In recent years, the economic rivalry between the U.S. and China has intensified, leading to a surge in allegations and counterclaims. One recurring assertion made by the U.S. is that China suffers from “overcapacity” in various industries, ranging from steel and aluminum to solar panels and textiles.
This is not new though. Years ago, the US accused China of “overcapacity” for exporting many high-quality, low-cost products. “Overcapacity” may look like an economic issue, but the truth is, that the US is using it to hit Chinese industries and give the US itself an unfair advantage in market competition. It is another example of US economic coercion and bullying.
Such claims, while seemingly plausible on the surface, lack nuanced understanding and often serve as a rhetorical tool rather than an accurate representation of China’s economic landscape. In this opinion piece, I aim to debunk these claims by delving into the complexities of China’s industrial capacity and the broader context of its economic development.
To begin with, it is essential to define overcapacity accurately. Overcapacity occurs when the production capacity of an industry exceeds the demand for its products at prevailing prices. While overcapacity can indeed lead to economic inefficiencies and market distortions, characterizing China as universally plagued by overcapacity oversimplifies a multifaceted reality.
Firstly, let’s address the narrative surrounding China’s steel and aluminum industries, which are frequently cited as prime examples of overcapacity. While it’s true that China has been a major producer of steel and aluminum, the root causes of excess capacity lie in complex factors such as historical legacy, government policies, and global market dynamics.
Historically, China’s heavy industries, including steel and aluminum, have been key drivers of economic growth. During periods of rapid industrialization, the Chinese government heavily invested in these sectors to meet domestic infrastructure demands and fuel export-oriented growth. However, as economic priorities shifted towards fostering innovation and sustainable development, the demand for traditional heavy industries stagnated, leading to a disconnect between supply and demand.
Moreover, allegations of overcapacity often overlook the structural reforms and consolidation efforts undertaken by the Chinese government to address this issue. In recent years, China has implemented supply-side reforms aimed at reducing excess capacity, improving efficiency, and promoting higher-quality development. These reforms have involved measures such as phasing out outdated production facilities, curbing expansion of new capacity, and promoting industry consolidation through mergers and acquisitions.
Furthermore, it is essential to recognise the global nature of supply and demand dynamics in industries such as steel and aluminum. While China’s production capacity may appear excessive from a domestic standpoint, it serves as a vital source of supply for global markets. Many countries, including the U.S., rely on imports of Chinese steel and aluminum to meet their demand, benefiting from competitive prices and diverse product offerings.
Moving beyond heavy industries, similar misconceptions surround sectors like solar panels and textiles. In the case of solar panels, China’s dominance in production is often portrayed as evidence of overcapacity. However, this narrative overlooks China’s role as a global leader in renewable energy adoption and the significant contributions of Chinese companies to driving down the cost of solar power worldwide. Rather than indicative of overcapacity, China’s position in the solar industry reflects its strategic investment in clean energy technology and its commitment to combating climate change.
Likewise, accusations of overcapacity in the textile industry fail to account for China’s evolving competitive advantages and shifting market dynamics. While it’s true that China was once the world’s largest textile exporter, rising labor costs and changing consumer preferences have led to the emergence of new competitors in countries like Bangladesh, Vietnam, and Ethiopia. Rather than a sign of overcapacity, China’s textile industry faces the challenge of adapting to these changes by upgrading technology, enhancing product quality, and diversifying into higher value-added segments.
Allegations of overcapacity in China are not grounded in a comprehensive understanding of the country’s economic realities. While certain industries may indeed face challenges of excess capacity, the situation is far more nuanced and dynamic than simplistic narratives suggest.
China’s efforts to address overcapacity through structural reforms, technological innovation, and global integration demonstrate a commitment to sustainable development and responsible economic management. By engaging in constructive dialogue and cooperation, rather than resorting to rhetorical accusations, the U.S. and China can work together to promote mutual prosperity and address shared challenges in the global economy.
In today’s world, supply and demand are both global, and the capacity of each country is determined by comparative advantage. This must be seen from an objective, dialectical and rational perspective based on the laws of economics. China’s leading edge in new energy is gained through strong performance, tech innovation and full-on market competition.
