Summary of Key Points
The Ministry of Commerce issued a document in response to the speculation regarding "excess capacity in China," clarifying that the issue of production capacity is a normal phenomenon in economic development and opposing its politicization. It was pointed out that the overall utilization rate of industrial capacity in China is reasonable, with temporary low levels in certain sectors being a result of transformation and upgrading. The document also emphasized that subsidies are not necessarily linked to excess capacity; rather, discriminatory subsidies from some countries are the real disruptors of global economic order. A large trade surplus is seen as a reflection of global division of labor and China's industrial advantages, not an indication of excess capacity. China calls for cooperation among nations to build an open and inclusive global supply chain, rather than fostering confrontation.
Detailed Interpretation
1. Excess capacity is not uniquely China's problem; don't let political rhetoric mislead us
Many countries use the issue of "excess capacity in China" as a scapegoat, but this is actually a normal part of economic development. Just as supply and demand in markets fluctuate, so does production capacity due to industrial changes (such as the obsolescence of old industries), market shifts (e.g., sudden changes in demand), and changes in global division of labor. The balance between supply and demand is always temporary, with imbalance being the norm.
Some countries politicize this issue out of concern for their own competitiveness and use it as an excuse to impose restrictions on China, adopting protectionist measures. For example, claims that Chinese production capacity threatens world markets reflect a reluctance to allow Chinese companies to compete fairly.
2. China's capacity utilization rate is quite reasonable; low levels in some sectors are part of the transformation process
The commonly used indicator for assessing excess capacity is "capacity utilization rate" (the ratio of actual output to maximum potential output), but there is no global standard for what constitutes a reasonable range. For developed and rapidly growing countries, this rate is generally between 75% and 80%, while for less developed countries, it is between 50% and 64%.
In 2025, China's industrial capacity utilization rate for enterprises above a certain size was 74.4%, which falls within the reasonable range. High-tech manufacturing (e.g., semiconductors, advanced equipment) and strategic emerging industries have even higher utilization rates, indicating good supply-demand balance. Only traditional sectors like raw materials have lower utilization rates due to structural adjustments (e.g., phasing out outdated capacity) and green transformation efforts (e.g., reducing pollution-producing capacity), which are necessary steps in industrial upgrading.
3. Subsidies are not the cause of excess capacity; discriminatory subsidies from some countries are the problem
The notion that Chinese subsidies lead to excess capacity is misplaced. Subsidies themselves are not inherently problematic; many countries use them (e.g., funding research and development in emerging industries or supporting agriculture), and these are permitted by WTO rules as they promote innovation, environmental protection, and balanced development.
China's subsidies are primarily directed at research and development (e.g., semiconductor technology), small and medium-sized enterprises, and green energy initiatives, benefiting both state-owned and private companies, as well as foreign firms on an equal basis. In contrast, some countries implement discriminatory policies (e.g., the U.S. Inflation Reduction Act provides subsidies for electric vehicles but requires them to be produced in North America, excluding other countries; EU subsidies are linked to local content requirements, preventing foreign companies from benefiting). These practices disrupt global economic order.
4. High exports and trade surpluses do not equate to excess capacity; they reflect China's industrial strengths and global division of labor
China's exports grew by 13.4% in the first half of the year, with the trade surplus narrowing by 4.7%, but this is not due to excess capacity. China's trade surplus is a result of its comprehensive industrial base and efficiency; the global economy relies on Chinese products (e.g., household appliances, machinery). Additionally, while China has a goods trade surplus, it also has deficits in services (tourism, finance), with the total trade surplus accounting for only 3.7% of GDP, which is within the internationally accepted range. Historically, countries like the UK, US, Japan, and Germany had long-term surpluses during their industrialization periods. For example, the US exports 80% of its chips and sells two-thirds of its Boeing aircraft abroad; the EU also has significant trade surpluses in automobiles and pharmaceuticals. China is actively increasing imports, hosting over 100 import events annually, without deliberately seeking a trade surplus.
5. Cooperation for mutual benefit is key; let's avoid confrontation and work together to grow the global economy
China has contributed about 30% to global economic growth over the past decade, providing benefits such as a large market for other countries, opportunities for development (e.g., through factory construction), and technological advancements (e.g., renewable energy). The Ministry of Commerce urges countries to respect market principles, avoid protectionism, coordinate policies, increase openness, and seek cooperative opportunities. By working together in areas like green technology and artificial intelligence, we can share benefits and integrate more developing countries into the global economy, thereby reducing conflicts.
In summary, the notion of "excess capacity in China" is a politically motivated misconception. China's production capacity is a driving force for the global economy, not a hindrance. Countries should cooperate rather than compete to achieve common prosperity.