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  5. The West is freaking out that China is making too much stuff, and it looks like China might be starting to agree

The West is freaking out that China is making too much stuff, and it looks like China might be starting to agree

Huileng Tan   

The West is freaking out that China is making too much stuff, and it looks like China might be starting to agree
  • China has published draft regulations for the battery industry, and it wants to curb overproduction.
  • That's at odds with China's official stance that there's no industrial overproduction in the country.

The West has been complaining that China is overproducing goods and dumping them on the global markets. The comments have incurred the ire of Beijing, which has, as recently as Monday, denied the claims.

But on Wednesday, China's Ministry of Industry and Information Technology issued a proposal that indicates Beijing may agree with some of the West's accusations.

In its proposal, the ministry lays out plans to regulate the battery industry — which, alongside electric vehicles and solar cells, is a key pillar of growth in China's economic transformation.

The proposal covers a range of issues, including minimum technical standards and ecological guidelines for battery production. Notably, however, it also states that lithium-ion manufacturers should avoid building factories that "simply expand production capacity."

In 2023 alone, China's battery production was already big enough to fill global demand, a BloombergNEF analysis found.

The proposal illustrates China's own separate concerns about overcapacity despite the administration of China's leader, Xi Jinping, pushing back on the claims. It has come just as Xi wraps up his first trip to the European Union in five years.

China's overcapacity problem doesn't extend to all sectors

To be sure, the issue of overcapacity in China doesn't extend to all sectors.

Another Bloomberg analysis found that the problem was mainly in areas in which China already had the upper hand over the West, such as lower-tech goods and building materials after the country's real-estate bust.

The country is also producing a vast oversupply of solar panels and batteries.

Other analyses support Bloomberg's findings that China's factory production isn't flooding global markets in every sector.

"We find emerging, but not overwhelming, macro proof to support the recent geopolitical narrative of excess Chinese goods production that unfairly undercuts global manufacturing competitors on price," Louise Loo, the lead economist at Oxford Economics, wrote in a note at the end of April.

Loo said cyclical oversupply was probably in the near term because of China's economic woes, which had hit domestic demand, but it wasn't a persistent issue over time.

Still, this doesn't sit well with the West, which is trying to ramp up its own onshore battery capacity with government incentives in markets including the US, Canada, Europe, and India.

Chim Lee, a China analyst at the Economist Intelligence Unit, wrote in a note in mid-April that the "super-cycle" in strategic sectors — such as those of EVs and renewable equipment — was politically charged.

"These sectors are highly politicized globally: lower prices can be perceived as the result of government support, but they are also key to accelerating the green transition," Lee wrote.

China's global share of battery manufacturing capacity is expected to fall

Despite the West's consternation, there's an upside for the bloc. China's global share of battery manufacturing is expected to decline in the years ahead, according to a report from the International Energy Agency published on Monday.

China now accounts for more than 80% of battery manufacturing capacity, followed by the US and the EU with about 5% each, according to the IEA.

But China's share of battery manufacturing could fall to about 60% by the end of the decade, while the US and EU could each triple their share to about 15% thanks to the Inflation Reduction Act and policies to support energy transition commitments, according to the IEA.

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