Excess or Shortage? — the "overcapacity" smear against China must stop now-Xinhua

Excess or Shortage? — the "overcapacity" smear against China must stop now

Source: Xinhuanet

Editor: huaxia

2024-06-13 09:24:19

by Xin Ping

Since U.S. Treasury Secretary Janet Yellen's visit to China in April, the term "overcapacity" has gained significant traction in Western media, making its way to quite a number of headlines. Is China truly having an excess of new energy production capacity, or is there a slander agenda at play? 

Before any serious discussion on this issue, it is crucial to understand the concept of overcapacity. Overcapacity is typically defined as a situation where an industry's production capacity significantly exceeds the demand for its products. In the context of China's new energy sector, the country does produce more products in some aspects than its Western trading partners. However, it is misguided to simplistically equate that to overcapacity. The dynamics of the global new energy product market must be taken into account.

Misinterpretation of Capacity and Demand

In chemistry, equilibrium is dynamic. According to Le Chatelier's principle, if a system in equilibrium is disturbed, it will adjust to counteract the change. Similarly, in economics, the relationship between supply and demand is in a constant state of dynamic balance. Some Western politicians claim that China's production capacity for new energy products, including the "new trio", namely electric vehicles, lithium-ion batteries, and photovoltaic products, has surpassed global market demand. But is that really the case?

According to the latest estimates from the International Energy Agency (IEA), by 2030, the global demand for new energy vehicles is projected to reach 45 million units. This is three times the global sales in 2023 and five times China's production capacity. However, the surge in demand will not only be limited to electric vehicles; there is also a need for the global supply of new energy batteries to catch up. The IEA predicts that by 2030, the demand for new energy batteries will skyrocket to 3,500 GWh, four times the global sales in 2023 and five times China's production capacity.

When it comes to photovoltaic products, we can turn to another international body: the International Renewable Energy Agency (IRENA). Its calculations show that the global cumulative installed capacity of photovoltaics needs to exceed 5,400 GW by 2030 to meet the climate targets of the Paris Agreement. This figure is four times the global cumulative installed capacity in 2023 and nine times China's cumulative capacity in 2023.

Additionally, when we look at product distribution, China's "new trio" are predominantly sold within the country, with exports making up a tiny fraction. Let's take new energy vehicles for example. In 2023, China exported 1.2 million units, accounting for 12.5% of its total production. On the other hand, in Japan, just across the sea, the figure is four times larger, an astounding 49.1% of its total automobile production.

So, is this a case of excess or shortage of production capacity? The above figures have given us the answer.

"Made in China" Offers Diverse Options

Having discussed the "quantity" part of the story, let's discuss the "quality" part. "Made in China" is renowned worldwide for its good quality and affordability. In recent years, China has emerged as a global leader in developing new energy products. China's "new trio" are not only transforming the domestic energy landscape, but also offering the world a diverse array of options in pursuing carbon peaking and carbon neutrality.

While China strives to contribute to global efforts to create a greener and better future, some Western countries attempt to hinder its progress by building "small yards with high fences". In October 2023, the European Commission launched an anti-subsidy investigation into Chinese electric vehicles, alleging that the Chinese government provides substantial subsidies for its domestic EV industry, leading to market distortions. But none of these allegations, be it from the EU or the U.S., have been acknowledged by the WTO. It proved once again that for some Western politicians, "Made in China" has become an "original sin". Any Chinese product that sells well in their countries is assumed to be heavily subsidized. 

However, the reality tells a different story. In Europe, Chinese new energy products are not sold at lower but higher prices. Take the BYD Tang and Tesla Model Y, for example. The former is priced at 72,000 euros, while the latter is at 65,000 euros. Based on Western logic, could we say that Tesla from the U.S. is getting subsidized to compete with Chinese ones? Moreover, a study conducted by the University of St. Gallen in Switzerland revealed that in February 2023, just eight months before the EU's investigation into Chinese new energy vehicles, the U.S. and the EU allocated substantial subsidies amounting to $539 billion and $571 billion, respectively. Isn't this another case of "the pot calling the kettle black"?

In fact, the outstanding competitiveness of China's new energy products is a result of long-term investment in technological R&D and the ability to leverage economies of scale. For instance, the average production cost of Chinese lithium-ion batteries is approximately 40% lower than that in the U.S. and Europe, and the manufacturing cost of photovoltaic modules is about 50% lower. These advantages are created through intense market competition, rather than government subsidies.

All in all, China's new energy products are a positive for the world. By providing diverse and cost-effective solutions for carbon reduction, China is playing a pivotal role in the global transition to sustainable energy. China's "new trio" offer a practical pathway for countries aiming to peak their carbon emissions and achieve carbon neutrality. The international community benefits from the technological advancements of China's robust new energy sector. Through continued innovation and global collaboration, these products will help pave the way towards a more sustainable future for all. It's high time we recognized that sometimes, more can indeed be more—not more of a problem, but more of a solution.

 

(The author is a commentator on international affairs, writing regularly for Xinhua News, Global Times, China Daily, CGTN etc. He can be reached at xinping604@gmail.com.)

The article reflects the author's opinions and not necessarily the views of Xinhuanet.