China's Ministry of Commerce released a detailed position paper on July 28th regarding the so-called "overcapacity" debate that has intensified globally.

The document refutes claims that China's export surplus indicates overcapacity, arguing that such views are politically motivated and based on flawed logic. It emphasizes that the global industrial landscape has always evolved, and China's role as a "world factory" is a natural outcome of its integration into the international division of labor.

Where to begin

The paper is structured into four main chapters covering the objective assessment of global capacity, Beijing's stance on four key relationships (such as subsidies and trade surpluses), its commitment to building a modern industrial system through openness, and a call for a more inclusive global supply chain framework.

Why focus on these four key relationships?

The Ministry explicitly addresses four common arguments used by critics. First, it states that industrial subsidies do not inherently cause overcapacity, noting that many nations use similar tools. Second, it argues that a large trade surplus is not synonymous with overcapacity, pointing to historical examples like the US, Japan, and Germany. Third, it refutes the idea that economic imbalance is caused by Chinese overcapacity, attributing global imbalances to complex systemic factors. Fourth, it champions market competition as a self-correcting mechanism, not a problem.

How does Beijing support its position on domestic demand?

The paper counters the claim that "insufficient domestic demand leads to overcapacity" by highlighting China's status as a major consumer market. It notes that domestic demand has contributed an average of 93% to economic growth from 2013 to 2024, and China is now the world's largest goods consumer market by purchasing power parity. The slowdown in retail sales growth is attributed to a structural upgrade towards higher-quality consumption, not a lack of demand.

What is the core message regarding global impact?

The document strongly rejects the "China Shock 2.0" narrative, instead promoting the concept of "China Opportunity 2.0." It argues that China's modern industrial development is driven by innovation, not subsidies, and that its products and technologies offer the world "development dividends," "innovation dividends," and "green dividends." The paper points to China's role in lowering global inflation, advancing green energy transition, and supporting industrialisation in developing countries as concrete examples of this positive contribution.

What are the proposed solutions for global cooperation?

In its final chapter, Beijing calls for a return to multilateralism, urging major economies to respect market laws, engage in open dialogue, and dismantle trade barriers. It advocates for reforming the World Trade Organization (WTO) and promoting a fairer international economic order, warning that protectionist policies only disrupt global supply chains and pose long-term risks to world economic growth.