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China should do more to stimulate domestic consumption, European businesses have declared, saying huge investment in electric vehicle capacity has caused “understandable” concern in the EU.
The EU last week announced an anti-subsidy probe over concerns Chinese exports could swamp its automotive industry as they previously did its solar panel sector.
China’s policymakers have emphasised boosting manufacturing and exports, particularly of electric vehicles, rather than supporting consumers as a way of bolstering its pandemic-damaged economy.
“Because of overcapacity outside of Europe, the European solar panel market was more or less obliterated,” said Jens Eskelund, president of the EU Chamber of Commerce in China.
“So I think it’s understandable that in Europe there would be a certain concern about what is happening,” Eskelund said at the release of the chamber’s annual position paper on China. “Why do we see this rapid scale-up in [EV] production, which is significantly . . . overshooting any . . . presently anticipated demand in the market?”
The chamber called for “demand-side policies” and for a more “predictable policy landscape” that would support domestic consumption by ensuring consumers did not need to save so much to protect against sudden changes in government direction.
China’s rising expertise in electric vehicles is expected to lead to a “seismic shift” in the industry, according to analysts at UBS.
They expect Chinese brands to account for one in five cars sold in Europe by 2030, compared to just 3 per cent last year, to the detriment of established nameplates.
China’s battery and electric vehicle manufacturers are following a playbook that foreign executives claim has damaged other overseas industries: overinvestment fuelled by subsidies and local government support that results in excess capacity then unleashed on global markets.
The average utilisation rate of Chinese lithium-ion battery factories was 45 per cent last year and has dropped further in the first half of this year, according to CRU, a research group. The country’s current pipeline of new projects would by 2030 result in annual capacity vastly beyond that needed to convert the entire car fleet to battery electric power.
Analysts estimate the country’s automotive industry is already suffering from output that far outstrips demand.
EU trade commissioner Valdis Dombrovskis is scheduled to arrive in China on Friday for talks that were shaping up to be tough even before the anti-subsidy inquiry was announced.
While Eskelund cautioned that the European probe had to follow fair and transparent principles and the result could not be anticipated, he said there were indications China’s huge trade imbalances were being partly driven by industrial policy.
The EU’s goods trade deficit with China hit €396bn ($423bn) last year compared with €144bn in 2017.
“What we have seen is a high focus on supporting the supply side, supporting manufacturing, supporting exports and we are beginning to see now how overcapacity is beginning to pick up in many industries,” Eskelund said.
Among the recommendations in its position paper, the European chamber called on the Chinese government to increase productivity by emphasising market forces and “depoliticising” the business environment.
Under President Xi Jinping, China has increasingly emphasised the role of state-owned companies while introducing legislation that foreign businesses complain lacks clarity. These include changes to the anti-espionage law, a new foreign relations law and a series of data regulations.
The chamber also called on Beijing to “optimise policymaking” by allowing space for discussion following an intensifying crackdown this year on public discussion of the poor state of the economy.
It also urged China to continue its low-carbon transition after a shift back to the use of coal to provide power for manufacturing and exports as Beijing tries to reignite growth.
Additional reporting by Peter Campbell in London
Source: Economy - ft.com
