China Rejects 'Overcapacity' Claims in New Energy Sector

Chinese economic officials have pushed back against concerns of overcapacity in the new energy vehicle (NEV) sector, a key area of contention with Western governments. In discussions with Western leaders, Chinese officials have emphasized the need for a pragmatic, market-driven approach to address capacity concerns, acknowledging that natural fluctuations in supply and demand are a normal part of the economic cycle.

Why this matters: This dispute has significant implications for the global clean energy industry, as it may lead to trade tensions and protectionist policies that could hinder the adoption of environmentally friendly technologies. The outcome of this debate will also influence the competitiveness of industries in the US, Europe, and other regions, affecting jobs and economic growth.

According to Wei Jianguo, former vice-minister of commerce, the US is attempting to attack and contain China's emerging industries, including NEVs, lithium batteries, and photovoltaic products, by spreading a false narrative about "overcapacity". China's NEV output surged 28.2% year-on-year to nearly 2.12 million units in the first quarter of 2024, while sales climbed 31.8% to 2.09 million units. NEV exports reached 307,000 units, up 23.8% year-on-year.

Wei Jianguo stated, "The baseless accusation that China is dumping electric vehicles, solar power panels and other clean energy goods in overseas markets is a mean method of trade protectionism by the US." He added, "The world needs China's exports of new energy products, which are of high quality at affordable prices."

The NEV sector's frequent technological updates and phasing out of outdated capacities make it challenging to determine a reasonable capacity utilization rate. This complexity has led to divided opinions on whether the sector is at risk of overcapacity. Robin Xing, Chief China Economist at Morgan Stanley, argues that it is unfair to claim that China's competitive advantage is solely driven by subsidies, when Western nations are employing similar tactics.

U.S. Treasury Secretary Janet Yellen raised concerns with Chinese officials about Beijing flooding global markets with EVs, solar panels, and other clean energy goods, threatening U.S. jobs during her trip to China earlier this month. Yellen stated, "China exporting its way to full employment is not acceptable to the rest of the world." She emphasized the importance of China recognizing the concern and addressing it, while also noting that the U.S. does not want its industry wiped out in the meantime.

The Biden administration is considering all options to respond to China's excess industrial capacity, including potentially higher tariffs on some products. U.S. tariffs on Chinese vehicle imports are currently about 27.5%, and few Chinese EVs are sold in the U.S. at the moment. President Joe Biden recently called for a review to triple the Section 301 duties on Chinese steel to 25%.

As the debate over China's industrial capacity in the new energy sector continues, global demand for NEVs is estimated to reach 45 million units in 2030, more than triple the global sales volume in 2023 and 4.5 times that of 2022. Wei Jianguo forecast that China will roll out more policy measures in the coming months to better attract foreign investors, improve the business environment, and expand high-level opening-up. The issue of China's excess industrial capacity remains a top concern for the U.S. and its allies, threatening producers of similar goods in the U.S., Europe, Japan, and emerging markets such as India and Mexico.

Key Takeaways

• China pushes back against Western concerns of overcapacity in new energy vehicle (NEV) sector.
• US accuses China of dumping EVs and clean energy goods, while China calls it "trade protectionism".
• China's NEV output surges 28.2% year-on-year, with exports up 23.8%.
• US considers higher tariffs on Chinese products, including EVs, to address capacity concerns.
• Global demand for NEVs expected to reach 45 million units in 2030, up from 2023 sales.