Solve China's 'overcapacity problem' by helping developing nations go green, central bank adviser urges

To help developing countries expedite their green transition while simultaneously digesting China's industrial overcapacity and enhancing the internationalisation of its financial sector, Beijing should take a page from the US' old foreign-aid initiative known as the Marshall Plan, according to a central bank adviser.

Huang Yiping, a member of the Monetary Policy Committee of the People's Bank of China, said on Monday that China could lend to emerging economies that are in need of a transition to clean energy but lack money and technology.

"Since every country needs to make the green transition, and developing countries find it particularly difficult, if we share the burden, we cannot only help them achieve the goal, but also elevate China's global leadership and influence in green development," Huang said at the Global Finance Forum organised by Tsinghua University in the city of Hangzhou.

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While China's overcapacity issue - caused by systematic excessive investment coupled with insufficient demand - is unlikely to abate in the short term, exporting the abundant fruits of its green energy sector is the only way out, said Huang, who is also dean of the National School of Development at Peking University.

"There has been obvious resistance in the European and US markets, but at the same time we actually have huge potential in developing countries," Huang said.

In recent months, a number of Western countries have escalated their responses to a surfeit of Chinese imports in the new-energy sector, claiming that their own markets have become distorted and their manufacturing disrupted.

Two weeks ago, the United States announced steep tariff increases on an array of Chinese imports, including electric vehicles (EVs), lithium-ion batteries and solar panels.

And in October, the European Union launched anti-subsidy investigations into Chinese EVs to determine whether to impose punitive tariffs.

Developing countries need renewable-energy investments of about US$1.7 trillion annually - a far cry from the US$544 billion worth of foreign direct investment in clean energy that they attracted in 2022, according to a report last year from the United Nations Conference on Trade and Development.

It is possible that Beijing could provide them with policy financial tools through sovereign credit, or even direct funding, Huang added.

"We have the technology and the products ... You can think of it as a Chinese version of the Marshall Plan in the green economy era," he said.

Washington's Economic Recovery Act of 1948, proposed by US Secretary of State George Marshall, was an initiative that provided billions of dollars worth of capital and materials to restore the economic infrastructure of post-war Europe.

"If [China's version] works, we would be able to encourage them to buy more clean energy products from China and assist Chinese companies' quest to go overseas, which in some degree could alleviate the overcapacity problem," Huang said.

And as the US has done over the past century, China could also help promote the internationalisation of its currency and financial institutions by boosting the flow of the yuan in the process, he added.

Still, such a proposal could trigger backlash abroad, Huang acknowledged, as some Western countries have already criticised the Chinese government for creating a "debt trap" through lending via the Belt and Road Initiative to some developing countries to build large infrastructure projects - an allegation that Beijing denies.

Thus, Chinese financial institutions should act more prudently in commercial lending, while the government could also strive to reach agreements with international organisations on jointly helping resolve debt difficulties in these economies once they occur, he said.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2024 South China Morning Post Publishers Ltd. All rights reserved.

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