Chinese overcapacity is the great evil of these times and the West is also paying the price. But Xi Jinping is unlikely to give up this industrial approach. The analysis by Foreign Affairs
29/08/2024
The Chinese economy is blocked and this is nothing new. And it is not just a question of debt, markets, credibility. But of consumption. The underlying problem is that China produces too much and consumes too little. So its overcapacity is reflected externally, flooding the markets with supply and thus upsetting prices, and therefore competition. It is, we read, a question in an analysis Of Foreign Affairsof the great problem of these times, which has caught even the West unprepared, forced to respond with the only possible weapon: tariffs.
The question at this point is: will the Chinese model ever be able to change, rebalancing the fate of the world? The title of the analysis is emblematic, China’s real economic crisis, pWhy Beijing Won’t Give Up a Failed Model. “Since mid-2010, the China problem has become a destabilizing force, especially in international trade. By creating an oversupply in the global market for many goods, Chinese companies are pushing prices below the break-even point for producers in other countries. China’s industrial policy has thus led to recurring cycles of overcapacity for decades,” it reads.
But if there is no adequate demand, there is no point in rushing to produce. And that is precisely the point. “In the party’s view, consumption is an individualistic distraction that threatens to divert resources from China’s core economic strength: its industrial base. According to party orthodoxy, China’s economic advantage comes from its low consumption and high savings rates, which generate capital that the state-controlled banking system can channel into industrial enterprises. This system also strengthens political stability by embedding the party hierarchy in every economic sector.”
And this is the obstacle that Beijing will never be able to overcome, because these are dictates and canons inherent in its political DNA. But the reality is different. “By giving priority to industrial production, the Chinese government assumes that domestic producers will always be able to unload excess supply on the global market and make money from sales abroad. In practice, however, having created a huge overinvestment in production in sectors in which the domestic market is already saturated, foreign governments are wary of the dominance of the Chinese supply chain.” So, China produces but the market is no longer able to respond. A big problem.