China's dominance in key green technologies—solar panels, EV batteries, and rare earth processing—is not a matter of chance, but the result of a deliberate, long-term, and state-driven industrial policy.

While the U.S. and Europe have focused on market-based approaches and clean energy goals, China's government has strategically built an end-to-end supply chain, from raw materials to final products.

This has created a level of self-sufficiency and scale that Western nations, with their decentralized, private-sector-led models, have been unable to match.

The "Whole-of-Nation" Strategy

China’s success in these sectors is a prime example of its "whole-of-nation" approach to strategic industries. The government identifies a sector as critical for national security, economic growth, or geopolitical leverage, and then uses every tool at its disposal to achieve dominance. This stands in stark contrast to the U.S. and Europe, where market forces and private companies have traditionally driven development.

1. Solar Panels: A Story of Subsidies and Scale

For over a decade, China has systematically captured the global solar panel supply chain. This dominance is explained by:

• Massive State Subsidies: The Chinese government offered generous subsidies, low-cost loans from state-owned banks, and tax breaks to solar panel manufacturers. This allowed Chinese companies to invest heavily in new production facilities and undercut foreign competitors on price. European and American companies, unable to compete with the subsidized prices, were forced out of business or acquired, leading to the "de-industrialization" of the solar sector in the West.

• Economies of Scale: By concentrating production in specific regions and building massive, vertically integrated factories, China achieved unparalleled economies of scale. A single Chinese factory can produce more solar panels than the entire manufacturing capacity of some European countries. This scale drives down costs and creates a self-reinforcing cycle: low prices lead to high demand, which in turn justifies even larger factories.

• Vertical Integration: China's dominance extends to every stage of the solar value chain, from raw polysilicon to final modules. This includes the energy-intensive processing of polysilicon, where China has leveraged its cheap, often coal-fired, electricity to gain a cost advantage. As a result, even if a U.S. or European company wants to assemble a solar panel, it is highly likely that the components were processed in China.

2. EV Batteries: Securing the Supply Chain from Mine to Market

China's leadership in EV batteries is not just about manufacturing, but about controlling the entire supply chain for critical minerals.

• Upstream Control: China's strategy began by securing access to raw materials like lithium, cobalt, and graphite. Chinese state-owned enterprises and private companies have invested billions of dollars to acquire stakes in mines and processing facilities around the world, particularly in Africa and South America. For example, Chinese firms control a significant portion of the world's cobalt production in the Democratic Republic of Congo. This strategic foresight has given China a chokehold on the materials essential for battery production.

• Dominance in Refining and Processing: While other countries may have mineral deposits, China has built over 90% of the world's refining and processing capacity for minerals like graphite and rare earths. Processing these materials is often a complex and environmentally intensive process, and China has shouldered these burdens for decades, allowing the U.S. and Europe to cede this part of the supply chain.

• Technological and Manufacturing Leadership: Companies like CATL and BYD have become global leaders in battery technology and production. This has been supported by massive government subsidies and a huge domestic market for electric vehicles. China’s government has provided direct subsidies to consumers and mandated the use of domestic battery technology, creating a thriving market that has allowed its companies to innovate and scale at a rapid pace.

3. Rare Earths: A Geopolitical Lever

China's dominance in rare earth processing is perhaps the most strategic of all, as these minerals are essential not only for clean energy technologies but also for defense, aerospace, and high-tech electronics.

• Environmental Ceding: In the past, the U.S. and other nations had rare earth mines, but they shut down due to the high environmental costs and complexities of processing. China, with its more lax environmental regulations and willingness to absorb the costs, stepped in to fill the void. This allowed it to build an unrivaled processing capacity over decades.

• Strategic Consolidation: The Chinese government has consolidated its rare earth industry into a handful of state-owned entities. This gives Beijing unprecedented control over production volumes, prices, and exports, allowing it to use these resources as a geopolitical tool. The 2010 rare earth embargo on Japan during a territorial dispute served as a stark warning to the world of China's willingness to weaponize its supply chain dominance.

The Western Struggle and Response

The U.S. and Europe are now acutely aware of their vulnerability. The reliance on Chinese imports creates a significant national security risk and complicates their own climate goals. Both regions are attempting to reverse this trend with major industrial policies of their own, such as the Inflation Reduction Act (IRA) in the U.S. and the EU Chips Act and Critical Raw Materials Act in Europe.

However, catching up will be a monumental challenge. The U.S. and Europe face significant hurdles, including higher labor and energy costs, stricter environmental regulations, and the need to build a new workforce and supply chain from scratch. While these new policies are a start, China’s decades-long head start in the fundamental building blocks of the green economy means that the West will likely remain dependent on Chinese imports for the foreseeable future.