Since the beginning of this year, the heat pump concept has attracted market attention, driven by the catalyst that ongoing conflicts in the Middle East continue to push up European energy costs. Market analysis suggests that the European Union is planning to introduce a series of policies and financing schemes to accelerate the electrification of its economy and promote the replacement of gas boilers with electrically driven heat pumps in households.
Earlier in March, as the US-Iran situation disrupted the global LNG trade chain and TTF natural gas futures prices surged by 76% compared to pre-war levels, Guotai Haitong Securities released a research report pointing out that if geopolitical conflicts trigger another upward breakthrough in natural gas prices, the heat pump sector is expected to usher in a new round of market rally. The sense of capital markets often precedes the pulse of the industry — as the "use of heat" begins to be repriced, heat pumps have moved from a niche track to the center of the stage.
At the policy level, since 2025, the heat pump industry has also entered a period of intensive policy catalysts. The introduction of a series of top-level documents is pushing heat pumps from an "optional solution" to "mandatory equipment."
In March 2025, the National Development and Reform Commission (NDRC) and five other departments jointly issued the Action Plan for Promoting High-Quality Development of the Heat Pump Industry (Fa Gai Huan Zi [2025] No. 313), explicitly proposing to improve energy efficiency levels by more than 20% by 2030.
In March 2026, the Ministry of Industry and Information Technology (MIIT) and three other departments jointly issued the Implementation Plan for the High-Quality Development of Energy-Saving Equipment (2026-2028), listing industrial heat pumps as one of the six key types of energy-saving equipment. It explicitly proposed enhancing the supply capacity of high-power heat pumps in the industrial sector and accelerating the R&D of products such as transcritical CO2 heat pumps and high-power high-temperature heat pumps.
In June, the NDRC, together with relevant departments, issued the Notice on Carrying Out the Three-Year Action for Tackling Energy Conservation and Carbon Reduction Transformation in Key Industries (Fa Gai Huan Zi [2026] No. 698), incorporating heat pumps into the recommended catalog for upgrading energy-using equipment in nine major high energy-consuming industries. Eligible projects can receive central government funding subsidies of up to 20% of the approved total investment.
In August, the Ministry of Commerce and other departments further promoted green and smart products to the countryside, sinking channels to counties and townships, and shifting the battlefield for heat pump renewal from the "coal-to-electricity" program in the north and urban complexes to the stock replacement market in counties.
01. What is a Heat Pump
Simply put, a heat pump is a "heat porter." It does not directly burn fuel to generate heat; instead, it utilizes the reverse Carnot cycle principle, using electrical energy to drive a compressor, to "transport" thermal energy from low-temperature heat sources such as air, water, or soil to the high-temperature end, providing downstream heating, cooling, and hot water services.
To understand it vividly, it is like a refrigerator running in reverse — a refrigerator moves heat from the inside to the outside, while a heat pump moves heat from the outside to the inside. Since it mainly consumes electrical energy to drive the compressor rather than generating heat directly, the energy efficiency ratio (EER) of a heat pump can reach 3 to 6, which is more than three times that of traditional electric heating equipment, and under suitable working conditions, its efficiency is three to five times higher than that of fossil fuel boilers.
Classified by low-grade heat sources, heat pumps are mainly divided into three major categories:
Air-source heat pumps extract heat from the outdoor air and are the absolute mainstay of the current market, accounting for about 58.4% of the global heat pump market share. They are the most flexible to install and are the standard equipment in the "coal-to-electricity" clean heating transformation in the north. Domestic brands have achieved stable operation in low-temperature environments of -25℃.
Water-source and ground-source heat pumps absorb ground or water temperature through pipeline systems buried underground or in water bodies. With stable heat exchange efficiency, they are widely used in large public buildings and commercial complexes. In 2025, the global market size for water-source and ground-source heat pump units was approximately USD 8.73 billion, a 42.6% increase from 2020.
Waste heat source heat pumps specifically recover waste heat resources such as industrial wastewater, exhaust gas, and waste heat from air compressors, converting them into high-temperature hot air, hot water, or steam required for production. This is a key technological path for industrial decarbonization. Currently, the global sales scale of the high-temperature industrial heat pump market is about CNY 7 billion, and it is expected to reach CNY 10.35 billion by 2033, with a compound annual growth rate of about 5.7%.
Heat pump units mainly consist of a compression and expansion system, a heat exchange system, an electronic control system, a piping system, and auxiliary systems. Among them, the compressor is the "heart," accounting for about 30%-40% of the cost; the heat exchanger (evaporator and condenser) accounts for about 20%; and the controller accounts for about 10%.
From the perspective of the industrial chain, the heat pump industry covers three major links: upstream core components, midstream complete machine manufacturing, and downstream applications and services. The upstream mainly includes the production of key components such as compressors, heat exchangers, controllers, and four-way valves, and the technical level directly affects the performance and energy efficiency grade of the complete machine. The midstream consists of heat pump host manufacturing enterprises, responsible for system integration and product design. The downstream involves multiple application scenarios such as residential, commercial buildings, agricultural drying, and industrial high-temperature heating, and extends to supporting links such as installation, commissioning, operation, and maintenance services.
Notably, the localization rate of core heat pump components in China has risen from 55% in 2020 to 71% in 2025, the localization rate of heat exchangers has exceeded 68.2%, and the import dependence of compressors has dropped to 32.5%. China is a major global production base for rotary compressors, but high-end segments such as high-pressure scroll compressors and large-scale centrifugal heat pump compressors still partially rely on imports. Achieving independent control in high-end segments remains a key issue for industrial upgrading.
02. Why This Plan is Important
Behind the intensive policies for the heat pump industry is a strategic response to two key transformation mainlines.
The first mainline is building electrification under the carbon neutrality target. The International Energy Agency's Heat Pumps Monitoring 2026 shows that currently, heat pumps still meet less than 15% of global building heating demand, and are still in their infancy in the industrial and district heating fields, leaving huge room for substitution. The EU has set a strategic target of reaching 60 million heat pumps in stock by 2030, while the stock in 2024 was only 25.537 million units, leaving a gap of over 34 million units. The compound growth rate from 2024 to 2030 is expected to reach 15.3%.
Domestically, the "coal-to-electricity" clean heating transformation in the north continues to advance. Equipment subsidies for air-source heat pumps in various regions generally range from CNY 2,000 to CNY 4,800 per household. Coupled with off-peak electricity price operation subsidies, a dual support model of "equipment subsidy + operation electricity price subsidy" has been formed. The aforementioned six-department action plan has explicitly stated "comprehensive diagnosis of heat pumps in operation for over 10 years and the elimination of low-efficiency equipment in accordance with the law and regulations." The green and smart products to the countryside policy promoted by multiple departments further sinks the stock replacement demand to the county-level market.
The second mainline is the low-carbon transformation of industrial thermal power. The industrial sector is the main battlefield for energy consumption in China, with about 80% of industrial thermal consumption coming from fossil fuels. Medium and low-temperature heat use (below 200 degrees Celsius) accounts for 20% of the total industrial heat demand, and low-carbon heating technologies in this temperature range are relatively mature. In 2026, the maturation of high-temperature heat pump technology (>120℃) and the realization of direct steam supply capabilities have completely opened up the hundred-billion-level stock substitution market for industrial steam. The Industrial Heat Pump Case Study, completed jointly by the Heat Pump Committee of the China Energy Conservation Association and the Natural Resources Defense Council, shows that compared with traditional fossil energy heating methods, industrial heat pumps can achieve a 20%-80% emission reduction, with an investment payback period of about 0.78-7 years, and the shortest being less than one year. The Notice on Carrying Out the Three-Year Action for Tackling Energy Conservation and Carbon Reduction Transformation in Key Industries explicitly requires that all provinces must submit a list of transformation projects by the end of July 2026, striving to increase the proportion of production capacity at the benchmark level of energy efficiency in key industries by an average of 20 percentage points by the end of 2028, and basically clearing out production capacity below the benchmark.
From the perspective of policy design, this round of heat pump policies presents several distinct characteristics: First, shifting from single subsidies to standard leadership. GB19577-2024 has unified and replaced four old standards, raising the energy efficiency access threshold for various heat pump products. Second, expanding from the building sector to the industrial sector, explicitly encouraging the expansion of heat pump applications in industries such as petrochemicals, textile printing and dyeing, food processing, papermaking, pharmaceuticals, and building materials. Third, extending from complete machine promotion to the construction of the entire industrial chain capacity, listing technological breakthroughs in core components such as compressors, heat exchangers, and controllers as key directions. Fourth, extending from central top-level design to county-level channel implementation, with multiple departments promoting green and smart products to the countryside, shifting the scenarios for heat pump renewal from urban complexes to township health centers, nursing homes, and characteristic homestays.
03. Demand Side: High Prosperity in Exports, Structural Differentiation in the Domestic Market
In the following data, exports are based on the full category caliber of heat pumps, while domestic sales are based on the caliber of air-source heat pumps.
Exports are currently the strongest growth engine for the heat pump industry. Data from the General Administration of Customs shows that in the first half of 2026, China's export volume of heat pump-related products and components reached CNY 11.304 billion, a year-on-year increase of 30.3%. Among them, exports to 21 European countries amounted to CNY 4.696 billion, a substantial year-on-year increase of 51.0%, with Europe firmly sitting as the largest export market. Performance in June alone was particularly outstanding, with heat pump exports reaching USD 482 million, a year-on-year increase of 65.1%, export volume increasing by 53.8% year-on-year, and the average product price rising by 5.2% year-on-year. In the first half of the year, China's heat pump exports to the EU reached USD 920 million, a year-on-year increase of 72%, with Poland, Germany, and France leading the demand growth in European countries. Although the export growth rate fell back somewhat in July, the single-month export volume still reached CNY 1.97 billion, a year-on-year increase of 46.9%. From January to July, cumulative exports reached CNY 13.274 billion, a year-on-year increase of 32.5%, and exports have maintained growth for 27 consecutive months.
From the perspective of export destination structure, the trend of diversification is accelerating. From January to May 2026, the combined export volume of the three major categories — air-source heat pumps, ground-source heat pumps, and electric energy storage heating equipment — reached USD 4.73 billion, a year-on-year increase of 18.6%. Among them, the proportion of exports to the European market fell from 41% in 2025 to 41.2%, while the combined proportion of emerging markets in Southeast Asia, the Middle East, and South America jumped to 33.7%. The average export price has also increased significantly. The average export price of air-source heat pump complete machines increased from USD 486 per unit in 2023 to USD 612 per unit in 2026, an increase of 25.9%, mainly benefiting from the comprehensive popularization of inverter technology, low-noise fans, and R290 environmentally friendly refrigerants.
In the domestic market, in the first quarter of 2026, domestic sales of air-source heat pumps were CNY 3.85 billion, a year-on-year decrease of 1.9%. The overall domestic sales market is still in a period of phased adjustment affected by the withdrawal of central subsidies. However, structural highlights are prominent: the demand for industrial heat pumps is rapidly released, and benchmark projects in industries such as food processing, pharmaceuticals, and brewing have been successively landed; the county-level stock replacement market is opening up with the implementation of multi-department policies to the countryside, and the demand for combined cooling and heating in scenarios such as township health centers, nursing homes, and agricultural supermarkets is gradually increasing. According to industry statistics, the output value of the heat pump industry grew from CNY 10.322 billion in 2013 to CNY 30.63 billion in 2024, achieving nearly three-fold growth in more than ten years.
04. Supply Side: Increasingly Complete Industrial Chain, Accelerating Concentration of Competition Pattern
The global heat pump market size continues to expand. In 2025, the global heat pump unit market size was approximately USD 68.7 billion, a 14.2% increase from 2024, maintaining double-digit growth for three consecutive years, of which the European market contributed 38.5% of the total global demand. The scale of the Chinese market is expected to reach USD 16.87 billion in 2026, and is expected to increase to USD 20.91 billion by 2031, with a compound annual growth rate of about 4.4%.
In terms of the competitive landscape, the top ten global heat pump manufacturers in 2025 collectively accounted for 58.3% of the market share, an increase of 7 percentage points from 2020. Daikin leads with a market share of over 11.5%, and the top five enterprises (Daikin, Mitsubishi Electric, Midea, Carrier, Bosch) collectively account for about 37%. In the Chinese market, the trend of increasing concentration is significant. According to industry statistics, in 2025, Haier Group ranked first with a 10% share, followed by Midea Group with 8%, while Gree Electric and Micoe each accounted for about 7%. There is no single brand with a share exceeding 10%.
The competitive landscape presents a situation of confrontation between "home appliance giants" and "professional brands." Home appliance enterprises such as Midea, Haier, and Gree dominate the household market by virtue of channel advantages and brand influence. Professional brands such as Micoe and Phnix have established differentiated advantages in segmented fields such as industrial heat pumps and commercial hot water. In the field of industrial high-temperature heat pumps, system integrators such as Welle Environmental and Nuotong Technology are also accelerating their layout, and benchmark projects such as Budweiser and Tushan Pharmaceutical have been successively landed. Enterprises are strengthening their cost advantages and supply chain independent control capabilities through vertical integration of core component links such as compressors.
Looking ahead, the heat pump industry has two clear growth paths.
In the short term, the continuation of export prosperity resonates with sector catalysts. The inventory digestion cycle of heat pumps in Europe has basically ended. The situation in the Middle East continues to disrupt global energy supply, and the policy signals of the EU accelerating its electrification transformation are constantly strengthening. Export momentum is transmitting from complete machines to core components, and upstream links such as compressors, controllers, and valves are expected to benefit first. On September 10, the contrarian surge of some individual stocks in the sector in a weak market was precisely the market's concentrated pricing of this logic.
In the medium to long term, industrial heat pumps open up a new growth pole. The market volume of medium and low-temperature industrial heat use far exceeds that of building heating. With the maturation of high-temperature heat pump technology and the accumulation of demonstration projects, the substitution space in industries such as petrochemicals, food, textiles, and papermaking will be gradually released. QYResearch data shows that China is the world's largest industrial heat pump market, accounting for about 40% of the market share. By the end of 2028, with the conclusion of the three-year action for tackling energy conservation and carbon reduction transformation in key industries, the proportion of production capacity at the benchmark level of energy efficiency is expected to increase by an average of 20 percentage points, and the industrial heat pump track will usher in a window period for concentrated volume release.
The heat pump industry is at a critical stage of transitioning from policy-driven to market-driven. Building electrification provides a stable basic market, industrial decarbonization opens up a larger incremental space, and high export prosperity provides a strategic window for domestic brands to participate in global competition. Returning to the capital market, the short-term fluctuations of the sector will ultimately return to the industrial fundamentals — when heat pumps change from a "concept" to "incremental demand," the story of the market rally truly begins.
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