• Thu. Apr 25th, 2024

China’s Industrial Policy Shift: Balancing Growth and Excess Capacity

BySamantha Nguyen

Apr 2, 2024
Excess Capacity in China’s Economy: Not a Flaw, but a Design Choice

After the March meeting of China’s National People’s Congress, it was clear that President Xi Jinping had a plan to strengthen China’s manufacturing capabilities in order to shift the country away from investing in real estate and infrastructure, and to promote growth. This move has raised concerns about the potential consequences of the excess capacity that Xi’s policy will generate, which has been widely discussed in the media.

In sectors such as electric vehicles, this policy adjustment has led to a significant increase in Chinese exports to other countries. In many markets, Chinese electric vehicles have a noticeable price advantage, partly due to government subsidies that are a key component of China’s industrial policy. However, Xi Jinping’s decision to prioritize exports over domestic consumption through direct support for consumers and workers has raised concerns among economists and policymakers about tensions with trading partners such as the United States and Europe.

Excess capacity is a term that refers to companies maintaining or expanding their unused capacity without considering profitability due to a lack of economic pressure. Rhodium Group describes China’s current “structural overcapacity” as when companies maintain or expand their unused capacity without considering profitability, often because there is no economic pressure to operate efficiently. This concept is particularly relevant to China’s shift towards advanced manufacturing in order to stimulate economic growth. The report highlights how China’s rapid economic growth in recent years has resulted in excessive capacity in various sectors based on government priorities at the time.

By Samantha Nguyen

As a content writer at newsqwe.com, I am passionate about crafting engaging and informative articles that captivate our audience. With a background in journalism and a keen eye for detail, I strive to deliver content that is not only well-researched but also adds value to our readers' lives. From breaking news stories to in-depth features, I take pride in my ability to tell compelling stories that resonate with our diverse audience. When I'm not typing away at my keyboard, you can find me exploring new cafes, practicing yoga, or getting lost in a good book. I am thrilled to be a part of the newsqwe.com team and look forward to sharing my love for writing with all of our readers.

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