China’s Overcapacity and EV Dominance Draws Global Concerns

China’s Overcapacity and EV Dominance Draws Global Concerns
Electric cars for export waiting to be loaded on the "BYD Explorer NO.1", a domestically manufactured vessel intended to export Chinese automobiles, at Yantai port, in eastern China's Shandong province, on Jan. 10, 2024. (AFP via Getty Images)

Secretary of Treasury Janet Yellen is scheduled to visit China for the second time in April. She will focus on the threat posed by China’s dumping of cheap green energy exports in the United States and around the world. The EU is also concerned about the potential threat to its auto industry and launched its investigation into China’s subsidies for electric vehicles last year.

U.S. Trade Representative, Katherine Tai, stated in the latest annual report that the Chinese regime is targeting industries for global market domination through non-market means.

Yellen’s Visit 

On March 27, Ms. Yellen stated that she would raise the issue of overcapacity with her Chinese counterparts. Speaking at the Suniva solar cell factory in Norcross, Georgia, she warned that China’s export strategy seeks to destabilize global supply chains in industries such as solar energy, electric vehicles, and lithium-ion batteries.

“China’s overcapacity distorts global prices and production patterns and hurts American firms and workers, as well as firms and workers around the world,” she said. “Challenges for individual firms can lead to concentrated supply chains, negatively impacting global economic resilience.”

Ms. Yellen compared China’s excessive investment in green energy to its previous overinvestment in steel and aluminum industries, stating that China’s overinvestment has resulted in “global spillovers.”

China’s economic development has slowed sharply since the COVID-19 pandemic. Currently, the Chinese Communist Party (CCP) is attempting to stimulate economic growth through the export of electric vehicles, solar panels, and lithium batteries. However, China’s dumping of cheap green energy exports has brought various problems to the international market.

According to data released by the General Administration of Customs of China (GACC) for 2023, the combined exports of electric vehicles, solar panels, and lithium batteries amounted to 10.6 trillion yuan ($1.407 trillion), a year-on-year increase of 29.9 percent.

Among them, China’s lithium battery exports reached a historic high of $65 billion, a 27.8 percent year-on-year increase, with the United States being the largest market. Solar panel exports increased by 38.5 percent year-on-year, with wholesale prices dropping by nearly half.

Li Hengqing, a Chinese economics scholar living in the United States, recently told The Epoch Times that due to China’s non-market operations, there is a serious issue of overcapacity and a large backlog of products in industries subsidized by the government. One of the purposes of China’s so-called “Belt and Road Initiative” is to export domestic excess capacity and backlog products overseas.

Mr. Li believes that China must operate according to market economics so that the prices of Chinese products will also rise, balancing the international market based on supply and demand. However, China’s current policies are making it extremely difficult to manifest.

Challenging Tesla in the EV Market

On March 29, the Chinese smartphone giant Xiaomi officially launched the SU7 all-electric sedan. The starting price for the Xiaomi SU7 is 215,900 yuan ($29,884), lower than market expectations.

Xiaomi Chairman Lei Jun presented multiple data sets at a press conference, claiming that Xiaomi’s SU7 outperforms Tesla’s Model 3. However, the reliability of the data released and the actual performance of the car could not be independently verified.

Xiaomi’s press conference drew attention and became a hot topic on China’s heavily censored social media. The act of openly challenging Tesla with comparative data has been interpreted by public opinion as an aggressive marketing strategy.

Smartphone with a Xiaomi logo is seen in front of a U.S. flag in this illustration taken on Sept. 28, 2021. (Dado Ruvic/Reuters)
Smartphone with a Xiaomi logo is seen in front of a U.S. flag in this illustration taken on Sept. 28, 2021. (Dado Ruvic/Reuters)

Moreover, the sale of EVs at such low prices is also considered to disrupt the international market.

Earlier this year, Tesla CEO Elon Musk warned, “If there are no trade barriers, they will pretty much destroy most of the other car companies in the world.”

EU’s Concerns

The European non-governmental organization, the European Federation for Transport and Environment (T&E), released a report on March 27 stating that in 2024, Chinese-produced EVs will account for more than 25 percent of the European EV market, an expected increase of 5 percentage points year-on-year.

In 2023, Chinese products accounted for 19.5 percent of EVs sold in Europe, with even higher proportions in the markets in France and Spain, reaching nearly one-third.

The report believes that if tariff increases force Chinese manufacturers to pass on the costs to consumers, Chinese-produced mid-sized sedans and SUVs will be more expensive than similar European-produced models, which may ultimately force Chinese car manufacturers to engage in more localized production.

Julia Poliscanova, the director for Electric Vehicles and E-mobility at T&E, believes that tariffs will force the localization of Chinese EV production, which can create jobs in the EU. However, tariffs are insufficient to protect the interests of traditional European car manufacturers in the long term.

US Trade Report on China

On March 29, U.S. Trade Representative Katherine Tai released the 2024 National Trade Estimate Report on Foreign Trade Barriers, which specifically stated that China has set goals in key industries that can only be achieved through non-market means, seeking to become the global leader in key industry chains.

The report pointed out that although the United States and China signed the phase one trade deal in January 2020, the deal did not fundamentally change China’s state-owned and non-market trade system or alleviate its harmful effects on the U.S. economy.

The report said that the Chinese regime provided Chinese companies with a large amount of government subsidies, resources, and regulatory support while restricting imports, foreign-made goods, and foreign service providers from entering the Chinese market.

Furthermore, China’s approach may cause or exacerbate market distortions, leading to serious overcapacity in many target industries and may cause long-term damage to U.S. interests and the interests of U.S. allies and partners.

Xin Ning contributed to the report.