Ministry of Commerce: An Objective Perspective on the “Overcapacity” Phenomenon in Global Economic Development
Released on July 28, the Ministry of Commerce issued the document China’s Position on the So-Called “Overcapacity” Issue.
The document states that the continuous evolution of the global production capacity landscape stems from international industrial division and cooperation, and elaborates on its evolutionary trajectory.
Historical Evolution of the Global Production Capacity Landscape
Since the First Industrial Revolution, driven by advancing productivity and deepening economic globalization, production factors have flowed rapidly across the globe. The centers of global output and demand are never fixed to a single country or region, and the distribution of industrial capacity across nations and regions keeps shifting, alongside fluctuations in major economies’ shares of global industrial output.
In 1880, Britain’s industrial output accounted for a peak 22.9% of the world total. Around World War I, the United States succeeded Britain as the world’s industrial hub, with its industrial output hitting 44.7% of the global total in 1953.
After World War II, the global industrial landscape gradually shifted from a single center to a multi-centric system. Fueled by rapid globalization and refined international division of labor, the world witnessed multiple rounds of industrial relocation: industries moved from the United States to Europe, then from Europe and the U.S. to Japan, later to East Asia and China, and currently some industrial capacities from China are shifting to Southeast Asia and other regions. This process has formed three major manufacturing hubs in North America, Europe and East Asia, which respectively contribute 17%, 17% and 38% of the world’s total manufacturing value added. China’s emergence as the “world factory” is a product of its active integration into economic globalization and participation in international industrial division, and a vital component of the global manufacturing network.
“Overcapacity” as a Dynamic Feature of Market Economies
Under a market economy, the supply and demand of production capacity operate in a recurring dynamic cycle of “balance – imbalance – rebalance”, with no permanent steady state of capacity equilibrium. Whether overcapacity exists hinges on supply-demand relations, which adjust dynamically over the industrial lifecycle: relative equilibrium between supply and demand is rare, while disequilibrium is the norm. In an era of globalization, changes in international production capacity are closely intertwined with shifts in global supply and demand. During technological revolutions, emerging capacity generates new supply while outdated capacity becomes redundant, triggering phased and structural supply-demand mismatches. Market mechanisms will eventually adjust the landscape toward a new equilibrium.
Divergent Understandings of “Overcapacity” with No Consensus Worldwide
Debates persist across all sectors regarding the definition of overcapacity, and no universal consensus has been reached globally. Key international organizations have not issued official definitions for the term. Neither the World Trade Organization (WTO) agreements define overcapacity nor contain clauses addressing the concept. The International Monetary Fund (IMF) describes overcapacity as a complex notion that must be interpreted against macroeconomic contexts. Economists analyze it from macro and micro dimensions:
- Macroeconomically, it refers to a state where an industry’s overall production capacity far exceeds total effective market demand;
- Microeconomically, it describes a scenario under monopolistic competition where enterprises operate output levels below their optimal production scale.
Such mismatches between production capacity and effective market demand are commonplace across all countries amid cyclical economic fluctuations. Nations and industries adopt vastly different criteria and perspectives to judge overcapacity. Some economies, driven by geopolitical and trade protectionist motives, have created arbitrary new standards to simplify, generalize or arbitrarily label sectors as suffering from “overcapacity”, and attempted to impose these biased frameworks on other countries. Such fabricated criteria contradict economic development laws and real national conditions, and are fundamentally untenable.
(Edited by the News Department of SteelHome; Reproduction Prohibited)
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