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Foreign Policy
Foreign Policy
4 Sep 2024


NextImg:Oversupply Begins to Bite in China
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Welcome to Foreign Policy’s China Brief.

The highlights this week: Domestic prices for clean technology fall amid tariffs and price wars, a South China Sea clash with the Philippines heats up around Sabina Shoal, and Brazil’s X ban underscores just how strong China’s Great Firewall is.


China’s Cleantech Prices Fall Sharply

In China, domestic prices for so-called clean technology have fallen rapidly since last year, according to a Goldman Sachs report released last month, with electric vehicle prices dropping by nearly 22 percent and solar modules by more than 50 percent compared with early 2023.

A combination of heavy government investment, foreign tariffs (and the fear of more to come), and price wars has forced cleantech prices—and especially EV prices—to levels that are unsustainable for many Chinese companies. In the aftermath of the COVID-19 pandemic, many firms were forced into closure; now another wave of bankruptcies may result.

All of this is taking place against a backdrop of economic doldrums and belt-tightening across multiple sectors. That could pose a serious threat to the Chinese Communist Party’s legitimacy, which was built off more than three decades of remarkable economic growth that many Chinese citizens came to take for granted.

The price war among Chinese EV manufacturers has already caused some firms to shut down, including the large WM Motor last year. The industry has undergone a few rounds of consolidation in China, leaving the number of manufacturers at just 20 percent of what it was in 2019. The solar industry faces a similar spate of bankruptcies after a big influx of credit in 2023.

It can be harder to shut down a company in China than in developed market economies. Provincial governments are invested in keeping local champions afloat; it sometimes requires substantial bribes to be allowed to close even a small firm. State funding has already resurrected some EV firms as so-called zombies—unproductive firms that can just about service their debt and make payroll.

Cleantech production is so beyond capacity that China can now supply 200 percent of the world’s current solar module demand, but the country has seen real environmental and public benefits. The country’s solar capacity has soared. EV competition has pushed down costs for buyers, leading rapid EV adoption—even as that has left behind vehicle graveyards as models quickly become obsolete.

In theory, a few cleantech competitors should eventually dominate the Chinese market and bring prices back to reasonable levels. But that could be tricky in an economy already struggling to generate consumption. Just 39 percent of Chinese think that they are better off financially than five years ago, compared with 77 percent before the pandemic and the Chinese property crisis.

Both events have fueled long-term economic insecurity. China’s prospects for recovery look bleak, and Chinese families are cutting back their spending. Retail sales fell to their lowest point in 18 months in June and have barely recovered since 2020. In the first half of 2024, restaurant profits in Beijing fell by 88.8 percent.

Meanwhile, local governments—usually a source for channeling investment and credit—are facing a serious cash crunch. One Chongqing municipal government recently set up a “smash iron pots, sell the steel” task force, named after an idiom for using one’s last resources, to try to liquidate government-owned assets and pay the bills.

Times are tight in China—and the state seems to be short on answers.


What We’re Following

Clashes with the Philippines. Disputes between China and the Philippines over contested islands in the South China Sea often simmer without quite boiling over. Front-line naval officers heat things up, and then diplomats try to cool it down. It’s up for debate whether the Chinese leadership directly approves of this envelope-pushing or it’s in part driven by officers eager to demonstrate their patriotism.

The conflict switched focus last month from Scarborough Shoal to Sabina Shoal, which lies in the Spratly Islands. Last Saturday, a Chinese vessel collided with a Philippine one, with each side accusing the other of deliberate ramming. Tensions have run high since, with the United States issuing a strong statement on behalf of the Philippines. As before, diplomacy is likely to prevail, not least because the mutual defense treaty between Manila and Washington.

The recent aggression has also increased ties between the Philippines and Vietnam, which just signed a new defense agreement. China has taken a lower-key approach to its disputes with Vietnam in recent years, but tensions could rise again—especially as Hanoi has imitated Beijing’s policy of island-building to solidify its maritime claims.

Mongolian culture under fire. A linguistic change may signal another target in ongoing attempts by the Chinese Communist Party (CCP) to crush minority cultures in China, especially those in the border regions. After a new insistence on using the Chinese term “Xizang” (western treasure) to refer to Tibet even in English-language media, party authorities are calling for the phrase “northern frontier culture” rather than “Mongolian” for China’s Inner Mongolia region.

Until 1911, all of Mongolia was under the control of the Qing Empire, which also ruled China. Out of ecological and cultural concerns, the Qing’s Manchu rulers blocked Han Chinese settlement in Mongolia; but after the 1850-64 Taiping rebellion and the resulting sharp decline in Qing power, Han settlers flooded into Inner Mongolia. The region remained under Chinese control as present-day Mongolia became a Soviet satellite and then an independent country.

Although clashes between Han Chinese and Mongols left tensions that lasted through the 1966-76 Cultural Revolution, until recently Inner Mongolia was seen as a model of relative peace and assimilation. In the last four years, however, educational changes have targeted Mongolian language and culture, and protests in the region in 2020 were met with repression.


Tech and Business

Breaching the firewall? As it happens, I’m writing China Brief from Brazil this week—a country where a Supreme Court order has banned X (formerly Twitter) after the refusal of the company’s leadership to provide the details of users involved in the Jan. 8, 2023, attack on government buildings in Brasília. X owner Elon Musk has attacked the government, framing the ban as a free speech issue—even as the platform has previously complied with state demands.

But for me, the story is a reminder of just how much work China’s own Great Firewall took to build—and how difficult it is for democratic states to meaningfully restrict access. It’s still very easy to access X from Brazil by using a virtual private network (VPN). Brazil’s Supreme Court initially attempted to ban popular VPNs and threatened daily fines of more than $8,000 for accessing X, but it has reversed some of those measures.

In the early 2000s, that was how things worked in China, too. Sites were inconsistently blocked, and evading the ban was relatively trivial. Even as the range of banned sites grew, using a VPN remained relatively easy, including buying them within China. But in the 2010s, that became much harder, with repeated crackdowns making it hard to install a VPN without leaving China first.

Authorities began to impose severe if sporadic penalties on Chinese users, including random checks for VPNs installed on mobile phones. Installing technical controls also slowed down regular, unblocked traffic from outside the country. All of this took a lot of time and money and necessitated a vast network of domestic censorship. That enforcement extends into the real world, with Chinese police making regular threats or arrests over online posts.

Other governments, especially democratic ones, simply don’t have the enforcement infrastructure in place to meaningfully block access to sites or services—as the United States may find out if it ever actually bans TikTok. But they can still financially penalize firms or drive users elsewhere. Since the X ban, more than 2 million Brazilians have already migrated to alternative Bluesky.

Dutch chip giant faces block. The United States has had surprising success recruiting allies such as the Netherlands and Japan into its chip war with China, despite Beijing’s threats of retaliation. One new casualty may be the Dutch manufacturer ASML. China remains ASML’s biggest client, but the Netherlands is unlikely to renew critical licenses this year for the company to offer services and spare parts to its Chinese clients.

The CCP-owned Global Times has warned of a greater rift in Dutch-Chinese relations if the measures go ahead. China has a habit of trying to make an example of smaller countries—such as its yearslong campaign against Sweden over the awarding of the 2010 Nobel Peace Prize to human rights activist Liu Xiaobo or its attacks on Lithuania for closer ties to Taiwan.


FP’s Most Read This Week


A Bit of Culture

Yuan playwright and poet Ma Zhiyuan (c. 1250-1321) is regarded as one of the finest practitioners of the sanqu lyric. Sanqu lend themselves well to lighthearted comic verse, but the form was versatile enough to handle heavier reflections, as in the example below.­—Brendan O’Kane, translator

Untitled verse
By Ma Zhiyuan

Standing in humble homespun robes,
I question history’s men of great esteem:
What use were all your kingly plans;
How long endured the tyrant’s scheme?

Palaces from the Six Dynasties
Now fertilize the farmer’s grain,
And scraggly catalpa trees
Mark loyal ministers’ remains:
All history is one bad dream.