The Chinese Ministry of Commerce released a document on July 28 detailing the nation's official stance on the "overcapacity" issue.

The document emphasizes the need for a comprehensive and objective view of global production capacity and the so-called "excess" phenomenon. It argues that global capacity patterns are the result of ongoing international industrial division and labor, and that "overcapacity" should be assessed based on different development stages and levels across various economies and industries.

Global Capacity and the "Overcapacity" Debate

The Ministry states that global capacity patterns have evolved historically, shifting from a single center to multiple centers after World War II. China becoming the "world's factory" is a result of its integration into economic globalization and participation in international industrial division, not an anomaly.

The document explains that "overcapacity" is a dynamic phenomenon in a market economy, with supply and demand constantly moving through cycles of balance and imbalance. It notes that there is no global consensus on the definition of "overcapacity," as major international organizations like the WTO and IMF have not provided an official definition. It argues that different economies and industries have varying standards for judging overcapacity, and that some nations have created arbitrary criteria for political or protectionist purposes.

Four Key Relationships Regarding Overcapacity

The document addresses the relationship between industrial subsidies and overcapacity, stating that reasonable subsidies do not necessarily lead to overcapacity. It notes that many countries use subsidies for R&D, environmental protection, and agriculture. The Ministry criticizes certain subsidy practices by major economies, such as the US Inflation Reduction Act and the EU's Industrial Accelerator Act, which it says include discriminatory local content requirements. China states it is committed to WTO-compliant subsidies and has established a transparent and standardized subsidy system.

Regarding trade surpluses and overcapacity, the Ministry argues that a large trade surplus does not equate to overcapacity. It points to historical examples of manufacturing powerhouses like the UK, US, Japan, and Germany maintaining long-term surpluses. It states that China does not deliberately pursue a trade surplus, and that its exports reflect global demand for green transition and industrialization. The document notes that while China has a goods trade surplus, it has deficits in services and investment income, keeping its overall current account surplus within a reasonable range.

On economic imbalance, the Ministry contends that global economic imbalances are a historical norm with complex roots. It rejects the notion that "insufficient domestic demand leads to overcapacity," stating that China is a major consumer market. It notes that domestic demand has been the main driver of China's economic growth, with retail sales doubling since 2013. The document argues that labeling China's slowing retail growth as insufficient demand is inaccurate and that the "insufficient domestic demand" narrative is a conceptual confusion.

The document also discusses market competition and overcapacity, stating that competition is essential for optimizing capacity and healthy industrial development. It argues that market competition is the most effective mechanism to prevent unchecked capacity expansion. The Ministry criticizes what it sees as unfair competitive practices by some economies, such as US tariffs and export controls, and the EU's restrictive measures on foreign investment in strategic industries. It states that China is committed to fair competition and has created a fair and transparent business environment, as evidenced by the high profitability of foreign companies in China.

China's Modern Industrial System is Built on Open Cooperation

The document asserts that China's rapid industrial development is driven by innovation, not government subsidies. It highlights significant R&D spending growth and technological breakthroughs in sectors like new energy and smart vehicles. It states that China's competitive edge comes from long-term, high-investment R&D and its complete industrial system, which provides a vast "training ground" for new technologies.

The Ministry says China's stable and healthy industrial operations are due to continuous reforms, including supply-side structural reforms that have kept capacity utilization in a reasonable range. It rejects the "China Shock 2.0" narrative, arguing that China's industrial development presents "China Opportunity 2.0" instead. It claims this opportunity manifests in four areas: driving global innovation and technological progress, accelerating the global green transition, improving people's livelihoods worldwide through affordable products, and supporting the industrialization of developing countries.

Building an Open and Inclusive Global Industrial Chain

Finally, the document calls for promoting mutually beneficial cooperation and common development. It urges all parties to respect market laws and advance economic globalization, rejecting the politicization of economic issues. It emphasizes the need to strengthen industrial policy coordination and maintain a good cooperative environment. The Ministry advocates for expanding market access and creating cooperation opportunities by cutting trade and investment barriers. It concludes by reaffirming its commitment to multilateralism and building a more just and reasonable international economic order, stressing that "connected economies thrive, while isolated ones fall behind."