Chinese President Xi Jinping visits machinery manufacturer Guangxi Liugong Group in Liuzhou city, Guangxi region, April 26, 2021. Ju Peng/Xinhua/Getty
US Treasury Secretary Janet Yellen expressed concern about overproduction of goods there during her recent visit to China.
China has dismissed Yellen’s concerns – but Beijing is also worried about overcapacity, according to an economist.
However, China’s concerns on this issue differ from those of the United States and other countries.
This is a machine translation of an article from our US colleagues at Business Insider. It was automatically translated and checked by a real editor.
China produces too many goods – and Beijing knows it too.
Just like the United States and all of China’s other trading partners, Chinese authorities are concerned about industrial overcapacity and want to curb it. But while Beijing is aware of and concerned about overproduction, it does not view it quite the same way as the United States and China’s other trading partners, an economist said.
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Different views on the problem
Chinese policymakers are primarily concerned about “disorderly competition” and low factory capacity utilization, Yue Su, senior China economist at the Economist Intelligence Unit (EIU), wrote in a note Wednesday.
“From China’s perspective, reducing excess capacity is critical, especially when it leads to deflation, jeopardizes the health of the banking sector and creates financial distress for local governments,” Su said.
In other words, for the US, “overproduction” means having too much material. In China, however, there is concern that competition will become so intense and disorderly that too many unprofitable companies will emerge. Beijing is also concerned that factories are unable to operate at optimal capacity.
However, the United States and other countries are more focused on the rapid increase in China’s overall capacity as well as the country’s production volume, the economist said.
Yellen warned of the impact of China’s overproduction on the US and other countries
Su’s comments followed US Treasury Secretary Janet Yellen’s criticism of overcapacity and overproduction in China during her recent visit to the country, which ended on Tuesday. “China is now simply too big for the rest of the world to absorb this enormous capacity,” Yellen said Tuesday at a press conference.
After all, more than a decade ago, China flooded the world with dumped products like steel, decimating industries and communities worldwide – a scenario that should not be repeated.
“The actions the PRC is taking today can change world market prices. And when the global market is flooded with artificially cheap Chinese products, the viability of American and other foreign companies will be called into question,” Yellen added, referring to the People’s Republic of China, as the country is officially called.
In addition to the USA, there are also the European Union and even emerging countries like Thailand concerned about the flood of cheap Chinese goods and their impact on local industries.
For the US and EU, the rapid increase in capacity in green sectors – such as electric vehicles, solar cells and lithium-ion batteries – is particularly worrying. Beijing has identified these three hot new industries – in which the US and EU also compete – as China’s new economic growth engines.
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China does not want to politicize the problem
China has defended itself against criticism of overproduction. In his annual policy report, released last month, Chinese Premier Li Qiang pledged to “prevent overcapacity.”
“The best way to eliminate such imbalances is to let market forces play their role according to the law of value,” Mao Ning, a Chinese Foreign Ministry spokesman, said on Tuesday.
“Politicizing overcapacity or other economic and trade issues and arbitrarily linking them to security issues violates the laws of economics and harms domestic industries and the stability of the global economy,” Mao added.
China will likely continue to dominate the green sector
The discrepancy in how China and its trading partners view the overcapacity problem means the country’s oversupply of green and other products is likely to persist, economist Su said.
Ultimately, China’s export surplus means there are fewer incentives for Beijing to address the problem, Su added.
According to the Chinese Customs data China recorded a trade surplus of 823 billion US dollars (around 767 billion euros) last year.. In contrast, the US trade deficit with China was, according to theUS-Handelsministeriums in 2023 almost 280 billion dollars (around 261 billion euros).
Su expects further reviews of China’s subsidies and price gouging in China’s manufacturing industry in the rest of 2024. The investigations could even extend to China’s factories overseas, such as in Southeast Asian countries, she added.
Analysts expect the debate over the US’s trade problems with China to intensify in the run-up to the presidential election. Nevertheless, the EIU expects Chinese industry to continue to dominate the green sector – even if factories make less profit.
“Supply chain efficiency, intense competition in the private sector and local governments’ efforts to protect domestic businesses will contribute, even as industry profits remain under pressure,” Su writes.
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