The export competitiveness of China's manufacturing sector does not have a simple, one-way causal relationship with global economic imbalances. Global imbalances are the result of a combination of factors, including the international monetary system, savings and investment structures, capital flows, the division of labor in industries, and the macroeconomic policies of various countries. Reducing this complex issue to a single country "producing too much" not only fails to explain the historical context of the formation of imbalances but also risks overlooking the structural contradictions the global economy truly needs to address.

"Overcapacity" is not a new term. Looking at the history of the global economy since the Industrial Revolution, it has repeatedly accompanied industrial expansion, technological progress, and the shift of the world's factory. Industrial upgrading and the international division of labor constantly reshape the landscape of production and consumption. When the growth of production capacity outpaces domestic demand, seeking demand in overseas markets is inherently part of the global division of labor. However, in recent years, this concept, originally an economic term, has once again become a focal point of international trade and economic debate. As China's new energy vehicles, photovoltaics, and lithium batteries have developed rapidly, discussions in the West about China's "overcapacity" and a "China Shock 2.0" have intensified, extending from industrial competition to tariffs, trade barriers, and even global economic governance.

Does a country producing and exporting more automatically mean "overcapacity"? On July 28, China's Ministry of Commerce released its "Position on the So-Called 'Overcapacity' Issue," which comprehensively elaborates China's stance by examining the evolution of the global capacity landscape, the definition of the "overcapacity" phenomenon, and issues such as industrial subsidies, trade surpluses, economic imbalances, and market competition. The document clearly states that the continuous development and evolution of the global capacity landscape is a result of the international division of labor and cooperation. "Overcapacity" is a dynamic phenomenon in a market economy for which there is no broad global consensus or a unified judgment standard applicable to different economies and industries. At a press conference held by the State Council Information Office that afternoon, Vice Minister of Commerce Yan Dong stated frankly that some economies, driven by concerns over their own industrial competitiveness and market position, are politicizing economic and trade issues, hyping the so-called China "overcapacity" issue, and even throwing out narratives like "China Shock 2.0." Lin Weilong, Director of the Policy Research Office of the Ministry of Commerce, backed his argument with data: in 2025, China's capacity utilization rate for industrial enterprises above the designated size was 74.4%, with utilization in high-tech manufacturing and other sectors being even more sufficient.

Behind one document, a debate over "overcapacity" has transcended specific industries, extending to global trade imbalances, the international division of labor, and even the international monetary system. As the global economy once again enters a phase of industrial restructuring, how should the world find a new balance within the new production and consumption landscape?

No Internationally Accepted Standard for "Overcapacity"

A review by the Ministry of Commerce document shows that since the first Industrial Revolution, the centers of global output and demand have constantly changed, with industrial capacity shifting accordingly between different countries and regions. In 1880, the UK's share of global industrial output reached 22.9%; by 1953, the US share hit 44.7%. With the deepening of globalization, industries have shifted from Europe and the US to Japan, East Asia, and then China. Today, the manufacturing value-added shares of North America, Europe, and East Asia are approximately 17%, 17%, and 38% of the global total, respectively. In other words, the center of global industry has never been static. For an economy to enter new manufacturing fields during industrial upgrading and participate in the global market through exports is a natural outcome of the evolving international division of labor. The question is how to determine whether this industrial expansion is a normal part of the international division of labor or so-called "overcapacity." To date, there is no unified standard for this within the international community. Tu Xinquan, Dean of the China Institute for WTO Studies at the University of International Business and Economics, points out that "overcapacity" is itself a concept of industrial economics. The commonly used indicator, "capacity utilization rate," is also dynamically fluctuating. There is no "gold standard" for judging "overcapacity" internationally, and international organizations like the World Trade Organization (WTO) have not provided a clear definition. Under this premise, judging "overcapacity" solely by production scale or export volume clearly cannot explain the reality of the global industrial division of labor. Justin Yifu Lin, former Chief Economist of the World Bank, gave the example of the automotive industry this April: China produces over 30 million cars annually, with about 80% consumed domestically and only about 20% exported. In contrast, the German automotive industry has long been heavily dependent on exports. If "producing more than a country consumes" were simplistically equated to "overcapacity," the German automotive industry would also be hard-pressed to escape this standard. A study by the Peterson Institute for International Economics in the US this May also pointed out that understanding global industrialization simplistically as a game of "musical chairs," where one country gaining more industrial share means others necessarily lose development space, is a fundamental misjudgment.

More noteworthy is that today's China is no longer just the "world's factory"; it is accelerating its transformation into a "world market." Data from the General Administration of Customs shows that in the first half of 2026, China's total imports of goods reached 10.74 trillion yuan, surpassing the 10 trillion yuan mark for the first time in a historical first half-year period, a year-on-year increase of 22.1%, with growth outpacing exports by 8.7 percentage points. China has been the world's second-largest import market for 17 consecutive years, with its share of global imports rising from 7.9% to around 10%. In the first half of the year, China saw import growth from over 150 countries and regions, implemented a zero-tariff policy for 63 countries, and became the main export destination for nearly 80 countries. He Shaojun, an official from the Ministry of Commerce's Department of Foreign Trade, stated that China will actively promote the balanced development of imports and exports and unswervingly expand imports. Zhou Mi, a researcher at the Chinese Academy of International Trade and Economic Cooperation under the Ministry of Commerce, commented that China is not only the "world's factory" but also a vast market providing opportunities for the world. Against the backdrop of rising global trade protectionism, China's insistence on opening up and increasing imports highlights the growing global importance of the Chinese market. "The world is witnessing a China accelerating its transformation from a 'world factory' to a 'world market'," said Maria Luisa Falcão Silva, a member of the Brazilian Association of Democratic Economists. She believes that China's continuous combination of strong production capacity with a vast market, this dual driving force of "production + market," is a characteristic historically possessed by economies that truly occupy a central position in the international system.

Global Imbalances Cannot Be Blamed on a Single Country

If high exports and large trade surpluses do not equate to "overcapacity," then where do global trade imbalances actually come from? The Ministry of Commerce document states that global economic imbalance is a historical norm with complex causes, involving both market factors like savings and investment structures and supply chain divisions, as well as institutional factors like the international financial system and macroeconomic policy resonance. From a macroeconomic perspective, a country's current account balance has a fundamental correspondence with its domestic savings and investment. In other words, a trade surplus depends not only on how much a country produces but also on factors like its domestic consumption, savings, investment, and fiscal policies. Research by the International Monetary Fund (IMF) suggests that China's external balance is primarily driven by the gap between domestic investment and savings, rather than mainly influenced by industrial policy. Nobel laureate in economics Joseph Stiglitz, speaking at an international forum in 2025, pointed out that US President Donald Trump is deeply mistaken about trade deficits, viewing them as evidence of unfairness to the US while ignoring that their root cause lies in the macroeconomic imbalance between domestic savings and investment. At the World Economic Forum's Annual Meeting of the New Champions in Dalian in 2026, Huang Yiping, Dean of the National School of Development at Peking University, stated that global imbalance has become a growing problem because other parts of the world have encountered increasing difficulties in adjusting their economic structures. The US complains that Chinese exports have damaged its manufacturing employment, but overlooks its own deep structural constraints in managing the impact of trade and globalization. Huang Yiping also noted that China's current account surplus as a share of GDP has narrowed from nearly 10% in 2007 to around 3.7% in recent years, showing progress in reducing external imbalances.

Meanwhile, the global new energy industry is still expanding rapidly. The International Energy Agency (IEA)'s latest "Global EV Outlook 2026" predicts that global electric vehicle (EV) sales will reach 23 million units in 2026, accounting for about 28% of global new car sales. European EV sales are expected to grow by about 20%, the share of new energy vehicles in China's new car sales is projected to approach 60%, sales in the Asia-Pacific region outside China are expected to grow by over 50%, and Latin America by an estimated 45%. US Bloomberg columnist David Fickling previously noted that the discussion around China's EV "overcapacity" easily overlooks the ongoing electric transformation of the automotive industry. The decline of foreign brands' market share in China is because their electrification is too slow. Empirical research by Guo Kai, a senior fellow at the China Finance 40 Forum, and others also shows that describing China's entire manufacturing sector as having "overcapacity" deviates significantly from objective data. In 2023, the investment growth rate of all listed manufacturing companies in China was only 2.8%, indicating no systemic overinvestment problem. The high growth in specific industries like the "New Three" (EVs, lithium batteries, photovoltaics) precisely reflects the real demand generated by the global green transition. The industrial pressures facing Europe cannot be simply attributed to China's export growth either. Martin Sandbu, European Economics Commentator for the Financial Times, believes that Europe's own weak domestic demand and insufficient industrial competitiveness are important issues it needs to address. Related research further indicates that the EU's trade deficit with China reflects more of a change in industrial structure than a total collapse of European competitiveness. Europe's real problem lies in insufficient innovation investment and a lag in its own economic structural adjustment. Ultimately, compressing the complex issue of global imbalance into a single country's "overcapacity" can hardly explain the full picture. As some scholars point out, the so-called "overcapacity" phenomenon is essentially a product of global trade imbalances arising from the different macro-cycles of China and the US: insufficient demand in China and overheated demand in the US are the underlying logic behind the huge trade imbalance. No single country can eliminate trade imbalances on its own.

The US and Europe Should Face Their Internal Imbalances and Deep Paradoxes

It is well known that global trade imbalances did not begin with the rise of China's manufacturing sector. As early as the 1960s, before China's reform and opening-up, the global economy was already experiencing persistent international payment imbalances. At that time, the US faced problems of declining gold reserves and rising balance of payments pressure, leading the international community to discuss whether the Bretton Woods system could be maintained long-term. It was against this backdrop that Belgian-American economist Robert Triffin proposed the theory later known as the "Triffin Dilemma": when a country's currency serves as the world's primary reserve currency, it needs to continuously provide liquidity to the world but may also fall into a balance of payments deficit due to long-term currency outflows, ultimately weakening market confidence in that currency's stability. After the dollar decoupled from gold and the Bretton Woods system collapsed in 1971, the dollar entered the fiat currency era, but its global reserve currency status did not disappear. Miao Yanliang, Chief Strategist at CICC, summarizes this change as "Triffin Dilemma 2.0": the contradiction facing the dollar system has shifted from a conflict between the dollar and gold convertibility to a contradiction between the US providing global liquidity and maintaining the sustainability of its current account. Sumari Sanyal, Managing Director and Senior Portfolio Manager at Xponance's Systematic Global Equity Platform, points out that the US's status as the world's primary reserve currency issuer is a double-edged sword. Global demand for the dollar and dollar-denominated safe assets objectively requires the US to continuously supply dollars overseas. The balance of payments mechanism then drives these dollars back to the US in the form of investments, funding the US deficit. The resulting trade deficit and capital inflow are, to a large extent, not merely a policy choice but a structural consequence of the dollar's global status. This also explains the internal contradiction in current US policy. After returning to power, Trump significantly raised tariffs, pushed for manufacturing reshoring, and aimed to reshape global supply chains, attempting to reduce the trade deficit by decreasing imports and expanding domestic production. However, in the view of Bao Hong, Associate Research Fellow at the Qianhai Institute of International Affairs at The Chinese University of Hong Kong (Shenzhen), the high global dependence on the dollar means that a reduction in US liquidity output itself could become a global risk. If dollar outflows decrease, the international trade and cross-border financial system could face liquidity contraction, potentially affecting the foreign exchange reserves and financial stability of other economies. Therefore, whether tariff policies can truly resolve the US trade deficit remains highly controversial. Xu Qiyuan, Deputy Director of the Institute of American Studies at the Chinese Academy of Social Sciences, points out that tariff policies are essentially a palliative measure, unable to solve the deep contradictions revealed by the Triffin Dilemma. As long as imbalances like the expansion of the US fiscal deficit persist, the trade deficit may continue. At most, tariffs can change the country composition or commodity structure of surplus countries, but they are unlikely to eliminate the overall deficit. Related research from CICC also indicates that if US investment persistently exceeds domestic savings, its demand will still turn to other economies, and tariffs targeting a single country may not necessarily reduce the overall trade deficit. IMF research similarly does not attribute global imbalances to a single factor. Pierre-Olivier Gourinchas, the IMF's Chief Economist, stated in the 2025 External Sector Report that global current account imbalances mainly stem from macroeconomic imbalances within economies like the US and the Eurozone, and that solving the problem should rely more on domestic macroeconomic policy adjustments. In other words, factors like savings and investment structures, fiscal policy, demographics, credit cycles, and industrial policies also affect a country's current account and global capital flows. Meanwhile, Bao Hong believes that Trump's policies might push other countries to seek alternative currencies like the euro or the renminbi, and the development of regional currency settlement and local currency settlement mechanisms could accelerate the diversification of the international monetary system. The rise of China's manufacturing sector should also be viewed within the long-term evolution of globalization and the international monetary system. Over the past few decades, capital, technology, and industrial chains have been globally reconfigured. China becoming a major global manufacturing center is due to both its own industrial upgrading and market expansion, as well as the long-term evolution of the global industrial division of labor. Therefore, there is no simple one-way causal relationship between the export competitiveness of China's manufacturing and global economic imbalances. Global imbalances are the result of the combined action of the international monetary system, savings and investment structures, capital flows, industrial division of labor, and the macroeconomic policies of various countries. Reducing this complex issue to a single country "producing too much" not only fails to explain the historical context of the formation of imbalances but also risks overlooking the structural contradictions the global economy truly needs to address.

"De-sinicization" Will Only Worsen Global Imbalances

The debate over "overcapacity" ultimately points to a deeper question: how should the world economy find a new balance? Currently, some economies are attempting to protect domestic industries by raising tariffs and imposing localization requirements. However, trade barriers may not necessarily lead to industrial reshoring; they could also result in supply chain relocation, higher production costs, and consumers bearing higher prices. A recent study by the Bruegel Institute, a Belgian think tank, shows that during Europe's transportation decarbonization process, the entry of Chinese EV companies does not necessarily mean crowding out European industry. On the contrary, Chinese companies' investments in Europe can bring battery and vehicle production capacity, employment, and capital, while helping to reduce the cost of the green transition. In other words, the adjustment of global industrial chains should not be simplistically understood as "de-sinicization" or "reducing imports," but rather should focus more on how different economies can form new divisions of labor during industrial upgrading. In recent years, Chinese companies have been participating in the global market through overseas investments, factory construction, and technological cooperation, further converting production capacity into localized supply. Morgan Stanley notes in related research that the competitive advantage of China's EV industry is gradually shifting from early cost and price advantages to technological advantages. China supplies over 80% of the world's photovoltaic modules and continues to lower global green energy costs through technological innovation, large-scale production, and supply chain coordination. As John Quelch, Executive Vice Chancellor of Duke Kunshan University, stated: "China's domestic EV sector may appear to have 'overcapacity,' but from a global market perspective, this capacity is reasonable; to some extent, China's 'overcapacity' is a gift to the world."

This means that global economic rebalancing should not simply restrict supply from one country. Instead, it should match production with consumption through demand expansion, industrial coordination, trade openness, and financial reform. First, there is the need for rebalancing on the demand side. An IMF study released this year points out that a sustained adjustment of global current account imbalances requires synchronized domestic policy adjustments by major economies. For economies facing industrial competitive pressure, rather than simply attributing pressure to increased overseas supply, it is better to further expand domestic demand and boost productivity. Only by forming stronger consumption and investment capabilities can global production gain more stable demand support. Second, industrial policies should be viewed rationally. Han Yong, Director General of the Department of WTO Affairs at the Ministry of Commerce, points out that there is no necessary connection between industrial subsidies and overcapacity. Reasonable and compliant industrial subsidies can help correct market failures and promote technological innovation. Data cited in the Ministry of Commerce document shows that the US Inflation Reduction Act plans to provide $750 billion in various subsidies from 2022 to 2031, and the European Commission plans to provide over €1.44 trillion in various subsidies from 2021 to 2030. If China's industrial policies are exclusively linked to "overcapacity" while the industrial policies existing in other economies are ignored, it is clearly difficult to form a fair and objective discussion.

Furthermore, what the global economy truly needs to address is promoting more balanced, open, and inclusive international economic governance. Lin Jianhai, former Secretary of the IMF, believes that although the international economic governance system has evolved over the past few decades, its internal contradictions and structural problems have not been fundamentally alleviated; instead, they have become more prominent in recent years. He argues that future international economic governance reform should focus on at least the following key areas: First, enhance institutional representation and inclusiveness. Various international organizations, especially international financial institutions, should accelerate governance structure reforms and reasonably adjust voting rights and representation. Second, build a fairer and more sustainable financing mechanism. Future governance systems should pay more attention to financing accessibility and debt sustainability issues for developing countries. Third, promote the modernization and coordination of rules and standards. Rules in areas such as the digital economy, climate governance, green finance, and energy transition are lacking or severely fragmented, creating governance vacuums. The international economic governance system urgently needs to develop forward-looking and highly coordinated rule frameworks. Fourth, strengthen global macroeconomic policy coordination mechanisms, enhancing policy linkages among fiscal, monetary, financial, trade, and structural reforms to improve the overall resilience and risk-response capacity of the global economy. Fifth, further leverage the core roles of the IMF, the World Bank, and the WTO. These institutions should also adapt to changes in the global economic landscape, shifting from "doing things for developing countries" to "co-governing with developing countries." Emerging economies should also participate more actively in governance reform and policy implementation, jointly shaping a fairer and more effective international economic governance system.