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Overcapacity or broken logic

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The Dingdongpo wind power-photovoltaic project in Shiqian County of Tongren City, southwest China's Guizhou Province, November 16, 2023. /Xinhua
The Dingdongpo wind power-photovoltaic project in Shiqian County of Tongren City, southwest China's Guizhou Province, November 16, 2023. /Xinhua

The Dingdongpo wind power-photovoltaic project in Shiqian County of Tongren City, southwest China's Guizhou Province, November 16, 2023. /Xinhua

Editor's note: Yi Xin is a Beijing-based commentator on international affairs. The article reflects the author's opinions and not necessarily the views of CGTN.

American officials visiting China lately, from Secretary of the Treasury Janet Yellen to Secretary of State Anthony Blinken, all raised overcapacity concerns with their Chinese counterparts. The latest paranoid about China's "overcapacity" especially in clean energy sectors, is a hype that is wrong on both facts and reason.

Statistics speak for themselves

Data from the China Association of Automobile Manufacturers show that in the first quarter of 2024, China produced some 2.12 million units of new energy vehicles (NEVs) and sold around 2.09 million units. Among the total sales, only 14.7 percent were exported.

In comparison, Germany exports nearly 80 percent of its automobile output, and Japan and the U.S. export about 50 percent and 20 percent respectively. Plus, Chinese NEV exports to the U.S. were only around $368 million in 2023, while the EU exported some $7.4 billion to the U.S., nearly 20 times higher. And according to German consultancy JSC Automotive, most of China's biggest NEV exporters, including BYD and SAIC Motor, have capacity utilization rates above 80 percent. That is to say, the Chinese NEV industry is producing and exporting in keeping with market demand, and the lion's share of China's NEV output is consumed by the domestic market.

Nicholas Lardy, a senior fellow at the Peterson Institute for International Economics, a U.S.-based think tank, pointed out in a recent interview, "This overcapacity idea is that you shouldn't produce more than you can sell domestically. If that was carried to an extreme, that would mean no trade globally."

We must never forget that in the era of globalization, it is natural for manufacturers to cultivate both domestic and international markets. And companies of all countries, including China, have the right to win a place in the international market through fair competition. That has long been the logic of global trade.

Broken logic

Some in the West accuse China of winning global market share for green products through "unfair practices." The truth is, that China's new energy products are competitive because it started out early and has kept investing in its research and development, hence a leading edge in technology. Combined with its vast range of supporting industries, huge market and rich human resources, that leading edge becomes strong competitiveness.

The U.S. and some European countries, however, are rolling out massive subsidies in these areas. The American government, through the Inflation Reduction Act, is providing approximately $369 billion in tax incentives and subsidies for clean energy industries, including electric vehicles (EVs). Several European countries are also giving subsidies to their EV industries, ranging from corporate tax breaks to individual purchase incentives.

As pointed out by the Chinese Ambassador to the U.S. Xie Feng, globally, green capacity is not excessive, but in dire scarcity, and the problem now is not "overcapacity," but "over-anxiety." A Bloomberg report also gave an incisive summary: "The issue for advanced economies appears to be more that Chinese companies are more efficient rather than loaded with excess capacity."

As untenable as it is, the latest "overcapacity" allegation is essentially an excuse to justify these countries' green protectionism, and another tactical move to curb China's industrial progress and preserve their dominance in relevant sectors, particularly in the auto market.

The world needs more green capacity

For other developing countries and emerging markets, what China's manufacturing prowess brings is not headaches of "overcapacity" but an opportunity to accelerate development and green transition. For example, the Chinese-built Al Dhafra PV2 Solar Power Plant in Abu Dhabi helps the UAE enhance its energy security. BYD's factories in Brazil and Uzbekistan, as well as plants of battery giants SVOLT and EVE in Thailand and Malaysia, also bring investment and jobs to local communities and help these countries build up their green industry ecosystems.

A new energy vehicle displayed at the exhibition area of Zhongguancun Forum in Beijing, capital of China, May 27, 2023. /Xinhua
A new energy vehicle displayed at the exhibition area of Zhongguancun Forum in Beijing, capital of China, May 27, 2023. /Xinhua

A new energy vehicle displayed at the exhibition area of Zhongguancun Forum in Beijing, capital of China, May 27, 2023. /Xinhua

As climate action gets more urgent, there is actually a huge green demand to be met worldwide. According to the International Energy Agency, the global demand for NEVs will reach 45 million in 2030, more than four times that of 2022; the global demand for newly installed photovoltaic capacity will reach 820 gigawatts, about four times that of 2022.

If anything, there is a problem of undercapacity in terms of clean energy products worldwide, not overcapacity. And China is providing domestic and global consumers with quality and more affordable green products.

In China, you can buy a BYD Qin Plus EV for just 79,800 yuan (about $11,022), equivalent to the price of 10 iPhones. Another model, the BYD Seagull, which sells well globally, has a starting price of only around $10,000. In the U.S. market, however, even the Nissan Leaf EV, one of the most affordable models, costs more than $25,000. It's clear that affordable and quality Chinese products could help a family save a lot of money.

The zero-sum and protectionist way of thinking will only hinder the popularization of cost-effective new energy technologies and slow down the green transition globally. Given the urgency of the climate crisis, that would be a lose-lose for all. The development of emerging industries can well be a positive-sum game. What the world needs now is more concerted efforts to make the pie of global trade and cooperation bigger, not narrow-minded finger-pointing.

(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.)

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