Clarifying the Five Key Facts of the So-called "Overcapacity" - A Comment on the "China Overcapacity Theory"
2024-08-28
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Xinhua News Agency, Beijing, August 27 (Reporter Yan Jie and Ouyang Wei) Recently, some politicians and media in the United States and the West have once again hyped and generalized their so-called "China's overcapacity theory", trying to expand the scope of attack from China's new energy industry to more industrial categories, and accuse China of "China's overcapacity seriously impacting the world market". Judging from the reasons given by these politicians and media, the basis for judgment and the data cited, this argument abuses the concept of overcapacity, violates the basic principles of economics, is seriously misleading, and is a completely untenable false proposition.
On July 18, people visited the booth of Chinese auto brand BYD at the 2024 Indonesia International Motor Show at the Indonesia Convention Center in Tangerang, Banten Province, Indonesia. Photo by Xinhua News Agency reporter Xu QinFirst, from the perspective of the laws of market economic operation, supply and demand imbalance cannot be easily identified as overcapacity. Overcapacity usually refers to the production capacity of an industry that greatly exceeds market demand, resulting in a significant oversupply of products and a sharp drop in prices. At present, there is no unified and recognized judgment standard or measurement method for overcapacity in the world. Due to differences in producer and consumer behavior, factors such as macroeconomic cyclical fluctuations, changes in consumer preferences, technological progress, natural disasters, and changes in geopolitical situations will lead to significant changes in supply and demand. Therefore, supply and demand balance is temporary and relative, while supply and demand imbalance is normal and absolute.
Nicholas Lardy, a senior fellow at the Peterson Institute for International Economics, a U.S. think tank, said that as an economist, he was not sure how to measure so-called overcapacity. "This view seems to mean that no country should produce more products than it can sell domestically. So, should Boeing reduce production? Should U.S. soybean farms limit production?"
On June 3, in Shenyang, Liaoning, robot R&D engineers from Shenyang Siasun Robot Automation Co., Ltd. discussed the welding solution of the intelligent welding robot platform. Photo by Xinhua News Agency reporter Pan YulongSecond, from the perspective of the industrial development life cycle, the temporary oversupply of emerging industries cannot be identified as overcapacity. Emerging industries are usually characterized by rapid technological innovation and multiple technological paths. After completing initial technological accumulation and market cultivation, some companies make large investments to seize the market, which may cause supply to temporarily exceed demand. However, as the industry enters the mature stage, high-quality production capacity with advanced technology and higher efficiency will replace backward production capacity, and the imbalance between supply and demand will be improved.
Third, from the perspective of market economy principles, the basis for assessing overcapacity should focus on global overall demand. In the context of the deepening development of economic globalization, when assessing whether a certain industry has an imbalance in supply and demand or overcapacity, we cannot just look at one country, but need to look at it from the perspective of the world market. Ding Weishun, deputy director of the Policy Research Office of the Ministry of Commerce of China, believes that countries have formed comparative advantages in different industries based on factor endowments, technological accumulation, and development paths, and have carried out international division of labor and cooperation and exchanged what they have, thereby effectively improving global economic efficiency and well-being.
Fourth, from the perspective of international trade practice, it is against the basic understanding of economics to identify the machinery of industries with large export volumes as having overcapacity. All countries will produce and export products in which they have comparative advantages. In 2023, about 80% and 50% of the cars produced in Germany and Japan will be sold to the international market respectively, while only about 12.7% of China's new energy vehicles will be sold abroad. Obviously, we cannot identify the advantageous industries with large export volumes in various countries as having overcapacity, otherwise it will be a reversal of economic globalization.
On April 15, exhibitors introduced solar cell modules to buyers at the 135th Canton Fair. Photo by Xinhua News Agency reporter Liu DaweiFifth, from the perspective of supply and demand, a proper excess of production over demand is conducive to market competition and the survival of the fittest among enterprises, thus achieving a dynamic balance. Experts point out that moderate surplus production capacity in a certain region, a certain period, and a certain field can force enterprises to improve management, enhance technological innovation, and improve resource utilization efficiency, and mobilize the market forces of the survival of the fittest on a larger scale. Therefore, whether in the United States, China, or other countries, moderate surplus production capacity is actually a common phenomenon in global economic development.
The Nikkei Asia magazine recently published an opinion article titled "What the world got wrong about China's "overcapacity"" and pointed out that moderate excess capacity does not mean overproduction or product dumping. For some countries that do not have related industries, moderate excess capacity is a good thing and will indeed create demand for them.
China's new energy and other industries rely on the improvement of R&D and innovation capabilities, the support of a complete industrial chain and supply chain, and a huge domestic market size, which are difficult for other countries to match, to form production capacity advantages. Some countries in the United States and the West cling to zero-sum thinking and take protectionist measures to disrupt the global industrial chain and supply chain network and hinder the efficient allocation of global resources. This is not conducive to the quality upgrade of their own industries, nor to the healthy development of the world economy.
