EV Photo:VCG

Chinese officials have hit out at US and European accusations of "overcapacity" in China's electric-vehicle (EV) industry in recent days, while Chinese experts believe that playing the "overcapacity" card shows the West's insecurity over China's competitive advantage. They added that this is also another form of de-risking from China, which will only hinder progress toward their green and low-carbon transformation, experts said.

Chinese Commerce Minister Wang Wentao on Sunday hit out at Western accusations of "overcapacity" in China's EV industry, saying that China's advantage is built on innovation, not subsidies, according to China's ministry of commerce (MOFCOM).

Chinese Vice Finance Minister Liao Min on Monday also addressed the US accusations of China's "overcapacity" in emerging industries, emphasizing the importance of market adjustments. However, trade protectionism measures are not the solution, he said.

The remarks come as the latest response to recent hype from the US and Europe claiming that China has "overcapacity" in some industries such as EVs, as they attempt to restrict China's market access and protect their own industries through protectionist measures.

Hype of overcapacity baseless 

Wang made the remarks during a roundtable discussion in Paris on Sunday with representatives from more than 10 Chinese companies including BYD and CATL during a trip to Europe. 

Wang rejected the accusations by the US and Europe of "overcapacity" as being categorically groundless. The rapid development of the Chinese EV industry was achieved thanks to Chinese enterprises' vigorous innovation, the country's supply chain efficiency and free market competition, not subsidies. He also said that China will support Chinese EV companies in defending their rights and interests.

Liao said China attaches great importance to its capacity issues. 

"Overcapacity" is a result of market mechanisms at play. It is a common issue in market economies, including the US, and should be addressed by market principles, Liao said.

China strongly opposes developed economies' overstretching of security concepts and rising protectionism measures in green energy sectors, which will only harm their own interests and infringes on the rights of Chinese companies, Liao said.

The remarks came after the US and Europe raised concerns of industrial "overcapacity" in China and placed hurdles on Chinese EV exports.

The EU launched an investigation in October 2023 to determine if it should impose additional tariffs on imports of EVs from China over the so-called subsidies. It was followed by the EU's launch of a special customs registration process on Chinese EVs in March.

US Treasury Secretary Janet Yellen on Sunday also raised concerns about the impact of Chinese industrial "overcapacity" on the US economy. "China is now simply too large for the rest of the world to absorb this enormous capacity. Actions taken by the PRC today can shift world prices," she said on Monday after wrapping up four days of talks with Chinese officials. 

Officials from Ministry of Industry and Information Technology (MIIT) said on Monday that the push for trade restrictions on China's EVs without sufficient evidence not only violates WTO trade rules but also disrupts the global supply chain, harming the interests of global consumers. 

This is not conducive to the development of the global automotive industry and will also hinder their own electrification transformation process, MIIT said.

Chinese experts said that the hype of "overcapacity" and restrictions on Chinese EVs show a protectionist mindset aimed at safeguarding the US and EU's own industries.

The so-called overcapacity of China's EVs is a reflection of the EU's intervention in China's products and shows a trade protectionist attitude, Cui Hongjian, a professor with the Academy of Regional and Global Governance at Beijing Foreign Studies University, told the Global Times on Monday. 

"Overcapacity is not a suitable excuse for trade protection, and the definition of the so-called overcapacity is very subjective and lacks market data," Cui added. 

China's new energy vehicle production is not experiencing a surplus in capacity, and one reason for this is that the supply of China's EVs largely caters to its own domestic demand, Wu Shuocheng, a veteran automobile analyst, told the Global Times on Monday.

Additionally, the rapid pace of development in China's EV industry ensures that there is a constant demand for new models and technologies, leading to the phasing out of old products, and this dynamic market environment prevents the occurrence of overcapacity, Wu said.

According to data from the China Association of Automobile Manufacturers, in 2023, China's production and sales of new-energy vehicles (NEVs) totaled 9.587 million and 9.495 million units respectively.

Protectionism impedes free market, green transition

At the roundtable, Wang emphasized that the development of the Chinese EV industry has made a significant contribution to global efforts to address climate change and the transition to a green, low-carbon world. 

He also called on Chinese EV companies to continue being innovative, deepen cooperation with local companies and contribute to a global green transformation.

In 2023, output and sales of EVs in China reached new highs, helping China's auto exports surpass those of Japan and making China the world's largest car exporter.

The EVs, along with lithium batteries and solar cells, are known as the new "three major items." They have become increasingly important in China's foreign trade and also contribute to global energy transformation needs.

Wu noted that the recent surge in Chinese EV exports is built on advanced design and manufacturing technology, significant advantages in manufacturing efficiency and intelligence level that puts foreign players at least one generation behind.

The EU should not distort China's growth in new-energy exports backed by continuous investment and innovation as "overcapacity". Following this logic, many of the EU's advantageous products would also be considered overcapacity, experts said.

According to Ducker Carlisle, a global consulting and M&A advisory company, Chinese manufacturers claim 8.2 percent of the European electric car market, selling 86,000 battery electric cars. 

In comparison, European automakers have a notable presence in the Chinese light vehicle market, accounting for about 20 percent of the market share.

Experts said that excluding foreign products will not only destroy the EU's free market reputation, but will also hinder its carbon goals.

By 2050, the bloc aims to be climate neutral an economy with net-zero greenhouse gas emissions.

"The contradictory actions of encouraging green transition while setting up barriers through trade protectionism will tarnish the EU's image," Cui said. 

As the EU is in great need of more cost-effective and high-quality products for its green transformation, demand will only grow stronger in the long run.

The entry of EVs from China and other countries can stimulate EU innovation to a large extent and help lower costs through market competition, while trade protection will weaken the innovation of EU companies, Cui added.