PREAMBLE
Without productive power, changing the world is impossible. A China with enough production capacity to change the world will help shape a new, and better sustainable and fairer global economic order.
Overcapacity has become a big issue in trade disputes with China. More so because it's a new challenge in that overcapacity now affects high-tech industries like electric vehicles (EVs), batteries, and semiconductors, unlike during an era of the past.
On today's piece, the director of the China Macroeconomic Research Centre at the National School of Development, Peking University, Lu Feng's (卢锋) analysis offers a conceptual view on overcapacity, querying whether low utilisation in a new industry with high future demand is still overcapacity?
Key Points
Chinese enterprises prone to overcapacity fall into two main categories: first, mature and low-end industries; second, firms undergoing rapid technological changes and those in high-growth sectors.
The first category includes industries that produce such things as traditional fuel cars, petrochemicals and mature-node semiconductors.
The second refers to such goods as electric vehicles and car batteries.
Although overcapacity and overproduction may be concerning for the first type of enterprise, low-capacity utilisation rates in high-tech and high-growth firms can be normal. Immediately stigmatising this second type of industry with the term “overcapacity” is wrong.
Relying solely on traditional methods for assessing overcapacity is not suitable for high-growth and high-tech industries.
Moreover, overcapacity should not only be viewed in a negative light; it can also produce positive outcomes, such as higher efficiency and market competitiveness.
Overcapacity in China has recently been caused or exacerbated by several factors:
The post-pandemic decline in demand for certain goods.
Large-scale investments by private companies.
Production capacity growing faster than demand due to rapid technological advances.
The imbalance between strong domestic supply and weak domestic demand in China.
Protectionist policies in the West.
To address China’s overcapacity problem, Beijing should rely on a combination of market mechanisms and macroeconomic policies. However, it should ensure that China’s emerging industries are not harmed in this process.
Beijing should also work to reduce China’s trade imbalances with developed countries and encourage Chinese firms to invest abroad. But foreign protectionist measures should be counteracted.
10.Boosting domestic consumption at home remains a top priority.
Originally printed as
HOW TO VIEW OBJECTIVELY AND DIALECTICALLY THE CURRENT PRODUCTION CAPACITY ISSUES IN SOME INDUSTRIES
Lu Feng (卢锋)
Published by the Shanghai Development Research Foundation on 24.05.2024
The Author
Name: Lu Feng (卢锋)
Year of birth: 1951 (age: 72/73)
Position: Professor of economics and director of the China Macroeconomic Research Centre at the National School of Development, Peking University
Other: Advisor to the PRC’s Ministry of Finance, Ministry of Human Resources and Social Security, and to the The People's Bank Of China
Research focus: Open-economy macroeconomics; Chinese agricultural economics; development economics
Education: LLB Renmin University of China (1982); MA Renmin University of China (1985); PhD University of Leeds (1994)
Experience abroad: Visiting scholar at the UK’s Institute of Development Studies (1989), the Australian National University (1996) and Harvard University (2003); Lecturer at Leeds University (1994-1995)
