China is rapidly gaining dominance in the fast-growing, global renewable energy market, as state-owned companies make massive overseas investments to secure the country's leadership.

Countries such as the United States and Canada need a clear and aggressive strategy in the battle for the manufacturing and services businesses that support renewable energy, which is now outpacing fossil-fuel investment in the power sector, says a report from Australia's Institute for Energy Economics and Financial Analysis (IEEFA), an independent think tank that tracks global energy markets.

Last year, Chinese firms invested a record $32-billion (U.S.) in overseas renewable energy and electricity transmission assets, including a $13-billion acquisition by China's State Grid Corp. of Brazil's CPFL Energia SA, an electricity generation and distribution company, and Tianqi Lithium's $2.5-billion purchase of Chile's Sociedad Quimica y Minera (SQM), a major lithium producer.

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In the domestic market, Chinese companies invested $103-billion in renewable energy and associated low-emission technologies – a 17-per-cent increase over 2015 and two and a half times the amount spent in the United States which was the second leading investor in the renewable sector, said the IEEFA report, which is being released Friday.

It notes the International Energy Agency forecast last year that, between 2015 and 2021, China will account for 36 per cent of all hydroelectric capacity growth, 40 per cent of wind and 36 per cent of solar capacity growth. Bloomberg New Energy Finance forecasts the world will invest $7.8-trillion in renewable power over the next 25 years, compared to $2.1-trillion in fossil-fuel electricity.

"The U.S. is already slipping well behind China in the race to secure a larger share of the booming clean-energy market," IEEFA's Tim Buckley said. "With the incoming [Trump] administration talking up coal and gas, prospective domestic policy changes don't bode well."

Improving technology and declining costs – as well as climate-change policies – are driving investment in renewable energy sources, primarily in electricity but also in electric vehicles and efficiency technology, he said. "This is a technological shift that is unstoppable," he said in an interview, though he acknowledged that government policy can affect the pace of change.

Canada has fallen behind in the global market for manufactured parts for the renewable-energy sector. It will have to have a clear strategy to meet the challenge of China, or import an ever-increasing share of the high-value technology, Mr. Buckley said. That includes harnessing government-backed financial institutions to support exports.

The increasing dominance of China in the supply chain could create a disincentive for the United States and other countries to aggressively pursue renewable-energy options because the effects on employment would be muted if many of the parts must be imported. President-elect Donald Trump is also threatening to impose tariffs on many imports into the United States, which would drive up the cost of renewable-power components.

Mr. Buckley said Beijing is pursuing a clear strategy to dominate in emerging energy technologies, just as it cornered the market on rare earth minerals, which include critical elements for batteries and other high-tech applications. Its companies are backed by Chinese development banks.

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Five of the six largest solar panel makers are Chinese. Half of the top 10 wind turbine makers are based in China, with Xinjiang Goldwind Science & Technology Co. Ltd. overtaking Denmark's Vestas Wind Systems A/S in 2015 as the world's largest turbine manufacturer.