The New Today

Commentary

Truth behind the false claims about the so-called “overcapacity” in China

Recently, some western politicians and media, out of political consideration, have been hyping up the so-called “new energy overcapacity” in China in order to testify their appeal for protectionism, which culminates in the US Government’s decision to impose more tariff on Chinese-made electric vehicles (EVs) , solar panels and so on.

This action shows that the US allows politics to override economic concerns, and it will lead up to a lose-lose result, which will disrupt the smooth operation of global supply chains, impede the international trade, and hold up the green transition of global economy.

The West’s verbal attack on the so-called “overcapacity” can be summarized into three points, and I will refute them one by one.

First, they claim that increases in exports equal “overcapacity” and China’s new energy products exceed global demand. This accusation is built on false logic and ignores more than 200 years of the basic concept of comparative advantage in western economics.

All countries produce and export products of their comparative advantage and this is the nature of international trade. If a country should be accused of “overcapacity” and asked to cut capacity whenever it produces more than its domestic demand, then what would countries trade with?

China’s “New Three”, namely, electric vehicles, lithium-ion batteries and photovoltaic products, have become popular all over the world in the past two years, achieving rapid growth in exports, whereas the proportion of China’s new energy product exports is not high.

Take the new energy vehicles (NEVs) for example, China produced 9.587 million NEVs in 2023, and exported 1.203 million vehicles, accounting for only 12.7%. If this is called “overcapacity”, then what about Germany, Japan and the US who export 80, 50 and 25 percent respectively of their automobiles?

Addressing climate change is a common task for all humankind, and this relies on the transformation to green development. From the perspective of the global market, the current new energy production capacity is far from meeting market demand. In particular, many developing countries have huge potential demand for new energy, including Grenada.

According to the International Energy Agency, global demand for new energy vehicles will reach 45 million units in 2030, more than 4 times that of 2022, and global demand for new photovoltaic installed capacity will reach 820 gigawatts, approximately 4 times that of 2022.

Far from being excessively produced, there is an actually massive shortage of new energy products in the global market.

Second, they claim that China is hurting other countries’ industrial development and employment by “dumping” products at a low price. Dumping means exporting products at a price lower than their production costs.

The fact is China’s “New Three” industries are profitable, indicating that these products are not sold at a price below the normal value of such products. Actually, they are sold for much higher in overseas markets than at home. The average selling price of China’s leading electric cars in Europe is about twice as much as in China.

Chinese new energy companies have always pursued mutual benefit, win-win results, and common development as they export products to meet the needs of the global market, build factories overseas to stimulate investment, create employment, and energise industries.

Chinese leading NEVs enterprise BYD is building a NEVs production base in Hungary, which is expected to create thousands of local jobs; in Thailand, Chinese vehicle companies are building factories with a planned total investment of more than 1.4 billion USD. China also cooperates with more than 100 countries and regions on green energy projects, improving the electricity availability and cutting the cost.

Over the past decade, the average cost of global wind power and photovoltaic power generation has dropped by more than 60% and 80% respectively. A large part of this is attributed to Chinese innovation, manufacturing, and engineering. This is high-quality production capacity rather than “overcapacity”.

Third, they claim that China’s advantage in green energy predominately benefited from the subsidies of the Chinese Government, and is thus “unfair competition”. As for subsidies, they are a global market tool and are not the unique advantages of China’s new energy industry.

At the early stage of the NEV industry, the Chinese government provided partial tax incentives and subsidies to the start-ups. However, starting from 2016, China had gradually lifted subsidies for NEVs, and officially phased out the government subsidy by the end of 2022.

Conversely, western countries, including the US, the UK, and France, have already implemented robust subsidy policies for NEVs. For instance, the US has subsidised the sales of NEVs in the form of tax credits since 2010.

In 2022, the U.S. government passed the Inflation Reduction Act to provide approximately US$369 billion in tax incentives and subsidies for the clean energy industry, including electric vehicles, and intentionally excluded companies from countries such as China to benefit from it.

Many European countries have also implemented subsidies for the electric vehicle industry in areas ranging from corporate taxation to personal purchases. The “subsidy advantage theory” of overcapacity is simply untenable.

That said, why was this “overcapacity paradox” fabricated? It is essentially another variant of the “China threat theory” just like the West has always been propagating. The core of these false claims lies in competitiveness, but not production capacity.

Some western countries are worried that Chinese companies are becoming increasingly competitive, which challenges their dominant position in related fields. Their purpose is to curb the scientific and technological development and industrial upgrading of developing countries represented by China, maintain the global economic hegemony by unfair means, and find pretext for the implementation of trade protectionism. The world would not buy it.

All countries are in a community of shared-interests that are interdependent and integrated. Openness, inclusiveness and win-win cooperation are the only correct choices. China has been and will always be open to industrial cooperation, and stands ready to work together with other countries, including Grenada, to make new energy products more attainable and affordable so as to create a greener and more sustainable world.

Therefore, we hope all countries could keep an open mind, embrace fair competition, contribute to a world-class, market-oriented and law-based environment for trade and economic cooperation, and work for a universally-beneficial and inclusive economic globalisation.

Ambassador Wei Hongtian is the resident Chinese diplomat to St George’s, Grenada