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China has published draft regulations for the battery industry and wants to curb overproduction.
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This appears to contradict China’s official stance that there is no industrial overproduction in the country.
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The West complains about China’s overcapacity, but analysts say this does not apply to all sectors.
The West complains that China overproduces goods and dumps them on world markets. The comments drew the ire of Beijing, which only denied the claims on Monday.
But on Wednesday, China’s Ministry of Industry and Information Technology released a proposal suggesting Beijing might agree with some of the West’s accusations.
In its proposal, the ministry presents plans to regulate the battery industry, which, along with electric vehicles and solar cells, represents an important growth pillar in China’s economic transition.
The proposal covers a number of topics, including minimum technical standards and environmental guidelines for battery production. However, it is also worth noting that lithium-ion manufacturers should avoid building factories that “simply expand production capacity.”
According to an analysis by BloombergNEF, China’s battery production was already large enough to meet global demand in 2023 alone.
The proposal highlights China’s concerns about overcapacity – which the country views differently than the West, although Chinese leader Xi Jinping’s government rejects the claims. It comes just as Xi completes his first trip to the European Union in five years.
China’s overcapacity problem does not extend to all sectors
However, the problem of overcapacity in China does not affect all sectors.
As a separate analysis by Bloomberg found, the problem is particularly in areas where China already had the upper hand over the West, such as lower-tech goods and construction materials following the country’s housing crisis.
The country also produces a large surplus of solar panels and batteries.
Analysis elsewhere also supports Bloomberg’s findings that China’s factory output is not flooding global markets in all sectors.
“We find emerging but not overwhelming macroeconomic evidence to support the recent geopolitical narrative of excessive Chinese goods production that unfairly undercuts global manufacturing competitors,” Louise Loo, senior economist at Oxford Economics, wrote in a March 30 note . April.
Loo said cyclical oversupply is likely in the near term due to China’s economic woes that have hit domestic demand, but it is not a permanent problem over time.
However, this does not suit the West, which is trying to expand its own onshore battery capacity with government incentives in markets such as the US, Canada, Europe and India.
As Chim Lee, China analyst at the Economist Intelligence Unit, wrote in an April 15 note, the “supercycle” in strategic sectors – such as those of electric vehicles and renewable equipment – is politically contentious.
“These sectors are highly politicized around the world: lower prices can be seen as a result of government support, but they are also key to accelerating the green transition,” Lee wrote.
China’s global share of battery production capacity is expected to decline
Despite the West’s dismay, there is also a positive side for the bloc. China’s global share of battery manufacturing is expected to decline in the coming years, according to an International Energy Agency (IEA) report released on Monday.
According to the IEA, China now accounts for more than 80% of battery production capacity, followed by the USA and the EU with around 5% each.
However, 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 supporting energy transition commitments, it said IEA.
Read the original article on Business Insider