The word “overcapacity” has become a handy tool for some to frame China”s competitive edges in a negative light and justify protectionist measures. The Economist joined this effort recently by publishing an article accusing China of having “State-driven overcapacity”. Its title even suggests China should “apologize” for its “production capabilities”.
Exports are an important driver of China’s economy and the country’s industrial production. That is true for most economies that have followed the trend of globalization. In the process, goods are produced to meet both domestic and foreign demand. North America, Europe and East Asia, as the three primary manufacturing hubs for the world, have developed their own competitive strengths. Few say there is “overcapacity” for Boeing aircraft, yet about two-thirds of the commercial planes delivered by the company are sold beyond North America, or decry as “overcapacity” the large surplus of the European Union’s cosmetics sector, in which the bloc itself claims to be a “dominant cosmetics exporter”. No one has asked the United States or the EU to “apologize” for outcompeting others in these industries.
But when it comes to China, the tone takes a sharp turn. Some parties have imposed arbitrary tariffs and discriminatory laws to keep out Chinese goods and investment. These steps make one wonder what these parties truly want China to “apologize” for — “overcapacity”, being competitive, or providing the world with products with a high cost-performance ratio.
The Economist’s story implies that China’s pursuit of sci-tech self-reliance reduces its demand for imports, leading to “overcapacity” in exports. If China’s indigenous innovation is treated as a “crime” simply because it reduces the country’s imports of high-tech products, then the China-bashers should explain whether it was the developed economies’ own restrictions on high-tech exports that drove China to commit that supposed “crime.”
Those developed countries that grasp advanced technologies are still relentlessly pushing for breakthroughs, without anyone raising the alarm that by doing so they are lowering their demand for imports and filling the world with more capacity than it can handle.
The Economist also failed to mention that in the first half of this year, China’s imports reached 10.74 trillion yuan ($1.59 trillion), a 22.1 percent year-on-year increase, outpacing its export growth by 8.7 percentage points. Such an amount and speed of growth reinforce the fact that China is a major consumer of other countries’ exports. The Chinese market offers great opportunities for companies across the world and welcomes them to share the dividends brought by its opening-up.
As pointed out by the Chinese Ministry of Commerce’s position paper on the issue, it has never been China’s intention to seek a trade surplus. China’s export growth is due to the scale of its economy, innovation capacity and the needs of countries to accelerate their green transition and industrial development.
Blaming China will not solve the economic malaise afflicting those finger-pointing economies whose shortsightedness has led to them relying on past legacy. Pointing the finger at China only perpetuates their self-created problems. It is the easy option to avoid the realities of a world in which past performance is no measure of future competitiveness.
It has been almost two years since the release of former president of the European Central Bank Mario Draghi’s seminal report on “The Future of European Competitiveness” in 2024, which presented the need for radical reforms and proposed €800 billion ($923 billion) in annual investments to unify capital markets, streamline regulations and accelerate innovation in AI and green tech. But little progress has been made with only about 30 percent of the recommendations implemented. Those economies that benefited the most in the past cannot cry foul if their complacency and ill-judged policy focuses on Cold War confrontations have cut their nose off to spite their face.