Why Beijing Can’t Overcome Overcapacity
Lizzi C. Lee
China’s role as the world’s factory—producing and exporting goods across the globe—has entered a new phase. In the past decade, China has made a concerted effort to move its manufacturing sector up the value chain, producing a deluge of cheap, green technology in the process, including electric vehicles, batteries, and solar panels. It now makes EV models that sell for under $10,000—most of the low-cost models in the United States start at around $30,000—and it dominates roughly 80 percent of the global solar supply chain.
But rather than welcome the influx of renewable energy products, the world’s two largest consumer markets have lambasted these Chinese imports as a structural threat to fair competition. In May 2024, the Biden administration imposed tariff hikes of up to 100 percent on a variety of Chinese goods, which were justified as a defensive response to Beijing “flooding global markets with artificially low-priced exports.” The European Commission followed suit, imposing duties on Chinese electric vehicles in October 2024 and complaining that China’s “unfair government subsidies” were causing “a threat of economic injury” to EU producers. Regardless of the efficacy of such trade remedies, the message is unambiguous: China makes more than the world can take.
This tension, of course, is not new. China’s “overcapacity”—the shorthand term for producing more than demand calls for—has long led other governments to complain. In the past, China produced too much steel, coal, cement, and other goods, which crowded out competitors elsewhere and drove global prices to unprofitable lows. China’s tendency toward overcapacity has traditionally been blamed on a fundamental mismatch in its economy; government subsidies and investment in manufacturing and infrastructure are unusually high compared with those in other advanced economies, and the country’s household consumption as a share of GDP is unusually low. Simply put, China lacks enough domestic demand to soak up what the country’s factories produce, which then causes a glut of exports.
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