“Overcapacity” is a phrase that has dominated the worldwide political agenda this 12 months. In an April go to to China, US Treasury Secretary Janet Yellen raised – each privately and publicly – the Chinese language financial system’s “imbalances and overcapacity”. Yellen expressed worries that this overcapacity might hurt US industries.
A specific focus of consideration on the overcapacity debate has been China’s “new three” sectors of solar energy, electrical automobiles (EVs) and lithium batteries – merchandise which are additionally central to China’s and the world’s low-carbon power transition.
Analysts say that EVs are anticipated to face a additional setback below the second time period of US President-elect Donald Trump, whose transition workforce is planning to chop EV tax credit and additional enhance tariffs on Chinese language items.
However not everybody agrees with the characterisation of those sectors as experiencing overcapacity. And never everybody thinks these “imbalances” are a foul factor. Some argue China’s big manufacturing capability in low-carbon sectors might provide a singular alternative to speed up the worldwide power transition, significantly within the International South.
Understanding overcapacity
Merely put, overcapacity happens when a sector’s manufacturing exceeds market demand. This imbalance can result in lower-priced exports and unfair commerce. It has implications for corporations in different nations, which can be pressured to downscale or shut if outcompeted by low-priced items, resulting in job losses.
The US and EU have cited these unfavourable penalties as a justification for the tariffs they’ve imposed on China’s “new three” items. In Could, the US introduced commerce tariffs of 100 per cent on Chinese language-manufactured EVs, 25 per cent on lithium-ion batteries and 50 per cent on photo voltaic cells. In July, the EU introduced related measures on Chinese language EVs, a measure formalised in the beginning of October with tariffs of as much as 45 per cent.
US and European officers additionally level to what they name “unfair” subsidies from the Chinese language authorities which have boosted the nation’s manufacturing and international competitiveness. In keeping with an April report by the Kiel Institute, subsidies for inexperienced tech corporations in China surged in 2022, with EV big BYD receiving EUR 2.1 billion – almost 10 instances the EUR 220 million offered two years earlier.
In keeping with the Worldwide Power Company (IEA), China is answerable for three-quarters of all lithium-ion battery manufacturing, which is essential within the manufacturing of EV automobiles. China additionally produces over 80 per cent of the world’s photo voltaic panels, with exports rising by 34 per cent within the first half of 2023.
President Xi Jinping remarked at a China-France-EU trilateral assembly in Could that there’s “no such factor as ‘China’s overcapacity drawback’”. In the meantime, Chinese language economist Chen Yuyu attributes the imbalance extra to “weak financial cyclical demand” than extra provide.
Each Chinese language and international demand for low-carbon know-how is anticipated to expertise a increase within the coming a long time. The IEA predicts that by 2030, primarily based on authorities targets and pledges that transcend present insurance policies, international EV gross sales will hit 45 million models, which might greater than triple the variety of new EVs seen in 2023.
Equally, international demand for photo voltaic photovoltaic system elements and batteries is forecasted to broaden quickly over the approaching a long time. China has set bold targets for solar energy as a part of its decarbonisation objectives.
A 2023 International Power Monitor report notes that China might double present ranges of photo voltaic capability and meet its 2030 goal of 1,200 gigawatts (GW) by 2025. Globally, wind and photo voltaic power are anticipated to greater than double their share of worldwide electrical energy technology, from 12 per cent in 2023 to 30 per cent in 2030, in line with an IEA forecast.
That mentioned, the Chinese language renewable sector is affected by an imbalance of provide and demand, which is driving down earnings at precipitous charges. Trade conversations have been more and more dominated by the necessity to management manufacturing.
The view from the International South
The controversy on overcapacity within the three inexperienced sectors doesn’t solely concern China and the West, but additionally the International South, significantly Africa, the place some specialists view the overcapacity challenge in a different way. Frangton Chiyemura, a researcher specialising in political and financial developments within the International South on the Open College, tells Dialogue Earth that Africa can assist China alleviate the “overcapacity” by connecting demand with provide. Whereas the African market is comparatively small for now, cooperation between China and Africa in technological innovation can broaden markets for Chinese language new power items, he says.
A method by which a few of China’s “overcapacity” within the inexperienced power sector is being absorbed is by increasing exports on to International South nations. Pakistan, for instance, imported 13 GW of photo voltaic photovoltaic capability with decrease price from China within the first six months of the 12 months.
South Africa is experiencing the most important progress in imports of Chinese language photo voltaic panels into Africa, having imported 4 GW of photo voltaic panels within the 12 months as much as September 2023, able to producing electrical energy equal to about 3 per cent of its annual demand, in line with a report from think-tank Ember.
Renewable power manufacturing in Africa is low in comparison with different areas of the world. The entire continent generates simply 13 GW of electrical energy from photo voltaic panels – a much smaller capability than many particular person nations worldwide. Chiyemura says China might contemplate relocating a few of its manufacturing traces to Africa, pointing to African economies’ comparatively excessive ranges of market entry to the US and Europe.
“Many African nations have beneficial commerce agreements with Europe and the US, with restricted tariffs,” he notes. “If China and a few African nations contemplate the potential for producing merchandise resembling photo voltaic photovoltaic programs or wind generators in African nations… a number of the merchandise could be consumed within the native market, however the majority of the merchandise could be focused at overseas markets.”
He provides that African nations have many tax exemption agreements with EU and US markets. The African Development and Alternative Act, for instance, gives duty-free entry to the US marketplace for greater than 1,800 merchandise from eligible sub-Saharan African nations.
The pinnacle of the Africa Finance Company, Samaila Zubairu, has additionally proposed that China counter the overcapacity narrative by collaborating with Africa to diversify its renewable-energy provide chain.
The institution of renewable power manufacturing capability in Africa would additionally dovetail with African financial goals to develop manufacturing and enhance worth add on the continent, as seen in insurance policies like Rwanda’s Nationwide Technique for Transformation.
Muyi Yang, a senior researcher on the unbiased power think-tank Ember, believes that diversifying provide chains may even profit China in the long run. As useful resource constraints develop, transferring industries to resource-rich areas will probably be extra sustainable, he says.
Connecting the dots
Whereas there’s a clear potential alignment of China’s manufacturing and Africa’s wants and imaginative and prescient, motion will probably be wanted to capitalise on the alternatives.
Yang mentioned the largest one pertains to the dearth of infrastructure deployment in African nations and the poor funding setting in native markets, by which overseas traders are hesitant to enter the native market, and the place a lot of the nations are dominated by public utilities.
“The general public sector is unable to assist sufficient new power tasks and the personal sector is reluctant to speculate, making it tough to get tasks off the bottom.”
The Discussion board on China-Africa Cooperation (FOCAC) held in September confirmed some constructive alerts, together with a pledge to “[provide] African nations with new power applied sciences and merchandise, implement 30 clear power and inexperienced growth tasks, and arrange a particular fund for the China-Africa inexperienced trade chain”.
The Beijing Motion Plan, a blueprint for the subsequent three years of China-Africa relations adopted at FOCAC, additionally affirmed that the nation would “[support] Africa in creating native worth chains, manufacturing and deep processing of important minerals, construct progress circles for China-Africa industrial cooperation in 5 areas, undertake 10 supporting tasks of commercial parks for African nations, and maintain 100 coaching classes on industrialisation”.
Chiyemura sees these indications as a constructive step. “The sign from the Chinese language management is that we’re going to arrange some coverage devices to assist inexperienced industrialisation in Africa [and] is a step in the precise route. The signalling impact implies that Chinese language corporations working in Africa, whether or not personal or state-owned, are prone to shift their commitments in direction of greener renewable power tasks.”
Fikayo Akeredolu, a researcher on the political financial system of Nigeria’s power transition on the College of Oxford, says she favours know-how switch and enterprise funding from traders over financial support. She notes that technological developments can deliver extra dynamism and incentives to new power growth and imply that African nations would play an energetic position in world politics.
In the meantime, Huang Yiping, dean of the Institute of South-South Cooperation and Growth at Peking College, has advised that the Chinese language authorities ought to implement the equal of a Marshall Plan for low-carbon merchandise.
The “Inexperienced Growth Plan for the International South”, as he calls it, would offer monetary assist for International South nations to purchase Chinese language low-carbon items, stimulating demand for Chinese language producers’ merchandise and supporting inexperienced transformation and financial growth all over the world. He famous that it might, just like the Marshall Plan, create a constructive cycle of “benefiting others whereas benefiting oneself”.
For the International South, China’s “overcapacity” may be seen as a possibility for an power transition, particularly when a lot can nonetheless be carried out to attain local weather objectives. However how China fosters South-South cooperation to allow it to proceed exports of latest power merchandise to EU and US markets will probably be important, be it by means of constructing factories, ramping up know-how switch or supporting new power trade progress in Africa and Southeast Asia.
This text was initially printed on Dialogue Earth below a Inventive Commons licence.
