How China managed to monopolize the world’s “three new exports”: solar cells, lithium batteries, and electric vehicles

Government support, economies of scale and continuous innovation have played an important role in driving the transformation of China’s key industries.

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Electric vehicles are neatly arranged at the Changan Automobile distribution center in Chongqing in October 2023. In the first quarter of this year, China’s electric vehicle exports increased by 122% year-on-year. Image source: Alamy

Electric vehicles are neatly arranged at the Changan Automobile distribution center in Chongqing in October 2023. In the first quarter of this year, China’s electric vehicle exports increased by 122% year-on-year. Image source: Alamy

The “new three” has become a buzzword among Chinese officials and state media recently. It refers to solar cells, lithium batteries and electric vehicles. These three products have performed strongly in exports this year, accounting for 80%, 50% and more than 20% of global exports respectively.

Experts told China Dialogue that the main driving forces behind the rapid development of the “new three things” are continued government support, an early start, a strong and low-cost domestic supply chain, and a large domestic market that helps to create economies of scale.

They also talked about the ability of Chinese companies to continue to innovate.

However, some experts said that geopolitical tensions have brought uncertainty to the prospects of the “new three” in the global manufacturing industry. Trade restrictions imposed on China by major trading partners such as the United States and the European Union may affect its leading position, and some countries have shown an eagerness to replace it.

Li Dan, executive secretary general of the Renewable Energy Committee of the China Circular Economy Association, said: “In the short term, China should still be able to maintain its advantages in these areas. I don’t think other countries will catch up with China all of a sudden.”

She said: “For other countries to surpass us, it would take a disruptive technological breakthrough, such as a country achieving a technological leap all of a sudden.”

 “Very impressive” performance

Corresponding to the concept of the “new three” are the “old three” that once served as the mainstay of exports: clothing, home appliances and furniture.

Although it is unclear who coined the term, one of the first officials to use it was General Administration of Customs spokesman Lü Daliang, who stressed at a press conference in April that the performance of the “new three items” in exports in the first quarter was “very impressive.”

66.9% China’s exports of electric passenger cars, lithium batteries and solar cells increased 66.9% year-on-year in the first quarter

He said that from January to March this year, exports of electric passenger cars, lithium batteries and solar cells (components of solar panels) totaled 264 billion yuan (about 36 billion U.S. dollars), up 66.9% year-on-year, adding that the three categories of products boosted China’s overall export growth by 2 percentage points.

Lu Daliang explained that in the first quarter, the export value of electric passenger cars increased by 122.3% year-on-year, ranking first among the “new three items”, followed by lithium batteries, which increased by 94.3%, and solar cells, which increased by 23.6%.

The trend has continued this year. At a press conference in July , Lv Daliang said that the combined exports of the “new three items” increased by 61.6% year-on-year in the first half of this year.

Wu Wei, assistant professor at Xiamen University’s China Energy Policy Research Institute, told China Dialogue: “China has successfully seized the development opportunities of the new energy industry and currently has a clear advantage in all three industries internationally.”

China achieved a near-monopoly in global solar cell exports last year, accounting for 83.8% of total global trade, according to data collected by French corporate and investment bank Natixis.

Solar-cells-factory-worker

Solar cells are being produced at a factory in Hefei, Anhui Province, in October 2023. Most of the world’s solar panels and related components are produced in China. Image source: Alamy

The data shows that although the share of Chinese companies in lithium battery and electric vehicle exports has declined, it is still significant, accounting for 52.3% and 23.4% of the world respectively.

Rystad Energy, a Norway-based research and business intelligence company, pointed out in its Solar Market Report 2023 that in 2022, China’s share of global solar panel production in all links will exceed 80%.

The report shows that China accounts for 94% of polysilicon, 96% of wafers, 90% of solar cells and 81% of panels in manufacturing. Polysilicon is a key base material in the solar photovoltaic supply chain, while wafers – thin slices of semiconductors – are used to make integrated circuits in solar cells.

Aditya Lolla, head of the Asia project at Ember, a UK-based energy think tank, said that China’s battery manufacturing capacity reached 0.9 terawatt-hours in 2022, accounting for almost 77% of the world’s total.

Long in the making

Although “new three” is a relatively new term, these three products that are crucial to carbon reduction did not emerge overnight.

Beijing’s policy support dates back to the mid-2000s and has never wavered since, laying the foundation for today’s success. Almost all the experts interviewed by chinadialogue stressed this point.

To promote the development and use of renewable energy, China introduced the Renewable Energy Law as early as 2005. Two years later, the central government upgraded the development of the renewable energy industry to a national strategy in two key policies aimed at promoting renewable energy production and research. These two policies – China’s National Plan for Addressing Climate Change and the Medium- and Long-Term Development Plan for Renewable Energy – raised the goal of developing this industry to a level that goes beyond simply combating pollution.

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Subsequently, in 2008, the Chinese government launched a 4 trillion yuan economic stimulus package in response to the global financial crisis, which also greatly promoted the development of the renewable energy industry. According to a report jointly released in 2010 by the Resources and Environmental Policy Research Institute under the Development Research Center of the State Council of China and the World Wildlife Fund, 210 billion yuan (about 5%) of the economic stimulus package was invested in energy conservation, emission reduction and ecological engineering construction projects, which played a role in promoting companies and investors to turn to renewable energy.

The report said, “Large-scale new energy power generation projects have been launched one after another, and investment in wind power and solar power generation equipment manufacturing has also been unprecedentedly active. In addition, the new energy vehicle application industry represented by the construction of commercial charging stations has also recently begun its ice-breaking journey in Shenzhen.”

According to a government report in 2012 , by that year, China had formed a relatively complete solar photovoltaic power generation manufacturing industry chain, and its annual photovoltaic cell output accounted for more than 40% of the global output.

In 2015, the government continued to launch the “ Made in China 2025 ” strategy, which aims to transform the manufacturing industry from labor-intensive to technology-intensive within the next decade. The strategy sets clear goals for the development of domestic electric vehicle brands, while a separate action plan proposes to further expand the production of solar, wind and other renewable energy power generation equipment.

Lithium-battery-industry-park-Yichang-China_3

April 2023, Yichang, the Chuneng New Energy Lithium Battery Industrial Park under construction. After completion, the industrial park will have an annual production capacity of 

150 GWh , and theoretically can produce more than 3 million electric vehicle batteries per year. Image source: Alamy

After the release of the strategy, the Chinese government launched two five-year development plans for the industry, the 13th Five-Year Plan (2016-2020) and the 14th Five- Year Plan (2021-2025) for smart manufacturing development. Both plans identified new energy vehicles and power generation equipment as two key areas for industrial upgrading.

Environmental law expert Alex Wang told China Dialogue that when he discussed those industrial plans with people in China 15 years ago, they all admitted that they were not sure that the plans would succeed.

“(These plans) make sense, and they just want to give it a try,” said Wang Lide, currently a professor at the UCLA School of Law and co-director of the Emmett Institute on Climate Change and the Environment.

He added: “What’s amazing is that more than a decade later, these policies have been a huge success.”

Supply Chain and Domestic Market

Several experts mentioned that the early start and continuous policy support have established a solid domestic supply chain for these industries, which is China’s main advantage over its competitors.

“In terms of photovoltaic modules, China has a full-chain industry from the raw material end to the final module,” said Li Dan of the China Circular Economy Association. She also pointed out that China’s lower labor costs are an additional advantage in the early stages of manufacturing development.

China’s domestic market size, which is almost unique in the world, has also greatly promoted the development of related industries.

Li Shuo, director of the Asia Society Policy Institute’s (ASPI) China Center on Climate Change, told chinadialogue: “China’s market is huge, and its policies are very favorable, so China not only produces a lot, but it can also internalize a lot of the equipment produced.”

Li Shuo said: “This is a cycle of mutual encouragement between production and consumption, which leads to the sale of what you produce, and the more you can sell, the more competitive you will be on the production side.” He added that in addition to labor, Chinese companies also have low land and capital costs.

European companies choose to manufacture hybrid vehicles, while Chinese companies focus on manufacturing pure electric vehicles.

Alicia García Herrero, Senior Researcher

In addition to the economies of scale created by its large domestic market, Chinese policies encourage, or in some cases require, the purchase of domestic products.

For example, the ” 12th Five-Year Development Plan for Solar Photovoltaic Industry ” (2011-2015) requires that “the localization rate of photovoltaic cell production equipment and auxiliary materials reach 80%.”

The “Made in China 2025” strategy stipulates that by 2020, the domestic market share of pure electric vehicles or plug-in hybrid vehicles of independent brands should exceed 70% , with annual sales exceeding 1 million vehicles; by 2025, the domestic market share should exceed 80%, with annual sales of 3 million vehicles.

Li Shuo believes that another factor that is often overlooked abroad is the independent innovation of Chinese companies.

“This is reflected not only in the expansion and development of these industries’ own leading technologies, but also in the continuous optimization of production processes in the production process,” he explained.

“China is ahead of the industry in these areas, which is why China is so competitive in these industries.”

A solar power plant under construction in Saxony, Germany. The plant uses 1.1 million solar modules imported from China. Image credit: Jan Woitas / Alamy

Subsidies and innovation

In the view of some experts, the rise of the “new three” is largely due to government subsidies to producers, power companies and consumers.

“China had competitors in these industries, but they heavily subsidized them while competitors did not… or at least stopped subsidizing them 10 years ago, such as in the case of solar panels in the EU,” Alicia García Herrero, a senior researcher at the Brussels-based think tank Bruegel, told chinadialogue.

Garcia Herrero said that when the international financial crisis just broke out in 2009 and 2010, the EU’s solar panel production accounted for about 60% of the world’s total. In order to promote production, European countries, especially Germany and Spain, have been providing large subsidies for individuals to use solar energy.

But due to the financial crisis, European countries cancelled subsidies. “Without subsidies in Europe, no one wanted to install solar panels, so the market collapsed.” She pointed out: “Some European companies operating in China, such as Spain’s GAMESA, have lost a lot of market share.”

Around the same time, China began to step up efforts to promote the development of its domestic solar industry. The 2009 ” Golden Sun ” program was one of China’s early initiatives to promote the development of this industry. It provided financial subsidies for: solar photovoltaic building applications, the preparation of technical standards and regulations for the building installation of solar photovoltaic products, and the integration and promotion of key technologies.

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After the Golden Sun program was discontinued, China subsidized solar power companies by paying them extra fees for connecting to the grid from 2013 to 2019. Local governments also issued subsidies to encourage the construction of large solar bases or the installation of rooftop solar panels – in part to meet renewable energy equipment installation targets.

Subsidies have also played a role in the new energy vehicle industry, which is closely linked to the development of the battery industry.

In one of the earliest policies on the industry, released in 2009 , the central government proposed investing 10 billion yuan over the next three years to support auto companies in achieving technological and product upgrades, including the development of new energy vehicles and special parts.

In another notice issued in the same year , the Ministry of Finance and the Ministry of Science and Technology proposed to provide a one-time subsidy for the purchase of new energy vehicles by public sector enterprises in 13 cities. In 2013, the above preferential policies for the purchase of new energy vehicles were extended to individual consumers. The subsidies mainly include cash rewards, tax exemptions and free license plates. Currently, only the tax exemption policy is still in effect nationwide, and it will be implemented until the end of 2027 .

But in García Herrero’s view, there is another reason why Chinese electric car companies have been able to succeed in competing with their European rivals: “European companies choose to make hybrid cars, while Chinese companies focus on making pure electric cars.”

She also noted: “Europe’s policy of allowing subsidies for consumers who buy hybrid (rather than pure electric) cars is a mistake because it hinders the industry’s transition to electric vehicles.”

The United States has already started subsidizing its own clean energy industry, especially electric vehicles, after the Biden administration passed the Inflation Reduction Act . But García Herrero believes that subsidies in the European Union “remain a very tricky issue” because, as an economy, the EU cannot centrally distribute subsidies.

“You see countries in the European Union trying to hand out subsidies … but those are state subsidies and they will never be comparable to what you see in the United States,” she said.

to determine whether its subsidies are “illegal” or cause “economic damage” to EU producers. Photograph: Ng Han Guan / Alamy

Can China maintain its lead?

Most experts believe that China will continue to maintain its advantages in the “new three” industries for the foreseeable future, but they also highlight the uncertainty brought about by geopolitical relations.

Li Shuo said it would be “very difficult” for Western companies to surpass Chinese competitors in a short period of time because they were unlikely to have the same favorable conditions – whether it was continued policy support or lower production costs.

“I think this is an indisputable fact, and it is something the United States and European countries are unwilling to accept,” he said.

But he also noted that China’s prospects in these industries “are not only an economic issue, but more importantly a political issue,” especially in the United States and Europe, adding that this is because of current or potential trade restrictions, such as the U.S. ban on Chinese solar panels and the European Union’s ongoing anti-dumping investigation into Chinese electric vehicles.

What I can imagine is the United States and Europe catching up with China in research and development of new technologies.

Wang Lide said that the University of California, Los Angeles

It has been suggested that other Asian countries could seize the opportunity to expand their own manufacturing.

Arsjad Rasjid, chairman of the ASEAN Business Advisory Council, told Al Jazeera in March that the Association of Southeast Asian Nations should become the “supply chain of the world.” Rasjid, an Indonesian businessman who owns energy company Indika Energy, added: “ASEAN is the new China.”

Ember’s Lora believes the reality is more complicated than that. He believes it is unlikely that other countries will catch up with China in manufacturing capabilities in these three industries, but as global demand continues to grow, other countries should have “opportunities” to build their own clean energy manufacturing ecosystems.

“Let’s put it this way: the pie itself is getting bigger, so despite China’s near monopoly, other countries still have the opportunity to build their own manufacturing capabilities through a good policy environment and timely intervention,” said Lola.

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In addition, new technologies may change the landscape of these industries.

“It’s almost hard to imagine that the U.S. and Europe can compete with China in existing technologies,” said Lide Wang of the UCLA School of Law. “But I can imagine that the U.S. and Europe can catch up with China in research and … the development of new technologies.”

He said that while U.S. universities have strong capabilities in research and development, funding shortages caused by years of unstable policy signals have made it difficult for companies and researchers to develop these technologies.

Wang Lide added: “The Americans have realized the problems in the past and are investing more in research and manufacturing. So you can imagine that in the next round of technological innovation, if American companies develop a completely new battery, chemical or something like that, it will bring real advantages (to them).”

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