How China is overproducing environmentally friendly technology, from solar to electric vehicles - Cafeqa

How China is overproducing environmentally friendly technology, from solar to electric vehicles

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The West is increasing its scrutiny of China because of the aggressive export activities that it engages in, which include overcapacity and massive subsidies.

Both the United States and the European Union are making efforts to avert the elimination of their renewable energy industries due to unfair competition.

In an effort to slow down the progression of climate change, the Secretary of the United States Treasury, Janet Yellen, issued a warning to China over the weekend to refrain from generating an excessive amount of renewable energy goods such as solar panels, wind turbines, and electric vehicles (EVs).

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During her trip to China, Yellen said that the unfair trade practices of China, which include the practice of dumping items that are artificially inexpensive on global markets, posed a danger to companies and employment in the United States. Should Beijing continue to adhere to its current stance, the United States government is contemplating the imposition of heavier tariffs and the closure of trade loopholes.

Companies in China are often able to undercut their Western competitors for a variety of reasons, including the availability of cheaper labor and economies of scale. However, they also reap the benefits of very substantial governmental subsidies, which contribute to the reduction of competition from overseas competitors.

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Subsidies from China dominate the proportion of help from the West


“Chinese subsidies are pervasive,” Rolf Langhammer, a former vice president of the Kiel Institute for the World Economy (IfW-Kiel), said in an interview with DW. “They encompass almost all industries and are far larger than any EU or US subsidies.”

On average, Beijing’s industrial subsidies are three to four times larger than those in nations that are members of the Organization for Economic Cooperation and Development (OECD), and for certain countries, they may even be as high as nine times higher. According to a research that was released by IfW-Kiel this week, the total amount of industrial subsidies in 2019 was anticipated to be around €221 billion ($237 billion), which is equivalent to 1.73% of China’s gross domestic product. A different research estimated that yearly subsidies generally amount to around 5% of GDP.

Based on the findings of the IfW-Kiel analysis, it was discovered that Chinese subsidies for domestic green-tech companies had greatly grown in the year 2022. Compared to only two years ago, when it earned €220 million, BYD, the biggest electric vehicle manufacturer in the world, received €2.1 billion. Mingyang, a manufacturer of wind turbines, received an increase in support from twenty million euros to fifty-two million euros.

The authors of the paper pointed out that in addition to the enormous subsidies, Chinese manufacturers also benefit from preferential access to essential raw materials, compulsory technical transfers, and less domestic red tape than their overseas counterparts.

China is increasing its exports of electric vehicles while demand across the world decreases


In an interview with DW, Brad W. Setser, a global trade specialist at the Council on Foreign Relations, said that the United States and Europe are experiencing a sense of unease at a time when the demand for electric vehicles in the Western world has seen a little decline. “It now looks like China is going to be an even bigger exporter of electric vehicles going forward.”

During the previous year, China exported more than 100,000 automobiles, the majority of which were electric vehicles or plug-in hybrids. 2023 saw a 70% increase in the value of the country’s electric vehicle exports, which totaled $34.1 billion. Nearly forty percent of all electric vehicles exported from China were sent to Europe, making it the region that received the most electric vehicles.

The European Union initiated an investigation in October to determine whether or not it should impose higher tariffs on electric vehicles manufactured in China in order to “offset state subsidies and to level the playing field.” At the moment, Brussels imposes a duty of 10% on automobiles that are manufactured in China. However, according to sources in the media, a retroactive charge of 25% might be implemented as early as July. It has been predicted by experts in the industry that this decision would result in the prices of Chinese sedans and SUVs of a medium size being more than their European counterparts.

The United States government currently imposes a tax of 27% on electric vehicles manufactured in China, and it is also planning to increase the levy even higher in order to strengthen its automobile sector.

In spite of worries over tariffs and potential access to Western markets in the future, Chinese manufacturers have committed to increasing their production. CATL, the largest battery manufacturer in the world, has announced that it would continue to go on with its ambitious growth plans. BYD recently informed investors that the company has set a goal of increasing revenues by twenty percent in the year 2024.

How did BYD manage to defeat Tesla, and will it be able to maintain its dominant position?

For example, individuals in the West are able to purchase automobiles at a reduced price, and businesses are able to have access to cheaper Chinese components. Langhammer pointed out that the West also benefits from the Chinese subsidies. Despite the fact that cheaper electric vehicles from China pose a danger, he said that some automobile manufacturers were doubtful about the European Union’s investigation into Beijing’s subsidies. This is because companies like Volkswagen of Germany and Tesla, the leader in electric vehicles in the United States, also get subsidies.

The European automobile manufacturers assert that they are capable of competing with China. “German automakers have a quarter of their foreign direct investment in China and also benefit from Chinese subsidies, and they fear retaliation,” Langhammer said, alluding to any tit-for-tat measures Beijing may take in the case of increased EU tariffs. “They fear retaliation because they have a quarter of foreign direct investment in China.”

Washington is afraid that Chinese companies may take advantage of gaps in US trade treaties with Mexico and Canada in order to avoid paying higher import duties by manufacturing electric vehicles under the Chinese brand in the two nations that are next to the United States. A new piece of law has been proposed in response to it.

A cautionary tale for the electric vehicle industry


The green energy industry in Europe has already been hit hard by low-cost imports of solar panels from China. These imports have resulted in the elimination of numerous local businesses and have sparked an investigation of anti-subsidy policies by the European Union. According to statistics provided by the International Energy Agency, the great majority of solar panels and components were imported from China, despite the fact that EU members installed record levels of solar power in 2022, which was forty percent higher than in 2022.

“There’s definitely a case that China is dumping its excess solar panels on the global market,” said Setser in response. “The Chinese factories are producing between two and three times as many solar panels as the world currently uses,” which he said was contributing to the rise in “fire-sale prices.”

It was reported this week that the European Union would be conducting a separate anti-subsidy investigation against the wind turbine sector in China. In addition to being a partner in a number of wind parks located in Spain, Greece, France, Romania, and Bulgaria, the nation’s goal is to become the dominant player in global supply chains.

Following the announcement by Brussels in February that it would be conducting an investigation into the subsidies that it gets from Beijing, the Chinese state-owned train manufacturer CRRC was compelled to withdraw from a tender that was being issued in Bulgaria.

The tried-and-true method that China use to dominate the market


Earlier this week, European Competition Commissioner Margrethe Vestager gave a lecture at Princeton University in which she detailed China’s strategy for achieving dominance in the green energy market. She made the observation that China was “not always above board” in the manner in which it obtained green technical know-how, pointing out that China first draws international investment via joint ventures because of this. She said that once China had closed its own market to foreign companies, it proceeded to export surplus capacity to the rest of the world at prices that were subsidized so that they were more affordable.

In an effort to derail the country’s economic progress, Beijing has accused the United States and the European Union of using protectionism. China is well on its way to surpassing the United States as the greatest economy in the world by the 2040s, and Chinese officials have increased their expenditures in high-tech companies in order to assist the nation in moving up the value chain.

In spite of this, analysts believe that China cannot achieve success without robust and secure markets for its goods. This should offer leaders from the United States and the European Union an advantage when they negotiate with Beijing.

“We should be prepared to play hardball with China,” Langhammer said in an interview with DW. “For electric cars and green technology, the US and EU are the most important foreign markets, and the Chinese need access.”

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