China must rebalance economic development efforts for own sake

Beijing sees US criticism of ‘overcapacity’ as an excuse for Washington to ratchet up protectionist measures against Chinese-made products

China’s industrial capacity has emerged as a new focal point of conflict between Beijing and Washington. The US government claims that China’s excessive industrial capacity in electric vehicles (EVs), solar panels and lithium-ion batteries is a situation that could wreak havoc on the global economy, while Beijing sees such criticism as an excuse for Washington to ratchet up protectionist measures against Chinese-made products.

Beijing remains unfazed by the US argument because China’s manufacturing capacity is primarily based on its economic advantages, not unfair state subsidies.

In the EV industry, for example, the major players are all privately owned. These companies have emerged as fierce rivals to US, German and Japanese carmakers because of their strong strategy, not state protection. At present, many Chinese EV makers with close ties to local governments are struggling to survive.

The truth is that China can now make better and cheaper EVs, which is why BYD competes against Tesla for bragging rights as the world’s largest seller of “pure” battery-powered EVs. Shenzhen-based BYD’s Qin Plus DM-i, which starts at 79,800 yuan (HK$86,340) after the latest round of price cuts, remains the country’s bestselling EV model, as other plug-in EVs in the market easily cost double.

Still, Chinese EV makers are expected to continue expanding their business overseas, taking on all comers.

It was not that long ago when streets across the mainland were jammed with American, European, Japanese and South Korean petrol vehicles. China did not complain about overcapacity at the time, so why is it difficult for Washington or Brussels to accept Chinese EVs being driven on the streets of America and Europe?

As such, it is not too hard for Beijing to frame the whole debate about overcapacity as a sign of the West’s refusal to accept China as an economic power.

For decades, the West cheered China’s role as the world’s factory floor when the main exports were cheap shoes and toys. Today, the West has turned increasingly protectionist against China amid efforts by the country to move up the value chain.

According to a Xinhua news agency opinion piece, criticism about industrial overcapacity is “in essence an attempt by the US-led West to suffocate China’s industrial advantages”.

Premier Li Qiang was more diplomatic in his recent meeting with visiting US Treasury Secretary Janet Yellen, saying that overcapacity must be viewed through the lens of “market [forces] and globalisation”.

That message was a polite way for China to say that it cannot sacrifice its development to help protect underperforming US businesses.

The issue of industrial overcapacity, meanwhile, has spurred China’s leadership to look into a chronic imbalance in the nation’s development.

After more than four decades of rapid economic growth, most of China’s 1.4 billion people are still unable to crack the middle-income ceiling, as their share of household spending remains below the world’s average.

Consumption in China also accounts for just 13 per cent of the world’s total, forcing the country to rely on overseas consumers to bolster growth across a range of industries.

The country’s so-called mean hourly wage – for people working as taxi drivers, couriers or in factories – is said to be 30 yuan, compared with the US$30 hourly rate for US auto workers.

With such wage disparity, the country’s current status of selling more to the rest of the world than what the nation consumes is likely to continue, which could revive accusations of industrial overcapacity.

China’s real challenge is not to win the war of words about industrial overcapacity, or bite the bullet in growing exports amid lingering disputes. In the end, China must rebalance its economic development efforts to maintain its position as a competitive producer, while also helping its large population to become affluent consumers.

The West cheered China’s role as the world’s factory floor when the main exports were cheap shoes and toys