China has become the world’s leading innovator in renewable energy technologies, accounting for 85% of global new patents in 2023 (up from 15% in 2009). This paper examines how China’s hybrid system—state-owned electricity enterprises dominating downstream and private firms manufacturing upstream equipment—has facilitated this transformation. National renewable energy targets, enforced through career incentives for SOE managers, create strong and predictable downstream demand that stimulates upstream innovation. Using global supplier–customer pair-level data, we show that revenue growth among Chinese downstream customers is significantly associated with their suppliers’ subsequent patenting. This effect is absent for non‑Chinese customers but stronger among those politically aligned with the central government. Exploiting the 2022 clearance of feed‑in tariff subsidy arrears to electricity firms as a demand shock provides causal evidence. Direct subsidies to suppliers have no significant effect, whereas subsidies to fast‑growing downstream customers do. Finally, this arrangement also leads to overinvestment and excess capacity among suppliers.

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