Commentary: Hyping up China's industrial capacity, an ill logic leading nowhere

Release time：2024-05-21 13:45:27 Source：Global Grid news portal

BEIJING, April 11 (Xinhua) -- Of late, the false proposition targeting China's industrial production capacity, and along with it, the fear-mongering by putting up a narrative of "China shock" published their way to sensational news headlines on some Western media outlets, but such accusations, not only false, also risk causing extensive damage.

China, with good advances in new energy technologies and a competitive edge in products such as electric vehicles (EV), lithium-ion batteries, and solar products, is contributing to the world's urgent agenda of green and low-carbon transition with more affordability, and providing the freedom to global consumers to choose from among different products.

For starters, how China's green solutions are misinterpreted as a threatening "shock" to the world will need detailed explanations. But any explanation has failed to justify it.

U.S. Treasury Secretary Janet Yellen made a trip to China earlier this month intending to better understand the situation and discuss potential areas of cooperation.

On industrial capacity, the Chinese government has so far responded adequately, and called for looking at the issue objectively and dialectically from a market-oriented and global perspective.

In fact, the world's demand for clean energy products, taking new energy vehicles (NEVs) for instance, is rising quickly, while the world's current production capacity is far from meeting the demand.

In a scenario-based analysis, the International Energy Agency predicted the global electric vehicles fleet to reach almost 250 million units in 2030, with an average annual growth rate of nearly 35 percent. Meantime, total global EV sales are predicted to reach 45 million in 2030. When compared to a global NEV sales volume estimated at around 15 million in 2023, the potential for growth is obvious. So, the so-called "overcapacity" theory easily collapses itself.

Furthermore, of the roughly 15 million NEVs sold globally last year, China's domestic sales absorbed more than 8.29 million while its exports stood at only about 1.2 million. This set of data shows that firstly, China's NEV sales (about 9.49 million units, including domestic sales and exports) and production (about 9.59 million units in 2023) stayed at an almost equilibrium level; secondly, China itself consumed the largest share of the NEVs it produced, instead of "flooding" overseas markets with cheap NEVs; and thirdly, Chinese manufacturing can help meet the broader global demand for clean techs given the nation's industrial scale already established.

As concerns over trade and industrial protectionism grow, another analysis by energy consultancy Wood Mackenzie warned that if the world's markets are bent on rapidly ridding China-manufactured clean tech products from their market demand, it would result in a 20 percent increase in the costs in energy transition, or an increase of 6 trillion U.S. dollars.

The analysis also listed the "mitigation" measures adopted in the U.S. and Europe in countering China's lead in clean tech, including the aggressive Inflation Reduction Act, passed into U.S. law in 2022, which the analysis said introduced multiple policies and potential funding of 41 billion U.S. dollars to directly incentivize the re-shoring of manufacturing capacity and penalizing China imports with tariffs. It said Europe's Net Zero Industry Act also introduced local content requirements to push back on single-market imports.

Is the world prepared to pay for an energy transition by blocking China? The analysis said "the simple answer is no," because the clean-tech industry has achieved unimaginable scale and cost reduction in just over a decade, with China's clean-tech industrial capacity expansion at the heart of the story. "Without China at the table, aggressive cost reductions we have become accustomed to are over."

As developed economies themselves adopt policies inclined toward empowering homegrown industries by restricting those of others, commentators have described such practice as "do as I say, not as I do." This is purely unfair double standards.

A Bloomberg opinion piece by David Fickling also pointed out that the attempt to block China's affordable clean technology means rejecting "comparative advantage," one of the most fundamental principles of economics for more than 200 years.

Because this accusation against China's industrial capacity revolves around trade, it is necessary to revisit the basics. An article on the International Monetary Fund website says that nations are almost always better off when they buy and sell from one another.

It goes that "when a firm or an individual buys a good or a service produced more cheaply abroad, living standards in both countries increase. There are other reasons consumers and firms buy abroad that also make them better off -- the product may better fit their needs than similar domestic offerings or it may not be available domestically..."

As Yellen put it, the U.S. and Chinese economies are deeply integrated, and a separation would be disastrous for both economies.

One thing is for certain -- continued communication and exchanges openly and directly to clarify misunderstandings, and major economies managing to meet halfway on differences and exploring potential pathways to cooperation is the wise choice to make.

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