Refuting the "Theory of China's New Energy Overcapacity"

At the just-concluded 135th China Import and Export Fair, the "new three" of foreign trade represented by electric manned vehicles, lithium batteries and solar cells were favored by overseas buyers. This is a rational choice of market demand, and it is also the result of long-term innovation and R&D of Chinese manufacturing enterprises and efficient collaboration of supply chain enterprises, which reflects the comprehensive cost advantage and product competitiveness of Made in China.

This year is the year of the US election, and some politicians practice trade protectionism in the name of "overcapacity", throwing out the so-called "theory of China's new energy overcapacity", and using it as a political bargaining chip, putting political considerations above economic concerns. The result will not only harm others and oneself, but also undermine the stability and smoothness of global industrial and supply chains, hinder the growth of the world economy and trade, and drag down the green and low-carbon transformation of the global economy.

Overcapacity is a widespread economic phenomenon. Under the conditions of a market economy, the balance between supply and demand is relative, and imbalance is the norm. To resolve this imbalance, it is mainly necessary to rely on market forces and adjust it in accordance with the law of value. It should be pointed out that production capacity is not a product, and overcapacity does not mean that the product cannot be sold if it is produced too much, but the production capacity of the enterprise is not fully utilized. Moderately advanced capacity investment is a common choice for industrial development, especially for emerging industries.

Accurately grasp the essence of overcapacity, it is not difficult to understand why this year's "Government Work Report" proposed to "prevent overcapacity and low-level duplicate construction". In the more than three years of the new crown epidemic, when the global supply chain was almost shut down, the reason why China's manufacturing industry was able to continue to provide various commodities to the global market was closely related to the rapid growth of fixed asset investment in the manufacturing industry at that time. The investment that was there is now being translated into production capacity. However, the current global market demand is slowing down, resulting in underutilization of capacity in some industries. It can be judged that this phenomenon is short-lived, with the recovery of the world economy, the low-end backward production capacity of some industries will be eliminated at an accelerated pace, and the advanced production capacity in the field of new energy, which represents the direction of green and low-carbon, will usher in greater development space.

Comparing with reality, it can be seen that the so-called remarks of some US politicians that "China's overcapacity threatens the industrial development of other countries" and "brings disaster to the international market" are pure nonsense. In the first quarter, the utilization rate of China's industrial capacity above designated size was 73.6%, which was basically close to the 78.4% utilization rate of the United States. In terms of inventory levels, China's raw material inventory index was 48.1% in March, comparable to that of the United States. However, from the perspective of industrial profits, China's industrial profit margin has continued to grow. In addition, China's new export orders index continued to expand at 50.6%, indicating that the overall export business of enterprises continued to improve. In this sense, the accusation of "overcapacity" actually comes more from anxiety and containment of the development of China's industrial strength - some politicians in the United States also know that the advantages of China's new energy industry are obtained by the efforts of enterprises and shaped through full market competition, rather than "relying on government subsidies" as they say.

As we all know, some politicians in the United States claim that "China's new energy overcapacity" is actually the local market has demand for China's new energy vehicles, photovoltaics and other products, but local enterprises and products lack sufficient competitiveness, thus forming the pressure of survival of the fittest. It is safe to say that their accusations against China's new energy products are neither in line with objective facts nor in line with economic laws. At the recent spring meeting of the International Monetary Fund and the World Bank held in Washington, D.C., economists and professionals at the meeting also expressed their confusion and doubts about the so-called "theory of China's new energy overcapacity", because no matter the analysis of market supply and demand, or the observation of the actual development of the industry, such a puzzling conclusion can not be reached.

"China's new energy overcapacity" is a false proposition, and the competitive strength of China's new energy products cannot be doubted——

First of all, the rapid growth of China's new energy industry is not a blind expansion, but is based on the urgent need for global carbon emission reduction. According to a report by the International Energy Agency, the global demand for new energy vehicles will reach 45 million by 2030, more than three times that of 2023. The International Renewable Energy Agency (IRENA) also estimates that in order to achieve the goals of the Paris Agreement, the cumulative global installed capacity of photovoltaic power generation will reach at least 5,400GW in 2030, which is nearly four times the total global installed capacity in 2023 and about nine times the total installed capacity of the mainland. Obviously, the current global production capacity of new energy products is far from meeting the needs of the future market. For a long period of time, China's new energy products will still be a good commodity in the market. The huge demand brought about by the global carbon emission reduction process will be the driving force behind the continuous transformation of China's new energy industry to high-end.

Second, subsidies for the new energy industry are a global market tool, not a unique advantage of China's new energy industry. In order to cope with climate change and achieve global carbon emission reduction goals, countries around the world are extensively subsidizing their own new energy industries. For example, the United States has subsidized the sale of new energy vehicles in the form of tax credits since 2010, and even arranged $7.5 billion to support the construction of charging facilities through legislation such as the Infrastructure and Jobs Act. As early as 2008, Japan began to provide subsidies for clean energy vehicles such as electric and clean diesel. Germany has also introduced universal subsidies for the sale of new energy vehicles since May 2016. China has implemented a large-scale subsidy policy for new energy vehicles since 2013, and with the expansion of the market size, the policy has been officially withdrawn in 2023. It can be seen that the view of the "subsidy advantage theory" of overcapacity is fundamentally untenable.

Thirdly, the export advantage of China's new energy products comes from deep technology accumulation, huge scale effect and complete industrial system. Under the effect of the market mechanism, China's new energy products have realized the advantages of new energy in terms of production capacity and price through full market competition and technological innovation iteration, which is the result of the continuous efforts of Chinese enterprises themselves. For example, through technological innovation, the mainland photovoltaic industry has effectively solved the two major problems of high cost and difficulty in grid connection. At the same time, China's huge market size provides sufficient space for the rapid update of new energy technologies, and the scale effect not only reduces costs, but also accelerates the promotion of new technologies and new products. Taking new energy vehicles as an example, China's huge consumer market and diversified car environment provide a broad space for the iterative upgrading of the new energy vehicle industry.

In international economic and trade exchanges, we firmly oppose trade protectionist measures to suppress Chinese enterprises in the name of "overcapacity". At present, the global production capacity layout is the objective result of the joint action of market law and economic globalization, the inevitable requirement for the division of labor and cooperation and the optimization of factor resources under the comparative advantages of each country, and an important measure to improve production efficiency and improve people's livelihood and well-being. Whether from the perspective of comparative advantage or global market demand, there is no so-called "China's new energy overcapacity" problem.

As President Xi Jinping pointed out at the tripartite meeting between China, France and the European Union, China's new energy industry has cultivated real skills in open competition, representing advanced production capacity, which not only enriches global supply and alleviates global inflationary pressure, but also makes great contributions to the global response to climate change and green transformation. In addressing the common challenge of global climate change, all countries are interdependent and mutually reliant communities, and openness, inclusiveness and win-win cooperation are the only right choices. Only free trade and full competition can form the optimal solution of the global production capacity pattern, and make the background of global green development brighter and more colorful.

Editor: Nie Yue

Source: Economic Daily