Summary of Key Points
This document is a response from the Chinese Ministry of Commerce to Western speculation about China's "overcapacity" issue. The main arguments are as follows: The global capacity structure is a natural outcome of industrial division of labor, and "overcapacity" is a dynamic phenomenon in a market economy (without a unified standard). It is incorrect for the West to link subsidies and trade surpluses directly with overcapacity. China's industrial development is driven by innovation and reform, bringing opportunities rather than challenges to the world. The document calls on all countries to abandon protectionism and work together through openness to build a stable global supply chain.
Detailed Interpretation
1. The Global Capacity Structure: Not "Snatched by China," but a Natural Result of Division of Labor
Imagine the global capacity as an "industrial relay race": After the First Industrial Revolution, Britain became the first "world factory"; later, the United States took over, followed by Europe and Japan after World War II; then East Asia (including China) became the new manufacturing hub. The transfer of some Chinese industries to Southeast Asia is just part of this continuous process. China became a "world factory" because it actively integrated into globalization and embraced international industrial relocation—European and American companies moved labor-intensive or mid-to-low-end manufacturing operations to China, taking advantage of its labor force and supply chain capabilities. Today, the three major manufacturing centers (North America, Europe, and East Asia) account for 72% of global manufacturing value added, with China being just one part of this market-driven outcome, not a result of deliberate capacity expansion.
2. "Overcapacity": A Misconceived Concept?
The West claims there is overcapacity in China, but this concept lacks a unified standard:
- Dynamic Phenomenon: In a market economy, supply and demand are constantly in a cycle of balance, imbalance, and rebalancing. For example, the emergence of new technologies (such as renewable energy) may temporarily lead to excess capacity for old technologies (like fossil fuels), but the market will adjust over time.
- Lack of Uniform Standards: Capacity utilization rates (actual output/maximum capacity) are commonly used indicators, but they vary significantly between countries and industries. For instance, developed countries typically have utilization rates of 75%-80%, while less developed countries have only 50%-64% due to poor infrastructure. Within a country, different industries may have varying utilization rates (e.g., high in computers, low in furniture). The West applies its own standards to China, which is a form of double-standardism.
- Hypocritical Purposes: Some countries use the pretext of overcapacity to impose trade restrictions as a form of protectionism, rather than addressing the real issues.
3. Don't Mislabel Things!
The West often links subsidies and trade surpluses with overcapacity:
- Subsidies ≠ Overcapacity: Subsidies are used by many countries (e.g., the U.S. provided $750 billion in subsidies for electric vehicles, and the EU €1.44 trillion); reasonable subsidies can promote innovation (such as in green technologies). China's subsidies are mainly used for research and development and green transformation and comply with WTO rules, benefiting both domestic and foreign companies.
- Trade Surpluses ≠ Overcapacity: A trade surplus is the difference between savings and investment, not an indication of "too much production that cannot be sold." Germany and Japan have long-term surpluses, and the U.S. exports 80% of its chips and 2/3 of its airplanes abroad—do they have overcapacity? China's trade surplus accounts for about 3.7% of GDP (within a reasonable international range), and the benefits from this surplus are shared among multiple parties. By 2025, foreign companies will account for 27% of China's exports, with faster profit growth than domestic firms.
4. Where Does China's Strength Lie?
China's industrial success comes from two key factors:
- Innovation-driven Development: China invests second-highest in research and development globally, with planned spending on basic research exceeding 7% by 2025. For example, in electric vehicles, Chinese companies have spent over 20 years developing technology, resulting in a 50% increase in battery energy density and a 60% reduction in cost, as well as leading autonomous driving systems—these are achievements based on innovation, not subsidies.
- Deepening Reforms: Through supply-side reforms, China is phasing out outdated capacity. By 2025, the utilization rate of industrial capacity above designated size will reach 74.4% (on par with developed countries), with even higher rates in high-tech industries. China also has the most comprehensive supply chain in the world (e.g., electric vehicle components can be assembled within 4 hours) and a vast market (1.4 billion people), which are essential for industrial health.
5. China Brings "Opportunity 2.0," Not a Challenge
The West portrays Chinese industries as a threat, but in reality:
- Global Innovation Partner: China shares its large-scale artificial intelligence models, making them accessible to developing countries, and has made its controlled nuclear fusion technology available globally, promoting scientific progress.
- Green Transformation: China's renewable energy products (such as solar and lithium batteries) have reduced the cost of green electricity by 80%, helping achieve the goals of the Paris Agreement. The American journal *Science* named China's leadership in renewable energy as one of the top ten scientific breakthroughs of 2025.
- Benefits for Consumers: China's cost-effective products (such as household appliances and medical supplies) have lowered global inflation. The European Central Bank estimates that a 10% increase in EU imports from China would reduce prices by 1.6%, directly benefiting European consumers.
- Supporting Developing Countries: China exports textile machinery to developing nations, helping them become exporters, and has invested $3 trillion in these economies to integrate them into the global supply chain.
6. How to Solve the Problem? Global Cooperation is the Way Forward
The document concludes with calls for:
- Respecting Market Principles: Avoid political interference and let companies plan their supply chains based on economic principles.
- Enhancing Policy Coordination: Major economies should communicate about industrial policies to avoid creating barriers.
- Increasing Openness: Remove trade and investment obstacles, such as relaxing entry restrictions and simplifying procedures.
- Upholding Multilateralism: Maintain WTO rules and oppose the use of power to exploit weaker countries, fostering a fair international economic order.
In summary, China's stance is that instead of blaming each other, we should work together to expand the global economy and benefit all.
This document serves as a clarification to the West, showing that China's capacity is not a problem but an opportunity, and that protectionism poses the greatest risk to the global economy. For the general public, it should be clear that China's development is not a threat but a partner in global cooperation.