Huang Yiping, Dean of the National School of Development, Peking University
On average, capacity utilization rates do not appear to indicate that overcapacity is a widespread issue in China, but this depends on how overcapacity is defined. For instance, in 2023, China’s exports of the “new trio” (electric vehicles, lithium batteries, and photovoltaic products) grew by nearly 30% year-on-year. If the “new trio” faces a decline in international market demand, the domestic overcapacity problem could become more severe.
To address the current overcapacity issue, the priority is to tackle macroeconomic imbalances. Additionally, industrial policies should shift their focus to the forefront of the innovation chain instead of duplicating capacity. Moreover, local governments and financial institutions should be restrained from rushing to support so-called emerging industries. Finally, market discipline needs to be strengthened. Since most overcapacity issues involve private enterprises, the market will naturally help them clear a significant portion of the excess capacity.
