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China state fund joins global shift away from coal

Hong Kong

ONE of China's largest state investment companies vowed to stop plowing money into new coal-fired plants, joining a global shift by financiers away from the polluting fossil fuel.

But while State Development & Investment Corp's withdrawal is in line with the country's broader ambition to use less coal and more cleaner fuels, it's far from marking a widespread shift away from the cheap and plentiful energy source that will provide the bulk of China's power for years to come.

In its battle against smog-filled skies, the world's biggest coal consumer is seeking to bolster use of natural gas and is spending more on renewable energy than any other country. But it's still pumping money at home and abroad into coal-fired generation, which will grow by 21 per cent before peaking in 2030, BloombergNEF said in its New Energy Outlook 2018.

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"China will continue to be a main coal consumer and investor in the coming decade" and it isn't retreating from the fuel, said Tian Miao, a Beijing-based analyst at Everbright Sun Hung Kai Co.

SDIC will no longer invest in new thermal power business, a Beijing-based spokesman said on Wednesday. He declined to comment on SDIC's plans for its existing thermal power assets, including coal-burning plants held by listed unit SDIC Power Holdings Co. The company sold all its coal mining assets to China National Coal Group in 2016.

Large investors and lenders are moving away from coal in growing numbers as public pressure to meet global climate targets gets stronger, particularly in developed economies. Banks including Standard Chartered, HSBC Holdings and Societe Generale SA have made pledges to stop providing capital for coal plants while Japanese lenders, among the biggest funders of coal projects, have also begun to shift towards more climate-friendly policies.

Consumption growth is now seen flat in the coming decades as most of the world's major economies promote cleaner fuels. But coal still remains a cheap and abundant source of supply and demand is growing in developing countries, notably in Asia. While the International Energy Agency sees a 0.5 per cent annual decline in China's consumption through 2023, it will still account for nearly half the world's total demand.

Still, SDIC's exit is "globally significant'' because it's the first Chinese domestic financier to announce a total withdrawal, according to the privately funded Institute for Energy Economics and Financial Analysis. Coal doesn't fit well with SDIC's investment portfolio, the fund's spokesman said. The company currently gets about 55 per cent of revenue from the financial sector, and all future energy investments will be in clean energy, he added.

"While the Chinese government encourages new investment in clean energy, thermal power generation will still dominate the nation's power mix," Jennifer Song, an analyst with Morningstar Inc, said by phone. "Renewable power is still unstable given insufficient grid connections." BLOOMBERG