The following article, written by Paweł Wargan for Progressive International, examines the neverending accusations by Western media and politicians regarding China’s putative ‘overcapacity’ in electric vehicles (EVs). Paweł explores the reasons for these accusations, and comprehensively refutes them.
The article observes that China’s industrial utilisation rates and inventory levels are similar to those of the US, and furthermore Chinese profit margins are soaring. These factors indicate that there is no significant overcapacity in China’s EV sector.
As for the notion that China’s rise has caused the decline of Western industry, Paweł points out that the decline of Western manufacturing predates China’s rise. “In the US, the trade balance has seen a sustained deficit since the late 1970s. As the productive structure of its economy shifted, industrial capital made way for financial capital. The number of manufacturing jobs decreased from around 20 million at their peak in 1979 to under 13 million today — a period in which the US saw its population rise by 100 million.”
Describing some of the extraordinary innovations taking place in China’s EV sector – in particular a ‘road-cloud-vehicle’ integration that improves safety and reduces energy use – Paweł comments that “this degree of integration is only possible through control over the entire EV value chain”. Particularly in the light of US-led sanctions and tariffs, “China began to move quickly towards technological sovereignty in all areas, from chips and artificial intelligence to cars and batteries”. As a result, “it competes not only with the automobile industry — historically the domain of the West. It also now competes with the tech giants of Silicon Valley”. Obviously, this speaks to the superiority of a socialist economy where decision-making lies ultimately with the people, rather than a few billionaires.
Paweł writes that the accusations of overcapacity provide a convenient pretext for the West to embark upon its own program of protectionism – exactly what it accuses China of doing – as well as “allowing the Western leadership to blame China for the structural long-term decline of the global capitalist economy”. Alarmingly, the situation also shows that the West would rather sabotage China’s economy and the global green transition than cooperate sensibly with China on the basis of mutual benefit.
Paweł Wargan is an activist, researcher and organiser. He serves as Political Coordinator at the Progressive International, an international coalition of over 100 popular movements, political parties, and unions. He contributed to our conference marking the 75th anniversary of the founding of the People’s Republic of China.
The past year has seen a concerted effort by Western politicians, regime intellectuals, and media stenographers to accuse China of “overcapacity”. The coordinated narrative has accompanied a choreographed escalation in the West’s economic war on China. What is motivating these accusations?
In May 2024, the White House announced a series of new tariffs on Chinese products, including a 100% tax on imports of Chinese electric vehicles (EVs), set to take effect later this year. The European Union followed closely behind. In July, the Commission announced duties ranging from 17.4% to 37.6% on Chinese EV manufacturers. And in August, Canada announced 100% tariffs on Chinese EVs along with 25% tariffs on Chinese steel and aluminium.
The White House insisted that the measures would “protect American manufacturers from China’s unfair trade practices” and ensure that “the future of the auto industry will be made in America by American workers.” The European Commission cited China’s “unfair subsidisation” and Canada warned of the threat of China’s “intentional, state-directed policy of overcapacity”. In this narrative, now choreographed and ritualized across the West, China’s “overcapacity” is to blame for the West’s rising trade deficits and persistent inability to reindustrialize.
China has responded firmly to these accusations. In a meeting with French President Emmanuel Macron and the European Commission’s Ursula von der Leyen in May, Chinese President Xi Jinping said that there is no such thing as “China’s overcapacity problem”, and emphasised China’s contribution to the green transition. China’s Foreign Ministry said that the “overcapacity” thesis was a “pretext” to create new restrictions on China’s energy products.
China’s “overcapacity” and the West’s industrial decline
Overcapacity can be measured in three ways. First, we can look at the “capacity utilization rate”, or the degree to which available industrial capacity is being used. Second, we can look at inventory levels; a high number of unsold goods gathering dust in warehouses might suggest that production exceeds demand. Third, we can look at profit margins, which would have to fall to help empty the brimming warehouses and make way for new goods.
As French economics commentator Arnaud Bertrand found, China does not show signs of “overcapacity” across any of these measures. On the contrary, its industrial utilization rates and inventory levels are similar to those of the United States, and Chinese profit margins are soaring.
But even if the “overcapacity” thesis were true, the West’s industrial decline long precedes China’s rise. In the US, the trade balance has seen a sustained deficit since the late 1970s. As the productive structure of its economy shifted, industrial capital made way for financial capital. The number of manufacturing jobs decreased from around 20 million at their peak in 1979 to under 13 million today — a period in which the US saw its population rise by 100 million. This year, factory employment in the US fell to record lows.
For its part, Europe faces historic economic pressures due to rising fuel prices caused by price-gouging and Europe’s attempts to delink from Russia. Germany is now deindustrializing. Volkswagen and its subsidiaries are set to cut tens of thousands of manufacturing jobs across Europe, and its workers are mobilizing from Wolfsburg to Brussels. “The real issue here is, in fact, not overcapacity, but competitiveness,” Bertrand says.
China’s EV miracle
In 2023, Ford chief Jim Farley visited China with his Chief Financial Officer John Lawler for the first time since the Covid-19 pandemic. They test-drove an EV made by Changan Automobile, one of Ford’s long-standing partners in China. According to a report in the Wall Street Journal, the pair were stunned. “Jim, this is nothing like before,” Lawler told Farley. “These guys are ahead of us.” Ford has reportedly shipped several Chinese EVs to the US for further study as it seeks to build a low-cost offering of its own, but it is difficult to see how it could compete with brands like BYD, whose cars start at just $11,000.
Across China, a technological revolution is brewing. In 2024, China’s Ministry of Industry and Information Technology joined four other ministries to develop the blueprints for ‘road-cloud-vehicle’ integration. The aim is to build intelligence into every aspect of road traffic — from traffic lights and charging stations to roads and logistical channels, from vehicle and pedestrian movements to information services — in ways that can harness the capacities of China’s booming EV market.
“In 2023, new EV penetration was 31.6% across China. In major cities like Shanghai, Beijing, and Guanzhou, the number is closer to 50% — and it took them just 10 years to get there,” Haidong Chen, Director of Marketing at the National Innovation Center of Intelligent and Connected Vehicles, told me in Beijing. “In the first quarter of 2024, the share of new EVs sold was 31.3%, but jumped to 50.39% in April.”
Nearly every EV released in China is capable of at least “L2” automation, Haidong told me, meaning that it can steer and accelerate autonomously under driver supervision. But with ‘road-cloud-vehicle’ integration, every car released in the past few years could gain the capacity for full self-driving without additional hardware upgrades.
That degree of integration can produce significant improvements in road safety. “Imagine that an elderly driver misses a red light at an intersection,” Haidong said. “The system can avoid a crash by stopping or redirecting the other cars on the road, even if the car in question is not itself plugged into the network.” This is something that a Tesla could not do. On their own, LIDAR (Light Detection and Ranging) systems, which electric vehicles use to map their surroundings, can only see up to a distance of 250 meters, and cannot see around corners. “Full integration is needed,” Haidong said.
‘Road-cloud-vehicle’ integration can also reduce energy use. An integrated logistics system can plan for the most efficient and least congested route through which to deliver goods from a given port to one or more cities. A road can instruct a car to slow down on a slope or turn, letting gravity or momentum do the work while preserving battery power.
More than 40 cities have applied to be part of the pilot program. Beijing, Shanghai, Chongqing, Guanzhou, and other major cities have already started to test the technology on public roads. The immediate goal is to implement the program across all major cities in just a few years. But the long-term ambition is greater. “This is the infrastructure,” Haidong said, “that will allow China to replace private cars with fleets of publicly-owned, self-driving vehicles in the future.”
Value-chain integration
This degree of integration is only possible through control over the entire EV value chain. This begins with raw minerals, the most significant of these being lithium, a key component in battery manufacturing. While China has limited domestic lithium reserves, it has developed cutting-edge technologies that allow it to recycle nearly 100% of the lithium from used batteries. By 2021, China had more existing or planned lithium-ion battery recycling capacity than all of Europe and North America combined. The CEO of CATL, one the world’s largest battery companies, now predicts that China will need no new minerals for battery production by 2042.
Second to the battery is the software. Where car manufacturing was once primarily a question of mechanical engineering, Chinese planners soon began to see them as “cell phones on wheels”, Haidong told me. The impetus to develop sovereign information technology to power them increased as the West’s economic war against China accelerated. “In 2008, Microsoft accused China of digital piracy, and ‘blackscreened’ all government computers,” Haidong said. “This was a major humiliation. The government realized that it would need to develop its own software and its own hardware.”
In 2013 and 2014, when attacks against Chinese technology companies like Huawei accelerated, China began to move quickly towards technological sovereignty in all areas, from chips and artificial intelligence to cars and batteries. “Today,” Haidong said, “China’s industry is guided by a single principle: self-sufficiency.” This has allowed for the kind of integration — of batteries and software, or roads and cars and cloud technology — that is currently beyond the realm of imagination in the West. This, Haidong said, is why the Chinese EV industry is seen as a threat. It competes not only with the automobile industry — historically the domain of the West. It also now competes with the tech giants of Silicon Valley.
“Overcapacity” is a political accusation
The accusation of “overcapacity” serves a dual purpose. First, it gives the Western ruling class a license to turn to the very policies it accuses China of — subsidies and protectionism — to protect their own monopolists in a contest they otherwise could not win. Second, it allows the Western leadership to blame China for the structural long-term decline of the global capitalist economy, which can no longer accommodate the standard of living it once did and can therefore only sustain its legitimacy by reference to external threats.
But if the accusations of “overcapacity” are overwrought, they are part of a dangerous and escalating hybrid war with ramifications far beyond China’s borders. China has leveraged its socialist market economy to develop new technologies urgently needed to address the climate crisis. Over the past decade, this strategy has seen the costs of solar and wind power fall by 90% — and batteries by more than 90%. With China now building two-thirds of the world’s wind and solar projects, these sources of energy are set to make up 39% of China’s total energy mix by the end of 2024. China is now on track to meet its climate goals six years ahead of schedule.
If the tariffs imposed by the US, the EU, and Canada are an admission of their monopolists’ inability to compete with China — and a guarantee that state power is available to protect capitalist interests against an emergent socialist superpower — they are also a warning. The West is prepared to sabotage China’s economy, and the global green transition, rather than cooperate.
I wondered how China’s EV industry views the tariffs. “We don’t particularly care about the tariffs,” Haidong said. “If I’m the only producer globally, the tariffs mean that US consumers will pay more. It’s a bit like leaving your wife for your mistress. At one point, you’ll want to win her back, but now the cost has gone up.”
