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CHINA'S INDUSTRIAL OVERCAPACITY:West-China Tensions



  Apr 17, 2024

CHINA'S INDUSTRIAL OVERCAPACITY:West-China Tensions



1. What is industrial overcapacity?

Industrial overcapacity occurs when the production capacity of an industry exceeds the demand for its products, often leading to decreased prices and economic inefficiencies.

2. Why is the U.S. concerned about China’s industrial capacity?

The U.S. is concerned that China’s large-scale production, especially in new green industries like electric vehicles (EVs), solar panels, and batteries, is leading to a flood of cheap products in global markets. This can undermine U.S. and European manufacturers by driving down prices and making it difficult for non-Chinese companies to compete.

3. What is China’s stance on accusations of overcapacity?

China denies having excessive industrial capacity issues. Instead, it argues that its industries are simply more competitive due to innovation and efficient supply chain systems. Chinese officials contend that what is perceived as overcapacity is actually the result of effective market mechanisms and state-supported advancements in critical sectors.

4. What are the "new three" industries China is focusing on?

The "new three" industries refer to electric vehicles, batteries, and solar power. These sectors are considered crucial for China’s future economic growth and development, particularly as the country seeks to meet global climate goals and reduce its reliance on traditional energy sources.

5. How does China justify its industrial practices?

China points to similar subsidies and support programs in the U.S. and Europe, arguing that its strategies are not unique but are part of global economic practices. It also highlights that its industrial output is aligned with global demand, especially in sectors that are vital for sustainability and environmental goals.

6. What is the impact of China’s industrial practices on global trade?

China’s industrial capacity and competitive pricing can lead to trade tensions, as it affects the profitability and viability of industries in other countries. The core criticism coming primarily from Washington and Brussels is State-led support for manufacturers, coupled with depressed domestic demand, is pushing excessive Chinese supply onto global markets. This drives down prices. Consequently, it threatens U.S. and EU firms which survive on profits rather than what Western officials argue is a drip-feed of State resources in China. And, it can complicate longer-term investment decisions.

This situation can complicate international relations and economic policies, especially between major economies like the U.S. and China.

SRIRAM'S



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