Posted: 29.05.2024 09:01:00

The notion that ‘China exports its overcapacity’ is a complete fallacy

By Xie Xiaoyong, Ambassador Extraordinary and Plenipotentiary of the People’s Republic of China
to the Republic of Belarus

The statement that ‘China exports excess production capacity’ is false and does not correspond to the basic principles of the economy

Some unscrupulous politicians and the media in the United States as well as certain Western countries, when focusing on the powerful momentum of the rapid development of China’s new energy sector, have recently started to jointly inflate the smear narrative of China’s so-called ‘overcapacity’ stacked against new energy vehicles, photovoltaic products and lithium batteries exported from China, which reflects the growing anxiety of these people. Being concerned about the fact that they ‘cannot overtake China’, they have decided to hit it with a label stating that ‘China’s overcapacity is damaging the world’, thereby trying to distort and discredit economic relations between the People’s Republic of China and the world, and to maintain its monopoly status in the global production and supply chain. However, whether from the standpoint of the principles of a market economy and the law of value, or from the standpoint of analysing the global division of labour and the situation on the international market, the statement that ‘China exports excess production capacity’ is false.

Beijing CBD, People's Republic of China 

‘Chinese threat’ version in a new package

First, it is necessary to understand correctly what ‘overcapacity’ is. In the context of economic globalisation, it is important to look at the issue of production capacity objectively and dialectically from a market-oriented and global perspective, as well as based on economic patterns.  

From an in-depth perspective, the volume of production capacity is determined by the ratio between supply and demand in the market. The balance between supply and demand is relative, and imbalances are commonplace. The global market share occupied by one country or the export product volume in a particular industry is largely the result of the fact that countries leverage their comparative competitive advantages and carry out mutually beneficial co-operation. The corresponding indicators cannot be bluntly used as a criterion for assessing the availability of excess industrial capacity.
More than 200 years ago, Adam Smith explained in his book The Wealth of Nations that international trade allows countries to achieve a division of labour and co-operation, thereby increasing production efficiency and economic development. Today, in contrast, some Western countries define ‘overcapacity’ as production capacity that exceeds domestic demand, which not only contradicts the well-known truths of the economy but also does not correspond to objective facts. If countries manufacture products only to meet the needs of their own domestic market, where will global trade come from? According to this logic, can we say that 80 percent of the chips produced by the United States and vehicles produced by Germany that are exported are also ‘excess production capacity’?
In fact, the theory of ‘China’s overcapacity’ does not correspond to the basic principles of the economy, nor does it stand up to logical analysis. It is safe to say that this version of the ‘Chinese threat theory’ in a new package exposes the lag in the green industry development in the United States and Western countries, as well as the lack of ability in promoting low-carbon transformation. 
This kind of approach to trade and economic issues, such as production capacity, based on pan-politicisation and evil generalisation of the security concept contradicts the laws of the economy and the general trend of globalisation, exacerbates the risk of fragmentation of global economy and harms global prosperity and stable development.

For mutual benefit

Secondly, there is no problem of large-scale and permanent ‘overcapacity’ in China. China does not export the so-called ‘excess production capacity’. 

In recent years, China has been actively pursuing the supply-side structural reform and has been decisively reducing production capacity in iron and steel, and other industries. In 2023, there was a quarterly increase in China’s capacity utilisation rate, amounting to 74.3, 74.5, 75.6 and 75.9 percent in four quarters, respectively, which is generally within the normal range. The capacity utilisation rate in the automotive industry is also showing an upward trend and is approaching the threshold value of 80 percent.
Recently, some people from the United States and Europe, as well as Western media, have been constantly inflating the problem of alleged ‘excess production capacity’ in China’s new energy industry, distorting objective information about the state of development of China’s new energy industry and deliberately diverting the opinion of the international community from the right path. In fact, the real situation is as follows: the products of China’s relevant industry are mainly supplied to the domestic market and are not exported in large volumes abroad, while exports to the United States are generally limited. Thus, in 2023, the production volume and sales of new energy vehicles in China amounted to 9.587 million and 9.495 million units, respectively, where sales in the domestic market stood at 87.3 percent, exports abroad — only 12.7 percent, and exports to the United States — 13,000 units, which makes as little as 0.82 percent. In 2023, the average selling price of Chinese electric vehicles in Europe exceeded €31,000, which is higher than the selling price in the domestic market. Therefore, the problem of the alleged ‘price distortion’ does not exist.
Another example is photovoltaic products. In 2023, the production volume of photovoltaic modules in China was 499 gigawatts, while the export volume to the United States was only 0.5 percent of the total exports of photovoltaic modules in China. 
In fact, China’s exports of photovoltaic and lithium batteries, as well as other new energy products will help developing countries join the international production chain in the new energy industry and eventually achieve the goal of mutual benefit and win-win results, i.e. make the ‘cake’ of development bigger instead of vying for an extra share from others.

Competitive advantages

Thirdly, China’s advantages in the new energy sector are the embodiment of advantages in areas such as technology, market and production chain, and not the result of the non-existent so-called ‘unfair competition’.
After decades of intense development of China’s new energy industry, its current competitive edges are entirely based on the advantages of vast market demand, a complete industrial system, rich human resources, many years of technological upgrading and innovations in environmentally friendly and clean production methods, as a result of huge investments in research and innovation by enterprises, as well as the result of tireless efforts of entrepreneurs. 
The combination of the above factors has made it possible to reduce production costs and boost China’s global competitiveness. This is due to sufficient market competition, and not the alleged ‘subsidies’ or unfair competition, which is the case in the United States and Europe. The Inflation Reduction Act (IRA), adopted by the United States in 2022, provides tax incentives of up to $7,500 for buyers of new energy vehicles. The European Union has also continued to ease restrictions on subsidies in recent years — from March 2020 to the end of 2022, the European Commission approved over 1,000 state subsidy programmes for 27 participating countries totalling €3.8 trillion.
The West intends, by distorting the facts and condemning China’s ‘overcapacity’, ‘dumping’ and ‘unfair competition’ in the manufacture of new energy products, to indulge the interests of its own manufacturers in order to hide the facts that their own products are uncompetitive in environmental terms and that the ‘surcharge for environmental friendliness’ is too high, planning thereby to further curb the export benefits of environmentally clean Chinese products. 
However, the recognition and choice of Chinese products by global consumers remains unchanged. No matter how hard the Western media try, nothing will change the fact that Chinese new energy products retain a competitive advantage worldwide.

Environmental aspect

Fourth, China’s exports of new energy products make an important contribution to combating climate change and promoting green transformation. 

Currently, the situation with global climate change is becoming more serious, and the relevance of promoting green transformation continues to grow. The development of new energy industries and the introduction of new energy products is an important prerequisite for responding to the existing and emerging challenges, and implementing green development. However, along with that, the current global capacity for the manufacture of new energy products is far from meeting market demand. According to estimates by the International Energy Agency (IEA), the global demand for new energy vehicles, as an example, will reach 45 million units in 2030, which is 4.5 times more than in 2022, while the global demand for new photovoltaic installations will reach 820 gigawatts, which is approximately 4 times more than in 2022. As countries are actively developing the artificial intelligence industry, they also need basic support from new power generation and energy storage facilities.
The advancement of China’s new energy industry has made a great contribution to the global response to climate change and to green and low-carbon transformation. 
As part of the green investment co-operation within the Belt and Road Initiative, China has helped developing countries located along the routes to build clean energy infrastructure through photovoltaic, wind energy and other projects. In terms of export sales of new energy vehicles, China ranks first in the world. Not only did this not harm the markets of the importing countries, but this further advanced the process of transition to cleaner transport and more environmentally friendly consumption in these countries. It can be stated that all countries of the world are inseparable from China’s new energy products.
In the context of the current conditions of economic and trade globalisation, the comprehensive use of the comparative advantages of all countries, the joint promotion of a global green production and supply chain, the rejection of trade protectionism and creation of green trade barriers are fundamental measures in compliance with the global process of green transformation.
From the so-called ‘Chinese threat theory’ to the ‘Chinese shock theory’, and now the China overcapacity narrative — the West is literally continuously constructing options of the ‘Chinese threat’ narrative in order to find a reason to violate the principles of fair trade, to justify protectionist economic policies and conceal the fact that its own new energy industry is demonstrating weak growth rates. Such actions do not contribute to the improvement of quality and modernisation of their own industry, or to the sustainable and long-term development of the global economy. The United States and the West should abandon ideological disputes, raise the level of management and create a favourable environment for the development of enterprises, rather than inflate false claims like the ‘overcapacity theory’. It is strongly believed that with the steady development of China’s new energy industry, such false allegations will soon be debunked, and the international public opinion will undoubtedly move to the fundamental concept of mutually beneficial co-operation.