Editor's note: Recently, some Westerners have been making noises about China's "overcapacity," accusing the country of "flooding" the global market with cheap products and "distorting" market rules. Is there overcapacity in China? Is the export of Chinese products an attempt to digest obsolete capacity or to revive the global economy? Will anti-China policies protect or harm Western industries? CGTN has introduced a six-part series "Debunk China's overcapacity fallacy" to analyze these matters. The fifth essay examines whether China undermines global competition or contributes to world economic recovery. Liang Yongmei, a special commentator on current affairs for CGTN, is an Associate Research Fellow at the Institute of Industrial Economics (IIE), Chinese Academy of Social Sciences (CASS). The article reflects the author's opinions and not necessarily the views of CGTN.

The U.S.-led West is fueling the narrative regarding China's "overcapacity" issue, claiming China's manufacturing capacity of the "new three" industries – electric vehicles (EVs), lithium batteries and solar panels – are exceeding global demand. The unfounded accusation, however, flouts economic theory and historical context. In reality, China's "new three" industries are vital contributors to global economic recovery and sustainable development.

From a demand-side perspective, China's new energy industry boosts people's living standards and welfare around the world by offering affordable green products.

The world needs green products, and China provides them. Simple economy. The International Energy Agency's (IEA) report "Net Zero by 2050" points out that to achieve the net zero goal by 2050 requires "a total transformation of the energy systems" with "immediate and massive deployment" of clean energy technologies. That means by 2030, solar photovoltaics should reach 630 gigawatts annually, and electric vehicles (EVs) are projected to constitute over 60 percent of global car sales. Despite being a major manufacturer of solar panels and EVs, China's capacity still falls short of the world's escalating demand for eco-friendly products necessary to achieve the goal set out in the Paris Agreement.

China supplies the world with an abundance of affordable options. Economically speaking, soaring productivity brings down costs, hence boosting industrial goods output. The process is known as industrialization, offering the public affordable products. In history, it was also known as the Industrial Revolution. Thanks to China's rising manufacturing capacity, once expensive products, such as smartphones or EVs, are now becoming better and more affordable to the public, increasing people's living standards.

From a supply-side perspective, China's new energy capacity creates substantial demand for the upstream and downstream sectors, given the industry's strong correlation with forward and backward sectors, and spillover effects. For example, China's new energy vehicle (NEV) industry has boosted a variety of industries, including automotive electronics, lithium batteries, fuel-cell power systems, downstream automobile rentals, auto finance, and technical and after-sales services. With open and cooperative attitudes and practices, China's new energy industry is increasing market demand for relevant industries and presenting new opportunities for countries from across the world, beneficial to global economic recovery.

Given historical trends in industrial development, the short-term fluctuations in the supply-demand equilibrium in emerging industries are subject to a broader and more complex set of factors than in traditional sectors. Most strikingly, technological breakthroughs may lead to a boom in a dominant emerging industry while it takes time for supporting sectors to keep up in terms of technology and manufacturing capacity. This could lead to a transitory supply-demand mismatch. For instance, the photovoltaics industry presents higher requirements for related industries such as energy storage and power transmission and distribution. Instead of "overcapacity," such brief supply-demand volatility presents opportunities for related upstream and downstream industries.

Additionally, when a new technology comes out, it will coexist with older technologies for producing similar products. For example, as a major source of carbon dioxide emissions, gasoline-powered vehicles coexist with EVs in the automotive industry because they meet comparable consumer demands. It's acknowledged that EVs could help combat climate change and achieve sustainable development, but some Western politicians have unfairly characterized China's NEV industry as being in "overcapacity" without mentioning the capacity of conventional gasoline vehicles in which Western nations excel.

Competition is vital to the global market economy, driving companies worldwide to continually innovate and improve products while preventing artificially inflated prices, a phenomenon observed in the new energy sector. Disregarding China's efforts to bring affordable green products to the general public, the U.S. introduced "discriminatory subsidies" under the Inflation Reduction Act (IRA) of 2022 helping U.S. companies gain an unfair competitive edge. The practice wastes production efficiency, disrupts market rules and violates the WTO guidelines, becoming an impediment to global economic recovery and sustainable development.

To make our home planet a better and greener place to live in, countries should look at industrial capacity in the context of global development, embrace cooperation, and adhere to economic and market norms, rather than make baseless accusations against China. This inclusive approach will only provide real benefits to people around the world.

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