That, he explains, is supply.

Pan, who manages a mid-sized copper processing plant in China’s manufacturing heartland, is laying out a lesson he and others in the high-tech supply chains championed by President Xi Jinping have learnt to their cost—demand isn’t everything.

“Competition has been too fierce these past two years,” Pan said at his plant near the factory hub of Yiwu, a few hours’ drive south of Shanghai. “A lot of companies will rush to a growing industry. At some point there is a big filter and only the strong can survive.”

Back in 2017, when he set up Zhejiang Huanergy Co., Pan aimed to seize on what he forecast would be a vast need for super-thin copper foil used in electric-vehicle batteries and electronic circuitry. He was right, and consumption ballooned. Huanergy, as the company is known, supplies Chinese powerhouses like BYD Co. and Contemporary Amperex Technology Co. Ltd. 

The trouble was that a lot of other firms had the same idea, a dynamic that has affected other sectors picked by the government to help remake the economy and dominate tomorrow’s industries.

The predicament is visible across green-energy manufacturing, one of the key sectors in Xi’s effort get ahead of geopolitical rivals. Solar panel producers have been engulfed by an oversupply crisis that’s pushing companies to hefty losses and forcing a brutal shakeout. In batteries, China’s capacity is already big enough to feed all of global demand and more.

The excess has left companies like Huanergy battling to capitalize on Beijing’s attention—while seeking to avoid becoming a casualty of Xi’s “new productive forces” drive. A twist on an old Marxist concept of “productive forces,” the campaign in practice entails using state power to accelerate everything from nuclear technology to EV output, with the aim of helping fire up tech advances, productivity gains and ultimately economic growth. It’s likely to make a fresh appearance at next week’s policy gathering in Beijing.

Copper should, in theory, be a beneficiary. “Green” demand for the metal will grow at more than 10% this year and next in China, according to Goldman Sachs Group Inc—versus almost no expansion elsewhere. 

But Huanergy’s experience makes clear that the consequences of economic imbalances are far-reaching, even for those at or close to the cutting edge.

The copper foil rolled out at Pan’s plant is not unlike the familiar aluminum used in kitchens everywhere, only more fine and with higher-tech uses. In lithium-ion batteries, ultra-thin slices of copper, highly conductive and heat tolerant, are a vital part of the anode. The same sheets are ubiquitous in consumer electronics and computing—almost everywhere that requires super-smooth connectivity between components.

Annual demand for copper may grow more than 50% by 2040, according to estimates by BloombergNEF, a figure that mostly captures wires and cables in vastly expanded electricity networks. 

According to consultancy CRU Group, demand for flat-rolled copper demand, including plate, strip and foil, will rise by almost a fifth from 2023 levels by 2028, partly driven by demand growth from foil.

“It’s relatively small, but a very fast-growing market,” Pan said.

A former China Daily journalist married to the daughter of Shao Qinxiang, founder of parent Huayuan Group, Pan spotted an opportunity not long after his return to China from the U.S., where he studied for a masters in business administration. 

Huayuan, one of the world’s biggest suppliers of vitamin D as well as a textiles and building materials, also had an established copper fabrication plant. Pan made a pitch for the company to eschew traditional copper products in favor of manufacturing the foil that tech companies required.

“We had to believe that both electronics, which means all the devices and digital applications, and batteries were going to become very important,” he said. “Both of these came true, but at that time it was a leap of faith.”

Few will dispute that Pan won the tech portion of his bet. Massive computer power is needed to support artificial intelligence, and that in turn requires metal, even if China’s copper sector is today struggling with too much processing capacity and not enough raw material.

The outlook for copper’s traditional applications is more cloudy. Processing fees have been dropping a few hundred yuan every year due to “insufficient demand and rapid expansion in domestic capacity,” Hai Jianxun, a sales executive at Henan Yuxing Copper Co., a smaller firm in central China that makes copper pipes for use in items like air-conditioners, said by phone. That means “no meaningful profit” for the moment.

What Pan did not expect was a surge in other companies following the same path. 

Still, what has brought industry-wide overcapacity could also develop China’s technological edge.

The only way out, Pan reflects as the plant quietly hums in the background, is to move up the value chain, cutting costs and trying to make better products. For copper foil, that means sheets that are thinner, cleaner and smoother at the molecular level.

There has to be a way of separating the companies that will survive from the rest, he said. “I think that’s the natural way of capitalist system.”