Industrial overcapacity bogging down China

24 Feb '16

2 min read

As China's growth continues to slow down, the European Chamber of Commerce in China has released a new major report that addresses the problems arising from increased overcapacity in the country's industrial economy.

The report titled Overcapacity in China: An Impediment to the Party's Reform Agenda, provides a detailed examination of the causes and consequences of overcapacity in eight key industries and analyses the developments that have taken place since the European Chamber published its original report on this topic in 2009.

The new report explains how central government efforts to address excessive production capacity have been ineffectual due to regional protectionism, weak regulatory enforcement, low resource pricing, misdirected investment, inadequate protection of intellectual property rights and an emphasis on market share.

European Chamber President Joerg Wuttke stated, “China has not followed through on the attempts it has made over the last decade to address overcapacity. This has led to a further deterioration of the problem. Without a sustained effort to address it now, overcapacity may well seriously impede the effectiveness of China's economic reform agenda.”

The report provides 30 recommendations that should be taken to address this deep-rooted problem. The European Chamber hopes that they will also contribute to a strengthening of the government's resolve to implement the core tenet of the Third Plenum's Decision – establishing the market as the decisive force in China's economy.

“A review of our original study showed that the action plan we proposed in 2009 is still relevant today. We hope that our analysis and recommendations for 2016 will result in concrete actions by Chinese policymakers,” said President Wuttke. “Although the Party's annual Central Economic Work Conference has listed addressing overcapacity as a priority every year from 2007 to 2015, fundamental changes have not yet taken place. Tackling overcapacity is now more urgent than ever: the cost of maintaining the status quo is far too high.” (SH)

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