China’s Overcapacity Challenge: The Productivity Gap and Global Implications

Beijing is pushing back against Western accusations of China’s overcapacity issue, emphasizing innovation and economies of scale as drivers of its export strength. The Ministry of Commerce refuted claims linking subsidies to overcapacity, with a People’s Daily commentary denouncing such accusations as a smear tactic. The escalating rhetoric from Beijing is in response to the use of overcapacity to justify tariffs and protective measures against key industries in China. The overcapacity problem in China cannot be simply reduced to a numbers game. While there may be excess production units, the reasons behind their existence are complex. China’s cost advantages and…