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Analysis: A glut of cheap Chinese goods is flooding the world and stoking trade tensions | CNN Business


London/Hong Kong
CNN
 — 

China’s factories are churning out more steel, cars and solar panels than its slowing economy can use, forcing a flood of cheap exports into foreign markets.

The oversupply of Chinese goods in key industries is stoking tensions between the world’s biggest manufacturer and its major trading partners, including the United States and the European Union. Its global trade surplus in goods has soared and is now approaching $1 trillion.

The United States and the EU are fretting over potential “dumping” by China — that is, exporting goods at artificially low prices — with electric vehicles among the products caught in the crosshairs.

“Europe cannot just accept that strategically viable industries constituting the European industrial base are being priced out of the market,” Jens Eskelund, president of the European Union Chamber of Commerce in China, told reporters earlier this month.

But China needs to increase exports as a key measure to revive its economy, which is grappling with a protracted property slump, weak household spending and a shrinking population among other problems.

Beijing is now focusing on higher-value exports, after investing billions into advanced manufacturing. But the move is badly timed, coming amid slower economic growth globally and a shift by Western consumers from pandemic-era spending on goods to travel and leisure.

It is also coming up against a push by Europe and the United States to reduce their dependence on China and boost local manufacturing, creating jobs — including through the Net-Zero Industry Act and the Inflation Reduction Act respectively.

Chinese President Xi Jinping, center, pictured with American CEOs and academics at the Great Hall of the People in Beijing, on March 27, 2024.

“It is hard for me to imagine that Europe would just sit by and quietly witness (its own) accelerated de-industrialization… because of the externalization of low domestic demand in China,” Eskelund said.

According to China’s National Bureau of Statistics, prices of Chinese exports are at their lowest level since 2009, when the West was reeling from the global financial crisis.

And China’s surplus in goods trade has more than doubled since the pandemic, according to Brad W. Setser, a senior fellow at the Council on Foreign Relations. In 2019, the country exported an estimated $400 billion more in goods than it imported — a surplus that ballooned to $900 billion last year.

From clothes to cars

China’s exports of low-priced goods got a boost after it joined the World Trade Organization (WTO) in 2001. Its economy and heft as a manufacturer have also grown substantially since then.

Having conquered the production of clothing and consumer electronics, China has come to dominate electric vehicles, solar panels and wind turbines — industries viewed as strategically important in Europe and the United States as they seek to green their economies and reduce planet-heating pollution.

Europe’s solar panel producers have been all but wiped out by Chinese competition, and the same fate threatens its wind industry.

“European companies could fall behind (Chinese manufacturer) Goldwind, which already offers its turbines well below the price of the established (European) manufacturers,” Markus W. Voigt, CEO of the Aream Group, an asset manager specializing in renewable energy, said in a statement this month.

In the last three months of 2023, China’s BYD overtook Tesla (TSLA) as the top seller of EVs worldwide, capping an extraordinary rise for the Warren Buffett-backed carmaker. Compared with Tesla, BYD’s cars are more affordable, which has helped it attract a wider range of buyers. Its entry-level model sells in China for the equivalent of just under $10,000. The cheapest Tesla car, a Model 3, costs almost $39,000.

Electric cars wait to be loaded on the BYD Explorer No.1, a Chinese-made<strong data-src=