Column: If the logic of "overcapacity" holds, the U.S. is the world's largest "overcapacity" country

By Liu Jie

by Jin Ruiting

BEIJING, May 9 (Xinhua) -- Recently, American politicians and the media have fabricated a theory claiming overcapacity in China's new energy industry. This theory is nothing but applying old cliches to a new industry. It is a continuation and replication of many negative views about China, such as the "China threat" or "peak China" rhetoric.

Similar statements have long been hyped up. In 2016, the United States ignored the fact that China's steel production capacity utilization rate was higher than the global average and launched a "337 investigation" against 40 companies, including Baosteel, abusing trade restrictions to prohibit steel products from entering the U.S. market. This dispute lasted two years and ended with all Chinese steel companies winning the lawsuit and the United States ending the investigation.

Many years on, the U.S. side has failed to properly recognize that China's change in global exports is an inevitable result of the evolution of comparative advantage and international division of labor.

A study shows that from 2001 to 2012, the average annual growth rate of hourly labor remuneration in China's manufacturing industry was 11.9 percent, but the wage level in 2012 was only 5.88 percent of that in the United States. With the growth trend continuing, China's labor costs were expected to be under 12 percent of those in the United States in 2020.

As the labor cost advantage weakens, technological advantages and economies of scale have gradually become the main reasons to promote China's exports in advantageous industries. Separate research shows that from 2001 to 2005, the total number of patents for new energy materials in China was only 51 percent of that in the United States. From 2016 to 2020, the total number of patents for new energy materials in China was eight times that of the United States.

According to the definition of "overcapacity" by American politicians, the United States is the country with the most severe overcapacity. Historically, the proportion of U.S. goods exported to the global market was as high as 21.6 percent of global total exports, far higher than the historically highest level of 14.9 percent in China. The United States is the world's largest exporter of agricultural products. If we follow the U.S. logic of so-called "overcapacity," there is no doubt that the United States is the largest "overcapacity" country.

The essence of so-called "overcapacity" is a common trick used by the United States to suppress other countries' advantageous industries. Whether in history or today, China does not have the problem of "overcapacity."

The global production capacity of new energy products is far from meeting the future international market demand. According to the International Energy Agency (IEA), it is estimated that by 2030, the global demand for new energy vehicles will increase over threefold from last year to 45 million vehicles, and the global demand for power batteries will surge to 3,500 GWh.

It should be recognized that China's new energy industry has mastered its real skills in open competition and represents advanced production capacity, which not only enriches global supply and alleviates global inflationary pressures but also makes great contributions to the global response to climate change and green transformation.

(The author is a researcher at the Academy of Macroeconomic Research.)

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