Research Briefing | May 17, 2024

China’s overcapacity ‘problem’ in five charts

We find emerging, but not overwhelming, macro proof to support the recent geopolitical narrative of excess Chinese goods production that unfairly undercuts global manufacturing competitors on price. 

What you will learn:

  • Without compelling evidence in the data, there is likely no impetus for authorities to adopt meaningful course-corrective measures to rein in any perceived excess capacity problems zeroed in by Western trading partners anytime soon.
  • Obviously, given the soft patch in onshore demand, and a production-driven stimulus approach, China’s industries are likely to exhibit relative cyclical oversupply in the near term.
  • Sector-related data suggests that excess capacity risks remain confined within several industries with known idiosyncratic trends at play.
  • The contentious ‘new three’ industries underscore China’s export dependency, and global import reliance. Optimists might point to the longer-term global demand fundamentals that support an industrial ramp-up in these areas, although it is unclear if that outweighs the risk of deflation and the associated job losses from persistent unprofitability in pockets of these industries.
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