Three questions about "China's dumping of excess capacity".

Many new energy vehicle companies appeared at the auto show. Photo by Xinhua News Agency reporter Wang Xiang

Recently, some US and Western politicians and media have been playing up the so-called "theory of China's overcapacity", and clearly pointing to China's new energy vehicles, lithium batteries, and photovoltaic products, claiming that due to government subsidies, China's new energy industry has "overcapacity", and these "excess capacity" is being dumped overseas at low prices, affecting the economies of other countries.

A spokesman for the Chinese Foreign Ministry said that the so-called "China's overcapacity hitting the world market" is a false proposition. Why is "China's dumping of excess capacity" untenable? "Sike Observation" invited a number of experts to analyze and respond to this.

Question 1: Is export equal to "exporting excess capacity"?

In discussions about whether China has excess capacity, the United States and the West often define "overcapacity" as the ability to produce more than domestic demand. But this statement clearly defends common sense in economics. Today's market is an open market, today's world is a world of economic globalization, and a country needs to not only focus on the domestic market, but also take into account the needs of the international market when planning industrial development. Therefore, it is necessary to look at the issue of production capacity objectively and dialectically from the perspective of the market and the global vision, starting from the economic law.

Taking new energy vehicles as an example, global sales of new energy vehicles will reach 14.65 million units in 2023, of which China's export sales of new energy vehicles will be 1.203 million units, accounting for only 8% of global sales. Yang Shuiqing, an assistant researcher at the Institute of American Studies of the Chinese Academy of Social Sciences, said that according to the "2023 Global Electric Vehicle Outlook" released by the International Energy Agency, the global demand for new energy vehicles will reach 45 million in 2030, and even if the mainland maintains an annual production growth rate of 20%, by 2030, the output of new energy vehicles in the mainland will only be 34.352 million, which is still lower than the global demand. This shows that China's new energy vehicle production capacity is not only not excessive, but even needs to continue to develop to meet greater market demand.

In this regard, Jin Ruiting, a researcher at the Macroeconomic Research Institute of the National Development and Reform Commission, said that if it exceeds the needs of a country, it is excess capacity, and the basis for trade between countries will no longer exist, and the theory of comparative advantage will also lose its foundation, which is obviously contrary to the free trade theory and the division of labor theory of Western economics.

Li Dawei, director of the Emerging Economies Research Office of the Institute of Foreign Economic Research of the China Academy of Macroeconomics, also believes that defining exports as the export of excess capacity is completely a negation of the basic theory of economics - the theory of division of labor. Adam Smith and David Ricardo put forward the concept of international division of labor as early as hundreds of years ago, with the in-depth development of globalization, different countries have their own comparative advantages in the production of different goods or services, so exporting their own products with relative comparative advantages, importing products with their own relatively disadvantages, and achieving the optimal solution of their own output through international trade, this theory has become common sense in economics.

The United States exported a total of 91.2 million tons of LNG in 2023, making it the world's largest LNG exporter. In addition, 80% of the chips produced in the United States and 80% of the cars produced in Germany are exported, and a large number of passenger planes produced by Boeing and Airbus are also exported. According to the logic of the United States and the West, does it mean that these countries are exporting excess capacity to the world?

Question 2: Is a cheap product dumping?

China vigorously develops the new energy industry, promotes green, low-carbon and high-quality development, and the "new three" exports provide high-quality goods for consumers around the world and continue to meet the needs of the global market. However, some US and Western politicians have turned a blind eye to this and have made so-called "dumping" accusations against China's new energy products.

Yao Jingyuan, a special researcher of the Counsellors' Office of the State Council and former chief economist of the State Bureau of Statistics, said: Generally speaking, dumping means exporting products abroad at a price lower than their cost, and our "new three" exports are profitable, which shows that the export commodities are not lower than their normal value.

Li Dawei pointed out that the price advantage of export commodities cannot simply be identified as "dumping," because this price advantage is likely to be formed by technological superiority and economies of scale. According to statistics, the profit margin of the mainland auto industry is still maintained at about 5%, indicating that the overall operation of the mainland auto industry is very healthy. Li Dawei said that the current export prices of China's electric manned vehicles, lithium-ion batteries and solar cells have been rising, which proves that the sales price of the "new three things" after going overseas is higher than their normal value, so the so-called "dumping" does not exist at all.

According to a Bloomberg analysis, in the field of electric vehicles, the capacity utilization rate of the vast majority of China's top auto exporters is at an internationally recognized normal level. The proportion of China's electric vehicle exports to total production is much lower than that of major auto producing countries such as Germany, Japan, and South Korea, and the export price is also in line with market rules, and there is no dumping problem at all.

Liu Ying, a researcher at the Chongyang Institute for Financial Studies at Renmin University of Chinese and director of the cooperative research department, said that the cheap price of export products does not mean dumping, and China is the only country that has a complete list of all the industrial categories in the United Nations Industrial Classification.

Question 3: The subsidy measure "only allows state officials to set fires"?

Some foreign media pointed the finger at the Chinese government's tax exemption and high subsidy policies for China's new energy vehicles. But this attack just exposes the double standards adopted by the United States and the West on trade issues with China.

As early as the beginning of the new energy vehicles in the mainland, in order to support the development of start-up enterprises, the mainland government gave some tax incentives and subsidies. However, since 2016, China has officially adopted a regression mechanism for financial subsidies for the new energy vehicle industry, and on December 31, 2022, the national financial subsidy of "4,800 yuan/unit for plug-in hybrid vehicles and 12,600 yuan/vehicle for pure electric vehicles" was officially withdrawn.

Nowadays, in the field of electric vehicles, the United States, the United Kingdom, and France are implementing stronger subsidy policies. The U.S. government passed the Inflation Reduction Act to provide about $369 billion in tax incentives and subsidies to the clean energy industry, including electric vehicles. Many European countries have also generally implemented subsidies for the electric vehicle industry, ranging from corporate taxation to personal purchases.

Yang Shuiqing said that government subsidies are not "Chinese characteristics", French consumers can get 4,000 euros subsidy for electric vehicles, and low-income families can get 7,000 euros subsidy, and Germany has implemented a subsidy policy since 2016, consumers can get up to 4,000 euros for electric car purchases, and are exempt from paying motor vehicle purchase tax.

Li Daokui, dean of the Institute of Chinese Economic Thought and Practice at Tsinghua University, said bluntly, "There is almost no exception in the modern economy, and any country that wants to develop its own important industry is subsidized by the government at the beginning." It is equivalent to riding a horse, first help the horse, and give it a ride. If the industry is built, there is no need for subsidies; if the industry cannot be built, subsidies will not be given, that is, it will be left to fend for itself. This is almost the most basic law of industrial development in modern countries. ”

The competitiveness of China's "new three" in the international market does not come from government subsidies, but from the continuous technological innovation of China's new energy industry, the perfect production and supply chain system and high labor productivity.

Jin Ruiting said that the development of China's new energy industry will stabilize the global supply and demand system, whether it is the upstream, midstream, or downstream of the "new three" industrial chain, we can find the best partners in China. At present, China is the main stabilizer and power source of world economic growth, and China's manufacturing represented by the "new three" not only benefits itself, but also injects more and stronger impetus into the world economic recovery and growth.

Planner: Chu Xuejun

Producer: Che Yuming, Liu Jiawen

Executive Planner: Liu Juan

Co-ordinator: Tang Xinyi

Author: Ma Yucong, Sun Hui