Latest news with #overcapacity
CNA
4 hours ago
- Business
- CNA
Commentary: Why China is finally starting to acknowledge its overcapacity problem
LONDON: For years, Beijing dismissed Western concerns about Chinese overcapacity as protectionist rhetoric. When the United States and European Union complained about cheap Chinese exports flooding global markets, China's response was predictable: These were simply competitive advantages in a free market economy. That narrative has now fundamentally shifted. In a remarkable policy U-turn, China has not only started acknowledging the overcapacity problem but is treating it as a national priority that requires urgent intervention. While there have been signs of this narrative change for a while, the clearest signal of this messaging transformation came through recently on China's own policy channels. In July, the Communist Party's leading journal Qiushi warned that "disorderly competition has destroyed entire industry ecology". This wasn't diplomatic language about market dynamics – it was an admission that destructive competition had reached crisis proportions. Around the same time, President Xi Jinping chaired a meeting of the Central Financial and Economic Affairs Commission, calling for "low-price competition to be regulated" and outdated production capacity to be "phased out in an orderly manner." Weeks later, the State Council explicitly linked "irrational competition" to weak domestic economic circulation, naming high-profile sectors like new energy vehicles as targets for immediate oversight. This represents a dramatic departure from China's previous stance. Where Beijing once celebrated its manufacturing prowess and export competitiveness, it now openly discusses the need to curb "involution" – or neijuan, the Chinese term for excessive and destructive internal competition that has become central to policy discourse. WHY THE CHANGE? The shift reflects a sobering recognition that China's industrial overcapacity has moved beyond an export problem to become a domestic economic threat. The cost of some raw materials has reached historic lows due to supply chain deflation, yet factory prices are being cut even further as manufacturers engage in suicidal price wars. The result is unsustainable profit margins that are forcing many manufacturers to suspend operations entirely. This deflationary spiral now threatens what Chinese leadership calls the "whole-chain manufacturing model" – the integrated production networks that Mr Xi recently reaffirmed as a national priority. When factories cannot operate profitably, the entire industrial ecosystem becomes vulnerable. The messaging change also reflects Beijing's broader strategic recalibration. As China faces mounting external pressure and talks increasingly about economic self-reliance, maintaining a healthy domestic industrial base has become a matter of national security rather than just economic efficiency. FRAMING THE PROBLEM AS PRICE WARS Importantly, China is not using the language of "overcapacity" that has dominated international criticism. Instead, Beijing frames the problem as "price wars" and "disorderly competition". This distinction matters because it allows Chinese policymakers to address the underlying issue while avoiding the admission that their industrial policy created systemic overproduction. By focusing on pricing behaviour, China can position itself as promoting fair competition rather than acknowledging fundamental structural imbalances. This semantic shift enables policy action without losing face internationally or undermining confidence in China's economic model. However, the practical effect may be similar. Whether addressed as overcapacity or predatory pricing, the solution requires reducing output, consolidating industry players, and restoring sustainable profit margins across key sectors. THE PATH TO ACTION Chinese ministries are already coordinating their response. The Ministry of Industry and Information Technology, market regulators, and the National Development and Reform Commission have held symposiums with new energy vehicle companies, warning that pricing practices must be "monitored and standardised". Platform companies have been told to respect anti-unfair competition laws, and regulators are moving to contain large-scale subsidy wars. Just last week, China released draft revisions to its pricing law, aimed at containing improper pricing behaviours. But meaningful action faces significant obstacles. Local governments have strong incentives to protect regional champions, often offering subsidies to maintain employment and economic output. Provincial leaders compete to attract investment in priority sectors like artificial intelligence, electric vehicles and semiconductors – creating the very fragmentation that fuels destructive competition. As Mr Xi recently acknowledged at a Central Urban Work Conference: "When it comes to launching new projects, it's always the same things ... Should every province in the country be developing industries in these areas?" BETTER LATE THAN NEVER? But those seeking immediate results may be disappointed. China's approach appears to favour gradual consolidation and regulatory discipline over dramatic market interventions. This methodical approach reflects the political complexity of dismantling entrenched local interests. For global markets, China's acknowledgment of its overcapacity problem should be welcomed, albeit cautiously. If Beijing can successfully curb destructive price competition, it could lead to more stable global commodity prices and reduced trade tensions. Sectors like solar panels, steel and electric vehicles might see healthier profit margins as Chinese producers focus on sustainable competition. The shift also signals China's evolution toward a more mature economic model – one that prioritises long-term industrial health over short-term market share gains. Whether this transformation succeeds will depend on Beijing's ability to overcome local resistance and implement the structural reforms necessary to address decades of misaligned incentives. China's messaging U-turn on overcapacity may have come late, but it represents a crucial first step toward addressing one of the global economy's most persistent distortions. The real test now is whether shifting rhetoric will translate into meaningful action.
Reuters
14 hours ago
- Business
- Reuters
China's leaders vow support for economy, crackdown on disorderly competition
BEIJING, July 30 (Reuters) - China's top leaders have pledged to support an economy that is facing various risks, by managing what is viewed as disorderly competition and beefing up capacity cuts in key industries in the second half of the year. The official news agency Xinhua said on Wednesday that leaders have signalled they will rein in price wars among producers, amid growing expectations that Beijing may be about to start a new round of factory capacity cuts in a long-awaited but challenging campaign against deflation. Xinhua cited a summary of the proceedings of a meeting of China's Politburo, a top decision-making body of the ruling Communist Party whose July gathering sets the economic course for the rest of the year. It said that in the second half China will keep policy steady with "flexibility and foresight", looking to stabilise employment, companies, the market, and expectations. Analysts said policymakers may feel less urgency to introduce new stimulus measures, as stronger than expected economic data and a continued tariff truce with Washington allow greater focus on supply-side measures to combat overcapacity and deflation. "There is a stronger emphasis on recognising potential risks from demand-supply imbalance," said Gary Ng, senior economist at Natixis. "The government is also more willing to take measures to battle deflationary pressure and overcapacity in the manufacturing sector. However, the stress has not pushed policymakers to commit to more immediate stimulus, as they only keep the options open if needed." Separately, state media quoted President Xi Jinping as saying at a symposium that China should effectively boost consumption and break the cycle of "involution," a term widely used in China to describe a situation where intense competition among companies leads to diminishing returns, and even losses. China will continue to pursue a more proactive fiscal policy and an "appropriately loose" monetary policy, the summary showed, but unlike the April meeting made no mention of interest rates or reserve requirement ratio cuts. Top leaders also called for the use of structural monetary policy tools to provide stronger support for technological innovation, boost consumption, aid small firms, and stabilise foreign trade. The world's second-largest economy grew 5.2% in the second quarter, slightly ahead of expectations, but analysts say weak domestic demand and rising global trade risks may prompt policymakers to introduce further stimulus. China is targeting economic growth of around 5% in 2025. "Policymakers are taking a wait-and-see mode for now, but they will take action whenever the growth target is under threat," Larry Hu, chief China economist at Macquarie, said in a note. The 15th five-year period (2026–2030) will be crucial for China to achieve economic modernisation, as the country's development environment faces profound and complex changes, Xinhua reported. The leadership will hold a fourth plenum in October, according to Xinhua. Analysts expect the meeting will focus on discussions for the new five-year plan. Meanwhile the economy faces persistent deflationary pressures, as producer prices dropped for the 33rd straight month in June. A prolonged property downturn is also weighing on the economy despite policy support, while analysts expect the impact of a consumer goods trade-in scheme to fade in the coming months. "At present, China's economic performance still faces many risks and challenges," Xinhua quoted the Politburo as saying. The economy has been helped by a rush among exporters to capitalise on a tariff truce between Beijing and Washington. The two countries agreed to seek an extension of their 90-day tariff truce on Tuesday, following two days of what both sides described as constructive talks in Stockholm aimed at defusing an escalating trade war. China will unleash the potential of domestic demand and take steps to boost consumption, Xinhua said, adding the issuance and use of government bonds would be accelerated, with more efficient usage. It will also promote technological innovation and speed the growth of emerging pillar industries that are globally competitive, while curbing disorderly competition. "Disorderly competition among enterprises must be governed according to laws and regulations," the summary read. "Capacity management in key industries should be advanced." Some analysts believe that stimulating consumer demand remains key to effectively fighting deflation.
Bloomberg
3 days ago
- Business
- Bloomberg
Chinese Steel Profits Recover as Beijing Targets Overcapacity
The profitability of Chinese steel mills began to recover last month, with the improvement likely to accelerate in the second half of the year if the government delivers on its pledges to tackle overcapacity. At the half-year mark, accumulated profits from ferrous metal smelting leaped nearly 14-fold, albeit from the tiny base of the same period last year, according to the statistics bureau on Sunday. Margins found support in June as mills cut output, and raw material costs were generally weaker than product prices.
Bloomberg
6 days ago
- Business
- Bloomberg
ECB Wants to Be Neutral at This Stage: Kumra
TD Securities European and UK Rates Senior Strategist Pooja Kumra discusses the impact of Chinese overcapacity, tariffs and strong Euro on the ECB's outlook. She speaks to Bloomberg's Jonathan Ferro and Lisa Abramowicz on 'Surveillance.' (Source: Bloomberg)
Bloomberg
6 days ago
- Business
- Bloomberg
EU Urges China to Open Up After Summit Yielding Little Progress
Ursula von der Leyen called on China to open up its market and rectify over-capacity issues as a one-day summit between the European Union and China closed with minimal progress. Speaking in Beijing following a meeting with Chinese President Xi jinping, the head of the European Commission warned that it will be 'very difficult' for the EU to maintain its 'current level of openness' unless Beijing makes progress on addressing concerns about over-capacity among its manufacturers.
