China Releases Official Position on the So-Called Overcapacity Issue

Dragon Media News Desk

China’s Ministry of Commerce has released a policy document titled “China’s Position on the So-Called Excess Capacity Issue,” rejecting attempts to equate the competitiveness of Chinese industries with overcapacity and use the allegation as a justification for trade restrictions.

The document, released on Tuesday, states that the evolution of global production capacity should be assessed objectively in the context of international division of labour, industrial relocation, technological change and the dynamic adjustment of market supply and demand.

According to the ministry, some countries and economies have politicised economic and trade issues because of concerns over their industrial competitiveness and market positions. It says allegations that China is flooding global markets with excess production have been used as a pretext to expand restrictions against the country and promote protectionism.

The document argues that, since the first industrial revolution, production centres have gradually shifted from Britain to the United States, Europe, Japan, East Asia and China. The emergence of North America, Europe and East Asia as major manufacturing centres is described as a result of economic globalisation and international industrial cooperation.

The Ministry of Commerce says overcapacity is a dynamic and sometimes temporary phenomenon in a market economy. Global supply and demand do not remain permanently balanced, and industries continuously move through cycles of balance, imbalance and rebalancing as technology, market conditions and industrial life cycles change.

The document notes that World Trade Organization agreements contain neither an official definition of excess capacity nor separate provisions governing it. As capacity utilisation differs across countries and industries, China argues that applying a single standard to every economy and sector is neither scientific nor appropriate.

The ministry also rejects the claim that industrial subsidies necessarily cause excess capacity. It says subsidies supporting research and development, green transition, agricultural risk management, small and medium-sized enterprises and technological innovation are widely used internationally.

China says it has continued to improve its subsidy system in accordance with WTO rules and principles of transparency and equal treatment. According to the document, domestic and foreign-invested companies receive equal treatment under programmes supporting consumer-goods trade-ins, vehicle and home-appliance purchases, and new digital and smart products.

The document states that large exports or trade surpluses should not automatically be treated as evidence of overcapacity. It points to the long-term trade surpluses recorded by industrial economies such as Britain, the United States, Japan and Germany, arguing that trade balances largely reflect patterns of global labour division, savings, investment and demand.

China also says pursuing a trade surplus has never been an objective of its policy. The growth of Chinese exports, according to the document, reflects economies of scale, technological innovation and rising international demand for products required for green transition and industrial development.

Foreign-invested companies accounted for 27 percent of China’s exports in 2025, the ministry says, demonstrating that the benefits of Chinese trade are not confined to domestic enterprises. Although China records a surplus in goods trade, it runs deficits in services trade and investment income, while its overall current-account surplus stands at about 3.7 percent of gross domestic product.

The document says China is actively promoting balanced growth in imports and exports. It has remained the world’s second-largest importer for 17 consecutive years and has extended zero-tariff treatment to 63 countries, including full zero-tariff coverage for African countries and least-developed countries maintaining diplomatic relations with China.

China also cites the China International Import Expo as evidence of its commitment to market opening. Intended agreements worth more than $580 billion were reached during the first eight editions of the expo, according to the document, which describes China as not only “the world’s workshop” but also “the world’s market.”

The ministry rejects claims that weak domestic demand has created excess capacity in China. Domestic demand contributed an average of 93 percent to the country’s economic growth between 2013 and 2024, including 55 percent from consumption and 38 percent from investment.

China’s total retail sales of consumer goods increased from 23.8 trillion yuan in 2013 to 50.1 trillion yuan in 2025, according to the document. China expects its middle-income population to exceed 800 million over the next decade and says domestic consumption will remain a major driver of both Chinese and global economic growth.

The document presents fair market competition as the most effective mechanism for adjusting industrial capacity. Competition encourages companies to reduce costs, improve efficiency and advance technology, while outdated and inefficient capacity is gradually eliminated through market forces.

China says the development of its modern industries has been driven primarily by research, innovation, industrial reform and its large domestic market rather than government subsidies. During the 14th Five-Year Plan period, national research and development spending increased by an average of 10 percent annually, making China the world’s second-largest spender on research and development.

The document says China has established more than 8,000 national green factories, over 600 green industrial parks and 246 national green data centres. It adds that 89.6 percent of major industrial enterprises have begun digital transformation and 57.7 percent have installed digital equipment.

The average capacity utilisation rate of major Chinese industrial enterprises stood at 74.4 percent in 2025, which the ministry describes as reasonable and broadly balanced. Temporarily lower utilisation in certain traditional raw-material industries is attributed to structural adjustment and the green transformation of the economy.

Rejecting efforts to portray China’s industrial modernisation as a “China shock 2.0,” the document describes it instead as “China opportunity 2.0” for the world. It says Chinese advances in technology, renewable energy, electric vehicles, solar equipment and batteries have reduced the costs of global green transition and supported industrialisation in developing countries.

The ministry says high-quality and affordable Chinese products have expanded global supply, lowered living costs and helped ease inflationary pressure. Chinese equipment, technology and investment have also assisted countries in Asia, the Middle East and Africa in joining global manufacturing and supply networks, according to the document.

China calls on major economies to strengthen dialogue and coordination on industrial policies, reject unilateralism and protectionism, and avoid creating artificial barriers to trade and investment. It warns that politicising economic issues in the name of “de-risking” or national security could weaken global industrial and supply chains.

The Ministry of Commerce also stresses the need to uphold WTO principles of fairness, transparency, non-discrimination and openness. It calls for greater use of multilateral mechanisms, including the G20, BRICS and Asia-Pacific Economic Cooperation, to build a more just and equitable international economic order.

In its conclusion, the document urges countries to view disputes over production capacity objectively and dialectically, based on economic laws, market principles and global conditions. China says it is ready to work with all parties to safeguard free trade, maintain stable and unobstructed industrial and supply chains, and preserve an open environment for international cooperation.