In-Depth: The Complex Causes of Overcapacity Need Response From Supply and Demand Sides (AI Translation)
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文｜财新周刊 王力为 于海荣
By Caixin Weekly's Wang Liwei and Yu Hairong
在2023年底的中央经济工作会议和2024年政府工作报告接连提醒“部分行业产能过剩”挑战之后，2024年4月以来，接二连三的高层访问，迅速把这一旧瓶装新酒的问题推到了世界的聚光灯下。
Following the reminders of the "overcapacity challenges in certain industries" at the Central Economic Work Conference at the end of 2023 and in the government work report for 2024, a series of high-level visits since April 2024 has swiftly brought this repackaged issue into the global spotlight.
中美两国元首通话后翌日，4月3日，美国财政部部长耶伦启程访华，无论是在广州与中国国务院副总理何立峰为期两天的会谈，还是随后在北京与国务院总理李强的会见中，产能问题都是重点之一。作为成果，中美同意建立两个新机制，第一个便是“国内及全球经济平衡增长交流机制”，设在中美经济工作组框架下。耶伦称，这一沟通机制将促进围绕宏观经济失衡的讨论，包括与产能过剩的联系。
The day after the leaders of China and the United States held a phone conversation, on April 3, U.S. Treasury Secretary Janet Yellen embarked on a trip to China. Her discussions included a two-day meeting in Guangzhou with Chinese Vice Premier He Lifeng, followed by a meeting in Beijing with Premier Li Qiang. A key focus of these talks was the issue of industrial capacity. As an outcome, China and the U.S. agreed to establish two new mechanisms under the framework of the U.S.-China Economic Working Group. The first is the "Domestic and Global Economic Balanced Growth Dialogue Mechanism." Yellen stated that this communication mechanism would foster discussions around macroeconomic imbalances, including those related to excess capacity.
此后，4月14日至16日，德国总理朔尔茨访华，产能问题也被反复提及。
Subsequently, from April 14 to 16, German Chancellor Olaf Scholz visited China, where issues of production capacity were repeatedly discussed.
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- In 2024, China's central economic meetings highlighted challenges of overcapacity in certain industries. High-level visits and discussions with the U.S. and Germany focused on capacity issues, leading to new bilateral mechanisms for economic balance and growth discussions.
- Rapid export growth in sectors like electric vehicles and photovoltaics has drawn global attention to China's production capabilities, raising concerns about overcapacity despite a strong market demand projected for the future.
- Discussions around capacity utilization rates reveal varying standards across industries and countries, with no universal benchmark for ideal rates. China's industrial capacity utilization hit a low in early 2024, prompting debates on whether emerging industries can be judged by current supply-demand metrics alone.
The Central Economic Work Conference at the end of 2023 highlighted overcapacity challenges in certain industries, which was reiterated in the government work report for 2024. High-level visits and discussions between global leaders, including U.S. Treasury Secretary Janet Yellen's meetings in China, emphasized industrial capacity issues and led to the establishment of new mechanisms under the U.S.-China Economic Working Group [para. 1].
German Chancellor Olaf Scholz's visit to China also focused on production capacity issues. This global attention underscores that despite trade frictions, China remains integrated with the world economy. The rapid growth of Chinese exports in sectors like new energy vehicles and photovoltaic products has brought these issues to the forefront [para. 1].
In economic terms, capacity utilization rates help measure how effectively economic output levels meet potential output levels. While some redundancy is normal, excessive capacity can indicate economic inefficiencies. As of the first quarter of 2024, China’s industrial capacity utilization dipped to a new low since 2020, highlighting significant declines in specific sectors like automobile manufacturing [para. 2].
Discussions with European and American representatives have stressed viewing capacity issues from a balanced economic perspective that considers both supply and demand globally. For instance, projections by the International Energy Agency suggest that by 2030, global demand for new energy vehicles and photovoltaic installations will far exceed current production capacities [para. 3].
Amidst these discussions, there are concerns about whether China’s expansion in leading industries like new energy vehicles is sustainable under current global conditions. Challenges include external pressures such as anti-subsidy investigations by the European Union and national security assessments by the United States on Chinese electric vehicles [para. 4].
Domestically, China faces challenges like nominal versus real growth rate divergences and price wars within emerging industries which could lead to "profitless prosperity." These factors necessitate not only supply-side adjustments but also enhancements on the demand side through macroeconomic policies that boost consumer demand [para. 5][para. 6].
Furthermore, local governments play a crucial role in managing economic development and avoiding redundant construction across various regions. This requires adjusting competitive mindsets among localities to prevent homogeneous competition [para. 7].
Overall, addressing overcapacity involves understanding both domestic needs and international market dynamics while fostering cooperation to encourage balanced global development [para. 8].
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