China’s New Hydrogen Push Could Be a Step Towards Cleaner Steel

Why It Matters

The initiative could unlock a critical emissions‑reduction pathway for China’s steel sector, the world’s largest source of industrial CO₂, while shaping the global market for green hydrogen and low‑carbon steel.

Key Takeaways

• China allocates CNY 8 bn (~$1.2 bn) for hydrogen projects over four years
• Target hydrogen price aims for CNY 25/kg (~$3.6) by 2030
• Pilot city clusters receive up to CNY 1.6 bn (~$232 m) each
• Baowu’s hydrogen DRI‑EAF line adds 1 Mt capacity, backed by $1.5 bn investment
• Green steel demand remains domestic‑focused; exports only 10,000 t so far

Pulse Analysis

China’s latest hydrogen push builds on its 2022 long‑term plan, shifting focus from fuel‑cell vehicles to heavy industry. By rewarding city clusters that meet hydrogen production and usage targets, the government hopes to create a scalable supply chain for green hydrogen. The subsidy envelope—CNY 8 bn (~$1.2 bn) over four years—is modest compared with past EV support, but the reward‑based design is intended to curb fraud and attract private capital. A key policy lever is the price target of CNY 25 per kilogram by 2030, which would make hydrogen competitive with natural‑gas‑based feedstocks for steel.

In the steel sector, hydrogen‑based direct‑reduced‑iron (DRI) combined with electric‑arc furnaces (EAF) offers the most mature route to near‑zero emissions. Baowu’s million‑tonne DRI‑EAF line in Zhanjiang and HBIS’s plant in Zhangjiakou demonstrate the technical feasibility, yet production costs remain double those of traditional blast furnaces. Green hydrogen today costs CNY 21‑46/kg (~$3‑7), well above the CNY 10‑15/kg needed for fully competitive metallurgy. Infrastructure gaps, especially long‑distance hydrogen pipelines, are being addressed through projects like Baowu’s CNY 11.9 bn (~$1.5 bn) Yangjiang hub, but the economics still rely on further cost declines and stable renewable electricity supply.

Demand-side dynamics add another layer of complexity. China produces roughly 960 Mt of crude steel annually, but overcapacity of 50‑250 Mt by 2035 threatens market balance. While exports have risen, green steel shipments remain marginal—only about 10,000 t sold abroad so far—highlighting the need for domestic buyers to value low‑carbon products. Without a robust internal market, subsidies alone cannot sustain the transition. The convergence of cheaper hydrogen, supportive policy, and genuine steel‑buyer demand will determine whether China can turn its hydrogen pilot into a commercial engine for cleaner steel worldwide.