Recently, China’s problem of overcapacity has become a global focus. Faced with the dumping of a large number of Chinese products, European and American countries have successively raised tariffs on goods imported from China, while also urging the Chinese Communist Party to increase national income, promote domestic demand to absorb excess capacity. However, analysts believe that the political and economic system of the Chinese Communist Party is a “war economy system,” wherein “the CCP believes that military capability is closely related to production capacity.”
On August 26, the Canadian government announced a 100% tariff on electric cars imported from China, in line with the European Union and the United States. Canadian Deputy Prime Minister and Finance Minister Freeland stated that “Canada has the necessary capabilities to produce EVs, but faces the threat of oversupply dominated by the (Chinese) government.” She noted that the Chinese government’s industrial support policies “have damaged Canada’s competitiveness” and called for the protection of local workers.
In response to the dumping of Chinese electric cars, the United States announced in May that it would increase tariffs from 25% to 100% within the year. Subsequently, the European Union also announced an additional 36.3% tariff.
Meanwhile, the Canadian government will also impose an additional 25% tariff on steel and aluminum products from China, with specific categories set to be announced on October 1 and taking effect from October 15. Currently, the steel and aluminum industries in Canada employ approximately 130,000 workers.
David Wong, an economist based in the United States, is not surprised by China’s global overcapacity dumping. He told Dajiyuan, “The so-called 40 years of growth in China’s reform and opening up was not really driven by investment and consumption, but only by exports. It can be seen clearly that the entire Chinese economy highly relies on exports.”
“The high-quality growth of China’s economy began in 2001 when it joined the WTO. In the past twenty-plus years, economic growth ultimately benefitted from the opening up of the two largest markets in Europe and America to China at very low tariff thresholds, allowing a large influx of Chinese goods.” Wong explained, “As Europe and America opened their markets to China, foreign investment not only brought in capital but also management models. Companies like Apple brought orders, and Tesla brought technology that established an advanced electric vehicle industry chain in China. The entire electric vehicle industry in China developed rapidly thanks to this industry chain.”
TrendForce, a global market research institution, stated that global sales of pure electric vehicles (BEVs) in the second quarter reached 2.328 million units, an 8% increase year-on-year. While Tesla maintains its leading market share, its sales decreased by 4.7% compared to the previous year. BYD, ranked second, showed strong performance with a sales growth of around 20%.
Plug-in hybrid electric vehicles (PHEVs) reached 1.439 million units in sales, a 64.2% year-on-year increase, with the top four sales all being Chinese brands: BYD, XPeng Motors, AIWAYS, and Changan.
Furthermore, after the collapse of the real estate bubble in China, domestic demand for steel products sharply declined, leading to excess capacity being heavily exported overseas. China exported 53 million tons of steel in the first half of this year, a 24% surge compared to the same period last year. The total export volume for the whole year is likely to reach the highest record of 110 million tons set in 2015.
Regarding China’s export-led industrial policy, economists David Autor, David Dorn, and Gordon Hanson referred to it as the “China shock” in a research report in 2013. The report indicated that the flood of goods from China led to around 1.5 million job losses in the US from 1990 to 2007. Many industries in the US were concentrated in specific regions, making job losses due to imports, even if seemingly small in number, have a significant impact on many communities.
Following the pandemic, the Chinese economy began to decline, especially with real estate giants like Evergrande experiencing crises, leading to the burst of the real estate bubble and a rapid downturn in the Chinese economy. Among the three pillars supporting the Chinese economy, domestic demand and investment have weakened, making exports the mainstay. Seizing the opportunity presented by the decarbonization and green energy industries introduced by Europe and America, the Chinese government has subsidized green energy products like electric cars, lithium batteries, and solar panels, aggressively promoting exports to revive the economy. “China shock 2.0” is currently impacting the global economy.
In response to China’s overcapacity, US Treasury Secretary Yellen emphasized during her visit to China in April that a key factor in China’s long-standing economic imbalance lies in weak consumption. However, the Chinese authorities continue to make “massive investments” in specific industries such as electric cars, solar panels, and lithium batteries, resulting in a surge in exports with spillover effects threatening American businesses and job prospects.
Nobel laureate in economics Paul Krugman said that the Chinese Communist Party prefers to use government spending to stimulate production and relies on exports to support the economy. He stated, “This fact is a risk for everyone.”
According to Krugman, China severely lacks domestic consumption and investment opportunities, making its economic model unsustainable. China should focus on boosting demand rather than stimulating production.
The data on household consumption expenditures as a percentage of GDP in 2022 showed that the US accounted for 68.2%, Japan 53.9%, South Korea 48.4%, while China only accounted for 38.2%, the lowest proportion.
David Wong said, “Increasing national income is not a priority for the CCP’s economic development. The authorities have not given up on planned economy practices, aiming to expand the overall economy, such as dominating over half of the world’s steel production.”
He believed, “Chinese people have low incomes and are in a certain state of poverty. This is actually advantageous for the CCP, as it continues to exploit this poverty at little cost, making people work overtime and do jobs they are not accustomed to.”
In the 1980s, the large-scale export of Japanese cars to the US led to a US-Japan trade war, prompting the Reagan administration to encourage Japanese manufacturers to build factories in the US. Whether this model could be applicable to China’s current overcapacity issue is met with caution by Europe and America. The reason is seen in the fundamental conflict between the communist ideology pursued by the CCP and the normal attributes of international states, such as the security risks posed by electric cars with AI functions collecting customer information and sending it back to China.
In addressing the communist issue, geopolitical analyst and veteran media personality Shishan pointed out that Europe and America have overlooked a key point: the CCP regime is an anomaly. Its basic political and economic ideology has inherited the old Soviet model to date, with its political and economic system being a “war economy system.”
“China believes that military capability is closely related to production capacity, manufacturing industry capabilities.” Shishan explained, “The ultimate goal of the CCP, as commonly mentioned by Xi, is the so-called ‘original intention’ or what is known as ‘liberating all mankind.’ This was vigorously propagated during the Mao era and even led to wars. After Xi came to power, there was a new narrative called ‘community of common destiny for humankind,’ packaged as ‘building a durable and stable international order,’ but this international order must be led by the CCP. In recent years, the CCP has felt its economic strength has increased, thus it began challenging the US, expanding military forces in the South China Sea, Taiwan Strait, and more, all steps toward realizing its goals.”
Shishan stated that for the CCP, promoting the “war economy system” is best served through the planned economy of state-owned enterprises, which is why Xi Jinping is swiftly pushing for “national advance and private retreat” recently. Increasing the income of Chinese citizens to drive domestic demand, creating a virtuous cycle for economic development, is considered by the CCP as unfavorable for the “war economy system.”