer-term process continues to unfold in China: an energy strategy conceived in 1981 is now reaching maturity, and five decades of patient investment are helping absorb a shock that would once have caused far greater economic disruption.
China’s energy reality has always been summed up by a simple phrase: “rich in coal, poor in gas, short on oil”. As the country industrialized, this endowment became a persistent strategic vulnerability.
In response, China has developed a layered energy strategy over several decades. Four distinct layers — each building on and reinforcing one another — have created a multi-tiered buffer against oil shocks.
The seeds of this energy strategy were first planted in the 1970s, when oil shocks exposed the dangers of dependence on imported oil even for a country that was then a net oil exporter. In 1981, China established the “coal-for-oil” initiative, which included a dedicated State fund to finance projects replacing oil with coal in industrial boilers and power generation.
The program was later expanded. Throughout the 1990s and 2000s, China systematically developed technologies to convert its abundant coal reserves into synthetic fuels and chemical feedstocks that are normally derived from oil. By the end of 2024, China had converted 280 million metric tons of standard coal equivalent into chemicals, oil and natural gas — substituting for the equivalent of 140 million tons of oil.
The second layer was the strategic stockpile, a common tool recommended by the International Energy Agency. The first phase of the national petroleum reserve program was launched in 2003. By early 2026, it is estimated that China had 1.4 billion barrels of crude in combined strategic and commercial storage — enough to cover roughly four months of net imports, well above the IEA’s 90-day guideline for member countries.
The third layer is renewables for electricity. Initially driven by concerns over air pollution and climate change, the renewable build-out took on new strategic significance as electrification advanced.
Beginning in the 2000s, China systematically invested in wind and solar power equipment manufacturing capacity, driving down global costs through economies of scale. The Renewable Energy Law, enacted in 2005, provided the first comprehensive legal framework for renewable development. This was followed by the release of the Medium and Long-Term Development Plan for Renewable Energy in 2007, which established clear targets and strategic direction for the sector through 2020.
By the end of 2025, China’s total renewable energy installed capacity reached 2.34 billion kilowatts, accounting for approximately 60 percent of the country’s total power generation capacity — surpassing thermal power to become the dominant source of installed power capacity for the first time. In 2025, renewable energy generation accounted for 38 percent of total electricity consumption. This shift is not merely environmental; it fundamentally alters the country’s exposure to oil market volatility.
The final layer is the electrification of transport. Here again, China’s long planning horizon is evident. As early as the 1990s, policymakers saw electric vehicles not only as a way to reduce pollution, but also as an opportunity to leapfrog conventional automotive technology and build a globally competitive industry. During the Ninth Five-Year Plan (1996-2000) period, the Ministry of Science and Technology launched a major EV engineering project. By 2007, new energy vehicles had been elevated to a national strategy for revitalizing the auto industry, and sustained support from 2009 to 2022 accelerated that transformation.
The results of this sustained focus are now evident. In 2025, nearly one in every two new cars sold in China — 48 percent — were NEVs. That amounted to over 16 million units. The Rhodium Group estimates that China’s EV push has already displaced over 1 million barrels per day of implied oil demand. For EV users, the cost of mobility is now largely decoupled from international oil markets.
What distinguishes China’s approach to addressing this vulnerability is not any single policy, but the cumulative effect of a layered energy strategy developed across five decades. The interaction between these layers matters as much as the layers themselves. Renewables and EVs form a reinforcing loop: More EVs increase electricity demand, which strengthens the case for more renewables, which in turn enhances the security benefits of EVs. Every EV charged by wind or solar power represents a complete decoupling from oil. This accelerating electrification reduces pressure on stockpiles — each EV on the road means one less barrel drawn from reserves during a crisis. For sectors that electrification cannot yet reach, coal-to-liquids and strategic stockpiles provide essential buffers. Together, the four layers form a coherent, half-century-long effort to systematically reduce dependence on imported oil.
Despite these long-term and persistent efforts, China is not immune to oil shocks. China imported 578 million tons of oil in 2025, and about 40 to 50 percent of its seaborne oil imports pass through the Strait of Hormuz. But the economy as a whole is less sensitive to each dollar increase in oil prices. Recent analysis from CNBC confirms that China can withstand oil price surges past $100 per barrel more easily than other countries due to these cumulative efforts.
What truly strengthens this framework, however, is that the energy transition does more than reducing emissions. It changes the strategic logic of dependence itself. The stockpiles buy time; the energy transition reduces the need for that time. As renewable capacity expands, electrification becomes more than a substitution strategy. It becomes a more genuine pathway toward energy independence, especially in transport, where EV adoption is already reshaping oil demand. In that sense, China’s green transition is not only an environmental project, but also a long-term security strategy that steadily reduces exposure to imported oil shocks.
At a time when some economies are backtracking on climate commitments and returning to fossil fuels, China’s experience demonstrates that the energy transition need not be a burden. On the contrary, it can enhance energy security while also opening new space for economic growth. In this sense, the energy transition has delivered a dual benefit: greater resilience and a dynamic new economic arena in which China now leads.
A long horizon, sustained policy determination and layered strategies have built something rare: a major economy that can absorb an oil shock with greater strategic depth than its import dependence would suggest. That is the payoff for five decades of preparation, and a lesson worth heeding.
Shi Xunpeng is a professor of energy and environmental economics and sustainability, the research principal at the Australia-China Relations Institute at the University of Technology Sydney, and the president of the International Society for Energy Transition Studies. Sun Xiansheng is the chair of the International Society for Energy Transition Studies Council and the former secretary general of the International Energy Forum.
The authors contributed this article to China Watch, a think tank powered by China Daily. The views do not necessarily reflect those of China Daily.
Contact the editor at editor@chinawatch.cn.
