The conclusion of China’s National People’s Congress (NPC) in March 2024 has brought to light concerning implications for global trade dynamics, particularly within the high-technology and clean energy sectors. A recent research from Rhodium Group highlights the exacerbating overcapacity issues within China’s industrial landscape, posing significant challenges for both domestic and international markets.
The policy focus of the NPC heavily favours high-technology industries, with little emphasis on stimulating household consumption. This stance is anticipated to further compound the existing imbalance between domestic supply and demand, as Chinese firms continue to ramp up production despite low profit margins, shielded from market forces by government support.
Overcapacity, a long-standing issue in China, has resurfaced in recent years, extending its reach beyond traditional sectors like steel and aluminium to encompass emerging industries such as clean technology. The overproduction, coupled with a lack of equivalent domestic demand, has led to a surplus of goods, exerting downward pressure on prices and profitability.
The ramifications extend beyond China’s borders, with implications for global trade dynamics. China’s burgeoning export prowess, particularly in sectors like electric vehicles and solar panels, poses a significant challenge to market-constrained producers in advanced economies. The mismatch between rapidly expanding capacity and sluggish domestic demand has prompted fears of intensified trade tensions and potential trade defence actions.
Notably, the current wave of overcapacity differs from previous episodes in terms of timing, affected sectors, and government response. China’s renewed emphasis on supporting manufacturing industries, coupled with a lack of clear strategy to boost consumption, exacerbates the trade imbalance and heightens the risk of trade confrontations with major trading partners such as the EU and the US.
In response to these challenges, policymakers in Brussels and other advanced economies are closely monitoring the situation and evaluating potential response measures. However, addressing the systemic issues underlying China’s industrial overcapacity will require concerted efforts and cooperation on a global scale to mitigate the risk of escalating trade tensions and safeguard the stability of the global trade landscape.
You can find the full article by Camille Boullenois, Agatha Kratz and Daniel H. Rosen here.
The post China’s Industrial Overcapacity Threatens Global Trade Friction appeared first on Baltic Wind.
Read More Baltic Wind