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China's Overcapacity Issues and the Need for Economic Restructuring
- Writing language: Korean
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Base country: Japan
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- Economy
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China has recently been raising international concerns due to overcapacity issues in strategic industries such as electric vehicles, solar panels, and lithium-ion batteries. This is because the Chinese government has provided massive subsidies, leading to dumping exports at low prices in overseas markets.
China's Overcapacity Issues and the Need for Economic Restructuring
In fact, according to a 2021 survey by the International Energy Agency (IEA), Chinese solar companies held over 80% of the market share despite only accounting for 36% of global demand. Furthermore, Chinese battery manufacturers produced 747 GWh of batteries last year, but only 387 GWh were sold within the domestic market.
As this overcapacity issue intensifies, the operating rate of Chinese factories has also hit a 16-year low. This is further exacerbated by the prolonged real estate crisis and the economic downturn caused by sluggish consumption.
However, the fundamental cause lies in the remnants of the past centrally planned economy dominated by state-owned enterprises. Local government protectionism, failure to implement central government reform directives, and indiscriminate production expansion by companies have led to excessive investment in facilities.
Experts warn that if the Chinese government fails to present substantial measures to address overcapacity at this National People's Congress, prolonged low growth and further trade disputes are likely.
To address this, China must initiate state-owned enterprise reform and tolerate the exit of inefficient companies. Additionally, it is crucial to curb bad loans to companies by state-owned banks, recoup profits from state-owned enterprises, restrict local government subsidies, and strengthen environmental regulations.
The experience of Japan after its bubble burst in the 1990s, followed by corporate restructuring, offers valuable lessons. If China fails to implement structural reforms, it will likely face an economic slowdown alongside intensified protectionism against Chinese products from countries around the world.
