Solve China’s ‘overcapacity problem’ by helping developing countries go green, central bank adviser urges

To help developing countries accelerate their green transition while tackling China’s overcapacity and increasing the internationalization of its financial sector, Beijing should take a cue from an old U.S. 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 provide loans to emerging economies that need to transition to clean energy but lack the money and technology.

“Since every country must achieve a green transition, and developing countries find it particularly difficult, if we share the burden, we will not only help them achieve the goal, but also increase China’s global leadership and influence on green development,” Huang said at the Global Finance conference Forum organized by Tsinghua University in Hangzhou.

While China the problem of excess production capacity – caused by systematic over-investment coupled with insufficient demand – is unlikely to subside in the near term, the only solution is to export the bountiful fruits of the green energy sector, said Huang, who is also dean of the National Development School at Beijing University.

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

In recent months, many Western countries have stepped up their responses to a glut of Chinese imports in the new energy sector, saying their own markets have been distorted and their production has been disrupted.

Two weeks ago United States announced sharp tariff increases on a range of Chinese imports, including electric vehicles (EVs), lithium-ion batteries and solar panels.

According to last year’s report by the United Nations Conference on Trade and Energy, developing countries need about $1.7 trillion in renewable energy investment annually – a far cry from the $544 billion in clean energy foreign direct investment that attracted in 2022. Development.

It is possible that Beijing could provide them with financial tools in the form of a state loan or even direct financing, Huang added.

“We have the technology and the products… You can think of it as China’s version of the Marshall Plan in the green economy era,” he said.

The Washington Economic Recovery Act of 1948, proposed by U.S. Secretary of State George Marshall, was an initiative that provided billions of dollars of capital and materials to rebuild the economic infrastructure of postwar Europe.

“If (China’s version) works, we will be able to encourage them to buy more clean energy products from China and help Chinese enterprises go abroad, which could alleviate the overcapacity problem to some extent,” Huang said.

He added that just as the United States has done over the past century, China can also help promote the internationalization of its currency and financial institutions while increasing the flow of yuan.

However, Huang acknowledged that such a proposal could spark a backlash abroad as some Western countries have already criticized the Chinese government for creating a “debt trap” by providing loans through the Belt and Road Initiative to some developing countries to build large infrastructure projects – an allegation that Beijing denies.

Therefore, Chinese financial institutions should be more cautious in extending commercial loans, and the government could also seek to reach agreements with international organizations to jointly help solve these economies’ debt problems when they arise, he said.