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China’s New Energy Capacity Turbocharges Global Green Transition and Open Development

By:MOFCOM   Update:2024-05-29
Recently, some countries have been hyping so-called Chinese ‘overcapacity’, accusing China’s new energy industry of exporting large quantities of subsidized goods and flooding the international market with excess capacity. This preposterous and false narrative is essentially a new gambit of double standards and trade protectionism. Building its strength through open competition, China’s new energy industry represents advanced productivity, not only enriching supply and easing inflationary pressure worldwide, but also contributing significantly to global climate actions and green transition.
I. The capacity issue needs to be viewed objectively and dialectically through the lens of the law of the market economy.
Market economy principles suggest that matched supply and demand based on the global market can boost efficiency. Supply and demand is a basic principle of the market economy. The reality of economic globalization has made the world economy an inseparable whole, with globalized production and consumption requiring effective globalized demand-supply matching and adjustment. To meet demand with domestic and small-circle capacity would not only be difficult to achieve in practice, but also lead to duplicate construction, inefficiency, soaring costs, and fragmented industrial and supply chains worldwide, disrupting the global economic system. The automotive industry, for example, has emerged and thrived amid globalized production and sale. In 2023, only 20% of the cars produced in Germany were sold domestically, with 80% exported to the international market. Japan sold around 50% of the cars it made to foreign countries. In contrast, China’s overseas sales of new energy vehicles (NEVs) only accounted for 12.7% of its output. The ‘overcapacity’ allegation against China is obviously groundless.
The practice of international trade shows that the division of labor on the basis of comparative advantage is conducive to global well-being. The emergence and evolution of international trade is a result of the international division of labor and cooperation among countries based on their comparative advantages. This leads to global allocation of high-quality goods and services and global distribution of capital and industries, driving the world economy as well as enriching and improving consumer choice in all countries. New energy products from China are in great demand globally. For one thing, they meet the urgent need for global green transition and bring the Paris Agreement goals within reach. It is estimated that an NEV can reduce carbon emissions by about 1.66 tons per year. In 2023, China exported 1.203 million NEVs, which can reduce emissions by about 2 million tons per year. For another, cost-effective Chinese new energy products have obvious comparative advantages. Though cheaper than similar European models, Chinese NEVs exported to Europe are priced two to three times as high as NEVs on the China market. With such substantial profits, dumping is non-existent.
The law of industrial development shows that high-quality production capacity driven by scientific and technological advances is conducive to sustainable development. As green and low-carbon development gathers momentum, global demand for new energy products will continue to grow, creating ample space for the emerging new energy industry. According to a study by the International Energy Agency, in order to achieve carbon neutrality, the global sales of NEVs need to reach about 45 million in 2030, more than three times that of 2023; In 2030, global demand for power batteries will reach 3,500 GWh, more than four times the global shipments in 2023, both far exceeding current global supplies. At the same time, the global new energy industry is shifting from infancy to a growth period, but is still far from maturing. The rapid upgrade and iteration of technologies and products will continue to generate new demands, new drivers and new capacity. Instead of being in excess, advanced production capacity is insufficient.
II. The strengths of China’s NEV industry are fostered through open competition.
China’s NEV industry has continued to make technological innovation. As early as over 20 years ago, Chinese enterprises began to focus on R&D investment and lay the groundwork in the new energy industry, gaining unique technological advantages. Take batteries, a key component of NEVs, as an example. From liquid lithium batteries to semi-solid lithium batteries, from Qilin batteries that can deliver a range of 1000 kilometers on a single charge to the 800V high-voltage SiC platform that can get a 400-kilometer range on a five-minute charge, Chinese enterprises have continuously made breakthroughs in core battery technologies, with greater safety, longer range and faster charging.
China’s NEV industry has continued to build industrial chains and supply chains. As they develop, Chinese enterprises have gradually formed efficient and full-fledged industrial and supply chains. At present, China's NEV industry is supported by comprehensive ancillary industries, covering not only traditional suppliers of car body, chassis, and car components, but also emerging suppliers of battery, electronic control, electric drive system and electronic products and software. In the Yangtze River Delta region, NEV OEMs can access all the components they need within a four-hour drive.
China’s NEV industry has continued to improve market ecosystem. With its enormous size, rich scenarios and full competition, the Chinese market allows digital, green and artificial intelligence technologies to be applied and industrialized rapidly. Amid vibrant entrepreneurship and innovation and fierce competition, stronger enterprises and products have emerged and won consumers. In 2023, NEV production and sales in China rose by 35.8% and 37.9%, with 87 % of the cars, or 8.3 million, sold in the Chinese market.
China has continuously advanced open cooperation. China’s NEV sector welcomes foreign-invested enterprises with open arms. Volkswagen, Stellantis and Renault, among other multinational automakers, have established joint-venture factories with Chinese NEV manufacturers. Tesla accounts for over one third of China’s NEV exports. CEO of the Volkswagen Group said, “China has become something of a fitness centre for us”. Meanwhile, Chinese companies engage actively in overseas investment and technical cooperation, driving the development of the NEV sector in host countries.
III. The accusation that China’s industrial subsidies result in ‘overcapacity’ is completely untenable.
China’s industrial subsidy policy is reasonable and compliant with rules. Guiding industrial development and restructuring with subsidies is a common practice widely adopted across the world. The key is compliance with WTO rules and commitment to fairness, transparency and non-discrimination. All businesses have equal access to China’s industrial subsidies, which are in strict accordance with WTO rules and applicable to all types of market entities. China has notified the WTO of its related subsidy policy in a timely and comprehensive manner and provides no subsidies prohibited by the WTO. The U.S. and the EU, in contrast, have significantly increased their subsidies and adopted a large number of exclusive, discriminatory practices in recent years. For instance, the EV subsidy policy of the U.S. Inflation Reduction Act discriminates against Chinese businesses, excluding their EVs, batteries and critical minerals from subsidy benefits, and setting multiple barriers to keep out these Chinese products. This obviously violates WTO rules and constitutes a typical protectionist act. The European Commission has also approved numerous subsidy programs.
The ‘overcapacity’ hype speaks to over-anxiety. Countries that smear and suppress China under the excuse of ‘overcapacity’ are actually worried about their own competitiveness and market shares, which explains their apprehension. Trade protectionism is counterproductive. Those who restrict Chinese exports and investment cooperation with China through labelling and stigmatization will fail in halting China’s progress. Instead, that will only trip themselves up, destabilize global new energy industrial and supply chains, disrupt the international economic and trade order, and hinder global economic recovery. Those who apply double standards on green development can not have their cake and eat it, and, quite the contrary, will only find it self-defeating. Countries such as the U.S. and the EU should not wave the banner of fighting climate change in one hand, requiring China to undertake greater responsibility for climate response, and the stick of protectionism in the other, blocking the free trade of Chinese green products. Such an approach is unhelpful for their situation. Rather, it undermines global climate cooperation and obstructs global green transition. Cooperation on climate change does not allow protectionism, and protectionism will not lead to real climate cooperation.
China will always stay committed to open cooperation to achieve mutual benefits and common development. China keeps advancing high-standard opening up, building a world-class business environment that is market-oriented, law-based and up to international standards, and sharing new opportunities of Chinese modernization with the rest of the world. China firmly upholds the multilateral trading system with the WTO at its core, staunchly champions trade and investment liberalization and facilitation, and resolutely opposes trade protectionism. China stands ready to deepen cooperation on new energy industrial and supply chains with all, push for technological innovation and industrial development, and promote a universally beneficial and inclusive economic globalization, so as to collectively tackle climate change and build a community with a shared future for mankind.
(All information published on this website is authentic in Chinese. English is provided for reference only.)