Amidst the frequent countermeasures against the global low-priced export of Chinese goods, the Chinese Ministry of Commerce issued a document denying the existence of overcapacity in China. However, analysts point out that they are manipulating concepts and concealing the truth. Western countries and research institutions have also analyzed the threat of “China Shock 2.0” to the survival of manufacturing industries in Europe and other countries.
On July 28, the Chinese Ministry of Commerce released a document titled “China’s Position on the So-Called ‘Overcapacity’ Issue,” denying overcapacity in China and government subsidies to support related industries. The document, consisting of over 10,000 words in Chinese, was simultaneously released in English.
The document states that the claim that “China’s overcapacity results from insufficient domestic demand” is not based on facts. Domestic demand has always been the main driver of China’s economy, with an average contribution rate of 93% to China’s economic growth from 2013 to 2024. Specifically, the average contribution rates of consumption and investment were 55% and 38%, respectively.
The document further asserts that the development of China’s modern industries is not a “China Shock 2.0” to the world but rather a “China Opportunity 2.0.”
In an article published on X platform, independent commentator Cai Shenkun argues that the Chinese government is manipulating concepts and playing word games. Economics looks at the share of residents’ consumption in GDP, with a normal country having about 75%, the U.S. at 82%, while China’s residential consumption is less than 40%. The Ministry of Commerce disguises the “contribution rate of China’s economy (55%)” as “the proportion of GDP total amount,” not to mention that there is a significant amount of public consumption and government procurement in the total retail sales of social consumer goods. Despite China manufacturing over 30% of global goods, Chinese people consume less than 13% of global goods. With excessive production and the inability of the people to afford or consume, how can this not be called overcapacity?
The article argues that as long as the proportion of residents’ disposable income in GDP remains low, people will be reluctant to spend money, leading to all the official rhetoric of “strong domestic demand” being just a farce! Mortgages, car loans, medical expenses, and education costs have emptied everyone’s wallets, forcing them to cut back on necessities. The decrease in the proportion of spending on food and beverages due to being squeezed by high housing prices and healthcare costs does not signify an “improved standard of living” but rather people being too scared to consume.
Regarding the document released by the Chinese government, the report from Nikkei Asia suggests that China is trying to repackage the “China Shock 2.0” as an innovative opportunity. Despite the grandiose declaration, in the same week as the document’s release, the EU announced imposing at least a 60% anti-dumping duty on polyamide yarn manufactured in China. Not only does China export its excess capacity through exports, but its surplus industrial structure is spreading overseas through investments (such as setting up factories in Southeast Asia and the Middle East). Western countries will not ease their trade defense measures due to this position paper.
David Autor, an economics professor at the Massachusetts Institute of Technology, coined the term “China Shock” in 2016.
A June 17 investigative report by the Associated Press suggests that the current “China Shock 2.0” is far more impactful than before. While China’s share of global exports was only 4% in the past, it has now soared to 16%. China’s policies encourage factories to overproduce, such as state-owned banks providing low-interest loans to state-owned enterprises to expand.
Maurice Obstfeld, a senior researcher at the Peterson Institute for International Economics and former Chief Economist of the International Monetary Fund, told the Associated Press that China’s actions are partly intended to keep factories running, but the outcome is an oversupply of domestic goods that can only be dumped abroad. As a result, low-priced Chinese products flood the global market, threatening the survival of manufacturing industries in Europe and other countries. Unless China applies the brakes itself, the situation will worsen.
In their respective reports and policy evaluations, the European Parliamentary Research Service (EPRS) and the Mercator Institute for China Studies (MERICS) pointed out the long-term “heavy investment, light consumption” macro policy in China led to structural imbalances. China cannot absorb its massive overcapacity domestically, leading to a vicious price war in the domestic market where most enterprises operate at a loss or minimal profit margins. To survive, Chinese companies are exporting goods at low prices. This model is not sustainable and will also undermine the healthy, high-standard labor and industry ecology in the West.