Unveiling motives behind “overcapacity” narrative in China’s new energy sector

By Zhong Caiwen

In recent times, the United States has been promoting the notion of “overcapacity” in China’s new energy sector, even in the absence of factual evidence. This has led to some countries following suit and joining in the hype. The true purpose behind these efforts is quite evident.

The main objective of hyping up this notion is to contain and suppress China’s advantageous industries. The United States has identified China as its most serious strategic competitor. In the economic realm, the United States has been attempting to suppress China’s high-tech and strategic emerging industries. Given that the new energy sector is crucial for green and low-carbon transformation and future development, it has inevitably become a focal point for the United States in its competition with China and its efforts to restrain and suppress China’s growth.

In recent years, China’s new energy industry has experienced robust growth, with three major tech-intensive green products, or the “new three” — new energy vehicles (NEVs), lithium-ion batteries, and photovoltaic products gaining wide popularity globally. China has established a certain competitive advantage in the global market by pursuing technological innovation, production efficiency, and high-quality products.

During this year’s China Import and Export Fair, or Canton Fair, importers from Europe and the United States noted the popularity of China’s green technologies worldwide and acknowledged the country’s role as a global leader in NEV sector. They were also keen to procure more NEVs from China.

Earlier this year, journalist and writer Henry Sanderson highlighted in Foreign Affairs that when it comes to clean energy industries, the West lags far behind China. “China is at the forefront not just in production and deployment of clean energy technologies but also now in innovation,” said Sanderson.

Bloomberg reported on April 2 that Chinese carmakers are more competitive, thanks to technology, local supply chains, brand new transport infrastructure, and lower energy and land costs. Chinese companies aren’t dumping electric vehicles on global markets at a lower cost. China’s biggest electric vehicle exporters all have capacity utilization rates above 80 percent, said the report.

The U.S. government turns a blind eye to these facts and maliciously promotes the notion of “overcapacity” in China’s new energy sector. It distorts China’s industrial policies, overstretches the concept of national security, and attempts to rally allies and partners to decouple from and disrupt China’s new energy industry. The ultimate goal is to impede and suppress the development of China’s advanced manufacturing and new energy industries with unfair and non-market means.

The intention behind the “overcapacity” narrative in China’s new energy sector is to support U.S. domestic industries. Since the 1970s, traditional manufacturing in the U.S. has increasingly moved to developing countries with lower production costs, causing the hollowing out of its manufacturing sector.

The value added of manufacturing contributed 22.7 percent to the U.S. GDP in 1970, but the figure dropped to 10.3 percent in 2022. During the same period, the proportion of manufacturing employment to total non-farm employment decreased from 24.5 percent to 8.4 percent.

The 2008 global financial crisis revealed the dangers of an economy detached from tangible production, prompting the U.S. government to implement a reindustrialization strategy that aimed at reshoring the manufacturing sector and developing U.S. domestic industries.

When it comes to the new energy sector, the conflicting ideologies of the Democratic and Republican parties have resulted in a wavering and indecisive approach in balancing traditional energy sources with the advancement of clean energy. This created the pendulum effect that has hindered the development of the U.S. new energy industry.

At the beginning, the U.S. actively participated in global climate governance and implemented the Paris Agreement on climate change, vigorously developing clean energy technologies.

However, it later announced the withdrawal from the Paris Agreement and shifted its energy policy towards the traditional fossil energy industry.

In August 2022, President Biden signed the Inflation Reduction Act into law, marking another major shift in the U.S. climate and energy policy. According to the Act, subsidies of up to $369 billion would be invested in industries such as NEVs, charging stations, and photovoltaic equipment.

The fluctuating energy policies have bewildered many new energy companies in the U.S., causing them to miss out important development opportunities.

In light of this situation, the primary objective behind the “overcapacity” narrative in China’s new energy sector is to create more time and room for the development of its domestic new energy industry.

The hype of the “overcapacity” narrative in China’s new energy sector is also partly fueled by the political agenda within the U.S., which is grappling with economic and social challenges. As anxiety and apprehension grow over China’s development, shifting the blame outward and projecting a display of power against China has emerged as a convenient political tactic.

This year’s U.S. election will hinge on the outcomes in a few key swing states. According to the latest polling data released by Real Clear Politics, support for Democratic and Republican candidates in six critical swing states – Pennsylvania, Michigan, Georgia, Arizona, Wisconsin, and Nevada – is hovering around 45 percent, making the contest exceedingly tight.

Traditional industries like steel and fuel-powered automotive manufacturing, and new energy sectors such as NEVs, lithium-ion batteries, and photovoltaic products, are pivotal economic drivers that underpin job creation and local livelihoods in these battleground states.

Whether it’s the steel industry in Pennsylvania, the fuel-powered automotive industry in Michigan, the solar industry in Georgia and Arizona, the NEVs industry in Wisconsin, or the battery industry in Nevada, all face competitive pressures from global players, including China.

Raising the narrative of “overcapacity” in China’s new energy sector at this juncture is an important strategy for U.S. presidential candidates to win over voters and stakeholders in these critical swing states.

Driven by domestic economic and political imperatives, the U.S. “overcapacity” narrative in China’s new energy sector, in disregard of market dynamics and international rules. Such narrative is a new pretext for economic de-globalization, protectionism, and unilateralism. A few other countries, blinded by their own short-term interests, are jumping on this bandwagon indiscriminately.

This doesn’t benefit China, the U.S., other countries involved, or the world at large. Curbing and suppressing the development of China’s new energy industry will not strengthen domestic industries in the U.S.; instead, it will distort the international market and undermine efficient resource allocation.

History has repeatedly proven that unilateralism and protectionism ultimately result in self-inflicted harm. The international community faces common challenges in green and low-carbon transition and addressing climate change. The development of China’s new energy industry aligns with future development trends and contributes to the UN 2030 Agenda for Sustainable Development and the Paris Agreement on climate change.

It is hoped that the U.S. and a few other countries adopt the vision to build a community with a shared future for mankind and proceed from the fundamental well-being of their own people and the people in the rest of the world. They should uphold the principles of multilateralism and free trade, and strengthen cooperation with China in the new energy sector to address common challenges faced by the world.


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