Lu Feng, a professor with Peking University’s National School of Development, said at a recent seminar that overcapacity was more pronounced among producers of petrol vehicles, petrochemical goods, chips and lithium batteries.
Notwithstanding the speed and scale of China’s EV adoption and the tech self-sufficiency crusade fuelled by geopolitics and tech disputes, Lu raised concerns about some initial “signs of structural excess output” in the chip sector and lurking risks in the EV bonanza.
China’s chip-production capacity will grow by 13 per cent with 18 new projects in 2024, despite the capacity-utilisation ratio of the computer- and electronic-equipment sector hitting a historical low of 75.6 per cent last year, according to estimates by American semiconductor industry group SEMI.
HAVE TIMES CHANGED?
China is no stranger to overcapacity – not since opening up its manufacturing sector to private and foreign investors in the 1990s.
Still, the government and state-owned enterprises (SOEs) continue to be the main culprits. For instance, the 4-trillion-yuan stimulus package that Beijing wheeled out in 2008 to offset export losses, coupled with monetary and credit loosening, ignited frenzied production expansions for steel, cement, aluminium and plate glass, mostly among SOEs.
By 2013, when Xi Jinping became president, overcapacity started to bite in the photovoltaics (PV) sector, then spread to building materials and other industries.
But experts say the problem is not quite the same this time around.
“Today, overcapacity is concentrated in equipment manufacturing and downstream consumer industries, involving more private producers than SOEs,” said Zhong of Ping An Securities.
China’s EV sector is championed by private players such as BYD, which dethroned Tesla last year as the world’s largest producer. Similarly, the lithium battery sector is dominated by the privately run Contemporary Amperex Technology, known as CATL.
“It’s different from a decade ago when SOE makers of steel, cement and non-ferrous metals were churning out more than needed,” he added.
And, unlike how China’s leaders relentlessly reined in these sunset industries back then, Beijing now hails EVs, PVs and lithium batteries as bright spots of its economy – China’s new darling industries. The combined export value of these “new three” trade pillars hit 1 trillion yuan (US$128 billion) last year, and they reflect a shift from China’s “old three” export pillars that comprised clothing, home appliances and furniture.
Zhong also pointed out how the transition of the Chinese economy has had a profound impact across industries.
“The population is ageing, potential growth declining, and property demand peaking … This means tougher competition among businesses for a bigger slice of a pie when the pie itself may not become too much bigger,” he said.
Occurring in tandem, a widespread shift toward deglobalisation and protectionism has seen policy focuses shift to de-risking, re-industrialisation and supply-chain security.
Zhong thus spotlighted the role of industrial policies in creating overcapacity in industries that specialise in computers, telecommunication equipment, electronics, electrical machinery and pharmaceuticals.
In the supply-side reform initiated by former vice-premier Liu He in 2015 to defuse the overcapacity crisis, Beijing once identified six of the hardest-hit sectors: iron and steel; cement; coal; aluminium; plate glass and shipbuilding.
In subsequent years, Beijing issued quotas to reduce output in China’s coal, steel and cement industries, while striving to shut down “zombie” SOEs.
Today, there are questions as to whether such intervention might still be warranted in sectors such as EVs, as the market is already driving out uncompetitive players, with a string of closures since last year amid an intensifying price war.
For example, WM Motor, one of China’s earliest EV start-ups, filed for bankruptcy in October. And Shanghai-based Human Horizons ended its luxury HiPhi brand in February.
