China’s 1 trillion yuan EV, solar and battery exports face overcapacity concerns as US, EU anxieties grow
- Beijing has already recognised overcapacity as a major challenge for 2024, with US and European Union anti-dumping probes and tariffs disrupting trade
- But analysts say that China’s trade frictions are also tied to the economic challenges that it is struggling with at home
China’s 1 trillion yuan (US$139 billion) exports of electric vehicles, lithium batteries and solar cells could face a new round of challenges this year, as Western policymakers have reflected “genuine anxieties” about overcapacity distorting their markets.
Legal action and tariff increases by the United States and European Union against a perceived oversupply of cheap products could set back a critical segment of the world’s second-largest economy, unless China diversifies away from the West and also boosts domestic demand, analysts said.
“The key question is how these industries struggle against these growing headwinds, which aren’t just tied to finding new commercial opportunities, but balancing against geopolitical and trade policy risks, as well,” said Nick Marro, lead analyst for global trade with the Economist Intelligence Unit.
“I think it will be less of an ‘excuse’ for Western policymakers to engage in protectionism, and more a reflection of genuine anxieties around whether these products are distorting their own markets.”
You can get a sort of immediate protective effect by raising an anti-dumping case
He also noted there is a “growing sentiment” in Western capitals that work against the idea of having their consumers subsidise China’s growth engine.
The US government already bars EV battery materials from China as a “foreign entity of concern”.
The Ukraine war, which marks its second anniversary on Saturday, is also a factor affecting China’s ties with Western markets, with the British government on Thursday announcing a new package of sanctions against Russia that included three Chinese electronics companies.
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“You can get a sort of immediate protective effect by raising an anti-dumping case,” said Jayant Menon, a senior fellow at the ISEAS-Yusof Ishak Institute in Singapore.
“Once a competitor loses that market share, it’s difficult for the country to recover it.”
Chinese manufacturers would be able to make 4,800 gigawatt-hours of batteries in 2025, four times the demand of its EV makers, according to online investment publication Gelonghui.
The annual supply capacity of solar panels reached between 800 gigawatts and 1,100 gigawatts last year, well ahead of projected global demand of some 300 gigawatts, according to the Economist Intelligence Unit.
Expanding domestic demand is a difficult undertaking that takes time, effort, and perhaps most importantly domestic reforms
Chen Zhiwu, chair professor of finance at the University of Hong Kong, said that local governments provide venture capital, land tax breaks to EV companies.
“Beijing recognises insufficient domestic demand is a key economic challenge,” said Wang Zichen, a research fellow at the Beijing-based Centre for China and Globalisation.
“However, expanding domestic demand is a difficult undertaking that takes time, effort, and perhaps most importantly, domestic reforms.”
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Marro added that China’s trade frictions are as much tied to the economic challenges that it is struggling with at home.
“The worsening imbalances in the Chinese economy regarding savings and investment are naturally replicated in the trade arena.”
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In a paper issued in February 2023, the MIT Technology Review said that the development of batteries and EVs offered China’s automotive sector growth opportunities during the coronavirus pandemic as well as more weight in “climate policy leadership”.
And China can ease overcapacity and avoid the wrath of Western countries by setting up factories in the US or Europe – which is already an “option” – or in Southeast Asia, said Peng Peng, executive chairman of the Guangdong Society of Reform.
Producers can also sell their hardware to India or other parts of the world that are not aligned with the US or Europe because the sheer number of other potential non-Western markets can help offset dips in demand, Peng added.
