MNI: China Overcapacity Rejected, Cooperation Likely - Advisors

China will push back against making any major concessions in response to Western accusations of “overcapacity” in electric-vehicle and green sectors, instead relying on offers of deeper cooperation, which some – such as the EU – may be more open to, advisors told MNI.

Some Chinese economists have rejected the overcapacity claims, noting demand for renewable-energy technologies and electric vehicles will soon outstrip supply.

The Western accusations are aimed at ensuring the market is divided more evenly and not concentrated in China, said He Weiwen, a former economic and commercial counsellor at the Chinese Consulate General in San Francisco and New York.

Global EV sales in 2023 exceeded 14 million units with Chinese cars accounting for nearly 65% of the market, three times that of the U.S. and six times that of European production.

Liu Ying, research fellow at Chongyang Institute for Financial Studies argued existing production capacity will not be enough to meet the rapidly growing demand for EVs in the long run, especially when the supply of internal combustion engine (ICE) vehicles is cut off, as conservative estimates expect every third family in China will own an electric vehicle by 2035.

A BloombergNEF report recently forecasted over 100 million passenger EVs will hit roads by 2026, while the market will grow to over 700 million automobiles by 2040.

While He and Liu represent the mainstream view, some within China’s policy establishment have warned of overcapacity risk due to evidence of disorderly competition and duplication within EV production.

Lu Feng, professor of economics at the National School of Development at Peking University, said in a recent article the latest round of overcapacity mainly focused on petrochemical raw materials – such as ethylene – ICE vehicles, batteries and older chips. Policymakers should moderately adjust trade imbalances by promoting the gradual return of the yuan to sensible appreciation and increase official procurements to boost imports alongside measures to bolster demand, Lu suggested.

DEEPER COOPERATION

U.S. Treasury Secretary Janet Yellen and German Chancellor Olaf Scholz raised overcapacity concerns during their recent trips, however, Liu believes the rhetoric is untenable and China will not make major adjustments to its industrial policies, noting its manufacturing capacity utilisation rate of 76% in Q4 2023 was close to the U.S.’s 77.24%.

“But it is positive for the world’s two largest economies to maintain communication and manage differences,” she added.

Zhang Huanbo, deputy director of the Institute of American and European Studies at the China Center for International Economic Exchanges, could not rule out the possibility of further U.S. tariffs on the country’s new energy products, warning Beijing would respond in kind. However, authorities should work to increase China-made EV uptake by better incorporating it with efforts to combat climate change and grow the market via cooperation, Zhang added.

The EU will finalise its anti-subsidy investigation into the import of China EVs sometime between June and October.

He, also a senior fellow at Center for China and Globalisation, expects the EU to find against China. “The EU could take measures this year, as negotiation will probably not change the general direction,” he added.

MNI has reported Chinese EV makers could open new EU plants in preparation for possible trade barriers resulting from the enquiry into China’s market. (See: MNI: China Plans EU EV Production To Avoid Trade War)

He suggested Beijing should strengthen EV cooperation with Germany further and potentially France, and Italy, to help develop a larger market for China and Europe.

Expanding U.S. cooperation may encounter political resistance due to President Joe Biden’s national security focus, while poor local charging infrastructure could impede increased EV exports to Belt and Road countries in the near term, he added.