China’s CNY1 trillion exports of electric vehicles (EVs), lithium batteries and solar cells could face a new round of challenges this year, as Western policymakers have genuine anxieties about overcapacity distorting the markets. Exports of the “new three” – electric vehicles, lithium-ion batteries and solar cells – amounted to CNY1.06 trillion in 2023, registering a year-on-year increase of 29.9%, said the General Administration of Customs (GAC).
Legal action and tariff increases by the United States and European Union against a perceived oversupply of cheap products could set back a critical segment of China's economy, unless it diversifies away from the West and also boosts domestic demand, analysts said. “The key question is how these industries struggle against these growing headwinds, which aren’t just tied to finding new commercial opportunities, but balancing against geopolitical and trade policy risks, as well,” said Nick Marro, Lead Analyst for Global Trade with the Economist Intelligence Unit (EIU). “I think it will be less of an ‘excuse’ for Western policymakers to engage in protectionism, and more a reflection of genuine anxieties around whether these products are distorting their own markets.” He also noted there is a “growing sentiment” in Western capitals that work against the idea of having their consumers subsidize China’s growth engine.
The European Commission has launched anti-subsidy investigations into Chinese EVs and train maker CRRC Qingdao Sifang, while the U.S. Department of Commerce placed import duties on solar panel makers that finish products in Southeast Asia to avoid tariffs on made-in-China goods. The U.S. government already bars EV battery materials from China as a “foreign entity of concern”. The Ukraine war, entering its third year, is also a factor affecting China’s ties with Western markets, with the British government announcing a new package of sanctions against Russia that included three Chinese electronics companies. “You can get an immediate protective effect by raising an anti-dumping case,” said Jayant Menon, Senior Fellow at the ISEAS-Yusof Ishak Institute in Singapore. “Once a competitor loses that market share, it’s difficult for the country to recover it.”
Chinese manufacturers would be able to make 4,800 gigawatt-hours of batteries in 2025, four times the demand of its EV makers, according to online investment publication Gelonghui. The annual supply capacity of solar panels reached between 800 and 1,100 gigawatt last year, well ahead of projected global demand of some 300 GW, according to the EIU. Chen Zhiwu, Chair Professor of Finance at the University of Hong Kong, said that local governments provide venture capital and land tax breaks to EV companies. “Beijing recognizes insufficient domestic demand is a key economic challenge,” said Wang Zichen, Research Fellow at the Beijing-based Center for China and Globalization. “However, expanding domestic demand is a difficult undertaking that takes time, effort, and perhaps most importantly, domestic reforms.” Top Chinese leaders called “overcapacity in some industries” a major challenge for 2024 at the annual Central Economic Work Conference in December. Marro added that China’s trade frictions are as much tied to the economic challenges that it is struggling with at home. “Deflationary forces and weak domestic demand tie back to the slowing Chinese growth engine and weak consumer confidence,” he said.
The day after Brussels launched its CRRC probe, EU Competition Commissioner Margrethe Vestager said the EU is “absolutely willing to use” its suite of trade tools to combat perceived unfair competition from China. In a response statement, the China Chamber of Commerce to the EU (CCCEU) said that any adoption and application of policy tools “should avoid having a discriminative impact towards foreign companies.” “Throughout the EU legislative process of the Foreign Subsidies Regulation and its Implementing Regulation, the CCCEU actively participated in public consultations on the draft legislation and the draft implementation rules multiple times,” the statement read. The business group also noted that it has provided feedback to the European Commission and the EU legislative bodies in several forms, and expressed member companies’ concerns about what it termed unreasonable reporting obligations imposed after the application of the regulation. Dong Jinyue, Senior Economist at BBVA Research, said that it will be a “lose-lose scenario for the EU” if the bloc mirrors the aggressive stance of the U.S.
Figures from China’s General Administration of Customs (GAC) showed that total imports and exports between China and the EU decreased 7.6% to USD782.9 billion in 2023, as compared to the 2.4% yearly growth to USD847.3 billion recorded in 2022, the South China Morning Post reports.
