What overcapacity? China says its industries are simply more competitive
THE last day of US Secretary Janet Yellen’s trip to China coincided with the strongest retort yet from Beijing officials over her claims that China is flooding global markets with cheap goods, particularly in the new green industries.
As Yellen laid out plans to formalise dialogue with China over excess industrial capacity in electric vehicles (EVS), solar panels and batteries, saying Washington would not accept US industry being “decimated”, the Chinese finance ministry issued a statement saying it had already “fully responded” to her concerns.
Commerce Minister Wang Wentao, at a roundtable meeting with Chinese EV makers in Paris on Monday, said US and European assertions of excess capacity were groundless, adding China’s rise in these industries was driven by innovation and complete supply chain systems, among other factors.
China’s latest response, analysts say, centres on the idea that its production system is simply more competitive, a sharp change in tone from only a month ago when officials including Premier Li Qiang sounded their own warnings on overcapacity. The strong pushback from Beijing contrasts with the generally warm interactions between Yellen and Chinese officials during her trip, leaving the two largest economies further apart on the hottest dispute in global trade, which could add to tensions.
“They cannot win the race, so they try to slow it down,” said Li Yong, chief researcher at D&C Think, a Chinese think-tank, referring to the West’s rhetoric on overcapacity. “We just do our things, they can do whatever they want — the knife is in their hands.”
Both sides believe they have solid, datasupported arguments not to back down.
The core criticism coming primarily from
Washington and Brussels is that state-led support for manufacturers, coupled with depressed domestic demand, is pushing excessive Chinese supply onto global markets. This drives down prices. Consequently, it threatens US and EU firms which survive on profits rather than what Western officials argue is a drip-feed of state resources in China. And, it can complicate longer-term investment decisions.
While China denies subsidies and points to US and EU government programmes to support their own industries, its critics take a wider view of state support that incorporates cheap loans, land use, huge infrastructure investment and other benefits that span across a fully-integrated supply chain.
EU trade officials have singled out the huge resources redirected by China’s state-dominated financial system from the ailing property sector to its sprawling manufacturing complex, as Beijing looks for other economic growth drivers.
For its part, China says industrial overcapacity is not unique to the world’s second-largest economy.
“The so-called ‘overcapacity’ is a manifestation of the market mechanism at work, where supply-demand imbalance is often the norm,” vice finance minister Liao Min told local media.
“This can occur in any market economy system, including in the United States and other Western countries, where it has happened multiple times in history”.
Industrial capacity utilisation in China is lower than in the United States or Europe, but not by much. Also, China asserts supply and demand should be viewed from a global perspective, particularly given Western criticism focuses on industries key to climate goals for the entire planet.