China’s economy simply cannot shake off the post-Covid gloom, with falling GDP and an imploded property market.
The solution, for now, is to offload these problems onto the world by sending a whole bunch of goods to everyone.
Consider a common energy product: solar panels. Chinese manufacturers pump so much many solar panels that the global glut and the resulting fall in prices are encouraging some people to line their garden fences with it.
US Treasury Secretary Janet Yellen is seeking to address the issue of overproduction during her visit to China, which ends on Tuesday. Yellen is one of the top U.S. officials to visit China during Biden’s term.
On Friday, Yellen told an American Chamber of Commerce event in Guangzhou that the problem of excess Chinese manufacturing capacity had recently intensified, Reuters reported.
This “currently leads to production capacity that far exceeds China’s domestic demand, as well as what the global market can support,” she said.
On Wednesday, Yellen said other regions were feeling the effects of Chinese overproduction, including Europe, Mexico and Japan.
These concerns follow China’s painful economic transition from an economy focused on lower-cost manufacturing and real estate to three new pillars of growth in the green technology sector: solar cells, electric vehicles and lithium-ion batteries. But Chinese consumers are no longer spending as much as before at home.
“We see a growing threat of loss-making companies that are going to have to sell their production somewhere,” an unnamed senior U.S. Treasury official told Reuters on Thursday.
The European Union is already taking steps to protect its domestic manufacturing sector in key emerging sectors including microchips and electric vehicles, while Thailand imposes a 7% tax on all imported products, simply to level the playing field Game.
Production competition is even more intense today due to deflation in China, which started last year. China has become the only major economy in the world facing negative consumer prices.
There is no overcapacity in all sectors of the Chinese economy
Certainly, there is no overcapacity or overproduction in all sectors of Chinese industry, as revealed by a Bloomberg analysis published on April 2. The problem is mainly in areas where China already had the upper hand over the West, such as low-tech goods and construction materials after the recent real estate crisis.
Chinese production of solar panels and batteries also exceeds demand.. But the competition isn’t extending to a key new area of contention: electric vehicles.
Last year, China was neck and neck with Japan as the world’s top auto exporter, in part because of the vast volume of electric vehicles shipped by the world’s second-largest economy.
But Chinese EV makers aren’t flooding the market because of overproduction. They are simply effective, according to Bloomberg’s analysis. Even though China is manufacturing more electric vehicles, there has not been a significant increase in inventories, according to Bloomberg data.
Although there is overcapacity in China’s auto sector, it is mostly in older internal combustion cars that have fallen out of favor in China, according to Bloomberg.
Beijing is aware of overcapacity and is committed to remedying it
Beijing knows that the country has a problem of overcapacity in certain sectors, which is also harmful to its own economy.
After all, Chinese solar power manufacturers are suffering the consequences of solar panel overcapacity. In March, Longi green energy technology, the world’s largest solar cell maker, announced it was laying off thousands of workers due to overcapacity and low prices.
Following China’s annual parliamentary sessions last month, Chinese Premier Li Qiang pledged in his annual policy report to “prevent overcapacity” in key sectors.
Yet China presents Western concerns about overcapacity as protectionism and a measure to curb the country’s economic development.
“While this is just basic economic theory, surplus products naturally seek markets elsewhere once domestic demand is met, and Western countries have done this for centuries when it comes to China, this is becoming an ‘overcapacity problem’ that threatens the world,” the Chinese government said. State news agency Xinhua wrote in an opinion piece in late March, calling Western criticism a “double standard.”
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