“Overcapacity” in China’s new energy industry is pseudo-proposition

By Zhong Sheng, People’s Daily

The narrative of “overcapacity” in China’s new energy industry is a pseudo-proposition, whether viewed from the principles of market economy and the law of value, or analyzed under the context of global division of labor and international market.

It is contrary to economic logic and reality to claim that China is exporting its excess capacity. Under economic globalization, production capacity is determined by supply-demand relations. According to the law of the market, the equilibrium between supply and demand is in constant flux, with imbalance being the norm in any market economy. Addressing the imbalances primarily relies on market regulation in accordance with the law of value.

China is an open market that embraces globalization. This requires Chinese new energy enterprises to adopt both domestic and international strategies in their development visions and resource allocation. Cross-border trade would not have existed if each country only focused on meeting their domestic demand.

The rise in Chinese exports of electric vehicles, lithium-ion batteries and photovoltaic products in recent years is a result of global division of labor and market demand. It’s absurd to relate capacity issues to global trade and attribute China’s expanding exports to overcapacity.

As a matter of fact, it’s simply not the case that green products are in excess supply globally. On the contrary, the global demand for such products far outruns the supply.

According to the International Energy Agency, the global demand for new energy vehicles (NEVs) is expected to reach 45 million units by 2030, 4.5 times that of 2022, and the global demand for newly installed capacity for photovoltaic products will reach 820 gigawatts by 2030, about four times that of 2022.

The current production capacity for green energy in the world falls significantly short of the global demand, especially when more than 130 countries and regions have raised their carbon neutrality targets. Given the huge potential of global demand, China’s green production capacity is far from enough. It’s a complete fallacy that China’s “overcapacity” in new energy sectors harms the global market.

In an article, Bloomberg said to the extent that there’s grounds for hope around the energy transition right now, it’s largely thanks to the availability of cheap, clean Chinese products.

In today’s world, both supply and demand should be considered in a global context. It is an economic principle beyond human control that the production capacity of a country is decided by its own comparative advantages.

China’s new energy products are competitive because China, as an early player in the industry, has fostered technological advantages through long-term research and development, and developed comprehensive strengths by leveraging its robust domestic industrial capabilities, enormous market, and rich human resources.

Despite being priced higher than in the domestic market, Chinese NEVs and other related products are still highly sought after in many countries overseas. This demonstrates that China’s competitive advantages in production capacity are determined by both global demand and the efficiency of Chinese enterprises, in accordance with the law of the market.

It is driven by the entrenched protectionist beliefs that some countries labeled the Chinese new energy industry with “overcapacity.” Such false narrative is just an excuse to justify the imposition of trade barriers on China’s exports.

What is truly excessive is not China’s new energy capacity, but rather the abuse of protectionism by these countries to suppress the legitimate development of other countries.

They keep saying all the time that they oppose unfair trade and non-market practices, but in fact they are politicizing economic and trade issues, disturbing free trade with non-market approaches.

By spreading the false narrative of “overcapacity” in China’s new energy industry, they aim to stifle China’s industrial development and seek more favorable competitive positions and market advantages for themselves.

Those who spread such narrative to justify protectionism have nothing to gain from it and will only destabilize and disrupt global industrial and supply chains, hinder the world’s green transition, and curb the growth of emerging sectors.

Neue Zürcher Zeitung, a Swiss newspaper, said on its website that the West’s complaints about China’s “overcapacity” are hypocritical and short-sighted and the Western industrialized countries would do better to face up to the competition and push for equal market access in exchange for good and cheap Chinese green energy products.

Any remark or practice that politicizes or overstretches the concept of national security regarding economic and trade issues is against the law of economy, which neither helps with a country’s industrial growth nor the recovery of the global economy. Attempting to sabotage others and gain a competitive edge through the “overcapacity” hype is both unmoral and impractical.

China stands ready to work with all relevant parties to uphold the basic principles of the market economy, including fair competition and open cooperation, so as to make its due contributions to global green and low-carbon transition.


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