US Treasury Secretary Janet Yellen is embarking on an initiative aimed at confronting the challenges posed by the influx of inexpensive exports from China, particularly affecting the sectors of solar panels, electric vehicles (EVs), and batteries.
Notable companies such as Longi Green Energy Technology Co. and BYD Co. have seen their performance lag behind the broader MSCI China Index this year, amidst internal price wars and issues of overcapacity.
During her visit to Guangzhou, Yellen criticized China's industrial strategies, pointing out that state subsidies are skewing the competitive landscape globally. This critique comes as the White House contemplates imposing tariffs, which could have significant implications for investors in these Chinese industries.
According to Christine Phillpotts, a portfolio manager at Ariel Investments, the anticipation of geopolitical tensions, including tariffs, is a primary factor behind the heightened equity risk premium in China.
Chinese manufacturers of solar modules are under strain as record-low prices and increased international scrutiny depress their market valuations. Longi and Trina Solar Co., for instance, have seen their stock values decline by around 13% and 16%, respectively. This downturn occurs even as China maintains over 90% of global solar cell production, a dominance that threatens new US manufacturing initiatives despite incentives from the Inflation Reduction Act.
Moreover, China's EV exports have seen a dramatic increase, soaring over 1,500% in the past three years. However, high tariffs and local content requirements have largely kept these vehicles out of the US market. BYD, a leading Chinese EV manufacturer, has experienced an almost 8% drop in its stock price this year, amidst a domestic price battle and slowing growth.
The lithium battery sector also faces potential challenges, with China accounting for a significant majority of the world's lithium-ion battery production capacity. Despite this, the imposition of anti-dumping duties on these batteries is currently seen as unlikely.
As Yellen focuses on these sectors, the debate over China's production capacity and efficiency in EVs and batteries continues. While some analysts point to overcapacity, others argue that Chinese companies are simply more efficient.
Analysts from Goldman Sachs suggest that increased protectionism may not pose a significant obstacle in 2024, though the potential for tariffs and a slowdown in global growth could become more pressing issues in the years to follow.
