Alleged 'overcapacity': Yet another example of protectionism and suppression against China

Editor's note: Jin Ruiting is a researcher at the Academy of Macroeconomic Research of the National Development and Reform Commission. The article reflects the author's opinions and not necessarily the views of CGTN. It has been translated from Chinese and edited for brevity and clarity.

U.S. Treasury Secretary Janet Yellen has accused China's new energy industry of having overcapacity, asserting that "China's overcapacity distorts global prices and production patterns and hurts American firms and workers." 

I find this accusation against China to be unobjective and inaccurate.

From a market point of view, capacity levels are determined by the supply-demand relationship. The balance between supply and demand is relative, whereas imbalances are often the norm and can occur in any economy operating under a market economic system.

In terms of capacity utilization indicators, industries closely linked to new energy fields, such as electrical machinery and equipment manufacturing and automobile manufacturing, have capacity utilization rates of 77 percent and 75 percent, respectively, which are close to the 75 percent capacity utilization rate of China's manufacturing industry during the same period. This suggests that there is no overcapacity issue. According to Bloomberg data, the capacity utilization rates of leading Chinese automobile exporters are at a normal level recognized by the international community.

China's advantages in emerging industries stem from its competencies and are shaped through full market competition, rather than subsidies from the government. While the U.S. accuses China's new energy sector of overcapacity due to government support, it continues introducing industrial policies to support the development of its own new energy industry. For example, the detailed rules of the Inflation Reduction Act stipulate that only electric vehicles assembled in North America are eligible for a maximum subsidy of $7,500 through federal tax deductions, which is a blatantly discriminatory subsidy law.

U.S.'s hyping of 'overcapacity' contradicts Western economic theories

From the perspective of economic principles, the overcapacity in emerging sectors proposed by the U.S. this time contradicts Western economic theories, as it implies that no country should produce products exceeding its domestic sales capacity. If the export of products equates to overcapacity, then Boeing aircraft and American soybeans are also considered to be in overcapacity, and all exporting economies worldwide face overcapacity, which is evidently untenable.

Conversely, at the global level, manufacturing capacity, especially high-quality capacity, is far from sufficient. Taking new energy vehicles as an example, according to the International Energy Agency's calculations, global demand for new energy vehicles will reach 45 million units by 2030, a 4.5-fold increase from 2022. However, global electric vehicle sales in 2023 amounted to a mere 13.7 million units. The global demand for new photovoltaic installations will reach 820 gigawatts (GW) by 2030, about four times that of 2022, yet global installed photovoltaic capacity in 2023 was 420 GW. It is safe to say that presently, the superior capacity of the new energy sector is far from meeting market demand. From a global perspective, the current challenge is not overcapacity but rather a shortage of capacity.

China's manufacturing industry & modern industrial system pivotal in driving world economic growth

China is the only country in the world that has all the industrial categories listed in the United Nations industrial classification system, including 41 industrial categories, 191 medium categories and 525 subcategories. Among the world's more than 500 major industrial products, China ranks first in output of over 200. China's manufacturing industry has robust supporting capabilities, low comprehensive costs and steadily increasing innovation capabilities. In some areas, it has either neared or reached the world's advanced level. It is shifting its role from a "follower" to an"equal competitor" and even to a "leader." With the added value of its manufacturing industry accounting for 30 percent of the global total, China is undeniably the world's largest manufacturing country. According to UN statistics, China has ascended as one of the three primary hubs of the global value chain, alongside the U.S. and Germany. Therefore, since 2006, China has been the top contributor to global economic growth for 17 consecutive years, with an average annual contribution rate of nearly 30 percent since the international financial crisis in 2008. As a major stabilizer and driving force of the world economy, China has actively nurtured and developed "new quality productive forces." It will fuel massive demand for the world, stabilize the global supply-demand system, and foster extensive business opportunities for innovation. This will not only benefit China but also inject more and stronger impetus into the world's economic recovery and growth.

Development of China's new energy sector roots in its strong economic advantages & contributes significantly to global green transformation

In 2023, exports of the "new three" products – new energy vehicles, lithium-ion batteries, and photovoltaic products – exceeded the trillion-yuan threshold for the first time, growing by nearly 30 percent, with a substantial international market share. The development is based on and rooted in the following facts:

On the one end, China's economic situation is recovering and improving. Since the beginning of this year, as macro policies continue to exert their effects, China's economy has started well, with stably increasing production and continuously recovering demand. Leading indicators and high-frequency data continue to improve, especially in March, when China's PMI (purchasing managers' index) reached 50.8, signaling a return to the expansion zone after five consecutive months below 50. The recovery and improvement of China's economic situation are the greatest confidence for the development and proliferation of the "new three" products.

On the other end, China's competitiveness has enhanced year after year. In today's world, China has the most comprehensive industrial system, complemented by robust soft and hard infrastructure, abundant human resources, heightened innovation capabilities and diverse application scenarios, enabling it to respond rapidly to global supply and demand changes with cost advantages. In recent years, although the global industrial chain and supply chain pattern has been undergoing profound restructuring, "Made in China" still occupies a solid position. China's product competitiveness has been strengthened year by year, providing a practical guarantee for the development and growth of the "new three" products.

The Earth is the home shared by humanity. Faced with global environmental and climate crises, no country can stand aside. China's new energy industry continues to provide affordable high-quality capacity, making vital contributions to global green development. Currently, China has built the world's largest, most comprehensive and highly competitive clean energy industry chain, with photovoltaic module production topping global rankings for 16 consecutive years. The production of polycrystalline silicon, wafers, cells and modules accounts for over 80 percent of the global total. In 2023, the conversion efficiency of mass-produced advanced photovoltaic cells reached 25.5 percent. China will participate more actively in global environmental and climate governance, enhance practical cooperation and support the green and low-carbon development of developing countries.