South Africa this week joined a growing list of developing countries around the world that have introduced tariffs on certain Chinese imports to protect local producers. Indonesia, Mexico, Chile, and Brazil, among others, have also introduced similar duties on Chinese steel and other products.
While low-cost Chinese goods are a boon for Global South consumers, they’re extremely problematic for manufacturers in these countries because it’s almost impossible to match the “China Price.”
Chinese factories can produce goods at a scale and cost that remains unrivaled, and now, according to a new report by the consultancy Rhodium Group, they’re flooding markets in Africa and other developing regions.
Camille Boullenois, a director of Rhodium Group’s China projects team, and Austin Jordan, a senior analyst a Rhodium Group, join Eric & Cobus to discuss their new report and why this trend is potentially debilitating for many of the world’s least developed countries.
Show Notes:
- Rhodium Group: How China’s Overcapacity Holds Back Emerging Economies by Camille Boullenois and Austin Jordan
- News24: Shein, Temu packages to be taxed at full import duty – to relief of unions, business by Nick Jordan
- South China Morning Post: Indonesia plans tariffs of up to 200% on China-made products to protect domestic industries by Resty Woro Yuniar
About Camille Boullenois and Austin Jordan:
Before joining Rhodium Group, Camille headed the Brussels office for Sinolytics, advising clients on market governance and data strategies, as well as the regulatory challenges arising from the Corporate Social Credit System. Previously, she worked as an analyst at China Policy and contributed to the EIU, Oxford Analytica, and the ECFR. Camille holds a PhD in international, political, and strategic studies from the Australian National University, where she wrote her dissertation on social mobility and entrepreneurship in the Chinese countryside.
Prior to joining Rhodium Group, Austin was a Princeton in Asia fellow in Tokyo, Japan, and worked at the US Department of State, the US Embassy in Beijing, and the Center for American Progress. Austin will receive his PhD in political science from Harvard University in 2024, where he is completing his dissertation on the Chinese Communist Party’s governance of the private sector and the growth of Party cells throughout the economy. He holds an AM degree in government from Harvard University and a BA degree in China & Asia-Pacific studies from Cornell University. Austin is based out of Rhodium’s Washington, DC office.
Transcript:
Eric Olander: Hello, and welcome to another edition of the China in Africa Podcast, a proud member of the Sinica Podcast Network. I’m Eric Olander and, as always, I’m joined by China Global South’s Managing Editor, Cobus van Staden, in Johnsburg, South Africa. A very good afternoon to you, Cobus.
Cobus van Staden: Good afternoon.
Eric: Cobus, we’ve been hearing a lot lately about accusations that China is intentionally producing too many goods in certain sectors that are then flooding global markets and making it difficult for competitors to match what some people say are artificially low prices. Now, these critics contend that China is using unfair subsidies to box out competitors and effectively steal market share from producers in other countries, especially in areas like solar panels, EV batteries, and electric vehicles. The issue came up at the G7 Leaders Summit in Italy last month, where they included overcapacity allegations in their final communique. Let me just quickly read you what they said, Cobus, and I’d like to get your reaction to this.
This is a quote from their communique. “We express our concern about China’s persistent industrial targeting and comprehensive non-market policies and practices that are leading to global spillovers, market distortions, and harmful overcapacity in a growing range of sectors.” Those are keywords because they come up quite a bit. So this idea about Chinese overcapacity has become yet another flashpoint in China’s tensions with the U.S. and Europe in particular. Here’s how CNBC covered it in the U.S. just before Treasury Secretary Janet Yellen raised the issue during a trip she did earlier this year to China.
Julia: Treasury’s secretary Janet Yellen during a solar plant in Georgia this afternoon, Megan Cassella, joining us now with more on what Secretary Yellen had to say about China. Megan.
Megan Cassella: Hey Julia. So in a speech just getting underway this afternoon, Janet Yellen is taking aim at Beijing over what she sees as overproduction of several key technologies. That includes solar, electric vehicles, and lithium ion batteries. Yellen is saying she’ll be pressing Chinese officials to address overcapacity during her upcoming trip to China. She says she’ll make it a key issue in discussions, arguing that excess capacity in these industries hurts not only American workers and firms, but also China and the global economy. The issue here, as Yellen will lay out in her speech, is that Chinese overproduction in government-subsidized industries has led China in the past to sell products abroad at reduced prices. That makes it harder for other countries to compete. So, part of her concern now is that the U.S. has seen this play out before with solar panels.
To emphasize this point, she’s delivering these remarks inside a Suniva facility. It’s a solar cell manufacturer that produced solar cells in the U.S. for a decade before declaring bankruptcy seven years ago due to a flood of cheap imports from abroad. Today, Yellen says the company’s back on track to restart manufacturing this spring after securing around $100 million in financing from the Inflation Reduction Act. So guys, this shows just one way the Biden administration is aiming to compete with China on these issues.
Eric: Now, the Chinese are absolutely downright furious about these accusations that they say are both unfounded and unfair. They contend that the West is just jealous and never complained about overcapacity when it was about the stuff that they wanted to fill, Walmarts and things like iPhones. Only now when they’re trying to compete directly with the Chinese in these new energy sectors are Western and European politicians, in the eyes of the Chinese, whining about unfair trade practices. They also contend that it’s hypocritical for the U.S. to accuse Chinese of using subsidies when in fact the CHIPS Act, the Inflation Reduction Act in companies like Tesla receive billions of dollars in government money. Not to mention in Europe, specifically countries like France, that also use excessive amounts of public money in their corporate sector. Let’s take a listen to the Chinese argument as it’s been presented by the official state media outlet, Xinhua.
Speaker 5: Many have been vocal about the overcapacity fallacy around China recently. These are nothing but cliché. In recent years, China has been restructuring its exports with its major exported goods upgraded to the new three, namely the new energy vehicles, lithium batteries, and the photovoltaic products. Nonetheless, the new changes seems to mean nothing for the overcapacity tag. The logic is simple. If China’s products are of better quality, low price, and higher popularity than local products, it means China is dumping its overcapacity. However, they ignored another concept, the basic economic notion of a comparative advantage. It means when a country is capable of producing certain products with a lower opportunity cost, it will be able to occupy a larger quota in the export market. For example, wine from France, dairy products from New Zealand, soybeans from the U.S., all enjoy such comparative advantages. Can one say these products are also byproducts of overcapacity?
Eric: So, there’s also a very big difference between what’s happening in industrial economies, especially those with big auto industries, and the situation in developing countries. Less developed countries actually love low-cost subsidized Chinese EVs. In their view, it’s great for their consumers if the Chinese taxpayer wants to make it cheaper. What they don’t like though is when things like apparel, consumer goods, and steal, in particular from China, flood into their markets. And there’s been a lot of pushback lately from global south countries. Here are just a few of the latest, and the list is actually quite long of the countries that are now starting to sanction Chinese imports. Just last week, we heard that Indonesia will impose safeguard duties of 100% to 200% on imports ranging from footwear to ceramics. These are low-cost products that compete directly with local producers, which predominantly come from China.
Cobus, in your country, as of this week, parcels below 500 rand or about $28 from Chinese e-commerce brands like Xian and Temu will be taxed at exactly the same rate as local clothing retailers pay, namely at about 45% plus the VAT. And then there’s Mexico, Chile, Brazil. All of them have raised tariffs, even doubling in some cases on Chinese steel products to protect domestic firms. So, Cobus, all of this was a big set up to this overcapacity discussion. And you’ll recall that this played out even on the streets of Nairobi last year when local traders were protesting against local cost Chinese imports saying they just couldn’t compete. And it’s precisely on this basis here that when we talk about Africa that depending on how you look at it, the Chinese are either the best thing that’s ever happened to African consumers, or the worst thing that’s ever happened to African producers.
Because consumers get low-cost goods but it makes it very difficult to compete with the China price. Again, this depends how you look at it, but let’s get your take on all of this, Cobus.
Cobus: Yes, I think it definitely depends on how one looks at it. The overcapacity question, particularly as we’ve see it in in the global press, the global anglophone press has very much been shaped by U.S. and European concerns. And those happen to be, obviously they’re very big developed economies with very similar kind of domestic sectors that are now being threatened by cheaper Chinese imports. For me, from the global south, it seems necessary to draw a distinction, and I think we can discuss this more as we go on, but there seems to be the necessity to draw the distinction between general low-cost goods, like buying flip-flops from China, for example, and solar panels and EVs and batteries particularly. Simply because those play such a huge role in any kind of hope that we have to deal with some of the climate crisis.
I think those products particularly offer, I think, a challenge to some of these narratives, or at least necessitate, I think, some kind of counter narrative. But it is interesting to see this this split in the global south between governments on the one hand and sellers of things, and on the other hand, consumers, who are generally kind of very happy about the kind of cut price of Chinese goods.
Eric: Well, let’s get a perspective on this. The folks over at the consultancy, the Rhodium Group, recently published a fascinating new analysis about how China’s over capacity is holding back emerging economies. The report was written by Camille Boullenois, who is an associate director at Rhodium Group’s China projects team, and Austin Jordan, who is a senior research analyst at Rhodium. Camille, Austin — thank you both for joining us.
Austin Jordan: Thanks so much, Eric. Happy to be here.
Camille Boullenois: Thanks a lot for inviting us.
Eric: It’s great to have you both here. Congratulations on the report. The timing of it, given the sensitivity of the discussion was perfect. Camille, let’s start with you. Before we get into the details of your report, I just want to touch on this overcapacity debate that I played out here earlier. You chose to use that word in your title, and you obviously know that the Chinese disagree with that assessment. What are your thoughts on this debate as we heard it play out on CNBC and Xinhua?
Camille: Yeah, thanks. That’s a very good question because I think a lot of the disagreement comes from the fact that we don’t use the same definitions of what is over capacity. And a lot of people get sort of fixated on a capacity utilization rate, which is to what extent you use your factory, the full capacity of your factory. But it’s only one indicator out of many, many indicators that we see of overcapacity. And the way we chose to define it is that there’s a very large and fast-growing mismatch in China between domestic supply and domestic demand which was fueled by the economic slowdown and the stimulus as a reaction to the pandemic. And so where I see a very rapid increase in industrial capacity and, at the same time, stagnating demand. And so that capacity has to go somewhere.
And there are many options. Either factories remain unused, so that’s the typical definition rate, the low capacity utilization rate, or you produce but you don’t sell what you produce. So that’s reflected in high inventories. Or you export what you produce. And so that’s reflected in the very, you know, rapid surge in exports from China at the moment. And all of that to us is a reflection of what we call overcapacity. And there’s a bit of a misconception, I think, where people think, oh, it’s in batteries, it’s only in solar panels. What we see is that it’s really everywhere in a very wide range of sectors and products. And not only high tech, but as you were saying, right? A lot of low tech, a lot of low-cost goods. And of course, the way I define it, the Chinese government could very easily say, “Well, this is just the definition of a net exporter,” right?
“After all many countries are doing the same, Germany is doing the same. So why is it problematic when it’s us?” To that, I think there are several possible answers. First of all, China’s economy is very big. The very size of the economy makes the problem just very different from being a net exporter in any other economy. The gap between imports and exports in China is, in order of magnitude, larger than any other country. So it’s just different. Secondly, it’s created by systemic subsidies in market-distorting policies in China, which have nothing to do with the kind of industrial policy we do in other countries. And third, the whole notion of comparative advantage that the Chinese government is always putting forward as an argument, it only works when we each produce something that we’re better at, right? Like, you’re better at making shoes. I’m better at making wine. So we trade. If China wants to be better at making everything, that doesn’t really work. So I think those are really important arguments that define the issue as we see it now.
Cobus: Austin, one of the underlying issues that the report also raises, one of the kind of fundamental problems is the ongoing difficulty to increase consumption within China. Why is it so difficult to make Chinese people buy more stuff? And like, why is that such a kind of a big part of this larger conversation?
Austin: Yeah, so consumption has been a long-running problem in China, and I think the leadership has somewhat recognized this issue. But the problem is that consumers are pessimistic. There’s a lot of shakiness at a pretty foundational level in the economy. And if you’re a Chinese consumer and you’re not sure what’s going to happen in a few years, are you going to go out and spend that on luxury goods? Are you going to buy that wine from France or that dairy from New Zealand? You’re more likely to just tuck it away and put it in vehicles that’ll keep you… saving for a rainy day. It’s unclear. The leadership has decided that in the short run, it’s not going to take any extreme measures to boost consumption. We are awaiting an upcoming third plenum where we might expect to see some kind of announcements related to boosting consumption, but analysts are pretty pessimistic about it.
Eric: Yeah, the problem in China, and it’s been this way for decades, and it’s a little bit like those of us here in the United States, is that the majority of the population lives one healthcare disaster away from poverty. And so people save still 30% to 40% of their income for retirement and healthcare savings. And the idea that trying to promote consumption would take away potentially from healthcare savings prior to the healthcare system being able to afford to take care of this huge population of old people is a little bit of the dilemma. So, that just adds a little wrinkle into it. I don’t know if we necessarily want to push Chinese consumers too hard to consume if those healthcare costs aren’t taken care of. Camille, when we talk about the Chinese consumer, I also think of producers in places like Africa and other developing countries because they’re stuck at the bottom of the pyramid of the supply chain, in part because China subsidizes the processing and the manufacturing of, say, critical resources.
So, there’s always been this question of why does places like South Africa export raw manganese, chrome, rare earths, anything to China and not process it themselves? And then what comes back is the fact that water, electricity real estate are oftentimes subsidized by provincial governments in China. And so the cost differential is so big that a country like South Africa can never compete with the China price on that. That feels like it’s structural in China. They’re not going to back away from these subsidies anytime soon, especially now that they’re under pressure from the West and it’s becoming part of the great power competition. What’s the answer here then? If we have these subsidies that make it difficult for emerging economies to compete, what do you think is the solution?
Camille: That’s absolutely correct. China is probably not going to change course anytime soon on its own, partly because it’s not only about industrial policy, as we know, it’s meaning very strategic, targeted industrial policy, but it’s really about subsidizing the whole production system and preventing companies from collapsing when they are loss making because they’re employing people locally. So, it’s almost as much about yeah, stimulating the whole economy as boosting specific companies in high tech sectors. And so for that reason, as economic growth slows down in China, it’s a very, very difficult for the Chinese government to back down and to decide that they’ll completely change policies. Besides that, there’s also the fact that the Chinese government has this notion of welfarism that they see as very negative, and so ideologically it’s quite difficult for them to change course as well.
So, we’re in a tough situation where it’s going to be difficult to negotiate a change. The solution, there are many. First of all, countries everywhere are putting up tariffs to protect their industries. We see it a lot in Europe and the U.S. But many, many countries have raised tariffs in response to the flow of imports from China. Many of them also have implemented policies to, for example, raise the share of inputs that are produced locally, so local content requirements, etc., just to prevent, to avoid the situation that you just described, where they just send raw materials to China and they don’t send anything beyond that — no processed good, et cetera. And the third action that we’re seeing a lot, I think, is that they’re trying to attract Chinese investment, and Europe is doing that.
A lot of countries in the global south are doing that as well. Chinese investment, historically, has been relatively low, especially in manufacturing. So there’s a lot of potential for Chinese companies to really set up factories and manufacturing in third countries to bring capital and knowhow and just economic activity elsewhere. I think there are hopes that this could happen a lot more, but again, it depends a bit on the reaction in China because there’s a possibility that the Chinese government says, “Well, no, we are not going to let our companies go away and relocate elsewhere because they’re going to create employment elsewhere, and we need it at home.” So, there’s a bit this conundrum.
Cobus: Austin, all of this is happening against the background, over the last year or so, of huge shifts of Chinese EV makers and other forms of technology to third countries in the hope to avoid some of the pressure that’s coming from global north economies. So, we’re seeing large EV plants being set up in places like Mexico, and so on, and Morocco, for example, aiming at traditional markets that Chinese companies used to export to directly. In the report, you also mentioned, there’s a really fascinating aspect that a lot of developing countries are importing huge amounts of intermediate goods from China as part of this larger trend. So I wonder if you could talk a little bit about third country, the positioning of third countries, particularly developing countries in this larger contestation.
Austin: I think one thing that Camille and I want to highlight is that the effect of this overcapacity is going to be different depending on the relationship of different types of third party developing countries to China. Mexico and Brazil are experiencing a lot of different effects than, say, Vietnam, Thailand and other ASEAN nations are. All of these countries, as Camille mentioned, like to have some kind of increased investment for the same reasons that the Chinese want to retain manufacturing at home. Providing employment in manufacturing is good for a number of reasons, but workforce and technology spillovers and moving up the industrial value chain.
The thing is that when it comes to, say Mexico or Brazil, the linkages between Chinese firms and the supply networks that they have are much weaker than, say in Vietnam or Thailand. So, in Vietnam and Thailand, you’re getting Chinese firms that are going overseas, they’re setting up shop, and then they’re relying heavily on their nearby supply chains to export goods that are barely processed or just marginal value added before being sent onwards to developed countries. In Mexico and Brazil, especially with these EV investments or auto manufacturing investments, these are less tied to home networks. And this provides some kind of insurance against firms that are operating in these countries.
I think the most striking example of this is probably solar panels and solar cells in Vietnam. The United States has recently released a report, I think it was from USTR, that basically said there are firms operating, they’re Chinese firms, they just set up shop, all they’re doing is importing solar cells and then sending it onwards to third-party countries with the goal of evading the Western tariffs. So yeah, basically when we look at these emerging economies, thinking about their Chinese firms supply chain networks and how they differ between them is important for understanding the differing effects of overcapacity.
Eric: Which is one of the ironies of the China+1 discussion that a lot of places are having. Though the idea here is that Western companies are looking for other places to diversify away from China. But in fact, what we’re seeing, Austin, what you’re saying, and the data place this out, that it’s Chinese companies that are doing a China+1 strategy, oftentimes to evade sanctions. And we saw this in Vietnam where I live, where the amount of exports to Vietnam from China corresponds with the amount of export growth from Vietnam to the West. So, there’s a pass through that’s going oftentimes, right?
Austin: Absolutely. I mean, and if you look at the data of imports from China versus exports to the United States and Vietnam, they track extremely closely. It’s almost this competitive dynamic now between, if these emerging economies are attracting investment, there’s a lot, especially in Southeast Asia, there’s a lot of supply available from Chinese firms. And unless certain that the Chinese government is going to clamp down the investment by these firms overseas, I think they might see it, especially if it’s nearby, I think they might see it as beneficial to their home economy because it provides more export opportunities for the subsidiaries or the parent companies that remain at home.
Where it gets more complicated is when the countries have to choose in some instances of attracting investments from Chinese versus Western countries. And I think when we think about solutions to this, this is an opportunity for Western countries to really step up and help with investment facilitation or providing resources in these countries to really understand like the deals that they’re signing with Chinese firms and what the impacts might be on their economy.
Camille: I was just going to add, one of the consequences of that is that the more we push for diversification of economic activities away from China, the more, at least for some time, those third countries will be dependent or our reliant on Chinese inputs, right? Because as they grow, and it’s the same for pretty much all countries because China makes up 30% of global manufacturing production at this point, so it’s the case everywhere. As countries try to build their own industrial base, they need to import inputs from China. And so we see that dependence on Chinese inputs growing very fast actually over the past few years. And it can only grow, for some time at least, as we diversify.
Cobus: Just to be sure, in the context of this growing dependence, what we’re also seeing is net increase in exports from those countries, and with it also a net increase in employment in those countries. Am I understanding that correctly?
Camille: That’s what we see. Absolutely. And I think that’s one of the big differences actually between, on the one hand, say Europe, the U.S., Japan, and South Korea, to put it in very simplistic terms. And on the other hand, most of the developing world, Europe, especially Germany, the U.S. Japan, and South Korea have lost a lot of market shares, global export shares over the past few years and in general over the past two decades. So China has grown its market share largely to the expense of those countries. For developing countries, it was really, in general, again, there’s a huge diversity, of course, but in general, it was not as clear because they were able to import a lot from China and re-export a lot to the rest of the world.
And so the share of global manufacturing and global exports hasn’t really moved. It has actually slightly increased over the past few years. So, it’s not looking so bad in a way. Right? The debate is a bit different from the debate that we have, I mean, here where I am in Europe, it’s very, very clear that the impact is quite negative. So, it’s a bit more nuanced.
Eric: In 2023, China-Africa trade went up just by 1.5% to $282 billion compared to 2022. Most of that growth was from Chinese exports to Africa. And imports from African countries to China actually declined or were flat depending on the country. And Austin, this speaks to another problem that you’ve talked about, where it’s not just the Chinese exporting over capacity, but weak import demand is also creating a problem for emerging economies and developing countries. Can you talk to us about that side of the equation?
Austin: Yeah, so when we think about China’s imports from emerging economies, it’s certainly a case of weak import demand overall, but if you look at what they are importing, there is strong demand for a certain category of goods, and that’s primary and raw materials. So, if you think about, just take, for example, Brazil-China trade, most of Brazil’s exports to China are constituted by a very small number of products. Just copper, iron ore, soybeans, etc. China’s demand, the structure of their trade is basically that they demand a lot of these goods from Africa, from South America, and then they turn around and export it to intermediate goods to southeast Asia, and then that onwards to both back to the emerging economies or to developed economies.
The problem for emerging economies is that they don’t necessarily want to be stuck exporting these primary or raw materials. They would like to have, for the same reasons that China wants to retain low-end manufacturing and its position in the kind of the intermediate step of the value chain, emerging economies want to move into this area as well. And it provides tons of benefits in terms of employment and technology spillovers as I mentioned earlier. But China just hasn’t increased the demand for those kinds of goods because of its continued efforts to subsidize this low-end manufacturing. Development economists think of this as kind of the called the flying geese model, where, as countries move up the value chain, they should shed some of the basic tiers of manufacturing to their trading partners and allow them to make those goods. But so far, China has been unwilling to do that.
Eric: And that’s the crux of the problem that keeps emerging economies stuck in their place in the supply chain, right? At the bottom end of it.
Austin: Yes, exactly. So, the big difference between what we see is going on in China over the last decade or two versus other economies that have had similar development is that they’ve allowed that low end manufacturing to go to other places. For China, for an economy of its size, we would expect that they have much, much greater import demand of consumer goods and low-end goods. And if China were able to match its imports with that of its exports, it would be equivalent to a huge share of the total export profile of emerging economies at the moment. I think we estimated somewhere in the range of 54% of total product manufacturers from emerging economies would be added if China simply imported as much as it exported.
Camille: Just to add a bit to that because we thought a lot about this sort of counterfactual. What is the right counterfactual is very difficult. Basically, there was the assumption that as China grew up the value chain, it would let a few sectors, a few low-cost labor intensive, low-tech sectors go to other countries where labor costs were cheaper, basically. It didn’t happen. That’s what’s really surprising in the case of China and quite different from pretty much all of the countries, really. And I think it’s by design. If you look at the policies over the past few years, especially there’s really this insistence on keeping everything at home, including what they call traditional industries or the low-tech industries, including textile and furniture, etc., because they provide employment. And because also I think part of it is ideological.
The Chinese government sees China as a manufacturing country and is very afraid of deindustrialization. It’s very afraid of the consequences of deindustrialization that it sees as happening in the U.S. and in Europe and in other countries, and they don’t want it to happen to China. So, you see, in 2021, in the 14th five-year plan, for example, there was this line about keeping the share of manufacturing in GDP constant or raising it. And so they really insisted on that recently, and I think that’s partly behind what we see, what we observe, which is that nothing’s going out, basically nothing is going to other countries.
Cobus: I was wondering if it would be okay for me to just play devil’s advocate for a moment. So, the article looks a lot obviously at trade and it partly measures the impact on emerging economies along the lines of whether it’s possible for them to develop local manufacturing. And of course, that’s a very compelling view. At the same time, all of this is also happening against a gathering climate crisis as I alluded to in our intro. So do you think there is maybe a case to be made? That the issue of increasing manufacturing in emerging economies, in the case of climate specific products like solar components and electric vehicles, that we are there particularly talking about middle on the richer part of the developing world, the indonesias of the world rather than the Chads and the Mauritanias of the world. And that against the background of a climate crisis that’s really gathering such speed that we can’t keep up with it even when we try.
That in some ways, Chinese massive overproduction of solar components and electric vehicle components is actually a net gain for the world, and particularly for the developing world. And that the gravity of the climate crisis needs to override these kind of like national trade and industrial policy in the narrow field of solar components, for example. Do you think it’s possible to read that report and make that argument? And Austin, why don’t you go first and, and then Camille jump in.
Austin: Yeah, I mean, at least this is exactly what the Chinese side would argue. I think it’s pretty much recognized and accepted that the world cannot solve the climate of crisis without the cooperation of many countries and, in particular, the heft of Chinese manufacturing in the green energy space. And it is a tradeoff, I think, when responsible decision makers are thinking about what should we do about this overcapacity. Putting up tariffs on solar cells, putting up tariffs on EVs, it’s going to slow adoption rates. It’ll make the transition to a green energy economy take longer. But the decision comes up against political factors. If you are responsible for making that call, how do you weigh addressing the climate crisis versus retaining manufacturing for national security purposes? In a vacuum, it’s certainly easy to say, “Yes, we should let these exports continue to grow.”
I mean, the Chinese already have such a massive advantage in the solar cell manufacturing space. It’s kind of a pipe dream, I think, for any other country to catch up in that industry. But overall, I mean, how do you weigh these decisions against each other? Especially when half of, at least in the United States, half of the country doesn’t believe that we should take the green energy transition and the climate challenge seriously. If you’re a politician, it makes the choice difficult, I think.
Camille: I would completely agree with what you said, Austin. Maybe two additional points. One is that that argument could go much beyond green technologies, right? The world has got used to cheap Chinese goods so much that we now consume things that are much cheaper than if they had been produced without China. And that’s not only the case in EVs and solar panels, etc. It’s really the case everywhere. So, if we want to be serious in putting up tariffs and relocating economic activity elsewhere, it’s going to be costly and it’s going to create inflation and it’s not going to be easy. The second point is that I think there’s point to be made about, again, going back to the, the idea of investment because Chinese firms could do a lot more to invest in other countries and to bring, again, their knowhow and capital, especially in green technologies to other countries. And they started to do that. But I think it could go a lot beyond what we’re seeing at the moment, and that would be very beneficial, I think, to many countries.
Eric: Well, let’s close our discussion, again, looking forward and trying to see if there’s a solution here. It feels like everybody’s yelling at everybody else right now on this issue of overcapacity, and it doesn’t feel like the economics are aligned for a solution based on what you’ve been talking about. And Camille just brought up the fact that if there was a curtailment of Chinese exports and maybe supply and demand were more in line with one another, that could have a devastating impact on the most vulnerable consumers in the world who have come to depend, in many respects, on the China price, the low China price.
At the same time, that low China price keeps them out of the market from making anything that competes with Chinese products. So there’s that irony that’s there. Can you both just reflect, again, on the report and then on this broader issue of where do we go from here? What should people take away from this discussion that doesn’t feel like it has an easy answer?
Austin: Yeah, the path forward I think is difficult at least from the Chinese side. I think there has been a recognition that they need to increase consumption at home and increase export opportunities for developing economies. Part of the way out of this is for China to consume more from economies, allow their manufacturing to develop, and that will raise incomes and provide opportunities to people in emerging economies. And with that increased income, then decline in the availability of cheap Chinese good might matter somewhat less. Western economies, I think that we have a responsibility as well to exert some global leadership and provide more investment to try to achieve the same kind of effect, which is you know providing better manufacturing jobs and increasing development opportunities.
Camille: Again, I very much agree. I would add that there’s obviously a risk of underreacting and not taking this seriously. But there’s also a risk of overreacting and of like seeing protectionism rise everywhere. We should be very intentional in picking the sectors that we want to protect. We should be intentional about the kind of industrial policy that we want, like industrial policies on the rise everywhere. But we can’t and probably don’t want to do exactly the same thing as China is doing. So, we need to have a much better understanding of what works, what doesn’t work, what are the impacts on consumers, etc. And I completely agree there’s a responsibility that developed countries in general have to invest much more massively in third countries so that they can achieve the kind of diversification they want while also providing opportunities instead of just producing at home.
Eric: You talk about this overreaction and, of course, if Donald Trump becomes president again next year, he’s talking about massive increases in tariffs on Chinese products. And some people contend that that is going to be a very big overreaction and potentially quite contentious. The report is China’s Overcapacity. Camille, who is associate director of Rhodium Group’s China projects team, and Austin, Jordan, a senior research analyst at the Rhodium Group, and very soon to be Dr. Austin Jordan. Congratulations, Austin. Thank you and Camille for taking the time to join us today to explain what is a very complicated issue, and we’ll put a link to the report in our show notes. So thank you so much for joining us today.
Austin: Thanks so much, Eric
Eric: Cobus, I don’t know how I feel after listening to Austin and Camille. On the one hand, I think I have a better understanding of the problem, but on the other hand, I have no visibility on what to do about it. And at the same time, I see the benefit of what China does for the world by producing goods at a scale nobody else can rival. And that allows certain efficiencies that makes it affordable for people, not only in places like Africa, but even in the United States and other places, people particularly who have limited disposable income, to make those dollars go farther. At the same time, and I don’t believe there’s enough discussion about this in the China-Africa discourse, that Chinese subsidies on raw materials in particular critical minerals, really hold back African countries from moving up the value chain.
There’s just no debate about that. The evidence is there. And South African, we’ve talked to a number of South African analysts and scholars, and they will tell you that they can’t compete with the China price. Nobody can. And I don’t think there’s that conversation that’s going on in the China-Africa discourse, particularly at places like FOCAC, because I think for the Chinese, it’s just way too sensitive and they won’t broach it. They won’t hear anything. But I don’t know where we go from here. That’s the complex problem we’re facing now.
Cobus: You know, this is great reading if one wants to think a little bit harder about the splits between the global North and the global south and how different those realities are. Because as you say, the China price is a very formidable reason why global south countries are not climbing up that manufacturing ladder. But it’s not the only reason. And another reason is electricity gaps. Lack of electricity is something is one of the biggest reasons why Africa is not manufacturing. And so, the role of Chinese solar power in, potential role of Chinese solar power in fixing some of those problems and fixing the larger climate crisis, I think, is a big enough kind of mega trend that it tends to kind of like reshape other mega trends.
I think that that is part of the discussion that has to happen. The global south’s positioning in relation to this stuff is just so fundamentally different from that with Global North, but also it also feeds into just simply what we know of the U.S. and Europe and Japan, just from the precedent of how they’ve been in the world, which is that they massively benefited from the climate crisis, that they are ring-fencing old and polluting industries while channeling huge amounts of new money into oil and gas exploration. And that they’ve never had any kind of intention to help the global south with any form of real broad-based energy transition, particularly like unstable and poor countries where they can’t get anything.
I think that those are just true, I think. That also I think complicates that record, I think, of Western Power complicates the conversation around these things in the global south, even as these global south countries are themselves lapping tariffs on cheap Chinese goods, I think.
Eric: let me see if I understand what you’re saying. You’re basically, in this sense, taking more of the Chinese side on this, that if the Chinese are going to subsidize solar panels and price them below market and make it more affordable for developing countries to buy them, your attitude is bring it on. Is that right?
Cobus: Kind of, yeah. I think the climate crisis is such an overwhelmingly existential crisis that, in comparison, some of the other challenges I think are smaller. For humanity to survive the climate crisis, that itself is such a huge challenge that kind of pretty much throw anything at it is my view, I think.
Eric: Okay, but let’s talk about what happened in Nairobi over the past few weeks. And that was not a climate crisis issue. That was an employment crisis issue. And this question of employment may be even more pressing in the short term for many African countries than even the climate crisis is today. Because you need to put food on the table tonight and tomorrow morning. Okay? And that’s where China’s also playing a role. So can we make an argument that addressing some of these overcapacity issues could have a beneficial impact on African employment, and that’s the motivation for someone like William Ruto to press the Chinese to ease up on selling cheap goods into Kenya.
Cobus: Absolutely. Absolutely. But that makes more sense in the case of something like, again, like flip flops than in the case of solar components because even a relatively industrialized country like South Africa isn’t… Like South Africa doesn’t have much hope to move onto kick-starting a solar industry in say the next five years. But if South Africa doesn’t kind of, materially, by orders of magnitude, increase the amount of solar it’s implementing as part of its grid over the next five years, then it probably will never get to build an industrial base because the climate crisis will take it out. That is why I’m arguing for stuff like solar component batteries and EVs as a special category in this. Overall, I agree. I don’t think it’s a good idea for Chinese t-shirts, for example, to be flooding into the Kenyan market when Kenya used to have a garment industry that’s now falling apart because of the China price.
In general, I agree with that. But I feel in the case of climate-related technologies, it’s a different conversation.
Eric: But in some ways, those two issues actually overlap because the cost of production in many African countries is prohibitively high in part because of the electricity input that’s needed to power factories is too expensive. You look at Nigeria, the cost of electricity is outrageous. It’s crazy. So, you’ll never build a manufacturing base so long as the electricity price is as high as it is.
Cobus: Exactly.
Eric: If you can bring down the price of energy, then you can potentially increase employment with more manufacturing because the cost of production comes down in a key part of that.
Cobus: Yeah.
Eric: But again…
Cobus: I would go further actually, I would say that global north economies, like the United States should be funding that. they should be funding the import of Chinese solar panels into places like Kenya in order to change the energy mix in those countries so that those countries can then build industrial base to challenge China.
Eric: Cobus, Cobus-
Cobus: I realize this is fantasy talk, but if we take the development climate crisis in a place like Africa, seriously, then this would be on the table. The fact that it’s not on the table means that these countries are not taking it seriously. And no matter what someone like Janet Yellen says, the future of young African people are very low on the priority list for U.S. policy-makers. That’s what I’m saying. If we were taking it seriously, then this would be on the table.
Eric: No, no, but the priority for Joe Biden, and he’s made this absolutely clear, is that jobs in Ohio are far more important than even the climate. So they would rather block-
Cobus: They’re staying upright at the moment is Joe Biden’s key priority. He’s not doing so well at that.
Eric: Fair enough. Fair enough. But in a policy context, we’ll keep it civil here, Cobus, yeah? In a policy context, the climate is secondary to jobs for people in Ohio, in Michigan.
Cobus: Yeah, of course.
Eric: The climate is not, as much as anybody says, it’s the priority. They would rather restrict low-cost Chinese autos from coming in that could have a meaningful impact on mitigating pollution in in major American cities than they want to protect jobs. And I think that’s the same in Europe and Japan as well.
Cobus: But you can see what the implications are here, right? Like votes from global north citizens count for more than the very future of entire global south populations, right? Like, this is what we’re talking about. In that sense, sure, it does make political sense, but it makes a specific kind of political sense that unfortunately, not to sound like a raving Marxist, which I realize I’m already sounding like, that logic is embedded in larger logics that underlay colonialism, for example, is that certain populations just count for more than other populations. And that, unfortunately, is what underlies this, is this conversation. And this is what the climate crisis raises is literally the differential value of different kinds of human life. And unfortunately, there’s no getting away from that.
Eric: And there’s no indication that that is going to change anytime soon, unfortunately. It doesn’t seem that way, at least according to the current debate.
Cobus: Yeah, no, the debate is very calcified at the moment. And of course, it’s very embedded in nation-state logic, nation-state politics, and that tends to bring us back to… It puts us in a loop where we never get to deal with the climate crisis at all, actually.
Eric: Well, we’re going to have some interesting shows coming up in the next couple of weeks. Cobus, Geraud, and myself are going to be in Washington for two weeks in middle of July, meeting with all sorts of stakeholders in government, think tanks, universities, and others. We’re very excited to go, I think, is this your first time to Washington, going to Washington?
Cobus: No, I’ve been there before. But it’s always amazing to go
Eric: But it’s the first time in the kind of hyperpolarized Trump era, is that correct, or were you there recently?
Cobus: No, I was there during the first Trump administration. I was just struck by like the numbers of candy bars you could buy with Trump’s face on them.
Eric: And the size of the candy bars. That’s the other thing. I come back to the U.S., and I just can’t get over all the king-size. Everything is king-size now, including American waistline. So that’ll be fun. We have a number of shows planned for us to do from D.C. After meeting with folks, we’re going to interview folks, and I think it’s going to be a very interesting opportunity for us. And we call this our annual field research. So we’re going to Washington to do field research. And so that’ll be a lot of fun. So, expect our shows next week coming to you from the U.S. Capitol. Once again, I want to thank everybody for their support of the work that we’re doing at the China Global South Project, especially our subscribers. If you would like to join our growing community of readers around the world, go to chinaglobalsouth.com/subscribe
Listen, the rates are very affordable, and the work really, just it supports the work that we’re all doing around the world in Asia, Africa, and the Middle East. Subscription start at just $19 a month. If you are a student or a teacher, email me, eric@chinaglobalsouth.com. I will send you links to half-off discounts to subscribe to us. And also I want to thank all of our Patreon supporters. We just couldn’t do this without you. We are so grateful for all of you for the support that you give us. So, Cobus, Geraud, and myself will be back again next week with another edition of the China in Africa Podcast. Next week, coming to you from Washington, D.C. For Cobus van Staden in Johannesburg, I’m Eric Olander — thank you so much for listening.
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