China’s industrial overcapacity surges amidst rising global demand: EIU

The Economist Intelligence Unit stated that as global demand in consumer industries rose, China’s total manufacturing overcapacity has peaked, and trade disputes are expected to linger as a result of Chinese companies’ growing competitiveness.

“We consider the worst of China’s excess industrial capacity to have already passed,” the EIU said, adding that a slowdown in investment by firms seeing lower profitability will lead to slower capacity growth.

The analysis contributes to the worldwide discourse surrounding the notion that extraordinary overcapacity in China’s sector is driving down prices, a claim that has been pressed by US Treasury Secretary Janet Yellen and German Chancellor Olaf Scholz against Beijing. Steel, cement, and construction machinery are the Chinese industries most experiencing overcapacity, according to the EIU.

 

 

 

 

 

 

 

 

 

 

 

 

 

 Source: Business Standard/ Bloomberg

According to the EIU, overcapacity pressure is less severe in the automotive industry, the pharmaceutical industry, and electrical machinery like batteries and solar panels. However, the EIU predicted that, across a number of industries, capacity utilization and underlying profitability “will probably remain worse than the pre-pandemic norm” through 2024.

The EIU noted that although China would step up demand-side support for green industries and that global demand might pick up speed, that might not be sufficient to stop other nations’ protectionist actions directed towards China in areas like electric automobiles.

“Trade tensions stem not only from overcapacity concerns but also from the rising competitiveness of Chinese products, particularly in ‘strategic” sectors,’” it added.