The last day of U.S. Secretary Janet Yellen’s trip to China coincided with the strongest retort yet from Beijing officials over her claims that China is flooding global markets with cheap goods, particularly in the new green industries.
As Yellen laid out plans to formalise dialogue with China over excess industrial capacity in electric vehicles (EVs), solar panels and batteries, saying Washington would not accept U.S. industry being “decimated”, the Chinese finance ministry issued a statement saying it had already “fully responded” to her concerns.
Commerce Minister Wang Wentao, at a roundtable meeting with Chinese EV makers in Paris on Monday, said U.S. and European assertions of excess capacity were groundless, adding China’s rise in these industries was driven by innovation and complete supply chain systems, among other factors.
China’s latest response, analysts say, centres on the idea that its production system is simply more competitive, a sharp change in tone from only a month ago when officials including Premier Li Qiang sounded their own warnings on overcapacity.
The strong pushback from Beijing contrasts with the generally warm interactions between Yellen and Chinese officials during her trip, leaving the two largest economies further apart on the hottest dispute in global trade, which could add to tensions.
“They cannot win the race, so they try to slow it down,” said Li Yong, chief researcher at D&C Think, a Chinese think tank, referring to the West’s rhetoric on overcapacity.
“We just do our things, they can do whatever they want – the knife is in their hands.”
Both sides believe they have solid, data-supported arguments not to back down.
The core criticism coming primarily from Washington and Brussels is that state-led support for manufacturers, coupled with depressed domestic demand, is pushing excessive Chinese supply onto global markets.
This drives down prices.
Volume growth weighs on Chinese solar and batteries export prices
Prices have fallen sharply in two of the green energy industries dominated by China. In lower-end industries prices have been more stable.
The graphic has multiple line charts showing the year-on-year growth in volume and value of Chinese exports of the following items between 2021 and 2024: electric vehicles, solar panels, lithium-ion batteries, tractors, decorative wooden products and shoes. The growth in volume is shown in red while the growth in value is in yellow.
Consequently, it threatens U.S. and EU firms which survive on profits rather than what Western officials argue is a drip-feed of state resources in China. And, it can complicate longer-term investment decisions.
Growing numbers of loss-making manufacturers in China
China’s industrial complex is expanding, but many firms cannot cope with the heightened competition.
The graphic has two charts next to each other. The stacked bar chart on the left shows the number of industrial enterprises in red and the number of loss-making enterprises in yellow between 2014 and 2024. The line chart on the left shows the share of such loss making enterprises in the same period.
While China denies subsidies and points to U.S. and EU government programmes to support their own industries, its critics take a wider view of state support that incorporates cheap loans, land use, huge infrastructure investment and other benefits that span across a fully-integrated supply chain.
EU trade officials have singled out the huge resources redirected by China’s state-dominated financial system from the ailing property sector to its sprawling manufacturing complex, as Beijing looks for other economic growth drivers.
China’s bank lending to manufacturing vs property
PBOC channels more credit into the manufacturing sector at the expense of the property sector.
The graphic is a line chart showing the year-on-year lending growth of the manufacturing sector, in red, the overall lending growth, in purple, and that of the property sector in yellow between Q4 2019 and Q4 2023.
For its part, China says industrial overcapacity is not unique to the world’s second-largest economy.
“The so-called ‘overcapacity’ is a manifestation of the market mechanism at work, where supply-demand imbalance is often the norm,” vice finance minister Liao Min told local media.
“This can occur in any market economy system, including in the United States and other Western countries, where it has happened multiple times in history”.
Industrial capacity utilisation in China is lower than in the United States or Europe, but not by much.
China’s capacity utilisation lags U.S. and EU rates, but only slightly
As U.S., EU industries find it harder to compete with their Chinese rivals, Western officials say China’s state-led, investment-heavy…
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