By HUANG Jun Ming (Hong Kong KOL Project)
In early April this year, U.S. Treasury Secretary Janet Yellen, while attending an event organized by AmCham China in Guangzhou, expressed concerns about China's new energy industry, particularly the electric vehicle industry, stating that China's new energy vehicle industry is facing an "overcapacity" problem. Yellen's logic is: that the development and capacity increase of China's new energy vehicle industry is driven by government support, but domestic demand is relatively weak, leading to artificially lowered prices of new energy vehicles that are then exported to Europe and the U.S., causing troubles for local enterprises.
Subsequently, many Western media outlets have voiced accusations of overcapacity in China's new energy vehicle industry. But in this process, the definition of overcapacity has been oversimplified to "production capacity exceeding expected demand." Some reports have even equated "more exports" with "overcapacity."
Without going into whether China's new energy vehicle industry meets the definition of "overcapacity," let's look at some data from the China Association of Automobile Manufacturers: In the first three months of this year, China's new energy vehicle production reached 2.115 million units and sales reached 2.09 million units, up 28.2% and 31.8% year-on-year respectively. Domestic sales accounted for 1.783 million units, up 33.3% year-on-year, while exports were 307,000 units, up 23.8% year-on-year. Reviewing the data from January to July 2023, new energy vehicle production and sales reached 4.591 million units and 4.526 million units respectively, with domestic sales at 3.89 million units and exports at 636,000 units.
From the data, we can see that the main consumer of China's new energy vehicles is the domestic market. In the first three months of 2024, the export proportion was less than 15% of total sales, which does not support the argument of weak domestic demand.
Regarding prices, according to a report by the automotive research company JATO Dynamics, the average selling price of electric vehicles in China is €31,165, while in Europe it is €66,864 and in the U.S. it is €68,023. This clearly shows that Chinese manufacturers have not intentionally underpriced their vehicles to dump them overseas. The lower prices of China's new energy vehicles compared to Europe and the U.S. are partly due to technological reasons, and partly because European and American automakers focus more on the mid-to-high-end market, while China is focused on exploiting many niche markets, resulting in a relatively lower average selling price for China's new energy vehicles. Looking at the overall situation, many accusations against China's new energy vehicle industry do not hold ground.
We can further explore the definition of overcapacity. The concept first appeared in Chamberlain's "The Theory of Monopolistic Competition," referring to a situation where the product supply capacity exceeds market demand at the equilibrium price, exhibiting a persistent state of overcapacity. This mainly applies to some monopolistic competition industries. Some views suggest that overcapacity is the result of strategic behavior by enterprises in oligopolistic competition, but this theory is difficult to apply to the current global new energy vehicle industry with increasingly fierce competition. Another perspective is that "overcapacity" is the result of enterprises misjudging market demand due to incomplete external information and consequently following the herd to invest. But this does not apply to China's new energy vehicle industry, as the market information is relatively transparent, the number and dynamics of manufacturers are relatively stable, and the government is committed to reducing the information costs for manufacturers, making it unlikely for a "herding effect" to occur.
The main indicator currently used to judge overcapacity is the capacity utilization. It is generally believed that this is the ratio of actual output to potential capacity. According to data disclosed by the Economic Daily, the capacity utilization of China's new energy vehicles is currently above 70%, which is not a very good figure, but also not bad. When combined with the future development of the industry, this capacity utilization is within a reasonable range. Moreover, to address a series of ecological problems such as global climate change, the promotion of energy transition has become a global consensus, and new energy vehicles play an indispensable role in energy conservation and emission reduction. Future demand for new energy vehicles will continue to rise, and in this context, China's production capacity will also be able to maintain a stable supply in the future. From this perspective, the capacity utilization of China's new energy vehicles will most likely continue to rise.
The assertion of "overcapacity" in the new energy vehicle industry is rather absurd, as few people would consider overcapacity to be a phenomenon in an emerging industry. Governments around the world are now discussing carbon neutrality and setting net-zero emission targets, and China has also committed to strive to achieve carbon neutrality by 2060. China is facing the technical challenges of the clean energy transition and has set the goal of improving the energy efficiency of electrification as a technical transformation to reduce carbon emissions, with improving the quality of electric vehicle batteries and encouraging the electrification of public transportation as part of its emission reduction path. Energy conservation and emission reduction work is ongoing, and there is still demand for the purchase or replacement of new energy vehicles in China and the world to achieve carbon neutrality. Where does the "overcapacity" come from?
China itself is very concerned about its industrial capacity, and this concern stems from the experience of the 2008 financial crisis. After the financial crisis, China's economists devoted a lot of effort to thinking about the solution to the "overcapacity" problem, and the policy departments of the government also drew on the thinking of the academic community in their economic work. In recent years, China has been deepening the supply-side structural reform, and one of the important instructions of the government is to reduce the capacity of the steel and coal industries and to expand the scope of de-capacity to the coal-fired power industry. It can be seen that the Chinese government is also alert to the negative impact of overcapacity on the economy, and it can also be seen that de-capacity measures are generally targeted at energy-intensive and disorderly traditional industries. In this year's Report on the Work of the Government, the State Council also emphasized the need to prevent overcapacity and poor-quality, redundant development. Therefore, China is more concerned about the issue of "overcapacity" than the West, and from the data and official statements, at least in the new energy vehicle industry, there is no "overcapacity" situation.
In this way, is it a rhetorical trap stemming from trade protectionism to obscure China's dedication and advantages in the field of new energy vehicles as the "overcapacity" issue?
The views do not necessarily reflect those of DotDotNews.
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