Overinterpreted green production

China’s so-called overcapacity is exactly what the world needs and wants.

A wind farm in Bozhou (Anhui), April 27, 2024

In March, I visited Wuwei, Gansu, and had to pinch myself to make sure I wasn’t dreaming. Solar panels stretched as far as the eye could see, covering the desert to the horizon. This is a solar farm built by China Three Gorges Corporation and Inner Mongolia’s Elion Resources Group. It also produces a lot of wind power.

I may be naive, but I am convinced that this is exactly what the world is looking for. Thanks to massive investments in renewable energy, their price has fallen and their production has increased, allowing China to reach its carbon emissions peak well before the 2030 deadline.

The visit of Janet Yellen, the US Treasury Secretary, to Beijing around the same time, prompted me to think differently. The US view is that China’s massive deployment of green technologies is not a service to the world, but rather a problem. Yellen believes that China has overcapacity in green sectors. But why could this be a problem?

Bringing the Chinese solution to the green transition

I remember clearly that at the end of the climate negotiations in Copenhagen in 2009, some environmentalists were in despair, seeing almost no way out. True, former US President Barack Obama was present along with then Chinese Premier Wen Jiabao, German Chancellor Angela Merkel, Indian Prime Minister Manmohan Singh and Brazilian President Luiz Inácio Lula da Silva, but the results were disappointing.

What nobody expected coming out of Copenhagen was that the price of solar would fall by almost 80% and offshore wind by almost 70% over the next decade. This is largely, but not exclusively, thanks to China. This is what we all dream of, some governments, including Joe Biden’s, have said that we need a green transition in production and that it needs to be innovative, large-scale and cheap.

The claim that China has “overcapacity” flies in the face of common sense and every economic theory since Adam Smith. In my country, Norway, there is a huge “overcapacity” in the oil and fisheries sectors. We sell far more oil than we can consume and we catch far more cod and salmon than we can eat. This “overcapacity” allows us to buy mobile phones in the United States, wine in France and electric cars in China.

No country in modern history has benefited more from overcapacity than the United States. In the mid-20th century, the United States accounted for nearly half of the world economy. Almost every sector in the country was in overcapacity, which reinforced the power of the United States. Today, Silicon Valley has a huge overcapacity in digital products. If it produced only for California or the United States, no one would ever hear of this little valley.

Today, China dominates almost all green sectors, accounting for at least 60% of solar, wind, and hydroelectric power generation as well as electric cars and batteries. It is essential to the green transition. It is certainly possible to go green without China, but it would be much more expensive and therefore much slower.

A photovoltaic park in a mountainous area in Songxi District, Nanping (Fujian)

Achieving the “Race to the Top” through Dialogue and Cooperation

Faced with China’s advance, the West should appeal to innovation and green competition. Indeed, protectionism is a “leveling down” while green competition is a “race to the top”.

China invited Tesla to build its Gigafactory in Shanghai, in order to trigger the catfish effect in the Chinese electric vehicle market. This has stimulated many smaller Chinese competitors to accelerate their pace. As a result, BYD, Geely, Xpeng, Nio and many others are now strong competitors. Tech companies such as Huawei and Xiaomi are also joining the race.

Western countries should also invite BYD, CATL, LONGi, Tongwei, Goldwind and Envision to invest in Europe and America. This could encourage Western companies to accelerate their pace.

Last year, I visited CATL in Ningde, Fujian, the world’s leading electric battery manufacturer, which supplies batteries to Tesla and many other companies. CATL was full of praise for German company BMW, which helped it get off the ground by being a demanding customer and sharing its technology and expertise. Such partnerships can be replicated, but with Chinese companies in the lead.

It takes two to tango. The West must respond constructively to China’s competition. China can also contribute to this process through dialogue and partnerships.

Of course, all nations want to create jobs at home. Indian Prime Minister Narendra Modi has launched his “Make in India” strategy. French President Emmanuel Macron is concerned about jobs in France, and German Chancellor Olaf Scholz is concerned about the future of the German auto industry. China is unlikely to be content with exporting green products. Chinese companies will be called upon to create jobs in Europe, America, Africa, and Asia. It is encouraging to see BYD investing in Brazil, CATL in Hungary, and LONGi in Vietnam. We need many more examples of this kind.

China should deal with companies that complain of unfair competition in its market. For example, there are few foreign wind equipment manufacturers left in China. Perhaps they are unable to compete? In any case, a dialogue aimed at ensuring fair market access for all could convince skeptics.

In 2023, China accounted for 38% of global cleantech spending, with an impressive investment of $676 billion. Last year, it invested $890 billion in clean energy sectors and installed 300 GW of new solar and wind capacity. That’s ten times the total hydropower output of Norway, which provides enough electricity to heat all its residents in winter, with excess capacity for any additional demand.

China’s “overcapacity” in green sectors should be admired rather than criticized. However, a thorough dialogue is needed to ensure that all countries benefit.

(The original article was published on June 21, 2024 in China Daily’s China Watch.)

*ERIK SOLHEIM is former Executive Director of the United Nations Environment Programme and President of the Green Belt and Road Institute.