China has pushed back against claims of overcapacity in its economy, issuing a report that refutes accusations of industrial overproduction ahead of a potential U.S. probe into the matter that could lead to new tariffs.
Massive production capacity in various Chinese industries, including automaking, solar panels, cement, and steel, has drawn scrutiny from trading partners. While China's leaders have prioritized rebalancing the economy, slowing domestic demand has encouraged companies to expand into international markets. This has contributed to a surge in exports, pushing China's trade surplus to a record nearly $1.2 trillion last year.
The Ministry of Commerce released a report titled “China’s Position on the So-called Excess Capacity Issue,” stating that China has never sought a large trade surplus and labeling talk of a “China shock 2.0” due to excess capacity as unfounded.
"The U.S. and other western countries have come up with the so-called ‘China shock 2.0,’ falsely accusing China’s industrial development of posing threats to western countries’ monopoly," the report stated, referencing previous concerns about China's rise as a manufacturing power. "This is not supported by facts and totally untenable."
This stance echoes remarks made by Chinese Premier Li Qiang at the World Economic Forum’s “Summer Davos,” where he described recent trends as a “China Opportunity 2.0” rather than a “China Shock 2.0.”
The U.S. is expected to soon announce the findings of an investigation into 16 economies, including China, concerning excess capacity and manufacturing production. Increased tariffs on some countries are widely anticipated as a result.
Earlier this month, the European Union also implemented trade measures, including protections for its steel industry and restrictions on e-commerce imports, as it grapples with its trade balance with China.
Lin Weilong, director of the Commerce Ministry's policy research office, stated that the U.S. lacks the authority to unilaterally determine if trading partners have excess capacity and to impose restrictive measures. "The U.S. cannot narrowly define production capacity that exceeds domestic demand as excess capacity, and slap it with a surplus label," Lin told reporters in Beijing.
Analysts suggest that China's position on overcapacity may not be well-received. "Economic conditions in Western markets have made it politically untenable to do nothing in the face of rising Chinese imports, especially in high value added sectors that Western firms used to dominate," said Alfredo Montufar-Helu, an expert on China at the consultancy Ankura.