CEWC vows to tackle cleantech overcapacity

Policymakers look likely to adopt a more forceful approach to tackling cleantech overcapacity.

Thursday’s Central Economic Work Conference (CEWC) readout urged officials to:

• “Comprehensively address 'involution-style' competition and regulate the behavior of local governments and corporations”

Some context: Many of China’s world-leading cleantech companies – including those in the solar, wind, battery, and new energy vehicle (NEV) sectors – are grappling with industry-wide overcapacity and plunging profits after years of overexpansion.

• Their push into global markets to escape domestic competition has triggered increasingly forceful responses from foreign governments.

More context: Local governments, eager to boost growth and revenues, have contributed to overexpansion with incentives like tax breaks, equity investments, and subsidies.

Get smart: Local government support has enabled Chinese cleantech industries to scale up production rapidly, but also resulted in overcapacity and the misuse of taxpayer money on duplicative investments and unviable ventures.

• With local government finances strained and companies suffering, Beijing must revise the hands-off approach it’s taken until now.

Get smarter: Central policymakers have the tools to accelerate industry consolidation and rebalancing – such as imposing production quotas, bidding price floors, and more stringent tendering rules.

Our question: What measures will Beijing adopt, and how quickly?