China Center Special Briefing Paper: Appraising Industrial Overcapacity – the Achilles Heel of Chinese Growth?

While China’s industrial overcapacity is clearly recognized by the government and businesses operating in the country, its implications for future economic growth are not fully appreciated. Acute overcapacity in China’s industrial sector means that the easily engineered GDP growth of yesteryear – via investment in manufacturing plants and machines by State-vested firms – is no longer possible. Moreover, recent government initiatives such as One Belt One Road, the Four Megacities, China Manufacturing 2025, and even the recent RMB devaluation, in our view, cannot deliver the necessary demand to reverse the industrial stagnation that is now setting in and visibly spreading. Understanding these points is critical to assessing whether China’s economic stewards will be able to successfully shift the economy toward a more sustainable growth model.