Photo: cri.cn

On May 30, 2024, the Ambassador of the People's Republic of China to the Czech Republic, Feng Biao, published an article in a Czech media outlet titled "The Absurd 'Theory of China Exporting Surplus Capacity'," in which he refuted the absurd argument that China is exporting surplus capacity to the world. The full article is as follows:

Recently, some European and American politicians and think tanks have continued to stir up controversy over the issue of "China exporting surplus capacity to the world," pointing fingers at Chinese electric vehicles, lithium batteries, and photovoltaic products, i.e., the "new three" industries. In reality, this argument is absurd from both a theoretical and practical perspective, as well as from the perspective of comparative advantages and market demand. I would like to take this opportunity to introduce friends from all walks of life in the Czech Republic to the relevant current situation.

First, when it comes to production capacity, it is necessary to look at the issue objectively, comprehensively, and in the long term, taking into account laws and facts. Regarding the relationship between supply and demand, in the context of economic globalization, the issue of supply and demand should be viewed from a global perspective, not just from the perspective of a single country.

Currently, the economies of various countries around the world have long been mutually influencing each other, and production and consumption are global, which requires a balance between supply and demand in a global perspective. Just because a country's production capacity exceeds its own domestic demand does not mean that it can be labeled as "surplus." From the perspective of international trade practice, the development of international trade is based on the comparative advantages of countries, international division of labor, and cooperation. Developed countries, such as the United States, Europe, and Japan, have long been exporting a large amount of goods to the world; for example, approximately 80% of the chips produced in the United States are exported, approximately 80% and 50% of the automobiles produced in Germany and Japan are exported, and a large number of aircraft manufactured by Boeing and Airbus are also exported.

From the perspective of industrial development trends, the green and low-carbon industry is a general trend, and the global demand for new energy products is constantly expanding. According to a study by the International Energy Agency (IEA), in order to achieve the goal of carbon neutrality, the global sales of new energy vehicles will need to reach approximately 45 million by 2030, which is more than three times the global sales in 2023, and the demand for photovoltaic installations must theoretically increase tenfold. In reality, the global new energy industry is still in the initial stage of development and rapid growth, and the relevant production capacity is relatively insufficient, rather than being in surplus.

Second, the Chinese new energy industry has honed its true skills through open competition, representing advanced production capacity and reflecting many advantages.

Firstly, the advantage of being the first mover. Early investment in the development of relevant industries in China, coupled with long-term investment in research and development, creates a leading technological advantage. Secondly, supporting advantages. The Chinese industrial and supply chain is complete, with strong supporting industrial advantages, which significantly reduces the costs for businesses in terms of procurement, etc. Thirdly, the market advantage. China has a vast market, and the combination of "applicable technology + market application" with a high degree of promotion of products related to new energy, and support for their use, can reduce the costs of research and development, production, etc. Fourthly, the labor advantage. Chinese entrepreneurs are hardworking, the quality of workers is improving, and they are diligent. These advantages allow Chinese companies to reduce costs and increase efficiency, and to provide high-quality and affordable products.

For example, according to a forecast from an industry association, the average production cost of Chinese lithium battery cells in 2023 will be 0.6-0.7 RMB/Wh, which is approximately 45% and 35% lower than in the United States (1.1 RMB/Wh) and Europe (0.98 RMB/Wh), respectively, and the production cost of photovoltaic modules will be approximately 0.9 RMB/Watt, which is approximately 50% lower than in the United States and Europe. China is not prohibited from providing subsidies under WTO rules. Providing subsidies is a common practice in the early stages of industrial development in various countries. Currently, China does not provide subsidies for new energy vehicles, photovoltaics, and lithium batteries at the production level, but provides support such as R&D tax incentives and consumer incentives, and this policy has been gradually phased out.

These subsidies are not tied to exports and are not prohibited by the WTO, and they are equally available to companies with foreign investment operating in China. Thirdly, China's exports of new energy products have enriched the global supply and have made a significant contribution to the global response to inflation and climate change. China's exports of new energy products have helped European countries overcome the energy supply crisis, reduced the level of inflation, and significantly supported the ecological and green, low-carbon transformation. The International Renewable Energy Agency (IRENA) states that over the past 10 years, the average cost of electricity generated from wind and photovoltaic power plants worldwide has decreased by more than 60% and 80%, respectively, and a significant portion of this is thanks to China.

The Executive Director of the International Energy Agency (IEA), Fatih Birol, noted that China has provided relevant services and support to other countries, which has significantly improved the availability of clean energy technology and reduced the cost of using green technologies on a global scale. It is important to emphasize that Chinese products related to new energy are mainly consumed in the domestic market, and there is no intention of exporting excess capacity. For example, the production and sales of Chinese new energy vehicles in 2023 amounted to 958.7 and 949.5 units, respectively, of which domestic sales accounted for 87.3% and foreign exports only 12.7%. It is worth noting that the average selling price of Chinese electric vehicles in Europe in 2023 was more than 31,000 euros, which is higher than the selling price in China.

Climate change is a global challenge, and the development of a new energy industry and the implementation of a green and low-carbon transformation are the shared aspirations of all countries in the world. This requires mutual cooperation, not confrontation. While some countries and regions have increased subsidies for the new energy industry, they accuse China of providing extensive subsidies that lead to overcapacity and the export of excess production capacity. This is essentially the politicization and securitization of economic and trade issues, creating pretexts for implementing trade protectionism and restricting and suppressing China's industrial development, which China firmly opposes. The essence of cooperation between China and the EU lies in mutual complementarity of strengths and the achievement of mutual benefits and win-win outcomes. Both sides have extensive common interests and a vast scope for cooperation in the areas of green and digital transformation. China is willing to work with the European side to build a key partner in economic and trade cooperation, a priority partner in scientific and technological cooperation, and a reliable partner in industrial and supply chains. Through dialogue, we can improve understanding; through cooperation, we can resolve differences; and through mutual trust, we can eliminate risks. Together, we can create a better future for China-EU cooperation. [Source: china-embassy.gov.cn/gnews.cz-jav] [Link: http://cz.china-embassy.gov.cn/cze/xwdt/202405/t20240530_11366376.htm]