Debunking misconceptions about ‘China overcapacity’ claim

Editor’s note: Viewpoints in this article are excerpted from an editorial of China Media Group published on its news application.

Workers install solar modules and other equipment at a construction site of a photovoltaic power station, Xinyu City, east China’s Jiangxi Province, March 22, 2024. /CFP

Workers install solar modules and other equipment at a construction site of a photovoltaic power station, Xinyu City, east China’s Jiangxi Province, March 22, 2024. /CFP

U.S. media outlets and politicians launched intensive attacks against China’s new energy industry in recent months, claiming China has flooded the world with excessive clean products, including solar power, new energy vehicles (NEVs) and lithium-ion batteries, which have depressed market prices and hurt workers and manufacturers in America.

The following are some misconceptions of the U.S. about the production capacity of China’s new energy industry. Data and analysis by experts have debunked the West’s overcapacity argument, proving it’s an excuse for protectionism, goes against economic principles and will hinder global decarbonization efforts.

Exportation doesn’t mean overcapacity

The U.S. claimed that China exported too many clean energy products. They simply linked production capacity with international trade, believing that exportation equals overcapacity, which is the first misconception.

In a global economy with a high degree of division of labor and specialization, output and demand cannot be confined to a single country or region and it’s normal for a country to have greater production capacity over its domestic demand. 

For example, more than 80 percent of U.S. semiconductor companies’ sales are to overseas customers and around 80 percent of cars produced in Germany are exported. Commercial aircraft giants Airbus and Boeing exported most of their aircraft to other countries. Airbus delivered 735 commercial aircraft to 87 customers around the world in 2023 and Boeing delivered 528 commercial aircraft in 2023.

Meanwhile, China’s clean technology products, such as EVs, solar panels and lithium-ion batteries, only comprise a small share of China’s exports, roughly 4.5 percent last year, far lower than that of Germany, Japan and South Korea. 

China’s new energy products don’t exceed global demand

In a report named the Global EV Outlook issued last year, the International Energy Agency (IEA) estimated that the global demand for new EVs will reach 45 million, more than triple the global sales volume in 2023 and 4.5 times that of 2022. The global demand for new photovoltaic installations will reach 820 gigawatts, about four times that of 2022.

To fight global warming, “an additional 7 terawatts of renewable energy capacity” is needed in the next five years to stay in sync with Paris Agreement commitments, Denis Depoux, global managing director at German consultancy Roland Berger, told South China Morning Post. The International Renewable Energy Agency in 2023 estimated the global renewable power capacity must grow by around 1,000 gigawatts a year through 2030 to keep the Paris targets alive.

Another reason why Chinese companies aren’t dumping EVs on global markets at a lower cost is that leading Chinese EVs fetch roughly double on average in Europe than domestically, which also indicates China’s strong competitive advantage in technology and global supply chains.

A wind farm in Baoshan Town, Qingdao City, east China’s Shandong Province, March 13, 2024. /CFP

A wind farm in Baoshan Town, Qingdao City, east China’s Shandong Province, March 13, 2024. /CFP

U.S. claims junk economic principles

Experts have said that U.S. complaints about China’s new energy products go against the economic principle of comparative advantages. The principle says that if a country can manufacture goods at lower costs, other countries should import the goods because it’s good for consumers, and in return, the country can send back something where its industry is more efficient. 

For example, before the China-U.S. trade friction started, the U.S. in 2017 exported 57 percent of its soybeans, 25 percent of aircraft, 20 percent of automobiles, and 17 percent of cotton to China, which are all U.S. advantage industries.

China has an ultra-large scale market, a comprehensive industrial chain spanning material research and development, engineering design, manufacturing, and final assembly, as well as rich human resources, which helped enterprises reduce production costs, making their products more affordable. Chinese Premier Li stressed that China’s new energy industry has gained advantages through self-improvement and sufficient market competition rather than government subsidies. 

U.S. new energy industry lags behind

Due to insufficient green tech and infrastructure investment, and political and economic elites cooling on the energy transition, the U.S. green tech industry is lagging behind. 

Taking wind energy as another example, a recent report by the Global Wind Energy Council (GWEC) revealed that U.S. supply chains are already running into bottlenecks for almost every complex component of a wind farm, with the only exceptions being basic steel plate, copper and concrete. And the same shortages will start to spread this year and next in Europe.

Unlike NEVs, solar power, and lithium-ion batteries which can be bought by individuals and businesses, building a wind farm needs the vast size of turbine blades and the high share of bespoke engineering that goes into producing immense concrete-and-steel towers and foundations, which makes wind energy much harder to trade across borders. 

However, China is the only country that has a sufficient supply chain to keep wind energy growing without speed bumps. An IEA report in 2023 said China’s investment in clean energy supply chains has been instrumental in bringing down costs worldwide for key technologies, with multiple benefits for clean energy transitions.

Liao Min, China’s vice minister of finance, said in a press briefing that China’s affordable green tech products help China meet its own carbon emission goals and contribute to the global response to climate change and green development.