Crisis control

Developed economies are implementing protectionist policies that will not alleviate their woes

The Western economic system is in the grip of an irreversible crisis. Even the most advanced and technological European production sectors are not exempt from the crisis. An example is the energy transition policy promoted by the European Union, which is being undertaken with erroneous strategic planning.

The EU's experience with solar panels should have set off alarm bells. At that time, production was undertaken without having a solid production chain. Instead, Chinese production quickly managed to beat the competition, thanks to economies of scale, technological innovation, and products differentiated by performance range and cost. China now dominates the photovoltaic panel production sector in every link of the supply chain, a result achieved with an expenditure more than 10 times that of the member states of the EU.

According to the International Energy Agency, China has created more than 300,000 jobs along the solar photovoltaics value chain since 2011. China's industrial policies have enabled economies of scale and supported continuous innovation throughout the supply chain. Costs in China are 20 percent lower than in the United States and 35 percent lower than in Europe. In addition, Chinese investments in Malaysia and Vietnam have also made these countries major exporters of photovoltaic products.

Now the EU is making the same mistake with electric vehicles. The EU is implementing a plan to take millions of traditional vehicles off the market and then out of circulation. Major European manufacturers are already preparing for the big leap. Research centers are creating models to demonstrate that the transition will be a great opportunity for all of Europe, which will finally emerge from the decade-long crisis in the car industry, or rather its enormous production overcapacity. To kick-start a still dubious market, economic incentives are being proposed that can broaden the production base and rapidly reduce costs.

Of course, forgetting all the external context, this replacement cannot lead to anything good. The capacity of the national electricity grid, the supply capacity of raw materials and the disposal capacity of exhausted products should be evaluated first. Then the real sustainability for the citizens to face the cost of a car that is within their means should be evaluated, especially in a time of economic crisis. All these steps have been eluded in front of the mirage of billion-dollar investments and stratospheric profit returns.

For an electric car, 40 percent of the total cost is represented by the battery and another 40 percent by the software. China first created the value chain. In the past years, Chinese entrepreneurs, having acquired mining concessions in nickel, cobalt and lithium producing countries, have innovated their technology to build new generation batteries by acquiring the know-how. Furthermore, China is currently at the forefront in the world in the production of future sodium batteries, less expensive and less polluting than lithium ones. The Chinese car manufacturer BYD has surpassed Tesla in terms of global market share and is the leading auto manufacturer in Europe, overall, for cars sold. Finally, China is also at the forefront in the last piece of the value chain: recycling. Here, Western lies have no room to slander China. Of the world's battery recycling capacity, about 200,000 tons in 2021, roughly half was carried out in China.

The report of the Kiel Institute states that government subsidies received were often used strategically to advance key technologies for market readiness. The report also highlights the combination with other support measures, such as preferential access to essential raw materials, technology transfer by foreign investors and treatment in public procurement and administrative procedures.

That is, the Chinese public sector is accused of doing its job well, of making the "invisible hand" act to support and prosper the market, which then acts according to its own rules. In other words, China is accused of playing by the rules of the market better than those who invented them. And so when the team that introduced the rules no longer finds it convenient to play by the rules that it has imposed, it denounces them and appeals to supposed fair play to change them in its favor. Western monopolists demonize free markets and competition.

The Western response is disheartening. They only succeed in slandering China for violating the rules of the free market with public support, which in truth no one prevents our countries from implementing, and indeed which they implement when it comes to saving banks from the effects of shady dealings in which they are involved. If there is no global planning and the only goal of research centers is to draw up plans that please the client, the result is that they believe their own side of the story, mistaking it for reality.

Photovoltaics and electric vehicles are just two examples of how Chinese industry is able to overwhelm Western industry in many sectors. Closing oneself off from this reality means worsening the situation. Trying to block China's rise, hiding behind protectionist barriers, after having made them fall all over the world, is a futile and damaging exercise mainly for those who implement it. Sanctions would also hit European manufacturers. The same goes for the US, which has been imposing duties to dramatically increase the costs of imports from China, on which US production and consumption are heavily dependent. The so-called decoupling, that is, the detachment from the Chinese economy, is completely unthinkable for the West, while China has diversified its markets.

The author is general secretary of the Communist Party (Italy). The author contributed this article to China Watch, a think tank powered by China Daily.

The views do not necessarily reflect those of China Daily.

Contact the editor at editor@chinawatch.cn.