China moves to cool battery boom amid overcapacity concerns

China unveiled draft rules that appear aimed at slowing the breakneck expansion of its battery industry — a key target of US and European complaints about Chinese overcapacity.

Firms in the lithium-ion battery sector should avoid building plants that “simply expand production capacity,” the Ministry of Industry and Information Technology said in a proposal issued on Wednesday. The document also suggests minimum standards for energy density and a range of other battery specifications.

The ministry has requested feedback on its proposal, which isn’t yet binding.

The document was released during President Xi Jinping’s visit to Europe, where he has tried to calm concerns about China’s surging exports of new-energy technology from batteries to electric vehicles and solar panels. 

China’s battery production in 2023 was roughly equal to the entire world’s demand, and the sector has seen a swathe of new entrants competing for market share. Exports have also soared, fueling trade tensions, with shipments growing 28% last year to about $65 billion.

Xi has argued that China does not have an overcapacity problem and that its products are simply competitive, although there have been domestic concerns too as companies battle fierce competition and squeezed margins. The founder of battery giant Contemporary Amperex Technology Co. said earlier this year there still wasn’t enough capacity for “good” products.

Beijing’s proposed new guidelines aim to accelerate the “upgrading and structural adjustment” of the battery sector, the ministry said, as well as to improve technical innovation and product quality, and to reduce production costs. Enterprises should put no less than 3% of annual investment toward research and development, according to the draft.