While the US and EU impose tariffs in response, some developing economies see opportunities to benefit from China’s green manufacturing strengths
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A South African electrician works with his Chinese colleague at a Beijing Automotive Industry Corporation plant in Eastern Cape province, South Africa. Some African experts have proposed that China counter the “overcapacity” narrative by collaborating with Africa to diversify its supply chain for new energy products (Image: Zhang Yudong / Xinhua / Alamy)
“Overcapacity” is a word that has dominated the global political agenda this year. In an April visit to China, US Treasury Secretary Janet Yellen raised – both privately and publicly – the Chinese economy’s “imbalances and overcapacity”. Yellen expressed worries that this overcapacity could harm US industries. A particular focus of attention on the overcapacity debate has been China’s “new three” sectors of solar power, electric vehicles (EVs) and lithium batteries – products that are also central to China’s and the world’s low-carbon energy transition.
Analysts say that EVs are expected to face a further setback under the second term of US president-elect Donald Trump, whose transition team is planning to cut EV tax credits and further increase tariffs on Chinese goods.
But not everyone agrees with the characterisation of these sectors as experiencing overcapacity. And not everyone thinks these “imbalances” are a bad thing. Some argue China’s huge production capacity in low-carbon sectors could offer a unique opportunity to accelerate the global energy transition, particularly in the Global South.
Understanding overcapacity
Simply put, overcapacity occurs when a sector’s production exceeds market demand. This imbalance can lead to lower-priced exports and unfair trade. It has implications for companies in other countries, which may be forced to downscale or close if outcompeted by low-priced goods, leading to job losses.
