German media analysis: from solar energy to electric vehicles, why China is overproducing green technology
Deutsche Welle's report from Nick Martin on April 10
U.S. Treasury Secretary Janet Yellen warned over the weekend not to overproduce clean energy products such as solar panels, wind turbines and electric vehicles in the race to slow the pace of development of carbon-emitting technologies.
Yellen said at a conference that China's unfair practices, dumping artificially cheap products on global markets, are a threat to American businesses and jobs. If the Chinese government maintains its current policies, Washington is considering imposing higher tariffs and closing trade loopholes.
Chinese companies tend to beat their Western counterparts at lower prices for a number of reasons, including cheaper labor and economies of scale. However, they have also benefited from China's subsidy policies, which have made foreign competitors uncompetitive.
Chinese subsidies are higher than Western aid figures
Rolf Langlmer, former deputy director of the Kiel Institute for the World Economy, told Le Monde: "Subsidies in China are everywhere. "They cover almost every industry and are much larger than any EU or US subsidy.
Beijing's industrial subsidies are on average three to four times higher than those of the Organisation for Economic Co-operation and Development (OECD) countries, and sometimes as much as nine times. A report released this week by the Kiel Institute for the World Economy estimated that China's industrial subsidies amounted to 221 billion euros in 2019, or 1.73 percent of gross domestic product. Another study concluded that annual subsidies typically amount to about 5 per cent of GDP.
The Kiel Institute for the World Economy report reveals a significant increase in China's subsidies to domestic green tech companies in 2022. BYD, the world's largest electric car maker, received 2.1 billion euros in subsidies, up from 220 million euros two years ago. Support for wind turbine manufacturer Mingyang increased from 20 million euros to 52 million euros.
In addition to huge subsidies, Chinese producers have access to key raw materials on preferential terms, forced technology transfers, and less domestic red tape than foreign competitors, the report's authors note.
Global demand is slowing and China is increasing its EV exports
Brad W. Césaire, a senior fellow at the Council on Foreign Relations, told the World Journal: "Tensions in the United States and Europe come at a time when demand for electric vehicles is weakening in the West. Now it seems that China will become a bigger exporter of electric vehicles in the future."
In 2023, China's EV exports increased by 70% to $34.1 billion. Europe is the largest recipient of electric vehicles in China, accounting for nearly 40% of electric vehicle exports.
In October, the European Union will begin investigating whether higher tariffs should be imposed on Chinese-made electric vehicles to "offset state subsidies and level the playing field." Brussels currently imposes a 10 percent tariff on Chinese-made cars, and according to media reports, a 25 percent tariff could be imposed retroactively as early as July. Industry analysts say the move will make Chinese midsize sedans and off-road vehicles more expensive than their European counterparts.
Washington has already imposed a 27 percent tariff on Chinese electric vehicles and is poised to raise tariffs further to bolster its auto industry.
Despite concerns about tariffs and future access to Western markets, Chinese producers have vowed to increase production. CATL, the world's largest battery producer, said it would continue to push ahead with its aggressive expansion plans. BYD recently told investors that its sales target for this year is a 20% increase.
Chinese government subsidies do have a trickle-down effect
Longumer noted that Western countries also benefit from Chinese subsidies because consumers can buy cars at lower prices and businesses get cheaper Chinese parts. Despite the threat of cheap electric vehicles from China, some automakers are skeptical of the European Union's investigation of subsidies from the Chinese government, as companies such as Tesla, the leader in electric vehicles in the United States, are also receiving subsidies, he said.
"European automakers say they can compete with China. German automakers, who have a quarter of their FDI in China and also benefit from Chinese subsidies, fear retaliation," Mr. Langemer said, referring to the-for-tat measures that the Chinese government could take if the EU raised tariffs.
Washington fears that Chinese companies will take advantage of loopholes in U.S. trade deals with Mexico and Canada to circumvent higher import tariffs by producing Chinese-branded electric vehicles in the two neighboring countries. To this end, the United States has proposed new legislation.
The solar crisis is a wake-up call for the electric vehicle industry
Europe's green energy sector has already been hit by cheap imported solar panels from China, which has led to the collapse of several domestic companies and triggered a "solar crisis". While EU countries reached record levels of solar capacity last year, a 40% increase from 2022, the vast majority of panels and components come from China, according to the International Energy Agency.
"It makes absolutely sense for China to dump excess solar panels into the global market," Césaire said. Chinese factories produce two to three times as many solar panels as the world currently uses, resulting in "hot selling prices."
This week, the European Union announced a separate countervailing investigation into China's wind turbine industry. China seeks to dominate the global supply chain and is a partner for several wind farms in Spain, Greece, France, Romania and Bulgaria.
In another development, Chinese state-owned train maker CRRC was forced to withdraw from a tender in Bulgaria in February after Brussels announced an investigation into subsidies received by China Railway Corporation from the Chinese government.
China's age-old market-led strategy
EU Competition Commissioner Margaret Vestager described China's strategy for dominating the green energy sector in a speech at Princeton University this week. Commenting on how China is attracting foreign investment through joint ventures in the first place, she said that China "is not always above board" when it comes to accessing green technology knowledge. China then closed its own market to foreign companies and then exported excess capacity to the rest of the world at low and subsidized prices, she said.
The Chinese government has accused the United States and the European Union of using protectionism to try to stem China's economic development. China is on track to surpass the United States as the world's largest economy by the 2040s, and Chinese leaders have stepped up investment in high-tech industries to help China move up its value chain.
However, analysts argue that China cannot succeed without a strong and stable market for its products, which should give US and EU leaders a head start in negotiations with the Chinese government.
"We should be ready for a tough battle with China," Langomer told Deutsche Welle. "The U.S. and the EU are the most important foreign markets for electric vehicles and green technologies, and China needs to enter these markets."