America Treasury Secretary Janet Yellen warned China over the weekend against overproducing clean energy products such as solar panels, wind turbines and electric vehicles (EVs) in the race to combat climate change.
During her visit to the Asian country, Yellen said China's unfair trade practices – dumping artificially cheap products onto world markets – are a threat to American businesses and jobs.Washington is considering even higher surcharges If Beijing maintains its existing policies, it will impose tariffs and close trade loopholes.
Chinese companies often underperform their Western counterparts for a variety of reasons, including cheaper labor and economies of scale. But they also benefit from very generous state incentives that help make foreign rivals uncompetitive.
China's subsidies exceed Western aid
“Chinese subsidies are widespread,” Rolf Langhammer, former deputy director of the Kiel Institute for the World Economy (IfW-Kiel), told DW. “They cover almost every industry and are much larger than any subsidies in the EU or the US.”
The Chinese government's industrial subsidies are on average three to four times higher than those in Organization for Economic Co-operation and Development (OECD) countries, and sometimes up to nine times higher. A report released this week by IfW-Kiel estimated that China's industrial subsidies amounted to 221 billion euros ($240 billion), or 1.73% of gross domestic product (GDP), in 2019. Another study found that annual subsidies are typically around 5% of GDP.
The IfW-Kiel report revealed how China's subsidies to domestic green technology companies increased significantly in 2022. BYD, the world's largest EV maker, received 2.1 billion euros, compared to 220 million euros just two years ago. Support for wind turbine manufacturer Mingyang increased from 20 million euros to 52 million euros.
The report's authors argue that Chinese producers are favored not only by large subsidies, but also by preferential access to critical raw materials, forced technology transfer, and less domestic red tape than their foreign competitors. He pointed out that he was benefiting from it.
China expands EV exports as global demand eases
“Tensions are rising in the U.S. and Europe at the same time as demand for electric vehicles increases.” [in the West] “China looks like it's going to become an even bigger exporter of electric vehicles,” Brad W. Setzer, a senior fellow at the Council on Foreign Relations, told DW.
Last year, China sold more than 100,000 cars overseas, most of them EVs or plug-in hybrids. The country's EV exports increased by 70% in 2023, reaching $34.1 billion (€31.66 trillion). Europe was the largest recipient of Chinese EVs, accounting for nearly 40% of exported electric vehicles.
In October, the European Union launched an investigation into whether to impose higher tariffs on Chinese-made EVs to “offset state subsidies and level the playing field.” Brussels currently imposes a 10% tariff on Chinese-made cars, but media reports suggest retroactive 25% tariffs could be introduced as early as July. Industry analysts say the move will make mid-size sedans and SUVs in China more expensive than their European counterparts.
The US government has already imposed a 27% tariff on Chinese EVs and is preparing to raise them further to shore up the auto industry.
Despite concerns about tariffs and future access to Western markets, Chinese producers have vowed to increase output. CATL, the world's largest battery maker, said it will pursue aggressive expansion plans. BYD recently told investors that it aims to increase sales by 20% this year.
Beijing's subsidies are steadily trickling down
Langhammer said Western countries also benefit from Chinese subsidies, as consumers can buy cars at lower prices while companies can get cheaper Chinese parts. He said that despite the threat of cheap Chinese EVs, some automakers are facing EU restrictions on Chinese government subsidies, as companies such as Germany's Volkswagen and US EV giant Tesla also receive subsidies. He said he was skeptical of the investigation.
“They are [European car producers] They say they can compete with China. “German automakers account for a quarter of their foreign direct investment in China, benefit from Chinese subsidies, and fear retaliation,” Langhammer said, adding that they fear retaliation if EU tariffs are raised. mentioned retaliatory measures that the Chinese government could impose.
Meanwhile, the U.S. government is concerned that Chinese companies could take advantage of loopholes in U.S. trade agreements with Mexico and Canada to avoid increased import duties by producing Chinese-branded EVs in the two neighboring countries. There is. A new bill has been introduced to counter this move.
Solar power crisis is a warning for the EV sector
Europe's green energy sector has already been hit by cheap solar panel imports from China, wiping out several domestic players and triggering an EU anti-subsidy investigation. According to data from the International Energy Agency, EU countries installed record levels of solar power capacity last year (40% more than 2022), but the majority of panels and components came from China.
“There is definitely a case for China releasing surplus solar panels onto the global market,” Setzer said. “Factories in China are producing two to three times as many solar panels as the world is currently using,” he said, leading to “fire sale prices.”
The EU this week announced another anti-subsidy investigation into China's wind turbine industry. Asia's leading companies aim to dominate global supply chains and are partners in several wind farms in Spain, Greece, France, Romania and Bulgaria.
In a further development, Chinese state-run rail manufacturer CRRC was forced to withdraw from a tender in Bulgaria in February after Brussels announced an investigation into subsidies it was receiving from Beijing.
China's well-worn strategies for market domination
In a speech at Princeton University this week, EU Competition Commissioner Margrethe Vestager outlined China's strategy to dominate the green energy sector. He noted that China first attracted foreign investment through joint ventures, and said the country “hasn't always been great” at acquiring green technology know-how. He said it then closed its market to foreign companies before exporting excess production capacity to other parts of the world at subsidized, low prices.
The Chinese government has accused the United States and the European Union of using protectionism to stifle the country's economic development. China is on track to overtake the United States as the world's largest economy by the 2040s, and Chinese leaders are increasing investment in high-tech industries to help the country move up the value chain.
But analysts say China cannot succeed without a strong and stable market for its products, giving U.S. and EU leaders an advantage in negotiations with China.
“We have to be prepared to fight hard against China,” Langhammer told DW. “The US and EU are the most important overseas markets for electric vehicles and green technology, and China needs access.”
Editor: Uwe Hessler
