‘Overcapacity’ accusation goes against economic principles, denies global division of labor

Over-protectionism. Illustration: Chen Xia/GT

Over-protectionism. Illustration: Chen Xia/GT

Recently, the West has been unreasonably hyping up the false narrative of “overcapacity” in China. Even the IMF warned on Tuesday that China’s policies that boost supply would worsen overcapacity, reinforce deflationary pressures, and potentially provoke trade frictions.

While the IMF doesn’t explicitly mention any specific industry, it is probably referring to China’s new energy industries in light of recent US pressure on green Chinese products. Yet, whether or not China has excess capacity should be determined by economic rules and facts, not political agenda led by the US.

The current global distribution of production capacity is a result of the combined effects of industrialization and market-based economic activities over the past few decades. Cooperation based on comparative advantages is crucial for optimizing the resource allocation of global factors, also an important approach for improving productivity and well-being among countries.

From the perspective of economic principles, equating fluctuations in supply and demand with excess capacity goes against the normal rules of the market economy and actually works counter to the rationality of international division of labor and economic globalization. If a country with supply exceeding demand is recklessly considered to have excess capacity, then all export economies in the world, not only China but also the US, have overcapacity issues in terms of their exported products.

In this sense, the narrative of “overcapacity” and criticisms of industrial subsidies are merely rhetoric fabricated by the US to hinder China’s competitiveness.

China’s economic advantage in its “new three” products – new energy vehicles, lithium-ion batteries, and photovoltaic products – stem from its competencies and are shaped through full market competition, rather than subsidies from the government. While the US accuses China’s industrial policy of violating international regulations and worsening overcapacity, the scale of American subsidies to new energy industries is far greater than in other countries, as the CHIPS and Science Act and the Inflation Reduction Act have showed. For example, the detailed rules of the Inflation Reduction Act stipulate that only electric vehicles assembled in North America are eligible for a maximum subsidy of $7,500 through federal tax deductions, which is a blatantly discriminatory subsidy law.

By comparison, China’s industrial policy adheres to the principles of market economy and fair competition. For instance, in a statement published on its WeChat account on Wednesday, the National Development and Reform Commission said that China plans to introduce additional measures to support the development of the new energy vehicles. These measures include fostering industrial innovation through scientific and technological advancements, encouraging enterprises to increase investment in research and development, and facilitating the optimization and restructuring of the new energy vehicle industry. Moreover, China will remove all restrictions on foreign investment in manufacturing, inviting global auto companies to participate in the Chinese market and industrial chain to benefit from the advancements in new energy vehicle technology.

In fact, China’s competitive new energy products have created huge opportunities and support for the global industries and markets. Its technological innovation in new energy vehicle sector presents significant development opportunities for global auto industry. Also, China is the only country in the world that has all the industrial categories listed in the United Nations industrial classification system, including 41 industrial categories, 191 medium categories and 525 subcategories. And its efficient industrial system has played a crucial role in maintaining stability of the global auto supply chain. 

Furthermore, China is a major driving force behind the world’s rapid expansion of renewable power generation capacity. China’s installed capacity of renewable energy exceeded 1.45 billion kilowatts in 2023, accounting for more than 50 percent of the country’s total installed power generation capacity, according to data released by the National Energy Administration. Power generated from renewable energy sources such as wind and solar power now accounts for more than 15 percent of China’s total electricity consumption.

China has always been committed to promoting high-level opening-up and offering opportunities for market access to other countries, with the aim of achieving mutually beneficial results. And it is hoped that all parties could be engaged in rational discussions based on facts and economic principles when it comes to green development, rather than resorting to baseless accusations and attacks.

The article was compiled based on an interview with Jin Ruiting, researcher at the Academy of Macroeconomic Research of the National Development and Reform Commission. [email protected]

Hyping ‘overcapacity’ in China is the real threat to world: Global Times editorial


Illustration: Tang Tengfei/GT

Illustration: Tang Tengfei/GT

US Treasury Secretary Janet Yellen recently reiterated in an interview with Reuters the “overcapacity” in China, claiming that the so-called overcapacity in China is not only a problem faced by the US, but also by Europe, Japan, India and Mexico. This kind of rhetoric has been popular in the US for some time, with American politicians and public opinion repeatedly hyping up the concept, accusing China of dumping green products such as new energy vehicles, lithium batteries, and photovoltaic products overseas at low prices, and portraying this situation as a “global threat.” However, discerning individuals can see that this is not a very clever tactic of politicization and pan-securitized, but instead revealing some real situations in the development of the world’s green industry and high-quality production capacity.

It is well known that overcapacity is relative to the demand. From a global perspective, there is actually no overcapacity in the green industry. The reason why the green industry is thriving lies in the breakthrough in related technologies. Technological breakthroughs often ignite emerging industries, manifested by strong market demand for new products. According to the International Energy Agency, the global demand for new energy vehicles in 2030 will reach 45 million units, which is 4.5 times that of 2022, and at the same time, the global demand for new photovoltaic installations will reach 820 gigawatts, which is about 4 times that of 2022. It’s clear that the new energy industry is booming, with huge market potential yet to be tapped. Green production capacity development has just started, far from saturation, so where is the “overcapacity” coming from? 

Some people in the US are hyping up the so-called overcapacity in China with the real purpose of suppressing the development of China’s emerging industries and of maintaining its long-standing monopoly position in the global industrial chain through unfair means. Yellen attributed the bankruptcy of US’ solar companies to Chinese suppliers lowering prices in the interview. Although the attribution was wrong, it also exposed the real intention. It is not difficult to see that the so-called overcapacity rhetoric in China’s new energy industry is nothing more than a copy of the “America First.” In the eyes of the US, the rapid development of China’s green industry challenges the strength and status of the US, and China’s competitiveness is “translated” into a “security threat” to the world (the US). It can be seen that the excess is not China’s production capacity, but US’ anxiety.

In fact, facing the insufficient and unbalanced development of high-quality green production capacity in the world, China is taking a path of win-win cooperation – “Appreciate the values of others as do to one’s own, and the world will become a harmonious whole.” While actively developing its domestic green industry, China is also actively engaging in practical cross-border cooperation in high-quality production capacity, providing international public goods, helping developing countries accelerate the process of industrialization, and promoting the efficient, clean, and diversified transformation of energy.

Fatih Birol, executive director of the International Energy Agency, said that “China’s provision of services and support to other countries has significantly improved the accessibility of clean energy technologies and reduced the global cost of using green technologies.” China’s green development not only benefits consumers but also enables developing countries to benefit from cooperation with China in production capacity, especially by promoting energy freedom for low-income populations in developing countries.

In contrast, the US could have worked together with China to jointly seize the opportunities brought by the development of the green industry and address the challenges of insufficient demand for high-quality production capacity. Regrettably, the US chose to wave the “big stick” at China, viewing China’s new energy industry with a zero-sum game mentality and attributing real problems to the wrong causes. Currently, the main reason for the insufficient development of the world’s green industry and the uneven distribution of high-quality production capacity is the asynchronous development and application of green technology in various countries, inconsistent capabilities, and uncoordinated interests, yet the US deliberately uses the “China threat” to explain everything, trying to solve problems by containing China. However, it is the smearing and suppression of China by the US that hinders the transnational diffusion of technology and the global flow of production capacity. The answer to who is the initiator of the global production capacity problem is clear.

With a shortage of high-quality production capacity, the world needs more cooperation. Taking wind power as an example, by 2023, the global new wind turbine installed capacity will reach 117 gigawatts, a 50 percent increase year-on-year, with the main contribution coming from China. The US, on the other hand, has encountered bottlenecks due to inadequate government policy support, insufficient investment in the supply chain, and difficulties in project implementation. However, even as China grows rapidly, there is a huge gap in global wind power, especially offshore wind power. The goal of actions by various countries should be to jointly improve competitiveness, reduce costs of technology, logistics, labor, raw materials, and transportation through supply chain cooperation, rather than baselessly accusing and shifting contradictions to countries with advantageous production capacity, and, more importantly, not bind new energy industries with protectionism and weaken the global capacity to address climate change.

Of course, no matter how the US smears China, the green industry is always the trend of world economic development, and it is also the key choice for humanity to address the challenge of climate change. Shifting contradictions, smearing and suppressing, and decoupling will only lead to a “lose-lose” situation. 

Green industries and high-quality production capacity should not become a battlefield of the zero-sum game. Hyping up “China’s new energy overcapacity” is not only detrimental to the transformation and upgrading of domestic industries, but also does not help alleviate international production capacity conflicts. In this sense, the voices and forces behind the hype of “China’s new energy overcapacity” are the ones creating problems, as well as the real threats to the world.

Advanced manufacturing magnet for foreign firms amid upgrades

Daimler trucks are displayed during the 6th China International Import Expo in Shanghai in November. PHOTO/CHINA DAILY

BEIJING — China’s advanced manufacturing is attracting the attention of foreign-invested companies amid an innovation-led upgrade of the nation’s industrial chain.

“We see booming innovations in areas including new energy vehicles, and connected and automated driving trucks in China, and we consider China a place to pursue the development and application of such future-oriented products,” said Holger Scherr, president and CEO of Beijing Foton Daimler Automotive Co Ltd, and head of the Mercedes-Benz business unit.

David Fan, executive vice-president and China president of Japan-based auto parts supplier Marelli, also pointed to the growing innovation capabilities of the Chinese market as one of the important reasons for the country’s market and supply chain having an irreplaceable role for Marelli.

China’s manufacturing sector has remained a land of opportunity for foreign-invested companies over the years for its manufacturing prowess and the most comprehensive industrial chain in the world. In 2023, foreign investment into the sector accounted for 27.9 percent of the total, up 1.6 percentage points from the previous year, official data showed.

This year, the country has put developing new quality productive forces — featuring high-tech, high efficiency and high quality — atop its agenda.

The upgrade of industrial and supply chains is among the three aspects, that the development of new quality productive forces will cover, said Zhang Qingjie, head of digital enablement and head of AI at KPMG China.

Some foreign-invested companies have already noticed the gradual repositioning of China’s industrial chain, and are adopting a preemptive strategy to tap into the shift.

“We plan to promote a model of inverter compressors for heat pumps this year in Europe. The model is developed through a technology platform that we built in China, reflecting the change of the Chinese market’s core competitiveness from a comprehensive supply chain to an innovation-oriented one,” said Xu Yang, president of the China unit at Danfoss, a Denmark-based energy efficiency solutions company.

Xu said the company has been actively leveraging China’s innovation capability and improving its smart manufacturing. In April, Danfoss will launch construction of the second phase of its Haiyan campus in Zhejiang province, which is its largest manufacturing base in China, according to Xu.

China’s development of new quality productive forces injects new impetus to global growth: FM

A visitor looks at a robot arm displayed at the first China International Supply Chain Expo (CISCE), which kicked off in Beijing on November 28, 2023. Among the exhibitors, 26 percent are international companies, with 36 percent of that group coming from Europe and the US. Global companies from more than 50 countries and regions are participating in the event. Photo: VCG

A visitor looks at a robot arm displayed at the first China International Supply Chain Expo (CISCE), which kicked off in Beijing on November 28, 2023. Among the exhibitors, 26 percent are international companies, with 36 percent of that group coming from Europe and the US. Global companies from more than 50 countries and regions are participating in the event. Photo: VCG

China’s development of new quality productive forces is creating new products, new technology and new business models, which will broaden the room for global economic sharing and mutual development, injecting impetus into the world’s development, Chinese Foreign Ministry spokesperson Lin Jian said on Wednesday.

High-quality development is the first and foremost task of transforming China into a modern socialist country in all respects, while developing new quality productive forces is an intrinsic requirement for promoting high-quality growth in China, Lin said.

The key for developing new quality productive forces is enhancing the country’s self-innovation capability. Driven by the strategy of innovation-driven development, China has consolidated a series of achievements in areas including aviation, quantum computing and nuclear power. Notable progress has been made in developing China into an innovation country. All of these will not only better meet China’s domestic needs but also bring benefits to other countries and peoples, Lin said.

The spokesperson gave the example of clean energy technology. China is firmly committed to promoting energy reform, with the development of clean energy listed as a priority. 

In 2023, a total of 510 gigawatts of renewable energy capacity was newly installed around the world in 2023, with China contributing over 50 percent. Meanwhile, China has produced and sold more than 60 percent of the world’s new energy vehicles, official data showed.

Chinese clean energy enterprises are actively investing in Southeast Asia, with Vietnam already been a major export destination for China’s wind power technology and Thailand an important photovoltaic product manufacturing base. China is also supporting Middle Eastern and African countries’ energy transition, Lin added.

In addition, China’s development of new quality productive forces in digital economy and artificial intelligence has played an important role in driving global growth and boosting technological reform in many countries, Lin said.

In 2023, China successfully achieved major social and economic development goals, and its contribution to global GDP growth reached over 30 percent, Lin said, noting that China will continue to promote high-level opening up in 2024 to create favorable conditions for developing new quality productive forces.

Global Times