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Opinion
Chinese overcapacity isn’t a numbers problem. It’s a productivity gap
If Chinese factories can produce more cheaply thanks to better batteries, automation and supply chains, maybe older factories are simply no longer viable
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Jeffrey Wu is a director at MindWorks Capital, a leading Hong Kong-headquartered venture capital firm specialising in technology investment across Greater China and Southeast Asia.
Beijing has spent the past month attempting to turn one of the West’s sharpest economic accusations back on itself. On July 28, the Ministry of Commerce rejected the link between subsidies, weak domestic demand and Chinese overcapacity, arguing China’s export strength reflected innovation and economies of scale. Last week, a People’s Daily commentary went further, calling claims that state subsidies caused China’s industrial overcapacity a deliberate smear.
Beijing’s rhetoric is escalating because the overcapacity issue is increasingly used to justify tariffs, investigations and efforts to shield strategic industries from Chinese competition. However, treating overcapacity as largely a numbers problem oversimplifies the issue.
Imagine the world buys 100 million cars annually and has factories capable of producing exactly that amount. Then a new production system emerges that can manufacture another 30 million cars more cheaply. Demand remains unchanged, leaving capacity at 130 million cars.
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