A number of Western governments and media outlets have highlighted issues related to “overcapacity” in China’s new energy industry in recent months, claiming it as a matter of great concern for domestic companies and markets.
They say that China’s clean energy products, including solar power, new energy vehicles (NEVs) and lithium-ion batteries, exceed China’s domestic demand and what the global market can bear, thus depressing market prices and hurting workers and manufacturers in their countries.
However, according to U.S. economist Nicholas Lardy, the West’s overcapacity argument risks being an excuse for protectionism and may hinder every country’s economic growth eventually.
An excuse for protectionism hurts every economy
“This overcapacity idea is that you shouldn’t produce more than you can sell domestically. If that was carried to an extreme, that would mean no trade globally,” said Lardy, a senior fellow at Washington D.C.-based think tank the Peterson Institute for International Economics, in an interview with Chinese news agency Xinhua.
“So Boeing should cut its production? U.S. soybean farmers should limit their production to what can be sold within the United States?” questioned Lardy.
He warned that the excess capacity argument could be an excuse for protectionism, resulting in a “complete and utter disaster for every economy.”
In a report named the Global EV Outlook issued last year, the International Energy Agency (IEA) estimated that global sales of NEVs will reach 45 million units in 2030, three times the 2023 figure. China’s NEV sales in 2023 were around 9.5 million, with exports totaling 1.05 million, far lower than that of Germany, Japan and South Korea.
“Those who use overcapacity to justify protectionism have nothing to gain and will only destabilize global industrial and supply chains, harm emerging sectors and hinder the world’s climate response and green transition,” Chinese Foreign Ministry spokesperson Lin Jian said at a press conference on Friday, responding to the Western concerns.
China’s new energy capacity helps global green transformation
In the global pursuit of green and low-carbon transformation, the new energy sector is seeing a massive market demand for NEVs.
For China in 2023, the volume of foreign trade was kept stable and there was a 30-percent increase in exports of the “new trio,” namely, electric vehicles, lithium-ion batteries and photovoltaic products, according to the country’s government work report.
The rapid development of China’s green capacity is also helping the world achieve carbon reduction goals and accelerate green transformation.
The IEA report said China’s investment in clean energy supply chains has been instrumental in bringing down costs worldwide for key technologies, with multiple benefits for clean energy transitions.
In the Mymensingh Division of Bangladesh, around 170,000 solar panels from China constitutes the country’s second-largest solar power station. Since its operation over three years ago, the station has generated approximately 300 million kilowatt-hours of electricity, helping the South Asian country reduce carbon emissions by over 50,000 tonnes annually.
“China’s sustained development in the new energy sector and the provision of high-quality production capacity not only serve its own needs for high-quality development but also make significant contributions to the global efforts to address and promote the green and low-carbon transformation,” said Jin Xiandong, an official of the National Development and Reform Commission.