Why the 'China overcapacity' argument does not add up

(ECNS) – A document titled "China's Position on the So-called Excess Capacity Issue" challenged four recurring claims by some economies: that weak domestic demand has created excess production capacity, that China is causing a so-called “China shock 2.0,” that industrial subsidies inevitably lead to overcapacity, and that high export volumes or trade surpluses are evidence of excess capacity.

The document was released by the Ministry of Commerce on Tuesday.

The first flaw lies in the assumption that weak domestic demand has resulted in overcapacity. Domestic demand contributed an average of 93% to China’s economic growth between 2013 and 2024, while retail sales more than doubled from 2013 to 2025. These figures do not support the claim that insufficient domestic demand has led to excessive production capacity.

The second concerns the so-called “China shock 2.0” narrative. China accounted for around 30% of global economic growth over the past decade, while the expansion of its market, industrial development and technological progress has created wider opportunities for trade, development and innovation in other economies.

The third is the claim that industrial subsidies inevitably result in excess capacity. Many countries provide policy support for areas such as scientific research, agriculture and environmental protection. Such measures can help address market failures and encourage innovation without necessarily creating overcapacity.

The fourth is the assumption that high export volumes or trade surpluses prove the existence of overcapacity. The paper notes that major manufacturing economies have maintained trade surpluses for prolonged periods and points to industries that export a substantial proportion of their output. Applying this reasoning selectively to China amounts to a double standard.

Chinese exports have also broadened consumer choice, reduced costs, and supported industrialization and green transitions in other economies.

The document calls for greater market openness and international cooperation to improve the matching of global supply and demand and promote more efficient resource allocation, rather than relying on protectionist measures. 

(By Helen Mo, intern Yang Hongran)