The Ministry of Commerce of China File photo: VCG

China released a position paper addressing the so-called "overcapacity" issue on Tuesday. As global competition intensifies and supply chains reshape, some countries have politicized trade issues by hyping China's so-called "overcapacity" and imposing protectionist measures. China believes capacity issues should be viewed objectively and addressed through openness and cooperation. Protectionism disrupts global economic order and risks long-term growth. To clarify the facts and articulate its policy stance on the so-called "overcapacity" issue, China has released this position paper, according to the position paper published by the Ministry of Commerce (MOFCOM).

Chinese experts view this document as a systematic response from China in the face of the US and Europe politicizing economic and trade matters - driven by concerns over their own industrial competitiveness and market position - while hyping up the narrative of "overcapacity" and even "China Shock 2.0."

The full position paper consists of a foreword, main body, and conclusion. The main body comprises four chapters, read the MOFCOM paper.

Chapter one offers a comprehensive and objective assessment of global production capacity and the so-called "overcapacity" issue. It reviews the historical evolution of global capacity patterns and points out that the shift from a single-center to a multi-center global industrial landscape is a natural result of international industrial division of labor. "Overcapacity" is a dynamic phenomenon inherent to market economies, with varying interpretations across countries. China believes capacity conditions should be evaluated according to different economies' and industries' respective development stages and levels.

Chapter two articulates China's views on the relationships between "overcapacity" and four key economic concepts - industrial subsidies, trade surpluses, economic imbalances, and market competition. It stresses that there is no inevitable link between industrial subsidies and overcapacity; larger exports and surpluses do not equate to overcapacity; global economic imbalances have complex roots and are a historical norm; and market competition is an important mechanism for optimizing and regulating capacity.

Chapter three explains China's commitment to building a modern industrial system through opening up. The paper noted that China's rapid industrial development is driven by innovation, while its stable and healthy operation relies on deepening reforms. China's modern industrial development does not constitute a "China Shock 2.0" for the world, but rather a "China Opportunity 2.0."

Chapter four proposes jointly building an open, inclusive global industrial and supply chain cooperation framework. China calls on the international community to meet each other halfway, advocate mutual benefit and win-win outcomes, respect market rules, strengthen coordination of industrial policies, expand market access, uphold multilateralism, and construct a more equitable and reasonable international economic order.

Chinese experts pointed out that for some time, Western countries such as the US and EU have built a narrative around "overcapacity," linking industrial subsidies, currency undervaluation, rising exports, trade deficits, industrial damage, and economic imbalances into a single logical chain.

They have promoted theories such as "China Shock 2.0" to justify protectionist measures and even seek to undermine existing international rules.

Experts believe that by issuing this position paper at a critical juncture, China aims to clarify definitions, set the record straight, positively present its own practices, and chart a course toward open cooperation.

Hyping "overcapacity" and erecting trade barriers will allow greater political interference in global resource allocation. By setting up trade barriers under the guise of national security and fair competition, some countries are placing their own industrial interests above multilateral rules, Xu Yingming, director of the Institute of International Market Studies at the Ministry of Commerce's Research Institute, told the Global Times on Tuesday.

"The 'overcapacity' hype undermines the international division of labor based on comparative advantage and risks pushing global supply chains away from market-driven mechanisms toward politically drawn lines, and from open collaboration toward bloc-based fragmentation," said Xu.

Such moves will also harm the multilateral trading system. Issues related to capacity, subsidies, and fair competition should be resolved through equal consultation under international rules, Xu noted.

Global Times