Excess capacity in false narrative generation

Editor's note: John Gong, a special commentator on current affairs for CGTN, is a professor at the University of International Business and Economics (UIIBE) and VP- Research and Strategy at the UIBE-Israel. The article reflects the author's views and not necessarily those of CGTN.

During a press conference attended by Premier Li Qiang and visiting German Chancellor Olaf Scholz in Beijing a few days ago, Li commented on the notion of excess capacity in China. He noted that both supply and demand should be looked at from a global perspective and different countries have higher production capacity in their respective strengths and lower production capacity in other industries, determined by their respective comparative advantages. He added that common development can be achieved through cooperation among countries, emphasizing that one cannot simplistically determine who has excess capacity.

The narrative of "excess capacity in China" emerged just days ahead of the recent visit by U.S. Treasury Secretary Janet Yellen to China. It was during her visit to the Suniva solar cell manufacturing plant in Norcross city, in the U.S. state of Georgia, in late March that Yellen initially introduced this narrative. She indicated her intention to raise the issue during her subsequent visit to China, where she reiterated it several times. She mentioned excess capacity in three areas: solar panels, electric cars and associated batteries.

The electric car market in China is indeed fiercely competitive. There are at least 50 companies manufacturing electric cars, including one American company, Tesla, whose sales volume regularly makes it into the top-three list. But from a theoretical economics perspective, fierce competition doesn't mean that supply is too much, or excess capacity.

Just one example can debunk the "excess capacity" myth. A few weeks ago, Xiaomi held its debut event of officially entering the automobile market with the unveiling of its first model SU7. The strikingly beautiful car garnered nearly 90,000 orders within a few hours of the opening ceremony. How many countries in the world can sell 90,000 cars in a whole year – with only one model, and particularly one new model from one new company? Where is the excess capacity when cars are selling like hotcakes?

It is true that Chinese-made electric vehicles, including Tesla cars made in its Shanghai factory, are starting to make inroads into the European markets and other markets of the world. But so far there is not a single model from China that is making significant sales in the U.S. market. I was told that Geely's subsidiary company, Volvo, may have exported some made-in-China electric SUVs to the U.S., but the sales volume is really insignificant. And the Chinese companies that have established manufacturing operations in Mexico have no plan of entering the U.S. markets as far as I know.

So all this talk about Chinese cars crossing the Rio Grande from U.S. Commerce Secretary Gina Raimondo, Yellen to President Joe Biden is all about election year campaign rhetoric tailored to the autoworkers in Michigan, which is one of the critical battleground states in the 2024 presidential election.  

Let's talk about the solar panel industry, which is indeed dominated by Chinese companies. Let's start by first pointing to the fact that the solar panel price, usually in the form of dollar per watt, dropped from $100 in 1975, when it was first introduced to the market, to less than $1 today. Think about how many people from the grassland in Africa to thousands of islands in Indonesia and the Philippines, who would have never afforded access to electricity, are now seeing light in the darkness.

Along that relentless declining price curve, many companies have gone bankrupt, but many inventions and innovations were also born to improve efficiency and bring costs down. And even with the industry's over 500 GW capacity today and the affordable price, growth is still much expected as pointed out by recent forecasts from the International Energy Agency.

In summary, Washington's narrative about the excess capacity of solar products in China is all about market protection, and the same about electric cars is a phantom story intended for election politics.

(If you want to contribute and have specific expertise, please contact us at opinions@cgtn.com. Follow @thouse_opinions on Twitter to discover the latest commentaries in the CGTN Opinion Section.)