How Electric and Plumbing Work Is Reshaping China's Aluminum Industry — Interpreting the Benefits of the Southwest Capacity Shift

As global manufacturing capacity continues to flow outward, China is undertaking an unprecedented “internal migration.” Over the past five years, approximately 13 million tons of electrolytic aluminum capacity have shifted from traditional aluminum hubs like Shandong, Henan, and Xinjiang to southwestern regions such as Yunnan and Sichuan. This industry relocation, involving hundreds of billions in investment, is fundamentally a strategic layout centered around hydropower resources. Through deepening hydropower development, the southwestern region is becoming China’s new growth pole for the aluminum industry.

From Black Growth to Green Breakthrough — The Necessity of Industry Shift

Over the past three decades, China’s aluminum industry has risen thanks to abundant northern coal resources. Leading companies like Weiqiao in Shandong and Shenhuo in Xinjiang, relying on self-owned thermal power plants and cheap coal electricity, have supported the world’s largest aluminum capacity. But this coal-dependent growth model is facing unprecedented challenges.

What is electrolytic aluminum? Simply put, it is aluminum extracted via electrolysis from alumina. Producing one ton of electrolytic aluminum consumes an average of 13,500 kWh of electricity—equivalent to the annual electricity use of a three-person household for 5-6 years. This means electricity costs account for over 40% of total production costs. How significant is this? In Shandong, producing one ton of aluminum with coal power costs about 5,400 to 5,700 yuan in electricity. In Yunnan, thanks to abundant hydropower, the same ton can cost only 4,300 to 4,700 yuan—nearly 2,000 yuan less.

For large aluminum enterprises producing hundreds of thousands of tons annually, this cost difference translates into tens of billions of yuan in annual profits. But cost isn’t the only driver behind this industry shift.

Greater pressures come from international markets and environmental policies. The EU’s Carbon Border Adjustment Mechanism (CBAM) has officially been implemented, meaning products with high carbon emissions will face “carbon tariffs.” Domestically, China’s “dual carbon” goals are clear—peak carbon by 2030 and carbon neutrality by 2060. Data shows that aluminum produced with coal power emits up to 12.61 tons of CO₂ per ton, whereas water-powered aluminum in Yunnan emits only 1.57 tons—almost an eightfold difference. This isn’t just about competitiveness; it’s about market access. Coal-powered aluminum is gradually losing its edge in international markets.

Thus, an unprecedented “green transformation wave” is sweeping through the aluminum industry. By 2025, nearly all of China’s top aluminum companies will participate. Weiqiao in Shandong announced plans to relocate several million tons of capacity to Wenshan, Yunnan, aiming for an annual capacity of 4 million tons by 2025; Xinjiang Shenhuo, Henan Shenhuo, and China Aluminum Group are also expanding new capacities in Yunnan. This migration is driven by necessity but also strategic.

Hydropower Empowering the Southwest — Triple Gains in Economy, Environment, and Strategy

What does this industry shift mean for southwestern China? The answer involves three key benefits.

Economic benefits are the most direct. Historically, Yunnan and Sichuan possessed world-class hydropower resources like the Lancang and Jinsha Rivers but faced the dilemma of “excess electricity with nowhere to absorb it”—floodwaters often wasted during high water seasons. The entry of electrolytic aluminum industries has completely changed this situation. The advancement of hydropower projects has turned these “wasted” waters into tangible economic value. By 2025, Yunnan’s green aluminum industry is projected to reach nearly 200 billion yuan in output value. Cities like Wenshan, Honghe, and Qujing have prospered due to aluminum, attracting related industries such as carbon anodes, electrolytic cells, logistics, and deep processing, forming a complete upstream-to-downstream aluminum industry chain.

Yunnan’s local aluminum company, Yunnan Aluminum, has already achieved an integrated water-electricity-aluminum layout driven by hydropower. Leveraging abundant water resources, its electrolytic aluminum costs are among the lowest nationwide, with the lowest carbon emissions. By 2025, over 87% of its capacity will be water-powered, far above industry averages, making it a leading green aluminum producer domestically.

Environmental benefits are equally significant. China’s electrolytic aluminum’s carbon intensity has decreased by 38% over the past decade, with the proliferation of water-powered aluminum being a key factor. By 2025, China’s aluminum exports will reach 6.134 million tons, covering over 200 countries and regions. Without this southwestern shift, these exports would likely face competitiveness issues under the EU’s CBAM. More critically, China is promoting international certification standards for “green electricity aluminum,” aiming to shape global discourse. This isn’t just about selling products; it’s about exporting “standards” and “rules,” which will profoundly influence the future landscape of the global aluminum industry.

Strategic benefits are the deepest consideration. Electrolytic aluminum is a strategic material crucial for aerospace, new energy vehicles, rail transit, and defense equipment. Moving high-end capacity to Southeast Asia could risk supply chain disruptions if geopolitical conflicts escalate. Through this internal migration and hydropower development, China not only preserves a complete industry chain but also achieves technological upgrading and green transformation.

Reshaping the Global Competitive Landscape — The “Moat”

The deeper significance of this shift is that China is currently the only country with a complete industry chain from bauxite mining to high-end aluminum products—something the U.S., Europe, and Japan lack. This is one of China’s most critical industrial “moats.”

Yunnan and Sichuan, through hydropower development, are becoming the most fortified segments of this moat. Rich water resources, reduced production costs, and significantly lower carbon emissions make southwestern electrolytic aluminum not only economically competitive but also environmentally and strategically secure.

This capacity shift ultimately redefines China’s aluminum industry map and, more importantly, in the context of new energy constraints and climate change, reestablishes the standards for “high-quality manufacturing.” While the world is still vying for low-end manufacturing capacity, China has already achieved green, efficient, and secure upgrades in core heavy industries through water power and strategic industry layout. This is the true grand strategy.