CHINESE investors see potential for further gains in companies making equipment needed to produce or use green hydrogen, a clean energy source most governments are betting will help them meet mid-century climate targets.

The sector has so far offered a haven from regulatory actions on technology and education companies that the government blames for exacerbating inequality and increasing financial risk. As China tightens oversight, industries driving growth through innovation and technology are seen gaining support.

“Hydrogen power is one of the ultimate solutions to achieve net-zero emissions,” said Li Weiqing, fund manager at JH Investment Management, which purchased shares of Shanghai-listed LONGi Green Energy Technology Co. due to the company’s hydrogen investments. The sector will get “heavy policy support.”

Although a surge in hydrogen-related stocks earlier this month that buoyed shares of companies like fueling-station equipment maker Houpu Clean Energy Co. and fuel cell engine maker Zhongshan Broad Ocean Motor Co. has leveled off, there remains plenty of upside potential, according to Li.

Government support for green hydrogen isn’t likely to come through direct central government subsidies, according to Wang Xiaoting, a BloombergNEF analyst based in San Francisco, who cited the high cost of that approach. Rather, China will support large State-backed firms developing the energy.

However, the sector is benefiting as local governments, including Beijing and Inner Mongolia, introduce strategies aimed at cultivating green hydrogen firms to show compliance with net-zero targets.

China will account for about two-thirds of the world’s electrolyzers, the equipment used to produce hydrogen by separating water, by the end of 2022, according to BloombergNEF.

(SD-Agencies)