BEIJING, July 15,
2024 /PRNewswire/ -- A news report
from chinadaily.com.cn:
'Overcapacity' should be viewed from a global, dynamic
perspective
The Joe Biden administration recently announced new tariffs on a
variety of imports from China, particularly on electric vehicles
and lithium batteries. Prior to that, US Treasury Secretary
Janet Yellen mentioned the issue of
so-called overcapacity in China
during her recent trip to the country. The issue of
alleged overcapacity in China's green industry has
once again become a widely discussed topic.
Industrial overcapacity is not a new topic. Many scholars have
discussed its causes. They generally believe that it's a result of
reckless investment by businesses amid incomplete market
information, undue government interventions in microeconomic
activities, a sudden fall-off in market demand caused by domestic
or overseas factors, and economic cycles. But these views are based
on a static analysis, which only factors in the causes of
industrial overcapacity at a given point in time, instead of
analyzing industrial overcapacity from a dynamic perspective that
includes changes to the industrial structure.
Economic growth requires continuous upgrading of the industrial
structure. Each industry has its own life cycle. Its share of the
overall national economy will rise at the beginning, and then it
begins to decline after reaching its peak. During the decline
period, the share of emerging industries will rise. The industrial
structure is upgraded amid the trade-off between one industry and
another, driving sustained economic growth.
Our research team has recently collected carbon intensity data
(carbon emissions per unit of export volume) and China's export
data from 2002 to 2021 to examine the relationship between the
carbon intensity of Chinese products and China's export
structure.
We have reached three conclusions. First, the share of China's
product exports in China's total exports and destination markets
shows an inverted U-shaped curve of first increasing and then
decreasing. Second, the products with higher carbon intensity reach
their export peaks earlier than those with lower carbon intensity.
Third, this non-linear relationship is mainly caused by changes in
the comparative advantages of industries due to an increase in the
cost of carbon emissions in China.
Thus, changes to the industrial structure based on carbon
intensity are in line with the general law of industrial change.
Industries with different levels of carbon intensity have their own
life cycles. Products with higher carbon intensity will be
gradually phased out, while greener products with lower carbon
intensity will gradually account for a larger and larger share of
the national economy. As a result, the overall carbon intensity and
carbon emissions of the national economy will decline.
The above findings provide a new way of thinking: to determine
whether an industry has excess capacity, we should not only examine
the current state of supply-demand balance, but also consider which
stage of the life cycle the industry is currently in.
If the industry has entered a downward trajectory, the
industry's oversupply relative to market demand will continue to
exist as the market demand will continuously shrink in the future.
Against this backdrop, if backward businesses cannot be eliminated
from the market due to market distortions and improper
interventions by the government, excess capacity will come into
being.
If an industry is on an upward trajectory, the future demand
will continue to expand and the new market demand will absorb more
production capacity. Under this circumstance, even if the supply
exceeds demand in the short run, the industry shouldn't be deemed
as having excess capacity from a dynamic perspective that includes
the whole life cycle of the industry, as long as the industry can
continuously improve its production technology and enhance
production efficiency.
Specifically, due to the low-carbon nature of green industries,
most of them have not yet reached the peak in their life cycle and
are on an upward trajectory, so the judgment of whether there is
excess capacity in these industries should factor in future
demand.
In terms of domestic demand, achieving the carbon neutrality
goal calls for greater efforts to promote new energy in the years
to come, which provides a broad market and huge growth space for
China's new-energy industry.
From a global perspective, the supply of and demand for green
industries are both globalized. The development of green,
low-carbon and environment-friendly new energy is an important part
of the global efforts to tackle climate change. The global demand
for new energy products has been growing, creating huge growth
potential for the new-energy industry.
According to the estimates of the International Energy Agency,
electric car sales reached 14.65 million units in 2023, about 42
times the sales figure in 2014. To accomplish the goal of carbon
neutrality, the global EV sales will need to reach 45 million units
by 2030, which is more than three times that of 2023.It is expected
that by 2030, the global demand for power batteries will reach
3,500 GWh, four times the global shipments in 2023. These demands
far exceed the current global supply capacity.
Finally, from the global development trend, the photovoltaic
industry will maintain high-speed growth. The IEA has been
upgrading its forecasts on installed capacity for 2030. It is
expected that annual solar PV additions will expand more than
fourfold to 650 GW by 2030. Therefore, in the face of the carbon
peaking and carbon neutrality goals and the hefty global demand,
the "new three" (solar cells, lithium-ion batteries and electric
vehicles) production are far from experiencing overcapacity, but
rather in serious under capacity.
In a nutshell, the issue of overcapacity should be viewed from a
dynamic and global perspective. China's green industries are still
on an upward trajectory, with great market potential. Supply
exceeding demand is a short-term phenomenon. Policy governance
should focus on improving efficiency rather than only limiting
capacity.
Ju Jiandong is director of the Center for International
Finance and Economic Research at PBC School of Finance at Tsinghua
University. Feng Lu is an assistant
researcher with the Center for International Finance and Economic
Research at PBC School of Finance at Tsinghua University. The
authors contributed this article to China Watch, a think tank
powered by China Daily. The views do
not necessarily reflect those of China
Daily.
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SOURCE chinadaily.com.cn