On July 28, the Ministry of Commerce released a comprehensive paper titled "China's Position on the So-Called 'Overcapacity' Issue," clarifying that capacity issues are a normal phenomenon in the global economy, accompanying industrial upgrades, market fluctuations, and the evolution of the division of labor.
Countries should objectively and dialectically view the so-called capacity "disputes" from a market and global perspective, based on economic principles, focusing on cooperation rather than creating confrontation, and jointly working to unblock global supply and demand bottlenecks.
During a press conference held by the State Council Information Office on the same day, officials from the Ministry of Commerce provided further explanations on the "overcapacity" issue. There is currently no broad global consensus on what constitutes "overcapacity." This can be understood from three dimensions: theoretical, historical, and practical.
In recent years, global economic growth has lacked momentum. Some economies, driven by concerns over their own industrial competitiveness and market position, have politicized economic and trade issues, hyping the so-called "overcapacity" of China as a pretext for implementing protectionist measures. Against this backdrop, the paper "China's Position on the So-Called 'Overcapacity' Issue" was released. The document consists of a preface, main body, and conclusion. The main body has four chapters, including a comprehensive and objective view of global capacity and so-called "excess," as well as perspectives and positions on four related pairs of relationships concerning "overcapacity."
In reality, there is no broad global consensus on "overcapacity." The World Trade Organization (WTO) agreements do not define "overcapacity" and have no specific clauses addressing it. The International Monetary Fund (IMF) considers "overcapacity" a complex concept that requires understanding within a macroeconomic context.
At the State Council Information Office press conference, Lin Weilong, Director of the Policy Research Office of the Ministry of Commerce, explained that the issue can be examined from three dimensions to facilitate a more comprehensive, objective, and systematic understanding. From a theoretical dimension, "overcapacity" is a complex concept that needs to be understood within an economic context. Most economists interpret it from both macro and micro levels. At the macro level, "overcapacity" refers to supply exceeding demand, where total production capacity significantly surpasses total demand. At the micro level, it refers to idle corporate capacity, where factors like monopolistic competition hinder capacity clearance and prevent reaching optimal output levels.
Lin Weilong stated that "overcapacity" is a dynamic phenomenon in a market economy, related to changes in supply and demand and influenced by industry life cycles. It is always in a dynamic cycle of "balance-imbalance-rebalance," where balance is relative and imbalance is common.
From a historical dimension, the global capacity center has undergone several major historical shifts with industrial relocation. China becoming the "world's factory" is a result of actively integrating into economic globalization and participating in the international division of labor, and it is an important part of the global production and manufacturing network.
From a practical dimension, the capacity utilization rate is commonly used internationally to measure "overcapacity." This indicator refers to the ratio of actual output to potential output. Different economies have different reasonable ranges, and there is no universal global judgment standard. The median capacity utilization rate for developed and rapidly growing economies is generally between 75% and 80%, while for less developed countries, it is typically between 50% and 64%.
"China's industrial capacity utilization rate is generally within a reasonable range. In 2025, the capacity utilization rate for industrial enterprises above the designated size was 74.4%. Utilization rates are higher in high-tech manufacturing, high-end equipment manufacturing, and strategic emerging industries. The temporarily lower utilization rates in some traditional industries like raw materials are mainly adaptive adjustments due to structural changes and green transformation," Lin Weilong said.
Zhou Mi, a researcher at the Ministry of Commerce's Academy of International Trade and Economic Cooperation, told reporters that there is no universally accepted standard for "overcapacity," nor is there a clear standard for judging it in any country. "Overcapacity" is mainly used to judge the relationship between supply and demand, but with the increasingly detailed international division of labor, it is difficult to judge based on a single indicator. For example, rapid export growth does not indicate "overcapacity" in China; rather, it shows increased international demand for Chinese products, which happen to meet those needs.
The Ministry of Commerce refuted claims that "subsidies cause overcapacity" and that "large trade surplus equals overcapacity" point by point. The paper "China's Position on the So-Called 'Overcapacity' Issue" objectively analyzes the relationships between industrial subsidies, trade surplus, economic imbalances, market competition, and "overcapacity," directly responding to the so-called "overcapacity" issue hyped by some economies.
For instance, in response to the international rhetoric of "subsidies causing overcapacity," Han Yong, Director of the Department of WTO Affairs at the Ministry of Commerce, stated that many countries currently formulate targeted industrial policies based on their national conditions and industrial development needs. These include providing R&D subsidies for emerging industries and risk subsidies for agriculture, which are legitimate industrial and trade policy tools for WTO members. He emphasized that industrial subsidies themselves are not the problem, nor is there an inevitable link between industrial subsidies and "overcapacity." Reasonable and compliant industrial subsidy policies help correct market failures, promote technological innovation, protect the ecological environment, reduce poverty, and promote balanced development, without causing so-called "overcapacity."
"China's subsidies are mainly focused on R&D, technology industrialization, and market consumption. They more commonly use market-oriented and guiding means like public services, technical standards, and skills training, primarily supporting technological R&D innovation, SME development, and green energy-saving fields," Han Yong said.
The paper pointed out that the U.S. Inflation Reduction Act plans to provide $750 billion in various subsidies from 2022 to 2031. The electric vehicles receiving these subsidies must meet conditions for production and sale in North America, excluding other WTO members. U.S. subsidies for the AI sector far exceed those of all other countries combined.
Regarding the relationship between trade surplus and "overcapacity," He Shaojun, an official from the Ministry of Commerce's Department of Foreign Trade, stated that all countries in the process of industrialization generally experienced trade surplus phases. Manufacturing powerhouses like the UK, US, Japan, and Germany have all maintained long-term trade surpluses. 80% of American chips are used for exports, and about two-thirds of Boeing's commercial aircraft deliveries go to customers outside North America. In 2025, the surpluses for EU automobiles, pharmaceuticals, and cosmetics were 92.2 billion, 214.6 billion, and 11.6 billion USD, respectively.
He Shaojun said that high exports and a large surplus do not equate to "overcapacity." China's trade surplus reflects its complete and efficient industrial system and is an objective result of changes in the global division of labor and trade structure.
Economist Bai Ming also stated that China's rapid export growth in many products results from the continuous improvement of its manufacturing competitiveness, forming China's comparative advantage through fair competition, not "overcapacity." He believes there is no necessary link between rapid export growth and "overcapacity." Every country produces what it is best at, often exceeding domestic needs. For example, German cars and American IT products exceed domestic needs, and Western countries also export many products. Why don't they say they have "overcapacity"? Therefore, the claim that China's "overcapacity" leads to export growth is unfounded.
Furthermore, the argument that "insufficient domestic demand in China leads to overcapacity" does not align with the facts. Domestic demand has always been the main engine of China's economy. From 2013 to 2024, the average contribution rate of domestic demand to China's economic growth was 93%. Among this, the average contribution rates of consumption and investment were 55% and 38%, respectively. China's total retail sales of consumer goods doubled from 23.8 trillion yuan in 2013 to 50.1 trillion yuan in 2025. Converted using World Bank purchasing power parity, China's total retail sales in 2025 were approximately 1.7 times that of the US, making it the world's largest consumer goods market.
Using "overcapacity" as a pretext to implement protectionist measures is unreasonable. Countries should strengthen communication and coordination to achieve mutual benefit. Recently, the EU has proposed trade defense tools and the US has launched a 301 investigation into capacity issues. Lin Weilong stated that the China-EU partnership is vast, and differences and frictions are inevitable. However, these differences should not be reasons for fabricating false accusations, nor excuses for imposing restrictions and affecting pragmatic cooperation. He further stated that the US 301 investigation into capacity issues is a typical unilateral act. The US should not narrowly define production exceeding domestic demand as "overcapacity" and label it as such.
Zhou Mi believes that some countries are unreasonable to set trade restrictions under the pretext of "overcapacity" because trade itself is a rational matching of supply and demand. To deal with these trade restrictions, China should adhere to multilateral economic and trade rules, solving bilateral issues on a multilateral basis and establishing better connections.
Bai Ming believes that regarding the "overcapacity" rhetoric, China should argue its case, oppose stigmatization by certain countries, and strengthen international cooperation to achieve mutual benefit, thereby eroding the public and opinion basis for the "overcapacity" narrative.
At the press conference on the 28th, Vice Minister of Commerce Yan Dong stated that the world economy is highly interconnected, and the spillover effects of national industrial policies are significant. Communication and coordination should be strengthened, with major powers playing an exemplary role. "All parties should strengthen multilateral and bilateral industrial policy dialogues, adhere to openness and transparency, enhance industrial policy exchanges and discussions within the WTO framework, and adopt more coordinated and effective measures to better harness the synergy for global economic growth," Yan Dong said.