In recent years, the Chinese tech-intensive green products, especially electric vehicles (EVs), lithium-ion batteries and photovoltaic products have gained wide popularity globally, which contributed to the global technological breakthroughs and climate efforts.

However, the robust growth of China’s new energy industry has recently been framed for flooding the world with its ‘overcapacity’. According to the economic term, ‘overcapacity’ occurs when the production capacity of a certain sector significantly exceeds demand, leading to a surplus of goods and lower prices. Is China really exporting ‘overcapacity’ of its new energy industry?

From a perspective of a global market, the new energy industry has huge potential for future development, and the capacity we have today is far from enough. According to the International Energy Agency, global total EV sales will reach 45 million in 2030, 4.5 times more than those in 2022, and demand for solar capacity will expand almost fourfold to 820 GW by 2030, if all zero mission promises made by countries worldwide so far are to be fulfilled.

The growing capacity of China’s new energy industry is what we urgently need to promote global green development, rather than excessive.

Ever since President Xi Jinping announced in 2020 that China would peak its carbon emissions before 2030 and achieve carbon neutrality before 2060, China has made every effort to honour its climate commitment and has become an important force in stabilising the global clean energy industry supply chain.

In 2023, China contributed more than half of the world’s newly installed capacity of renewable energy. China’s wind power and photovoltaic products have been exported to over 200 countries and regions, making them affordable and accessible for many more users around the world.

Faced with the global challenge of climate change, we are glad to see that the EU and its member states are also doubling down their commitment and actions to green transformation, including Malta’s Low Carbon Development Strategy and its target to making the island of Gozo carbon neutral. Developing the new energy industry is a pressing task that we all need to work on and better done together.

China has been indeed ‘over-capable’ for developing its new energy industry if that is what the ‘overcapacity’ narrative is targeted at.

The comparative advantage comes with several reasons. Above all, the relentless R&D endeavours of Chinese enterprises. With increasing investment and talents dedicated to the promising industry, China is making significant breakthroughs in scientific and technological innovation. Second, the fierce and free competition in a massive domestic market with a 1.4 billion population. Third, a complete and well-functioning supply chain that features strong supporting industries, component manufacturing, assembling lines, sales and after-sales services etc. International cooperation of mutual benefit also plays an important role.

The growing capacity of China’s new energy industry is what we urgently need to promote global green development- Yu Dunhai

As German Chancellor Olaf Scholz reminded us last week in Stockholm, over half of the Chinese e-car imports are Western models, which means that foreign auto brands are also making big profits in this course.

To figure out whether the capacity of China’s new energy industry is overloaded, we also need to look into where its capacity goes. China’s current capacity utilisation rate remains at a steady level of 76%, which is only slightly lower than 78% of the US. On one hand, with increasingly bigger domestic demand for EVs, among the 9.58 million Chinese e-cars produced last year, 87.3% were sold at home while Chinese customers are still waiting in line to place orders.

On the other hand, if countries produced just enough to meet their domestic demand, there would be no cross-border trade. The rest of the limited proportion for export (12.7%) has definitely contributed to the free trade and healthy development of the global market by providing consumers with more and better options. For example, the BYD Atto3 model newly imported to Malta last year has become a star product of Gasan Zammit for its high quality and performance.

Speaking of free trade, IMF spokesperson Julie Kozack recently criticised that “such trade restrictions as those announced by the US on Tuesday can distort trade and investment, fragment supply chains and be very costly for the global economy”.

Taking ‘overcapacity’ as an excuse for protectionism such as imposing tariffs and bans will only be detrimental to free trade and the global green industry, of which the cost will be covered not simply by China or the US but by the entire world.

Yu Dunhai is the Ambassador of the People’s Republic of China.