China's NEV capacity: Rational expansion driven by market and technological innovation

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 sixth essay investigates China's rapid advancement in the "new three" industries. Is it driven by state subsidies or the innovation prowess of Chinese firms? Bai Mei, a special commentator on current affairs for CGTN, is a Senior 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.

U.S. Treasury Secretary Janet Yellen recently voiced concerns about "overcapacity" in China's "new three" industries, the new energy vehicle (NEV) sector included, attributing this purported surplus to state intervention. She highlighted that such "overcapacity" threatens "workers and businesses in the United States and the rest of the world." This assertion potentially misleads investors, undermines global emission reduction efforts and contradicts the trajectory of clean energy technology development.

Firstly, Yellen's statement appears to overestimate the influence of policy on capacity expansion while underestimating the role of corporate decision-making.

The rapid development of China's NEVs capacity is the result of companies' self-adjusting their production capacities based on market demand and competitive situations. NEVs are widely recognized as effective tools for reducing greenhouse gas emissions in the transportation sector. The International Energy Agency (IEA) notes that "electric vehicles are the key technology to decarbonize road transport." Given this global consensus, demand for NEVs is rapidly expanding. In 2023, global NEV sales hit a new record, surpassing 13 million units – a 35.7 percent increase year-over-year, with China accounting for around 9.5 million of these vehicles, up 37.9 percent from the previous year and representing 73.1 percent of the global market. With zero-carbon targets accelerating in the transportation sector, the global electric vehicle market is expected to continue its robust growth.

Furthermore, the recent expansion of Xiaomi's SU7 production capacity illustrates the proactive business decisions made to meet the surging domestic and international demand for electric vehicles. This increase is a response to market demand, fierce competition, accelerated technological innovation and rapid product iterations, rather than being the result of disorderly expansion or policy distortions.

Secondly, the role of technological advancement in capacity expansion is overlooked. Technological progress not only enhances the performance and reduces the costs of NEVs, but also stimulates the development of related industries, such as battery production, motor manufacturing and electronic control systems. These advancements have led to a chain reaction that expands and upgrades the entire industry. Recent improvements in battery technology, particularly in lithium-ion batteries, have increased energy density and reduced costs, significantly lowering manufacturing costs for NEVs. Enhancements in battery management systems and motor control technologies have not only extended the driving range and reliability of electric vehicles, but have also improved safety and user experience. These developments make it economically viable to produce more NEVs and encourage companies to expand production scales to meet growing market demands.

Thirdly, speculations about global trade conflicts are overly pessimistic and disregard the efficacy of the international trade framework. While the scale effects of China's NEVs may enhance their competitive pricing edge internationally, potentially impacting industries in other countries, the existing international trade framework provides adequate tools to address potential market distortions and trade disputes. Multilateral institutions and rules within the international trade system, such as the World Trade Organization (WTO), offer platforms and mechanisms to resolve trade disputes effectively, managing price competition issues stemming from market surpluses and ensuring fairness in trade practices.

In conclusion, the expansion of China's NEV capacity is based on strong market demand, technological innovation, rapid product iterations and intense market competition. The global trade system is equipped with sufficient mechanisms and tools to handle potential trade conflicts, and maintain fair market competition. Therefore, the U.S. government should focus more on its cooperation with China and development in the NEV industry, ensuring consumers have more choices when purchasing NEVs, rather than resorting to unilateral criticism and trade sanctions.

(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.)