China’s problem of overcapacity has attracted global attention. Experts point out that China’s overcapacity and subsequent exportation not only harm other countries but also backfire on itself. The reluctance of the Chinese Communist Party (CCP) to change this situation is driven by its global ambitions and is expected to trigger a full-scale trade war with Europe and the United States.
In the first quarter, China’s economic growth rate increased by 5.3% year-on-year, as announced by the CCP. Industrial production in China accelerated to 7% in January and February but slowed down in March to only 4.5% growth. Due to the CCP’s history of falsifying data, it is widely believed that the actual figures may be worse than reported.
Moreover, the capacity utilization rate in the manufacturing industry plummeted to 73.8% in the first quarter, the weakest quarter at least since 2015 excluding the first quarter of 2020 affected by the COVID-19 pandemic. While China’s exports hit a nearly decade-high in March in terms of quantity, the value was only slightly higher than the level in October last year.
Professor Zheng Zhengping of National Yunlin University of Science and Technology in Taiwan stated on April 18th that these economic data indicate the reality of China’s overcapacity.
He analyzed that the credibility of the CCP’s statistics is very low. While the released economic growth rate of 5.3% for the first quarter suggests that industrial output increased in January, February, and March, the modest increments show serious unemployment issues, a sluggish real estate market, low manufacturing utilization rates, and insufficient domestic and international demand due to overcapacity, prompting the need to export goods.
He believes that the CCP’s industry does not operate based on market competition and transparency advantages. It is directive, with the state setting targets such as the previous “Made in China 2025” plan and the current “China Standard 2035.” This authoritarian approach lacks solidity, with a continuous desire for leapfrogging.
The CCP is pushing for the development of “new quality productivity” as a way to boost the economy by exporting green products like solar panels, electric vehicles, and lithium batteries globally. This surge in CCP’s exports has been described as an “industrial tsunami,” raising concerns in Europe and America.
In late February, the U.S. Department of Commerce initiated an investigation into whether Chinese automotive data poses a national security threat. On April 3rd, the European Commission announced an investigation into possible subsidies received by two Chinese-owned solar panel companies.
On April 17th, U.S. President Biden called for significant increases in tariffs on Chinese steel and aluminum products to balance CCP’s excess capacity. On the same day, the Chairman of the China-EU Business Association warned that a full-blown trade war between Europe and China might erupt. German Chancellor Scholz also expressed concerns about European investment policies during his visit to China.
However, more and more views suggest that besides distorting global market prices and impacting enterprises worldwide, China’s overcapacity may also cause damages internally.
Zheng pointed out the massive impact of overcapacity on China itself. “Due to overproduction, there is severe deflation within China, with people refraining from consumption, leading to increasingly pessimistic outlooks and heightened social unrest, posing a significant threat to political stability.”
China expert Wang He stated that the CCP promotes massive exports through subsidies, tax exemptions, and policy guidance, leading to substantial wastage. He emphasized the danger of overcapacity, which could cause industries to collapse, threatening both domestic and foreign producers.
“There will be an adjustment period for overcapacity. In a market economy, a short-to-medium-term adjustment of six months to a couple of years would usually restore normalcy. However, for the CCP under General Secretary Xi Jinping’s autocratic leadership, getting out of this overcapacity predicament is exceptionally challenging.”
During her recent visit to China, U.S. Treasury Secretary Yellen raised concerns about overcapacity. However, some U.S. officials privately admit that Yellen’s visit is unlikely to change Beijing’s overall economic strategy.
The CCP’s “overcapacity” is escalating the risk of a comprehensive trade war with the United States and Europe.
The U.S. Trade Representative’s Office announced an investigation under the 301 Clause into Chinese trade practices in the shipbuilding, maritime, and logistics sectors, with existing tariffs potentially doubling.
On April 18th, during the IMF and World Bank Spring Meeting, U.S. Treasury Secretary Yellen held a trilateral meeting with Japanese and South Korean finance ministers to emphasize enhanced cooperation in tackling economic threats and damage caused by critical industrial overcapacity.
Experts also point out that the CCP’s overcapacity is fundamentally intentional and part of its global ambitions.
According to Wang, Xi Jinping’s “supply-side reform” aims to upgrade production capacity, although it essentially expands capacity. China’s expansion serves political and strategic purposes, positioning the CCP to dominate the world.
“The CCP’s relentless focus on manufacturing aims to gain overwhelming advantages over Europe and America in terms of capacity. Expanding economic capacity entails significant economic costs, but the CCP is willing to pay this price. Why? This is part of its global ambition. China is displaying its prowess globally through strategically designated sectors like electric cars, solar panels, and lithium batteries.”
He emphasized that the aggressive and disruptive nature of CCP policies poses the greatest risk to the global economy. Various countries are leveraging trade policies and anti-dumping investigations to counter CCP’s exports, which could lead to a trade war aimed at blocking China economically.
“Yellen’s visit to China has laid bare all the cards, and the CCP now finds itself in this predicament.”
Zheng also noted the current global chaos and Xi Jinping’s pursuit of personal achievements. Xi’s focus on geopolitical confrontations rather than China’s economy and livelihoods has created substantial domestic problems, with his primary goal being Taiwan unification.
Responsibility Editor: Fang Xiao#