China’s EV overcapacity may set it on a political collision course with the US

China’s EV overcapacity may set it on a political collision course with the US

Lu Feng, a doctor with Peking University’s National School of Development, said at a recent seminar that overcapacity was more pronounced among makers of diesel cars, chemical products, chips and lithium chargers.

Despite China’s rapid and extensive Vehicle implementation and the growing it self-sufficiency struggle fueled by geopolitics and technical disputes, Lu raised concerns about some first” signs of architectural extra output” in the chip sector and potential dangers in the EV boom.

Despite the fact that the computer and electronic equipment sector’s capacity utilization ratio reached a historic low of 75.6 % last year, according to estimates from American semiconductor industry group SEMI, China’s chip production capacity will increase by 13 % with 18 new projects in 2024.


China has not been a victim of overcapacity since the 1990s saw the opening of its manufacturing sector to foreign and private investors.

Still, the government and state- owned enterprises ( SOEs ) continue to be the main culprits. For instance, the 4- trillion- yuan stimulus package that Beijing wheeled out in 2008 to offset export losses, coupled with monetary and credit loosening, ignited frenzied production expansions for steel, cement, aluminium and plate glass, mostly among SOEs.

By 2013, when Xi Jinping became president, overcapacity started to bite in the photovoltaics ( PV ) sector, then spread to building materials and other industries.

However, experts claim that this time around the issue is not entirely different.

” Today, overcapacity is concentrated in equipment manufacturing and downstream consumer industries, involving more private producers than SOEs”, said Zhong of Ping An Securities.

China’s EV sector is championed by private players such as BYD, which dethroned Tesla last year as the world’s largest producer. Similarly, the lithium battery sector is dominated by the privately run Contemporary Amperex Technology, known as CATL.

” It’s different from a decade ago when SOE makers of steel, cement and non- ferrous metals were churning out more than needed”, he added.

And, unlike how China’s leaders relentlessly reined in these sunset industries back then, Beijing now hails EVs, PVs and lithium batteries as bright spots of its economy – China’s new darling industries. The combined export value of these “new three” trade pillars hit 1 trillion yuan ( US$ 128 billion ) last year, and they reflect a shift from China’s “old three” export pillars that comprised clothing, home appliances and furniture.

Zhong also cited the significant impact that the Chinese economy’s transition has had on various industries.

The population is getting older, potential growth is waning, and property prices are at their highest, he said, putting up more and more businesses competing for bigger pie slices when the pie itself might not even get that big.

A general trend toward deglobalization and protectionism has caused policy focus shifts to de-risking, re-industrialization, and supply-chain security as they both occur simultaneously.

Zhong thus spotlighted the role of industrial policies in creating overcapacity in industries that specialise in computers, telecommunication equipment, electronics, electrical machinery and pharmaceuticals.

In the supply- side reform initiated by former vice- premier Liu He in 2015 to defuse the overcapacity crisis, Beijing once identified six of the hardest- hit sectors: iron and steel, cement, coal, aluminium, plate glass and shipbuilding.

In subsequent years, Beijing issued quotas to reduce output in China’s coal, steel and cement industries, while striving to&nbsp, shut down “zombie” SOEs.

Given that the market is already closing out uncompetitive players, with a string of closures since last year amid an intensifying price war, there are questions as to whether such intervention might still be appropriate today.

For example, WM Motor, one of China’s earliest EV start- ups, &nbsp, filed for bankruptcy&nbsp, in October. And Shanghai- based Human Horizons&nbsp, ended its luxury HiPhi brand&nbsp, in February.