Industrial robots weld the frame of NEVs inside an automotive assembly in Jinhua, East China's Zhejiang Province on April 8, 2024. Photo: VCG

Since the beginning of 2024, a number of Western governments and media outlets have been hyping the so-called "overcapacity" of Chinese new-energy production, claiming it as a matter of great concern for them.

The formation of this specific narrative has been followed by strengthened protectionist measures imposed by the US and the EU on a range of Chinese manufactured goods, such as electric vehicles (EV). 

On Tuesday, an EU official announced the bloc will investigate Chinese wind turbine suppliers over "subsidy" allegations, which followed the EU's investigation over imported Chinese EVs, together with the launch of a special European customs registration process for Chinese-made EVs in March for the purpose of levying retroactive tariffs.

By spinning the "overcapacity" narrative, the West has moved to apply trade restrictive measures on Chinese-made EVs, lithium batteries, solar products, in an attempt to protect its own uncompetitive industries, Chinese industry insiders said, noting that such overt schemes are detriment to global climate control efforts. 

The latest case involving the "overcapacity" accusation was made by US Treasury Secretary Janet Yellen, who claimed that "China's overcapacity distorts global prices and production patterns and hurts American firms and workers, as well as firms and workers around the world." 

Chinese Premier Li Qiang met with Yellen on April 7, telling her that "it is hoped that the US will abide by the basic norms of market economy including fair competition and open cooperation, refrain from turning economic and trade issues into political or security issues, and view the issue of production capacity objectively and dialectically from a market-oriented, global perspective."

The development of China's new energy industry is making an important contribution to the global green and low-carbon transition, Li said.

Flawed allegations

Liu Ying, a research fellow at the Chongyang Institute for Financial Studies at Renmin University of China, told the Global Times on Thursday that the attempt by the West to pin China with the "overcapacity" tag in its EV production is groundless.

"Many EV makers are under a new production model and are creating demand. The order comes first then the production. And many plants have to run a tight schedule to keep up with demand. The question of overcapacity is moot," said Liu, who have recently visited a number of factories in the NEV industrial chain.

Cui Dongshu, secretary-general of the China Passenger Car Association (CPCA), told the Global Times that the plant utilization rate at Chinese automobile factories is around 70 percent, which is a healthy reading that does not support claims of overcapacity.

"At the overseas market, we believe the margin by which production outstrips sales for NEVs is appropriate," Cui said.

Chinese officials hit out at US and European accusations of "overcapacity" in China's EV industry lately, emphasizing the importance of market adjustment.

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

Global EV demand will top 45 million units by 2030 - 4.5 times of that of 2022, the Ministry of Finance said, citing data from the International Energy Agency. For solar panels, the demand for newly installed capacity will likely quadruple. These figures have meant the current level of production capacity for new-energy products lags far behind demand.

Some analysts noted the phased nature of the issue.

Xing Zhaopeng, senior China strategist with ANZ Research, said as the Chinese government is going to form a unified national ultra-market, the production capacity issue at the current stage, featuring too many factories supported by local governments entering the market, will be resolved.

Xing noted that the inventory or supply glut in the Chinese new-energy sector is a domestic issue, and the foreign EV makers are not as competitive as Chinese factories.

ANZ analysts predicted in November last year that metals used in new-energy industry, such as lithium, cobalt and nickel, still needs to increase by 1.5 - 3.5 times during the next five years, indicating the huge demand from the sector.

All considered and seeing from a balanced perspective, China's green exports are the product of its advanced manufacturing, and they meet the need of overseas clients, as shown by their brisk sales lately.

Politicizing trade issues

Experts pointed out that it is not likely that those in high places and media in the West do not know this simple fact, yet they are stubbornly painting China in this light, hoping to gain some moral high grounds when they propose their protectionist policies.

Liu said overcapacity, an economic term to describe a market situation, is politicized and become an instrument in the smear campaign by some in the West against Chinese NEVs.

"For NEVs, competitiveness comes from combined factors of production efficiency, costs, level of smart and flexible operation," Liu said. "Conjuring up the notion of overcapacity can neither help one's competitiveness nor suppress the competitiveness of others." 

Analysts said the real aim of Western politicians and the media hyping the "overcapacity" theory seems to serve the purpose of protecting their own clean-energy industry, and pointed out the measures they resorted to achieve the aim - naked protectionist and discriminatory moves - once again trampled on the principles of the WTO and further dented their national image.

"I am no expert in guessing the motives of Western politicians, but it seems that these accusations and actions hurled against Chinese EVs are aimed at checking China's surging momentum of export growth," a senior auto industry expert told the Global Times on Thursday on condition of anonymity.

According to data from the CPCA, in 2023, China's NEV exports totaled 1.05 million with an annual growth of 72 percent.

In face of rising competitiveness of Chinese new-energy products such as EVs, the US government has in recent years been working hard to build up its trade barriers. The Inflation Reduction Act only gives tax credit to EVs with a large proportion of components being sourced from North America.

These efforts will not help their domestic industries and will undermine their climate goals by denying consumers the most cost-effective products, Chinese analysts said.

Experts noted that the issue of production capacity should be solved by international cooperation in the sector, including the setting up of overseas plants by Chinese companies, rather than raising trade barriers.