By South China Morning Post | Created at 2024-10-16 10:09:21 | Updated at 2024-10-16 12:25:35
2 hours ago
At an international symposium on “80 Years after Bretton Woods” in Hangzhou in May, I proposed a “Global South Green Development Plan”, which was later dubbed the Chinese Marshall Plan.
The proposal includes three goals: assisting developing countries’ green development, expanding China’s aggregate demand and enhancing China’s global leadership. Like the original Marshall Plan, the plan would provide large volumes of commercial credit and investment, policy loans and government aid.
I was inspired by recent discussions about China’s overcapacity in key green industries: electric vehicles (EVs), lithium batteries and solar panels. In April, US Treasury Secretary Janet Yellen raised this issue and voiced two concerns: that Chinese overcapacity looked like the result of state subsidies, and that it had reached a scale that was disrupting international markets. A month later, the United States announced a 100 per cent tariff on EVs from China.
Defining “overcapacity” can be controversial. As some Chinese experts have pointed out, if Chinese companies can sell their products, whether at home or abroad, there is no overcapacity. So, if we understand overcapacity as a case of supply exceeding demand, it may be useful to distinguish between the domestic and the global context.
Three sets of factors are relevant here: macroeconomic imbalances, explicit and implicit subsidisation and the size of the industry in question. “Domestic” overcapacity has characterised China’s entire post-1970s reform period, because the country has produced more than it consumes, as evidenced by a large current-account surplus.
The first step to addressing overcapacity, then, is to balance the current account. In fact, the Chinese authorities have been working towards this goal ever since the 2008 global financial crisis, by boosting domestic consumption.
