By Shi Dan and Li Xian Jun
In an interview with US news outlet MSNBC on March 27, US Treasury Secretary Janet Yellen claimed that China's production overcapacity in the sectors of solar cells, electric vehicles (EV), and lithium batteries hurts US businesses and jobs due to artificially cheap prices of Chinese products with which US companies cannot compete. She also said she plans to press China during her trip in April.
Yellen's claims clearly ignored the rules of market competition, and showed her intention to arbitrarily intervene in the Chinese economy, and blatantly suppress Chinese firms to serve her group interests. Such a move will not only harm the interests of US consumers but also hinder the global efforts to combat climate change.
China's competitive edge in manufacturing
China has both benefitted from and contributed significantly to globalization. Since the start of its reform and opening-up, China has actively engaged in the global division of labor, leveraging advantages of its comprehensive industrial systems and abundant labor resources. Together with rapid technological advancements, China quickly became a global factory, delivering vast amount of affordable and high-quality products to the international market. Welcomed worldwide, Chinese products have made substantial contributions to global economic growth.
Chinese products gained market share through their high quality and low prices, which is in line with market competition rules. The rapid growth in China's wind power and photovoltaic installed capacity, which ranks first in the world, is also due to quick drops in production costs. The swift growth in exports of Chinese solar cells, EVs, and lithium batteries is also a testament to their competitiveness. Moreover, the vast majority of the global population, particularly in regions with lower incomes compared to developed countries like the US, has vast demand for high-value, reasonably priced products.
According to World Bank data, as of 2022, upper-middle and high-income countries account for only 15.6 percent of the global population, but account for 61.2 percent of the global GDP. The per capita GDP in these countries was $49,607.2, which is 3.9 times the global average of $12,687.7 and 8.5 times that of the lower-middle and low-income countries, whose GDP per capita stands at $5,811.4. With the majority of global population still living off relatively low incomes, affordable and high-quality Chinese products have been effectively catering to their demands, enhancing their welfare by meeting basic needs for production and everyday life.
Take Chinese firms, like Transsion Holdings and Shein, for example. Transsion secured an 8.1 percent share of the global smartphone market in 2023, and Shein has established itself as a leader in the cross-border fashion e-commerce sector serving over 200 countries, including the US and India.
The reasons behind Chinese enterprises' capabilities to provide high-quality, low-cost products were not subsidies from the government but fierce global competition and innovative development strategies. By leveraging comparative labor advantages and embracing technological and industrial advancements, Chinese companies have successfully reduced costs across the global supply chain. This is an inevitable choice for China, as a developing country, to deepen the technological revolution and industrial revolution and further enhance the welfare of people in China and around the world. It is dictated by the laws of technology and economics.
From the perspective of the globalization process of Chinese industries, whether in textile and clothing sectors as well as food and beverage industries in the early days, or the current rapidly developing industries such as electronic information products, electromechanical equipment, and mechanical equipment, Chinese companies' leading role is the result of their cost-cutting strategies, innovative technologies and business models, and competition with global leading companies.
As the most common and effective corporate competitive strategy, cost-first strategy directly reduces the cost of products and services, thereby enhancing social welfare and promoting technological progress and further reduction of costs. The Chinese government is not a subsider for the success of these industries, but a builder, service provider and coordinator that creates a better market environment for the growth of these industries.
US is the original initiator of government subsidies
The US' claim that China's industrial policy hurts other countries is actually aimed at defending its so-called Inflation Reduction Act, and is typical double standards by forbidding others to do what it is doing itself. From the 1950s and 1960s, the US has been supporting its aerospace and military sectors with industrial revival plans. In the 1970s and 1980s, it published supportive policies for the semiconductor industry, and in the 1990s, a National Information Infrastructure policy was introduced. More recent legislative measures, such as the CHIPS and Science Act and the Inflation Reduction Act, also offer vast amount of subsidies and financial support for critical sectors, including semiconductors, artificial intelligence and quantum technology. With such policies, the US aims to suppress competitors and strengthen its control in frontier sectors and new emerging industries, and thereby solidifying its hegemony.
In recent years, Tesla has set off a wave of EVs replacing fossil-fuel vehicles with low costs. SpaceX has also accelerated the progress of rocket launches and satellite communications with low-cost strategies such as recyclable technology. Advanced GPUs have greatly reduced the cost of artificial intelligence applications. Yellen's claim that China's cheap products have led to bankruptcies of US companies and caused employment problems is essentially using the "hand of hegemony" to hinder China's development and undermine the global division of labor and market order in order to reshape US competitiveness.
In addition, in the process of actively fulfilling its global responsibility to deal with climate change, China has actively promoted clean energy and low-carbon consumption. In the process, it has achieved rapid development in solar panels, EVs, lithium batteries and other industries. China has also become a pioneer in the global green energy and low-carbon revolution. However, the US has been unreliable in its response to climate change, which has not only had a severe negative impact on global climate governance, but also highlighted the US' discriminatory policy under "America First." The US claims to be a market economy, but in essence, it only chooses "market economy" whenever it's in its own interests.
Shi Dan is the director of the Institute of Industrial Economics of the Chinese Academy of Social Sciences. Li Xianjun is a researcher from the Institute of Industrial Economics of the Chinese Academy of Social Sciences. bizopinion@globaltimes.com.cn