China’s Overcapacity Ignites Trade Tensions With US, Europe

What the CCP is orchestrating transcends market economics; it's an exercise in economies of scale, pursuing sheer size for efficiency gains. The goal is to bolster enterprises to achieve unassailable monopoly power. This photo shows BYD electric cars waiting to be loaded onto a ship for export at a port in Yantai, in eastern China's Shandong province on April 18, 2024. STR/AFP

News Analysis

When the leader of the Chinese Communist Party (CCP) recently attended diplomatic meetings during his European visit, his counterparts were deeply concerned, claiming that China was flooding global markets with excessive production. Claims that Xi Jinping denied. Analysts disagree, asserting that this practice, combined with the fact that the CCP is granting substantial subsidies to various industries such as electric vehicles, represents a calculated strategy of socialist economies of scale aimed at securing dominance in international markets and exerting global influence.

On May 8, Ursula von der Leyen, President of the European Commission, addressed the issue during a speech in Berlin. She highlighted the influx of Chinese electric vehicles into the EU market, which is heavily bolstered by government subsidies. “We need to address this issue. We need to protect our industries,” she emphasized.

During discussions with French President Emmanuel Macron and Ms. von der Leyen on May 6, Xi refuted allegations of “overcapacity” in China, asserting that such concerns are unfounded when considering comparative advantages and global demand.

Speaking to The Epoch Times, Professor Frank Xie from the Darla Moore School of Business at the University of South Carolina contradicted Xi’s assertions. He believes, “China undeniably faces severe overcapacity. Recently, the CCP government has been promoting the so-called ‘new productive forces,’ and electric vehicles are one of the three drivers. China has about 280 various electric vehicle companies with an annual capacity of 25 to 27 million vehicles, while the Chinese market can only absorb at most 15 to 17 million vehicles, indicating significant overcapacity.”

Following the trilateral discussions, Ms. von der Leyen reiterated concerns in a press conference, warning that CCP subsidies to electric vehicles and steel industries pose a serious threat to European manufacturing, potentially leading to “deindustrialization” within the continent. She cautioned, “The world cannot absorb China’s surplus production.”

Recent data from Chinese state media Xinhua showed that in 2023, China produced 9.59 million new energy vehicles, with sales matching 9.49 million vehicles, ensuring its status as the world’s leading producer for nine consecutive years. Exports surged to 1.20 million vehicles, marking a staggering 77.6 percent increase year-on-year, with the European market accounting for 38 percent.

Chinese electric vehicle exports are rapidly gaining ground in Europe, leveraging price differentials attributed to alleged dumping practices. The EU has initiated investigations into this matter to evaluate the potential imposition of tariffs, signaling an escalation in trade tensions.

CCP Subsidies

Since China’s accession to the World Trade Organization (WTO) from 2001 until 2011, a deluge of Chinese-manufactured goods flooded the United States, precipitating the “China shock” and resulting in a loss of at least two million jobs in the U.S. manufacturing sector.

According to Chinese state statistics, two decades after the WTO entry, China’s global commodity exports have surged past 14 percent. Magnifying the threat of a potential “China shock 2.0.”

In April, during a trip to Beijing, Treasury Secretary Janet Yellen said that the Biden administration will not permit a recurrence of history, “I’ve made clear that President Biden and I will not accept that reality again.”

The CCP administration has long bestowed policy subsidies upon favored industries. Following the pandemic, to stimulate economic recovery, it ramped up support measures, including tax breaks, fee reductions, and low-interest loans for the manufacturing sector, thereby escalating production capacity and precipitating “China shock 2.0.”

According to the Organization for Economic Cooperation and Development (OECD), global steel overcapacity surpassed 550 million tons, with a sizable portion emanating from Chinese enterprises.

In 2023, China’s steel exports hit a seven-year peak, surging by 36.2 percent annually, yet prices plummeted by 20-to-30 percent compared to the previous year. Solar panels are now cheap enough to be repurposed as fencing, while electric cars are being sold well below prevailing international market rates.

A Nikkei survey revealed that among over 5,000 Chinese listed firms, the top ten recipients of CCP subsidies in the first half of 2023 included five electric vehicle or battery manufacturers, with subsidy amounts doubling year-on-year. Among these, BYD secured approximately $247 million in subsidies, nearly tripling its previous year’s intake.

The U.S. Center for Strategic and International Studies (CSIS) estimates that the CCP regime has injected $173 billion into subsidizing new energy vehicle enterprises, aiming for industry dominance.

In February of this year, BYD unveiled a hybrid vehicle priced slightly above $11,000. The significant cost-performance advantage of BYD’s offerings is attributed to special CCP subsidies.

According to Mr. Xie, the CCP’s tactic is to expand industries through policy incentives and engage in “low-price dumping” in global markets, aiming to vanquish foreign competitors. Even if profitability is absent, sales persist, all in pursuit of obliterating rivals. Following the victory, the CCP aspires to monopolize markets and assert global supremacy.

Mr. Xie stressed, “What the CCP is orchestrating transcends market economics; it’s an exercise in economies of scale, pursuing sheer size for efficiency gains. The goal is to bolster enterprises to achieve unassailable monopoly power.”

He warned, “Once the CCP secures international market dominance, it will inevitably hike prices anew. By then, the automotive industries in other nations may be decimated, leaving little room for retaliation—this is the CCP’s playbook.” Nonetheless, “such a scenario is unacceptable to Europe and the United States.”

US and Europe Unite Against China’s Trade Practices

Since China joined the WTO, the CCP has capitalized on its abundant cheap labor and other cost advantages, exploiting trade loopholes to export low-cost Chinese goods globally, seizing a significant share of the global market in textiles, appliances, and furniture.

According to Chinese state media, China’s textile and clothing exports have commanded a third of the global market for years. Since 2006, China has emerged as the world’s leading furniture exporter, claiming over 35 percent of global production value. In the household appliances sector, Chinese dominance is pronounced, with washing machines and refrigerators capturing over 50 percent of the global market share and air conditioners surpassing 80 percent, cementing China’s status as the premier exporter worldwide.

In 2023 alone, China’s trade surplus skyrocketed to approximately $800 billion.

Responding to narrowing the trade deficit with China, the Trump administration initiated sanctions in 2018, a trend continued and expanded upon by the Biden administration. Beyond economic and trade realms, the Biden administration has broadened its scope to encompass diplomacy, defense, and all other domains, rallying international allies such as Japan, the UK, and the EU to confront and curtail the CCP’s disruptive influence on the international order.

In April, Treasury Secretary Yellen’s visit to China aimed to caution against China’s overcapacity and global dumping. Ms. Yellen underscored the detrimental impact of Chinese electric vehicle companies, sustained by government subsidies, on global markets, warning of market price distortions.

In late February, the U.S. Department of Commerce launched an investigation into the information security risks posed by Chinese electric vehicles. On April 3, the EU announced an inquiry into potential subsidies to Chinese solar panel companies. On April 17, President Joe Biden called for significant tariff hikes on Chinese steel and aluminum products aimed at stemming China’s surplus capacity dumping.

According to the nonprofit Global Trade Alert, governments worldwide have announced over 70 interventions against Chinese exports since early 2023.

In response to the global trade backlash, Chinese Ministry of Finance officials refuted claims of “overcapacity” in China during an April 8 press conference, dismissing trade protectionism measures as ineffective in addressing capacity issues. CCP state media contended that U.S. and European references to “overcapacity” are attempts to stifle China’s new energy development and maintain hegemony.

“Currently, the CCP is under investigation for dumping by the EU; despite separate discussions with Germany and France, progress remains elusive,” according to Mr. Xie. “Additionally, the CCP plans to channel car sales to the U.S. through Mexico, prompting active U.S. legislative preparations to curtail such practices. Other developed nations are also taking measures to counteract CCP dumping and market dominance endeavors.” Consequently, “the CCP’s future avenues are increasingly restricted, as is its market influence.”

Advancing Political Agendas Through Economic Maneuvers

In 2023, then-Chinese Prime Minister Li Qiang aggressively promoted the export growth of its “new three items”—electric vehicles, lithium batteries, and photovoltaic products—witnessing a 30 percent surge, amounting to approximately $147 billion.

According to a report by the international market research and consulting firm Mordor Intelligence, China’s electric vehicle market size is projected to reach $305.57 billion in 2024 and could soar to $674.27 billion by 2029.

As articulated in “How the Specter of Communism Is Ruling Our World,” China’s technological advancement isn’t merely aimed at integrating into the global high-tech landscape on equal footing with other nations. Instead, it seeks to employ nefarious tactics to obliterate adversaries, undermine Western economies — particularly the United States — and assert global dominance. China’s technological pursuits serve its communist ideology, with the ultimate goal of imposing communist rule worldwide.

Mr. Xie further claims, “The CCP has consistently instrumentalized the economy as a means to political ends. Its previous endeavors such as foreign aid and initiatives like the Belt and Road Initiative are not solely economic ventures but rather strategic moves with political objectives.”

He continues, “The CCP expands its global footprint through economic endeavors such as export domination and market occupancy, thereby fortifying the Communist Party’s authority and advancing its agenda of global hegemony under the guise of the ‘Community of Common Destiny.’”